RepoRt on new Zealand’s daiRy Food saFety RegulatoRy...

RepoRt on new Zealand’s daiRy Food saFety RegulatoRy system

Government InquIry Into the Whey ProteIn ConCentrate ContamInatIon InCIdent

deCember 2013

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Author: Government Inquiry into the Whey Protein Concentrate Contamination Incident

Date of publication: December 2013

Place of publication: Wellington, New Zealand

ISBN: 978-0-478-35579-6

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Preface

Twelve weeks ago, in response to the suspected contamination of Fonterra’s whey protein concentrate, this independent Government Inquiry was given the task of reviewing New Zealand’s dairy food safety regulatory system.

Since then Fonterra has conducted two reviews into what went wrong and what should be done to avoid any repetition.

This Inquiry is in two stages. This first stage is confined to reporting on the adequacy of, and recommending any changes to, New Zealand’s regulatory and best practice requirements for dairy food safety. An examination of the causes of the incident, together with the responses by Fonterra and the regulator and the roles of others, belongs in the next stage of the Inquiry’s work.

Many participants welcomed this Inquiry as a timely opportunity to review New Zealand’s dairy food safety system. The contributions of those who assisted – from providing documents, briefing papers and written submissions, to participating in interviews and forums – are gratefully acknowledged. All have given the issues considerable thought, and their insights and views have been most helpful.

We are especially indebted to Rachael Milicich, Sally Johnston and Mark Patchett as the secretariat and to Simon Mount as legal advisor; also our peer reviewer Professor Alan Reilly. We also thank Peter Riordan and Susan Buchanan for their valuable contributions as editors of this report, Jacqui Spragg as designer, Jill Marwood and Maria Svensen for secretarial assistance, and finally staff at the Department of Internal Affairs. It was a pleasure to work with them all.

The Inquiry’s findings and recommendations should renew confidence in New Zealand’s dairy food safety system and encourage all participants to work together to maintain, indeed strengthen, a robust system.

Miriam R Dean CNZM QC (Chair) Dr Anne Astin PSM Tony Nowell CNZM

3 December 2013

PREFACE

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CONTENTS

Contents

eXeCutIve Summary .................................................................................................................................. 5

ConSoLIdated reCommendatIonS ........................................................................................................ 8

IndePendent Peer revIeWer’S rePort ................................................................................................ 10

Part one: InquIry ProCeSS

1. Introduction .................................................................................................................................... 13

Inquiry’s purpose

Inquiry’s approach

Structure of report

2. the Issues ........................................................................................................................................ 15

Part tWo: ConteXt

3. the dairy Industry .......................................................................................................................... 17

Then and now

Industry structure

Export markets

Consumer power

4. regulatory Landscape ................................................................................................................... 19

International efforts

Milestone – Animal Products Act 1999

Risk management programmes

Accreditation

Market access rules

The Food Act 1981 and proposed overhaul

5. overseas models: a Comparison .................................................................................................. 20

Australia

Canada

European Union

United States

China

International standards

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CONTENTS

Part three: the WIder vIeW

6. Common themes ............................................................................................................................ 23

Emerging risks Capability

Science and research

Protecting New Zealand’s reputation

Markets and consumers

Collaboration

Improving crisis response

Recommendations

Part Four: ISSueS

7. regulatory design .......................................................................................................................... 29

Balance of outcomes and prescription

International principles

Areas for improvement

Administrative changes

The Food Bill

Recommendations

8. role of the regulator ...................................................................................................................... 34

Goals and statutory roles

Structure

Multiple roles

Skilled staff

Role priorities

Risk communication

Greater use of forums and overseas links

A Food Safety and Assurance Advisory Council

Resourcing

Recommendations

9. role of verifiers ............................................................................................................................... 39

Model sound

Verification rigorous

Reporting obligations

Independence and impartiality

Improvements

Accreditation of verifiers

Recommendations

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CONTENTS

10. testing: quality and Integrity ....................................................................................................... 43

Laboratory competency

Uses and limitations

Food safety breaches

Basis for tests

Methods

New threats

Regulatory oversight

Recommendations

11. Implementation of Food Safety Standards .................................................................................. 48

Culture shift

Setting standards

Link between development and implementation

Overseas market access requirements

Implementation phases

Recommendations

12. traceability, recall and Contingency Planning ............................................................................ 52

Traceability – theory and practice

Supply chain complexity

Range of solutions

The way forward

Recalls and contingency/crisis planning

Authority to recall

How others confront the problem

Lifting performance

Recommendations

13. Infant Formula ................................................................................................................................ 58

Current work

The issues

Recommendations

aPPendICeS ................................................................................................................................................ 63

1: Terms of reference

2: Ministry for Primary Industries’ structure

3: Audit details

4: Microbiological testing for dairy products

5: Terms of reference for traceability working group

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executive Summary

In early August 2013, the biggest food safety scare in New Zealand’s history followed a suspicion that infant formula and possibly other products, too, were infected with botulism-causing Clostridium botulinum. The source of the suspected contamination was whey protein concentrate made by dairy co-operative Fonterra, the output of which constitutes nearly 90 per cent of the country’s dairy production.

Three weeks later, two United States laboratories confirmed the whey protein concentrate had never posed any food safety risk. But that news came too late to prevent widespread concern among parents and caregivers, as well as significant economic harm and damage to reputations. The impact was particularly significant in relation to infant formula, an area of growing importance for New Zealand, with an estimated $1 billion worth of exports per year.

The particulars of the incident are for the next stage of this independent Government Inquiry, pending completion of a compliance investigation by the Ministry for Primary Industries into the facts. The Inquiry’s first task is confined to reporting on the adequacy of, and recommending any changes to, New Zealand’s regulatory and best practice requirements for dairy food safety.

Though not yet possessing the full facts, the Inquiry must answer the question: Was the incident due in any way to a crisis or failure in the regulatory food safety system governing the dairy industry? Our conclusion is no. The immediate causes of this incident appear to lie elsewhere.

However, as with any system, improvements are possible and this review provides the opportunity to do exactly that. This is especially important when New Zealand’s prosperity depends heavily on the continued success of the dairy sector. By far the majority of the recommended improvements are unconnected to this incident and relate to the challenges that lie ahead.

The Inquiry focused its attention on seven key areas, outlined here:

regulatory design: The regulatory framework that governs dairy food safety strikes the right balance

between outcome-based and prescriptive standards. New Zealand’s regulatory model is consistent with international principles. To date, New Zealand is the only country to have achieved systems recognition with the United States, and one of three countries having similar agreements with the European Union. New Zealand’s regulatory system is considered among the best in the world.

The centrepiece of the framework is the risk management programme. All those in the sector support the continued use of such programmes, subject to certain adjustments. Chief among these is a simplification of dairy regulations – especially the tertiary layer with its dozen or more instruments of different types. The Ministry for Primary Industries is already undertaking this work, but it should be accelerated for completion within two years. Risk management programmes, limited to food safety and related regulatory matters, should then follow simplified regulations: section 7.

role of the regulator: No changes are needed to the ministry’s statutory roles – most importantly in this context as regulator of food safety – apart from assuming responsibility for crisis response planning. Other recommendations aim to achieve a more integrated focus by the ministry on the dairy sector and food safety generally; greater clarification of its various roles, which can conflict (trade facilitator and food safety regulator); strengthened dairy processing and regulatory capability and capacity (particularly given the dramatic growth in dairy exports); and a higher priority for risk communication.

Greater prominence for its food safety role is also desirable, which is, in part, a reason for recommending that a Food Safety and Assurance Advisory Council be established. Such a council would give the ministry the benefit of independent, strategic advice on food safety issues and risks from senior and experienced individuals, whether from a business, scientific, or regulatory perspective. Additional funding for food safety is recommended for particular needs: more dairy-related and food safety capability; an expanded China and new markets team; contracting experts to assist with redrafting the tertiary regulations; and for the Food Safety and Assurance Advisory Council: section 8.

EXECUTIVE SUMMARY

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role of verifiers: Verifiers check that dairy processing operators are complying with their risk management programmes. That system of verification is sound and the process is rigorous. There is unanimous support for continued contestable verification by third parties, not by the regulator. Some suggested improvements are recommended to strengthen the verification process, in particular: greater clarity of the verifier’s role as agent of the regulator; verifier supervision of novel or improvised product reworking; and better ministry analysis of audit data: section 9.

testing: quality and integrity: In the 2012-2013 season, dairy processors completed millions of tests at a cost of about $64 million. The Inquiry is confident the regulatory framework for dairy testing is appropriate and that few improvements are necessary. Laboratory accreditation is strong and effective. Mandatory testing of all dairy products for sulphite-reducing clostridia (SRC) is unnecessary. Examining the value of SRC testing for consumer-sensitive products such as infant formula may be warranted, however: section 10.

Implementation of food safety standards: Many parties expressed the view that New Zealand’s food safety system is “as good as anywhere in the world”. Indeed, New Zealand could not be ranked as one of the world’s leading food exporters without the equivalent status for its food safety systems. Still, the Inquiry emphasises the need for all participants in the dairy sector to foster a stronger food safety culture. It is also important for the ministry to have a full range of compliance and enforcement tools at its disposal when something goes wrong. Some expansion of these tools – and alignment between differing pieces of legislation – is recommended: section 11.

tracing, recalling products and crisis planning: Tracing food in the event of a problem is essential, but it can be a real challenge. The Inquiry recommends lifting the dairy sector’s ability to trace products and ingredients, a task best achieved by collaboration between industry and government, in particular through a working group focusing on regulatory and worldwide best practices. Any solution could well be a model for other food sectors. Recalling food faces similar hurdles. One recommendation is more standardised recall provisions; another is simulated recall testing in conjunction with more contingency planning: section 12.

Infant formula: This is a special case. Work is under way, both here and abroad, on possible revisions to infant formula regulations. The Inquiry recommends the ministry continue to prioritise this work and complete the revision of food safety-related regulatory requirements for the manufacture of infant formula (and, if appropriate, infant formula ingredients) within six months: section 13.

broader themes: The Inquiry’s work also brought to light some wider issues. It was said the greatest risks to industry lie ahead, not behind. The ministry, with other government and industry support, should scan the horizon to identify emerging risks at all stages from the farm to consumers. Examples include new detection methods, increasingly complex dairy processing plants and the impact of social media channels. A high-level risk register would be useful.

Another theme to emerge from interviews and in submissions is the shortage of people with dairy processing and regulatory expertise at every level of the regulatory sector. The range of problems and possible solutions put before the Inquiry suggests that all parties should join forces to develop a strategic plan, with clearly differentiated short, medium and long-term goals, to build up capability. A working group is recommended.

Insufficient investment in food safety research – the dairy industry included – was yet another commonly expressed view. New Zealand must be a visible leader in food safety science and research. The Inquiry recommends establishing a centre of food safety science and research, which could be a virtual centre.

Many food safety centres of excellence exist overseas, and collaboration on particular programmes could include such an overseas centre. Collaborating with a Chinese research institute, for example, would seem a particularly good opportunity. Precedents for virtual centres in New Zealand include the New Zealand Agricultural Greenhouse Gas Research Centre and Better Border Biosecurity (B3) – a collaborative arrangement among science agencies.

Adequate funding for food safety science and research is especially important in light of the fact that food makes up half of the country’s merchandise export value, or $25 billion annually. The strong support shown by participants for this proposal leaves the Inquiry in no

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

doubt as to how such a centre would be received by the food sector, including the dairy industry. A suggested minimum level of funding is $5 million annually.

China is fast overtaking Australia as New Zealand’s largest market, with exports in October 2013 exceeding $1 billion, a new record. The Inquiry heard repeated calls for a boost in ministry resources in key and emerging markets, especially China. An expanded China team must be able to cultivate connections and build trust with Chinese leaders in a position to make decisions. It is not a ministry-only effort but a whole-of-government effort that is required, involving collaboration with the Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise.

Collaboration is needed at all levels in the dairy sector: between regulators; between the ministry and industry; and within the wider dairy industry. Ultimately, New Zealand’s reputation for safe dairy food relies on each participant doing the right thing every time. More collaboration is a necessary step in that direction.

Food safety incidents will always occur and the Inquiry will examine responses to the incident in stage two. It heard mixed views on the effectiveness of all parties’ crisis management processes. No one in the sector should hold back from tackling crisis planning, pending the Inquiry’s next phase.

In summary, the Inquiry’s findings and recommendations should renew confidence in New Zealand’s dairy food safety system and encourage all participants to work together to ensure that:

• New Zealand’s dairy food safety regulatory system continues to be among the best in the world• New Zealand’s dairy food remains among the safest in the world.

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Consolidated recommendations

The recommendations of the Inquiry are:

the wider view

• The ministry, in consultation with the industry and other relevant government agencies, should focus on emerging risks and prepare a high-level risk register identifying such risks to dairy food safety and supply.

• The ministry should convene a working group to develop a strategic plan to build up sector-wide dairy processing and regulatory capability.

• A centre of food safety science and research, which could be a virtual centre, should be established to ensure New Zealand remains a leader in the food safety field.

• In collaboration with other government agencies, the ministry should step up its role and resources, both here and abroad, to allow more effective interaction with New Zealand’s most important, and emerging, export markets, particularly China.

• All organisations in the sector should endeavour to increase collaboration, whether among regulators, the ministry and the industry, or within the wider dairy industry.

regulatory design

• The ministry should accelerate the standards integration programme, using specialist drafters, technical industry experts and recognised agencies from the start of the process. In particular:

○ Risk management programme requirements should be elevated to regulations, along with the requirements for the notification and reporting of food safety events.

○ There should be a new requirement that risk management programmes be limited to food safety and related regulatory matters.

○ The ministry, verifiers, laboratories and industry should jointly work on drafting and publishing escalation guidelines for food safety incidents.

• Following the rewrite of the requirements for risk management programmes, the ministry should receive and maintain records of full and up-to-date programmes.

• It is important that risk management programmes be periodically re-evaluated.

role of the regulator

• A Food Safety and Assurance Advisory Council should be established to provide the ministry with high-level independent strategic advice and risk analysis and report annually to the Director-General on the performance of the system.

• The ministry should consider the following aspects of its operations:

○ Structure: ensure a more integrated focus on the dairy sector and food safety generally.

○ Roles: ensure greater clarification of multiple, and sometimes conflicting, roles.

○ Capacity and capability: ensure additional skilled staff in food safety generally and specifically in the dairy sector.

○ Visibility: ensure greater prominence of the ministry’s food safety role.

○ Risk communication: ensure greater resourcing of, and priority for, this role.

○ Engagement: hold regular workshops and participate fully in overseas forums.

• Additional funding should be allocated to Vote Food Safety, targeted at food safety and dairy- related capability; China and new markets capability; the redrafting of regulations; and the Food Safety and Assurance Advisory Council.

role of verifiers

• The independent verification system should be strengthened in the following ways:

○ Provide greater clarity of the verifier’s role as agent of the ministry to make clear the true client is the regulator, not the industry.

○ Subject dairy processing operators using template risk management programmes to more rigorous scrutiny.

○ Encourage verifiers and the industry (with ministry approval) to consider how the regular auditing process can provide more evaluation without straying into consultancy.

○ Involve verifiers in product dispositions featuring novel or improvised reworking.

CONSOLIDATED RECOMMENDATIONS

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CONSOLIDATED RECOMMENDATIONS

○ Provide verifiers’ accreditation reports directly to the ministry to ensure full and transparent reporting.

• The ministry should carry out more analysis of audit information to identify areas of particular concern, emerging issues or risks and compliance trends.

• Accreditors and verifiers should endeavour to consult and collaborate as appropriate to ensure continued improvements to the accreditation and verification systems.

testing: quality and integrity

• SRC testing should not be mandatory for all dairy products.

• The ministry should compile and maintain a list of accredited laboratories for non-standard or novel tests.

• The ministry should give priority and resources to better analysis of existing data to identify trends, including extending its surveillance programmes where appropriate.

Implementation of food safety standards

• The ministry, recognised agencies and industry should work to foster a positive food safety culture, and identify mechanisms to evaluate the food safety culture within companies.

• The ministry should promptly inform industry of new overseas market access requirements and where practicable consult industry about such requirements.

• The compliance and enforcement tools in the Animal Products Act 1999 should be aligned with those in the Food Bill, which is currently before Parliament, and should include a full range of tools.

• The ministry should prioritise analysis of food safety compliance data.

traceability, recall and contingency planning

• The ministry should convene a working group to consider first, the most appropriate regulatory provisions for traceability of dairy products, and secondly, a code of practice or similar to guide industry in implementing such provisions.

• Recall provisions should be revised, in particular:

○ Mandatory recall provisions in food legislation should be aligned.

○ Voluntary recall obligations should be set out in regulations rather than in risk management programmes.

○ Regulations should require industry to simulate recalls, audited by verifiers.

○ Circumstances in which privileged statements can be made should be clarified.

• The ministry should be given statutory responsibility for food safety contingency planning. Industry and regulators should simulate tracing, recall and general food safety incidents from time to time as part of such contingency planning.

Infant formula

• The ministry should prioritise its infant formula work programme, and complete the revision of food safety-related regulatory requirements for the manufacture of infant formula (and, if appropriate, ingredients for infant formula) within six months.

• The ministry, with input from the relevant working groups, should resolve whether infant formula and other high-risk products should routinely undergo SRC testing, based on scientific, risk-based and cost-benefit analysis.

• The ministry should strengthen requirements for exporters of infant formula to ensure traceability.

• Regulatory requirements under both the Animal Products Act 1999 and the Food Act 1981 should be aligned.

• The ministry, in consultation with the industry, should develop options to provide foreign markets with the assurance of authenticity of New Zealand- manufactured infant formula products.

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INDEPENDENT PEER REVIEWER’S REPORT

Independent Peer reviewer’s report

I was approached in late August 2013 by the Hon Nikki Kaye, Minister for Food Safety, who requested that I act as the independent peer reviewer for a Government Inquiry that was in the process of being set up to investigate the WPC incident, which had come to light earlier that month. I had no hesitation in agreeing to take on this important role.

I have been kept informed as the Inquiry has progressed and can confirm that its work has been carried out to a very high standard and that views of all major stakeholders have been sought. Opinions were also canvassed from regulatory bodies and expert organisations globally. I took part in three forums where regulators, recognised agencies and industry representatives came together for full and frank discussions on key topics associated with the Inquiry findings. I had access to any documentation I required and am satisfied with the quality and integrity of the Inquiry’s report.

I concur with the broad conclusion drawn by the Inquiry team that the dairy food regulatory structure in New Zealand is fundamentally sound and compares well with official food control systems elsewhere in the world. For historical, political, economic and cultural reasons, no two countries anywhere operate identical national food control systems. In recent years the New Zealand food control system has been audited and reviewed by international trading partners and been found to operate to an equivalent standard.

This acknowledgement has facilitated special arrangements with food control authorities in the United States and Canada. The Food and Veterinary Office of the European Union has carried out a number of audit missions of different agri-food sectors in recent years and found the New Zealand system to be broadly equivalent to the system in place in Europe. Based on these findings, together with the material I have been provided, I have no hesitation in agreeing with the Inquiry that there is no shortfall in the New Zealand dairy food regulatory system.

While the regulatory system is fundamentally sound, the Inquiry team has carried out an extensive review of current dairy regulations and found a number of areas that need attention. In line with global trends, New Zealand regulations place the primary responsibility for producing and marketing safe food with the food industry. In order to comply, food-business operators are required to put in place risk management programmes based on the principles of the Hazard Analysis and Critical Control Point (HACCP) system. The Government is responsible for evaluation and verification of the risk management programmes, functions which are carried out by both private-sector and state-owned organisations.

What has come to light during the work of the Inquiry is that the law relating to risk management programmes has become unwieldy, and some risk management programmes have grown into extremely complex documents incorporating many different elements of process controls, quality assurance and food safety management systems. A key recommendation of the Inquiry team, with which I strongly agree, is to re-evaluate the design of risk management programmes and to separate out regulatory and non-regulatory aspects, so that in the future the focus should be on regulatory aspects of risk-based food safety management.

The net result of any food scare, such as the WPC incident, is to shake all players out of complacency. The Inquiry has identified the need for greater co-operation between regulators and the dairy sector. It recommends a reorganisation of industry-regulator advisory bodies, a step with which I solidly agree. I fully endorse the need to develop collaborative structures between regulators and the agri-food sector

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during “peace time” that will allow a more structured and effective approach to handling a major food event such as the WPC incident.

The Inquiry team has carried out a meticulous review of the regulatory framework governing the dairy industry in New Zealand and has identified a number of areas for improvement. Some of the current requirements of regulations are overlapping, not easy to identify and difficult to interpret. The complexity of the different layers of regulations increases the regulatory burden on businesses, particularly the small to medium enterprises. I would strongly support the findings of the Inquiry team for priority action to rationalise and simplify dairy food regulations and to elevate the requirements for risk-based food safety management programmes to regulations.

The Inquiry has given an opportunity to stand back and carry out an objective review of where action is required to underpin consumer confidence in the safety of New Zealand dairy products. These include the need to invest in personnel training and development, particularly in the next generation. A surprising finding by the Inquiry was the low level of government funding for scientific research in the food safety sector, including in the dairy industry, given its importance to the national economy. The Inquiry has come up with a novel solution to encourage inter-agency collaboration and maintain New Zealand’s reputation as a leader in the field – the establishment of a centre of food safety science and research – an independent, highly visible body that would focus on food safety scientific research and link into similar international centres of scientific excellence.

The global food chain is highly complex and food scares and crises occur without warning. To respond to crises, robust national food control programmes are essential to limit risk to consumers’ health and minimise damage to national reputations. Emerging risk analysis is a relatively new activity that allows food regulators to engage in horizon scanning to predict the likelihood of new hazards and identify mitigating actions. The Inquiry, in my view, correctly identifies this activity as a priority for action and setting up a risk register for the dairy sector as a first step is a logical approach.

One of the key tasks of the Inquiry was to consider traceability requirements throughout the food chain. During a food crisis, tracking, tracing and recalling implicated foods from the market and from consumers’ homes are critical functions. Experience from food crises in Europe in recent years illustrates clearly the challenges in tracing and recalling contaminated foods from the market. In 2008, it took over one month to trace and recall dioxin-contaminated pork from 54 different countries.

In 2011, it took about two and a half months to identify, trace and recall seed sprouts contaminated with VTEC O104:H7 that resulted in about 4000 cases of illnesses and 46 fatalities. Recall and traceability systems are critical components of contingency planning and the Inquiry has correctly identified the need to review these key elements and, more likely than not, incorporate them into regulations. Simulation exercises involving both industry and regulators will ensure that all are “match fit” in the event of another WPC incident.

The vulnerability of consumers is one of the critical parameters in the design of risk-based regulations. The WPC incident has brought into sharp focus the need to ensure the highest standards of food safety in the production of infant formula. In order to maintain consumer confidence and protect the reputation of the dairy sector, the Inquiry has recognised the need to develop more stringent regulatory requirements for the manufacture and marketing of infant formula and infant formula ingredients.

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A very important factor identified by the Inquiry is the need to foster a strong food safety culture in both the private and government sectors. A key policy focus in recent times for the ministry has been on expanding dairy production, adding value and gaining greater access to overseas markets. Food safety appears not to have had the visibility it deserves in the ministry and there are the usual tensions between the roles of being a regulator and an enabler of industry; this is akin to being a poacher and gamekeeper at the same time. Developing a food safety culture starts at the highest level within organisations – at board level and with chief executives. The Inquiry team recognises the importance of a food safety culture and stresses the need for changes, in the dairy sector and ministry to foster a food safety culture at all levels.

An innovative approach to raising the profile of food safety at national level recommended by the Inquiry is to establish a Food Safety and Assurance Advisory Council. It would be a high-level body comprising senior individuals from business, academic or regulatory sectors, who could advise the ministry on strategic matters of food safety. This would achieve a dual purpose of giving greater visibility to food safety among consumers, both at home and abroad, and underpinning confidence and trust in the safety of New Zealand food.

I wish to thank the Chair, Miriam Dean QC and the Inquiry team for their courtesy and assistance during my work as independent peer reviewer of this report.

Professor Alan ReillyChief Executive, Food Safety Authority of IrelandProfessor, Institute of Food and Health, University College, Dublin

3 December 2013


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1. Introduction

In February 2012, Fonterra suspected that three batches of whey protein concentrate (WPC80) contained small pieces of unrecovered plastic from a torch sucked into processing equipment. 1

In May 2012, Fonterra reprocessed – or reworked, to use the industry term – the affected whey protein concentrate into three finished batches totalling 37.8 metric tonnes. The reworking involved some improvisation, including use of a transfer pipe and hoses that were not standard equipment. 2

Between July 2012 and February 2013, Fonterra supplied the 37.8 metric tonnes of reprocessed WPC80 to eight customers in various countries to make a range of products, including infant formula. Fonterra’s own processing plant at Darnum, Australia, was among the recipients.

In March 2013, finished-product testing for a customer at Darnum identified high levels of Clostridia contamination, which Fonterra traced to the reprocessed WPC80 ingredient.3 The probable source was the transfer pipe and/or hoses.

Further analysis followed, by both internal and external agencies, and in late July, Fonterra received a draft preliminary report from AgResearch advising of the potential, even likely, presence of the bacterium Clostridium botulinum (C. botulinum), which is almost unheard of in infant formula.4

On 2 August 2013, Fonterra informed the Ministry for Primary Industries (MPI or ministry). In the early hours of the following morning, MPI publicly announced that certain batches of Fonterra-produced whey protein

concentrate might be contaminated with the botulism-causing bacterium (the incident).

A series of precautionary recalls followed – by Fonterra, for the WPC80; and by others for certain infant formula products. There were no cases of illness linked to consumption of the affected products.

The incident, however, caused parents and caregivers here and overseas understandable worry and distress that their babies’ health might be at risk.

International reaction was swift. Some countries, including China, Russia and Brazil, closed their borders to some New Zealand dairy products. Some, such as Malaysia, the Philippines and Thailand, introduced specific product-testing requirements. Other countries announced product recalls.

An immediate and significant impact was felt by dairy exporters. Shipments at overseas ports were rejected, payments were withheld and orders were lost. Exporters, particularly those trading in China, have since reported considerable financial loss and redundancies.

On 28 August 2013, MPI announced that further testing in laboratories in New Zealand and the United States had established that the contaminant was the non-pathogenic bacterium Clostridium sporogenes(C. sporogenes), which can cause food spoilage but poses no food safety risk to consumers. 5

This incident – with its serious effects on New Zealand’s economy and reputation – resulted in the establishment of this independent Government Inquiry. Its terms of reference require it to provide its first report by no later than 12 December 2013. This is that report.

1 When mixed with other bulk ingredients, WPC80 produces a wide range of dairy products, including nutritional powder, UHT beverages, yoghurt, stock food, sports drinks and infant formula.2 The process involved the reconstitution of the product into “wet product”, that is, a liquid form rather than powder.3 For an explanation of Clostridia, including Clostridium botulinum, see section 10 of this report.4 AgResearch is a New Zealand Crown Research Institute. 5 See the Acting Director-General’s revised statement (released on 28 August 2013) under the Animal Products Act 1999 and Food Act 1981. Testing was undertaken at two international laboratories: the Centre for Disease Control in Atlanta, Georgia, and the National Veterinary Services Laboratories in Iowa.

PART ONE: INQUIRY PROCESS

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Inquiry’s purpose

The terms of reference, set out in appendix 1, require a two-stage approach. MPI is currently undertaking an investigation into the facts of the incident, and in particular whether Fonterra has breached any relevant laws or regulations (the compliance investigation). Pending that investigation, the Inquiry’s first task is confined to:

• Reporting on the adequacy of New Zealand’s legal (or regulatory) and best practice requirements in relation to various aspects of food safety in the dairy industry• Recommending any changes or additions necessary, or desirable, to such regulatory and best practice requirements.

The Inquiry has found that New Zealand’s dairy food safety system is fundamentally robust and consistent with international risk management principles. There is no evidence of any regulatory crisis – the immediate causes of this incident appear to lie elsewhere.

The report of the Fonterra board inquiry has identified events within the company – in particular the “calibre” of decision-making at various points – that it considers “cumulatively created the WPC80 crisis”. 6 Further examination of the roles of Fonterra and other parties in the crisis will be for the next stage of this independent Government Inquiry.

No urgent or significant change to New Zealand’s dairy food safety system is indicated at this time. New Zealand’s dairy food is as safe as any in the world. But, as with any system, improvements are always possible. As one interviewee said, “systems will continue to evolve, as they always have”. By far the majority of recommendations are unconnected with the incident itself and, rather, relate to the challenges that lie ahead.

The Inquiry’s interim report is the first of two. However, this report is essentially final in relation to the adequacy of any changes or additions to dairy regulatory and best practice requirements.

The terms of reference also require the Inquiry to report on, and make recommendations in relation to, changes or additions to operational practices. The Inquiry’s ability to do so is more limited at this stage without a full

understanding of the facts, including prevailing practices. However, even at this first stage, the Inquiry has identified changes to operational practices that can be acted on now.

The Inquiry’s scope is limited to the dairy sector, more particularly, against the background of this incident, on the manufacture of processed dairy products. Some recommended changes to dairy regulation and best practice are, however, relevant to the food safety system more generally.

Inquiry’s approach

The Ministers responsible for primary industries and food safety required this Inquiry to report swiftly so any regulatory problems could be dealt with urgently.

Inquiry members have adopted an investigative approach to the task, undertaking many interviews with dairy companies, regulators, accreditors, verifiers, infant formula manufacturers, customers, ministries, laboratories and industry or expert organisations in New Zealand. In addition, the Inquiry has consulted regulatory and expert organisations around the world. In order to ensure full and frank discussion, all interviews were treated as confidential and, with a few exceptions, comments are not attributed to organisations or individuals.

Inquiry members have considered many documents, both local and international, and received substantial written submissions. These submissions were directed at a comprehensive set of specific questions in a list of issues compiled by the Inquiry.7 All of this material – which it is neither possible nor practicable to refer to fully in this report – has helped the Inquiry in reporting on, and recommending changes to, regulatory and best practice requirements.

Where appropriate, the Inquiry has engaged experts to assist with particular topics. A series of forums with key participants, who gave the Inquiry detailed submissions, enabled Inquiry members to explore issues and options to identify the best realistic modifications or improvements to the dairy food safety system. Members are also grateful for the valuable contribution of Professor Alan Reilly, Chief Executive of the Food Safety Authority of Ireland, as independent peer reviewer.

The terms of reference specifically exclude inquiring into, determining, reporting on or prejudicing the ministry’s


6 Report of WPC80 Independent Inquiry for Fonterra Board, dated 23 October 2013, http://wpc80-inde-report.fonterra.com at 37. 7 See the Inquiry’s website http://www.dia.govt.nz/Government-Inquiry-into-Whey-Protein-Concentrate-Contamination-Incident : Provisional list of issues - phase one dated 23 September 2013. http://www.dia.govt.nz/Government-Whey-Inquiry-Provisional-List-of-Issues

15

compliance investigation. The Inquiry has been very careful not to do this.

Structure of report

This report consists of five parts:

• Inquiry process

• Context• The wider view• Issues• Appendices.

2. the Issues

Within its terms of reference, the Inquiry has identified and addressed seven key issues.

regulatory design: The essential question is whether New Zealand’s regulatory design – with its emphasis on risk management – is appropriate in ensuring safe dairy products. More particularly:

• Does it strike the right balance between outcome- based and prescriptive regulation? • Is the tertiary layer of regulation, with its many standards, specifications, notices and directions, sufficiently accessible and clear to all participants? • Do the risk management programmes – critical to the regulatory design – appropriately manage the many potential risks that may arise within the dairy processing supply chain? • Are reporting requirements sufficiently clear and robust?

role of the regulator: New Zealand’s regulatory design depends on an effective regulator, in this case, the Ministry for Primary Industries:

• Are the systems, structure and culture within the ministry consistent with its role as regulator? • Does it manage its multiple roles appropriately? • Does it have sufficient capacity and capability in dairy expertise? • Is sufficient priority given to food safety?

role of verifiers: The regulator’s role is important, but so, too, is the responsibility of the recognised agencies, in particular the verifiers:

• Is the verification model sound? • Is auditing rigorous?• Do verifiers have sufficient independence and impartiality?

testing: quality and integrity: Placing responsibility for risk management on producers and processors requires appropriate product testing and notification of food safety concerns:

• Are New Zealand’s laboratories competent? • How does New Zealand’s testing regime compare with international best practice? • Which food tests are required, and against the background of this incident, should dairy products be regularly tested for the rare incidence of C. botulinum? • Should SRC testing become mandatory?

Implementation of food safety standards: New and amended standards mean change for participants. Implementation requires ensuring changes do not put food safety at risk. Questions that arise include:

• Does the dairy industry have a well-developed food safety culture?• Are food safety standards implemented well? • How do participants measure the success of such implementation? • How effective are the ministry’s compliance tools?

traceability, recall and contingency planning: Food safety incidents inevitably arise from time to time, raising the questions:

• Does New Zealand have adequate procedures in place to ensure the traceability of potentially contaminated products? • Do participants along the supply chain have adequate recall processes and are such processes regularly tested? • Should more general contingency planning be undertaken by the regulator and industry?

Infant formula: One of the Inquiry’s tasks is to consider what implications, if any, the incident could have on

INQUIRY PROCESS 1

16

foods using whey protein concentrate, in particular infant formula. Examination of that question raises the following points:

• Does the country’s regulatory regime provide sufficient assurance that the manufacture of dairy products for vulnerable consumers – for example, babies and immuno-compromised individuals – is in conformity with international best practice? • Do these products require more prescriptive regulation or additional product testing?• How does New Zealand-produced infant formula secure its place among the world’s safest and most trusted products?

Inevitably, some issues overlap and common themes arise, the most important of which is the need for rigorous risk management.8


8 The terms of reference, paragraph (b) (iii) require the Inquiry specifically to address reporting and risk management decision-making. The Inquiry has considered reporting as part of issue one (the regulatory design) and has considered risk management as integral to all issues.

17

3. the dairy Industry

New Zealand’s prosperity depends heavily on the continued success of the dairy sector. When it succeeds, the country flourishes. When it falters – as this incident demonstrates – the consequences have the potential to affect all New Zealanders. In reality, of course, that prosperity rests principally on a single company, Fonterra; it is the world’s largest exporter of dairy products and has the lion’s share of the domestic market. So when Fonterra falters, New Zealand feels the consequences.

According to the ministry, the industry generates nearly a third of the country’s export receipts, or about $13.4 billion a year. Its importance relative to other traditional exports can be seen in the following comparisons. It is:

• Three times the size of the country’s third-biggest export, forestry and logging• Two and a half times that of the second-biggest export, meat• Greater than the fishing, forestry and mining sectors combined.

As well as its significant contribution to export receipts, the industry is also a big employer at home and abroad. Within New Zealand, nearly 37,000 people are employed in dairy-related activity, 26,000 on farms and the balance in processing work.

then and now

New Zealand has long been at the forefront of dairying. It was the advent of refrigerated shipping, marked by the departure for London of the Dunedin in 1882, that opened the way for the large scale export of the country’s surplus production. For many decades to come, Britain was to be the chief market for the country’s cheese

and butter. Exporters eventually widened their net to other developed countries, and the sector’s quest to diversify into other markets received a fillip with the emergence of Asian economies, the most significant of which today is China.

Industry structure

Legislation to co-ordinate and regulate exports has been a long-standing feature of the industry. The Dairy Industry Restructuring Act 2001 deregulated the sector, resulting in the merger of the country’s two biggest co-operatives, and the dissolution of the New Zealand Dairy Board, to create Fonterra.

A co-operative company with 11,600 farmer-shareholders and more than 30 manufacturing plants in New Zealand, Fonterra dominates the sector, accounting for 88.5 per cent of production in 2012-2013 and 26.5 per cent of all merchandise exports by value in 2012-2013. Its farmer-owned co-operative rivals are Westland Co-operative Dairy Company Limited, with 330 members, and Tatua Co-operative Dairy Company Limited, with 109. Like Fonterra, both export nearly all of their production.

Dairy companies without co-operative structures have emerged in the past decade, most notably Synlait Limited and Open Country Dairy Limited. These companies buy milk and process and sell dairy products.

Supporting the dairy industry are organisations such as the Dairy Companies Association of New Zealand (DCANZ), which co-ordinates and represents the collective public policy interests of its dairy company members.9 The Dairy Product Safety Advisory Council (DPSAC) allows for the exchange of information on the dairy food safety system between industry and government.

PART TWO: CONTEXT

9 Other organisations and groups perform similar roles, including the Food and Grocery Council, the Infant Formula Exporters Association of New Zealand, the Infant Nutrition Council (representing manufacturers and marketers of infant formula) and DairyNZ (representing New Zealand dairy farmers).

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export markets

Changes to export markets have arguably been as dramatic as domestic regulatory changes and the emergence of new local producers. New Zealand’s focus was customarily on volume sales of such mainstay products as cheese, butter and milk powder to its traditional markets. In recent times, volumes have dramatically risen, the product mix has altered substantially and the product destination has changed course.

Ministry figures indicate that output in the past 20 years has nearly tripled from 630 million kilograms of processed milk solids to 1600 million kilograms. In the same period, dairy export revenue has risen from $2.5 billion to $13.4 billion, although New Zealand accounts for only2.7 per cent of global milk output.

The composition of dairy exports has swung firmly in the direction of milk powder, often used as a raw ingredients in other products. An example is milk powder for infant formula, one of a number of specialist products to have grown in prominence in recent years.

The growing importance of finished infant formula products (made by 17 manufacturers under 200 brands worldwide), as shown below, illustrates another trend – the degree to which New Zealand companies “add value” along the supply chain. Some manufacture, some brand and sell, others do both.

The final point is the emergence of new markets, in many cases overtaking traditional ones. As shown below, China has overtaken the United States, Europe and Japan as the country’s largest market. Since the free-trade agreement five years ago, exports to China have increased from five to about 25 per cent of all sales.

Consumer power

Consumer power has become a force to be reckoned with worldwide. Consumers’ sensitivity – and swift response – to any suggestion of a health risk means New Zealand’s food safety regulatory framework requires a collaborative and forward-looking approach.

To date, that framework has largely been focused on satisfying overseas regulators and governments of the safety of New Zealand’s exports. In future, consumers must become a central consideration. They choose carefully and want to feel confident New Zealand-sourced food is wholesome and safe.

PART TWO: CONTEXT

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

China - in retail-ready containersRest of world - in retail-ready containersChina - bulkRest of world - bulk

NZ$

mill

ion

300

250

200

150

100

50

0

New Zealand infant formula exports June 2003 to June 2013

Source: MPI, Statistics New Zealand

Make-up of New Zealand's dairy export markets June 1991 - June 2013


‘91 ’92 ‘93 ’94 ‘95 ’96 ‘97 ’98 ‘99 ’00 ‘01 ’02 ‘03 ’04 ‘05 ’06 ‘07 ’08 ‘09 ’10 ‘11 ’12 ‘13

Rest of the world

EU 27

South-East Asia

OPEC

Japan

United States

Australia

China

Per

cent

35

30

25

20

15

10

5

0

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4. regulatory Landscape

Both the regulator and industry have always been concerned to maintain the integrity of New Zealand’s dairy products. The challenge, however, has been to develop legislation and enforcement mechanisms that keep pace with industry changes and advances in food technology. In recent times the pace of both has accelerated sharply.

In the 1890s it was considered sufficient to brand exports of butter and cheese to the United Kingdom with their factory of origin for tracing purposes. The subsequent manual product checks by government inspectors became more frequent and searching, but the underlying approach – occasional rather than systematic scrutiny – persisted for many decades.

Only in the latter part of the 20th century did a process of continuous identification and management of hazards and risks associated with food production take hold. Risk management systems are now firmly established worldwide, particularly those based on Hazard Analysis and Critical Control Point (HACCP) principles, which put the responsibility on all participants in the food chain to manage risks that may arise.10 New Zealand was quick to adopt the risk management approach.

International efforts

Widely regarded as a leader rather than a follower, New Zealand has actively participated in multilateral bodies dealing with food safety. It was, for example, an early signatory to the World Trade Organisation Agreement on the Application of Sanitary and Phytosanitary Measures, also known as the SPS Agreement, which came into effect in 1995.

The Codex Alimentarius Commission (Codex), established in 1961 by the United Nations Food and Agricultural Organisation and joined by the World Health Organisation in 1962, has an important role of protecting the health of consumers and ensuring fair practices in the international food trade. The Codex Alimentarius (Latin for “Book of Food”) is a collection of standards, codes of practice, guidelines and other recommendations, which many countries, including New Zealand, have used to help shape their own regulations. New Zealand, as many participants noted, has played a significant role in the development of Codex standards and policies.

Closer to home, an agreement with Australia known informally as the Food Treaty led to the establishment of Food Standards Australia New Zealand, which formulates the Australia New Zealand Food Standards Code covering areas such as food safety, composition and labelling.

milestone - animal Products act 1999

The Animal Products Act 1999 focuses on the processing and production of animal material and animal products. Initially applied to the meat industry, it was extended to dairy in 2005 to minimise and manage risks to consumers, and also, it is important to note, to facilitate the entry of animal material and products into overseas markets.

The regime places responsibility for risk management on producers and processors. That is particularly appropriate when different primary industries have to manage differing levels of risk. The system relies on a balance of prescriptive, process-and outcome-based regulatory tools, as well as industry guidance. It aims to give industry the flexibility to innovate, while continuing to assure food safety.

The Act established a three-tiered food safety model consisting of:

• The regulator• Accredited verifiers• The industry itself.

CONTEXT 2

10 HACCP was developed by NASA scientists in the 1960s to ensure the safety of astronauts’ food.

REGULATORSets standards

Provides assuranceEnforces

VERIFIERIndependently auditsEnsures compliance

DOMESTIC FOOD

EXPORTED FOOD

INDUSTRYRisk management

programmes

The New Zealand food safety regulatory model

Source: MPI

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The ministry is the regulator. Its function is to:

• Set standards• Provide official export assurances• Develop resources and guidance materials• Undertake compliance and enforcement action • Monitor overall system performance.

Verifiers audit operators’ risk management programmes and generally ensure they are adopting suitable food safety practices. Three agencies – AsureQuality Ltd (a state-owned enterprise), MPI Verification Services (a directorate of the ministry) and Eurofins New Zealand Ltd (a private company) – operate in that capacity for the dairy industry, and are paid directly by industry.11

Lastly, and most importantly, the industry itself is responsible for producing safe food, by designing and implementing appropriate risk management programmes.

risk management programmes

Described by one submitter as a “very powerful document, and the protector for industry and consumers”, risk management programmes are specific to a particular operator’s business, setting out how that operator will identify, control and eliminate hazards and other risk factors in its production and processing of safe food. It also sets out actions necessary when products do not conform to legal requirements, including the method of notification and product recall. Dairy processing risk management programmes require independent evaluation by a recognised agency and registration with the ministry. Frequent verification then follows. To avoid conflicts of interest, evaluators cannot be involved in the ongoing verification of a risk management programme.

accreditation

All verifiers (and laboratories) must be accredited. This involves assessment of technical competency and quality-management systems, including on-site visits and observation of staff at work. In New Zealand, the two accreditation bodies are International Accreditation New Zealand (IANZ) and the Joint Accreditation System of Australia and New Zealand (JAS-ANZ).

market access rules

Dairy exports must satisfy importing countries’ regulatory requirements, such as confirmation of product testing

and compliance with labelling, packaging, storage and transport rules. MPI confirms these matters to the relevant authorities in certificates known as official assurances, and publishes the requirements necessary to obtain such certificates. In this way, country-specific requirements can be accommodated without the need for export and import regulatory frameworks to be the same.

the Food act 1981 and proposed overhaul

The Food Act 1981 governs, among other matters, food composition, safety and labelling for food sold in New Zealand.

The Food Bill, currently before Parliament, will adopt the outcome-based risk management system based on the HACCP approach, and will incorporate the three-tiered model used in the Animal Products Act 1999. The proposed legislation divides food businesses into high, medium to low and low-risk categories and sets out corresponding levels of regulation.

Like the existing legislation, it does not cover most dairy products for export, which fall under the Animal Products Act 1999.

5. overseas models: a Comparison

The terms of reference require consideration of comparable jurisdictions. The Inquiry has looked at Australia, Canada, the United States and the European Union. Any comparison is necessarily general. Specific aspects of comparable regulation are discussed in part four of the report.

New Zealand’s focus on risk-based systems and adoption of HACCP principles is broadly consistent with the approach in use, or about to be used, in these jurisdictions. In all jurisdictions, the regulator sets the regulatory framework and standards and holds industry to account for meeting those standards.12 Differences occur in the role played by third parties, that is, non-government agencies, in providing verification (or auditing) services.

In other jurisdictions, the equivalent of the Ministry of Health has greater accountability for the food safety system than in New Zealand. Given, however, that the vast majority of New Zealand’s food is exported (so that food safety and market access issues are linked), it is not

PART TWO: CONTEXT

11 MPI Verification Services is a verifier of last resort (and so does reasonably little dairy verification) except in relation to mandated areas such as meat.12 This approach is consistent with Codex, Principles and Guidelines for National Food Control Systems, CAC/GL 82-2013, which is a recently adopted set of principles and guidelines for national food control systems.

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surprising that MPI has responsibility for food safety, not the Ministry of Health.

australia

Overall, responsibility for food policy sits with the Health and Agriculture Ministers from states and territories working collaboratively through a food regulation forum. At a federal level, the Australian Department of Agriculture is responsible for the food industry in the areas of planning, policy and regulation. As in New Zealand, dairy food businesses are responsible for developing HACCP-based food safety programmes to manage food safety risks.13 A government-employed auditor must conduct the monitoring and verification of dairy export premises.

Canada

Responsibility for food safety is split at a federal level among the Public Health Agency of Canada, the Department of Health and the Canadian Food Inspection Agency. Food regulation in Canada is in transition as the country moves to implement, by 2015, the Safe Food for Canadians Act. Dairy food businesses will be required to have preventive control systems based on HACCP principles. (At present, the HACCP approach applies to meat and poultry processing only.) The Canadian Food Inspection Agency carries out monitoring and verification work.

european union

A series of food safety events in the European Union during the 1990s resulted in major reforms to improve consumer confidence in the food safety system. In 2002, the European Food Safety Authority was created and the general food safety law enacted. Dairy food businesses in the European Union are responsible for ensuring food safety, and must adopt food safety measures based on HACCP principles.

Member states are responsible for monitoring and verifying compliance with European Union food laws. In Ireland, for example, overall responsibility for the enforcement of food safety legislation rests with the Food Safety Authority of Ireland. Government-employed auditors carry out monitoring and verification of dairy export premises.

united States

As in Canada, food regulation in the United States is in a state of significant transition as the Food Safety Modernization Act is implemented.14 This requires businesses, including dairy companies, to have a written preventive control plan based on HACCP principles.

The Food and Drug Administration (FDA) bases its inspections on the risk profile of businesses. The legislation allows third-party verifiers to confirm that overseas food businesses exporting to the United States comply with its food safety standards.

China

While the Inquiry has considered comparable jurisdictions – particularly taking into account similarities in culture, regulatory frameworks and operating environments – it is important to note the rapid evolution of the Chinese regulatory framework, especially given the critical importance of that market to New Zealand.

The Chinese Government has just finished receiving public comment on amendments to its food safety laws. It is rapidly modernising these laws, paying particular attention to international best practice and drawing on the work of global standards organisations. The proposed changes would:

• Split food safety responsibilities among three government agencies• Impose more regulatory obligations on food businesses, in particular requiring them to have “advanced food safety management systems” based on HACCP principles• Introduce new traceability and verification systems to provide assurance that imported food meets the food safety requirements • Impose increased fines for non-compliance and a prohibition on working in the food industry for any person imprisoned for a food safety offence.

It is critical that New Zealand’s regulator and industry are familiar with these developments.

CONTEXT 2

13 Standard 4.2.4 – Primary Production and Processing Standard for Dairy Products (Australia only).14 This legislation has been described as the most sweeping reform of food safety laws in more than 70 years.

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PART TWO: CONTEXT

International standards

Finally, it is important not to overlook the number of international standards and inter-government organisations that provide comprehensive and helpful guidance on various aspects of dairy food safety regulation. The Inquiry has already referred to some, such as Codex, and notes others where applicable in subsequent parts of the report.

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6. Common themes

This incident has driven home the importance of a sound food safety system to protect the safety and quality of New Zealand-produced food, particularly dairy goods. Any flaws can put at risk public health, undermine the industry’s prosperity and jeopardise the country’s economy.

Food safety today is a global concern. Disease-causing organisms in food are transmitted far and wide by today’s interconnected global food chains. Baby corn exported from Thailand recently led to Shigellosis outbreaks in Australia and Denmark and frozen dumpling imports from China led to the poisoning of more than 3000 consumers in Japan. Food safety scares involving Salmonella and E. coli in the United States and the spread of mad cow disease (BSE) in Europe featured prominently in the media and alarmed consumers.

What follows is an outline of key themes expressed to the Inquiry as to how the dairy sector can better protect its world standing and lift safety performance, while building a sounder springboard for growth. As a result, several recommendations are made.

emerging risks

Effective risk management strategy requires constant risk assessment and reassessment. The goal posts are subject to unpredictable change.

The greatest risks to the industry lie ahead, not behind. Professor Richard Archer, head of Massey University’s Institute of Food, Nutrition and Human Health, emphasises the need for the sector’s mindset to be proactive rather than reactive. “Companies need at least some people

scanning the horizon for new food safety hazards coming from milk, packaging and the supply chain. Companies that continue on the present course may well survive hitting a few rocks, but each impact takes out a few knots until the ship is left wallowing.”15 Similarly, the regulator also has a role in scanning the horizon.

Detection methods, for example, have become a double-edged sword, able to pick up minute amounts of chemicals – in the parts per trillion rather than parts per million – which help ensure maximum food safety, but also bring to light substances in products for the first time, albeit in infinitesimally small amounts.16 The tension between scientific risk assessment and consumer risk perception is only likely to be exacerbated by the increasing sophistication of detection methods.

This is especially important because of the increased range of inputs used on farms – feeds, fertilisers, animal remedies and more – that can potentially be detected in milk, the building block of the whole industry. A third example is the increasing complexity of today’s processing plants and continuous work shifts.

Today’s rapid dissemination of information via social media channels, as happened in China with this incident, cannot be ignored. It heightens the urgency to formulate clear protocols about how and when to inform consumers of risks (potential or real) and alternative food options.

The ministry is aware of the need to focus more actively on identifying and managing risks – not only those noted above but other “horizon issues” (to use one interviewee’s words) relating to regulator and consumer demands in overseas markets.

15 Food Safety for the New Zealand Dairy Industry – Where to Now?, Food New Zealand, October/November 2013.16 See http://sciencewatch.com/articles/food-safety-analysis-limits-detection

PART THREE: THE WIDER VIEW

24


A useful tool would be a high-level risk register, to identify risks to dairy food safety and supply (including market access issues), detail the likelihood and consequences of each identified risk and, finally, set out mitigation steps in the event each occurs.17 The Inquiry recommends that the ministry, in consultation with the industry and other relevant government agencies, develops such a register as a priority, which could then be a template for other sectors within its responsibility, such as meat, seafood and horticulture.18 The Inquiry acknowledges the potential sensitivity of such a register, but considers this could be managed. Existing protections for commercially sensitive information should be sufficient to deal with any concerns.

Capability

It is by no means a crisis, but the shortage of experienced people with dairy processing expertise at every level of the regulatory sector demands attention. That is the almost universal view expressed in interviews and submissions, and one shared by the Inquiry.

As in so many areas of business and government, people are key. The shortage of experienced people exists at all levels of the system, whether it be putting together risk management programmes; carrying out accreditation and verification; providing leadership or technical know-how inside the regulator; or working within the ranks of the industry itself.

Interviewees spoke of the difficulty of attracting such dairy experts, and also of that expertise drifting away from regulatory agencies and concentrating in dairy companies. As one interviewee said, there is a “very small gene pool” available in New Zealand. Yet the issue is not unique to New Zealand. Australian regulators, for example, report a similar shortage of skilled staff.

Among the shortfalls identified to the Inquiry were:

• A lack of training and investment in dairy industry capability – there is on-farm or vocational-level training at one end, hard science at the other, but little in the middle• The difficulty in attracting, training and retaining appropriate people to become verifiers – and the high cost of doing so

• A lack of continuing professional development • A loss of experienced scientific and dairy technical staff from the ministry.

The range of problems and variety of proposed solutions put before the Inquiry suggest it would be useful for all parties to join forces to develop a strategic plan to build up industry-wide dairy processing and regulatory capability. Such a plan should have clearly differentiated short, medium and long-term goals. Ensuring sufficient capability, particularly for the ministry and recognised agencies, should be a priority, especially in light of the ministry’s goal to double exports by 2025 – difficult to achieve without an expansion of value-added production, which cannot happen without more of the skills under discussion.

The Inquiry recommends that the ministry convene a working group to achieve this objective, headed by an independent convenor, comprising representatives from the ministry, education institutes, relevant industry training organisations, recognised agencies, industry and the Tertiary Education Commission. Possibly the group could also include a representative of the Ministry of Business, Innovation and Employment. The ministry will need to provide adequate resourcing to enable the group to undertake and complete its work within, the Inquiry suggests, six months.

Possible short-term solutions could include:

• Internships, participation in graduate programmes and secondments to strengthen dairy processing expertise (which would also have the benefit of strengthening relationships) • A secondment programme between New Zealand and overseas food safety experts, with an emphasis on experts from important emerging or new markets – China would be an obvious first contender (which would also assist with relationship building)19

• Replicating for the benefit of non-Fonterra staff the one-year Masters programme at Massey University in dairy science and technology currently exclusive to Fonterra employees.

17 The ministry has a strategic risk register and it has begun recording trade risks in a simple risk register in a shared database with other ministries. Developing sector-specific risks, especially in relation to food safety, is the next logical step.18 The Inquiry had drawn to its attention a symposium run by the Ministry of Business, Innovation and Employment in August 2012 to identify emerging risks, particularly in relation to product integrity and food defence. It is understood that various priorities were agreed to, but industry representatives have indicated they are not aware of the present status of this work. It may well be that MPI should discuss this project with the Ministry of Business, Innovation and Employment.19 This would be consistent with one of the provisions of the Food Safety Agreement between New Zealand and China signed on November 3 2013, which set up a joint commission to enhance food safety regulation. Areas of co-operation may include visits and study programmes.

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Possible longer-term solutions could include:

• Developing more three-year or four-year degrees specialising in food safety20

• Ensuring sufficient food safety research to build capability (see below)• Advocacy in schools to attract students into dairy and food-related careers.

Science and research

The food safety field is increasingly more complex and sophisticated. Foreseeing incidents and emerging risks is a great challenge, as is dealing with the tensions between scientific and consumer assessments of risk.21 Interviewees believe New Zealand is not investing sufficiently in scientific research into food safety, which “struggles to obtain funding”.

Centres for food safety excellence exist in other comparable countries.22 New Zealand has several public institutions involved in food-related research, such as certain universities (notably Massey and Lincoln), Crown Research Institutes (notably AgResearch, Plant and Food Research, Environmental Science and Research (ESR)), and the Riddet Institute.23 But all participants generally agreed that New Zealand needs “a long-term research platform in food safety to keep New Zealand at the cutting edge of this discipline”.

Funding has been limited for food safety research. The ministry-administered Primary Growth Partnership Fund allocates no funding to food safety research, given its more economic growth-focused criteria.24

Figures from the Ministry for Business, Innovation and Employment show there is direct government funding for food safety research of $7.6 million a year. This is broken down as follows: MPI spends $2.8 million on operational food safety and suitability research, although this is essentially limited to supporting standards development; Crown Research Institutes receive $2.8 million; and the Ministry of Business, Innovation and Employment

contributes on average $2 million from its Biological Industries research fund, which mainly aims to enhance the biological economy, including protection and risk management. 25

In light of these factors, and the need for New Zealand to be perceived as a leader in food safety science and research, the Inquiry recommends the establishment of a centre of food safety science and research. Such a centre could be “virtual” in the sense that it would bring together some of the country’s universities, institutes and laboratories committed to food safety science and research. Collaboration on particular programmes could importantly include other overseas centres for food safety excellence or related scientific research. Joining up with a comparable Chinese research institute, for example, would seem a particularly good opportunity for collaboration.

The Inquiry acknowledges there are other options to ensure additional investment and focus on food safety science and research. These could include simply providing the ministry with additional funding for research and food safety (ring-fenced); or to provide an existing research body with additional funding to establish a research programme.

The advantage, however, in a virtual centre is the independence, high visibility and collaboration opportunities that other options would not necessarily provide. Such an approach would be consistent with the Government’s Better Public Service programme, which encourages more inter-agency collaboration and sharing of services. It is also more consistent with the trend overseas for international centres for food safety excellence.

In New Zealand, one precedent for a virtual centre is the New Zealand Agricultural Greenhouse Gas Research Centre, members of which include AgResearch, Massey University, DairyNZ, and Lincoln University. Another is Better Border Biosecurity (B3) a collaborative arrangement among four science agencies.

THE WIDER VIEW 3

20 There is currently an undergraduate degree in food technology (Massey), graduates of which are snapped up by New Zealand’s large and fast-growing food processing industry, leaving an annual shortfall; and a postgraduate Master of Professional Studies in Food Safety (Auckland). 21 One significant example is the emergence of E. coli 0157-H7. Traditionally, E. coli was used as a non-pathogenic indicator, but as scientific knowledge has increased, it has been reclassified as a pathogen with serious effects for humans: Foodborne Disease Significance of Escherichia coli O157:H7 and Other Enterohemorrhagic E. coli, Science Reports, Food Technology Magazine, October 1997, 51 [10], at 69-76. 22 For example, the Illinois Institute of Technology is a national centre where industry, academia and government scientists pool their expertise and share perspectives to advance food science and technology in pursuit of safer food. Another is the Canadian Research Institute for Food Safety, a multi-disciplinary research organisation dedicated to expanding knowledge through research, training scientists and providing information and expertise to all sectors of the food industry. Others include the Institute for Global Food Security at Queens University Belfast; and the Northeast Dairy Foods Research Center, a co-operative research venture between Cornell University and the University of Vermont.23 A partnership between Massey, Otago and Auckland Universities and AgResearch.24 The Primary Growth Partnership Fund invests in business-led, market-driven innovation proposals. Current annual funding is $70 million. Proposals are judged against government-mandated criteria relating to, among other things, “economic benefits”, “sustainability benefits” and “path[s] to market”. 25 The Ministry of Business, Innovation and Employment also advised there is biosecurity funding on pest and disease management, which has an indirect food safety benefit totalling $3.7 million a year. None of the National Science Challenges is focused on food safety, but there is a small subset of the High Value Nutrition funding that would include food safety research.

26

Establishment of such a centre would obviously require consideration of membership, scope of activities, governance arrangements and so on. The Inquiry would suggest it should have an independent chair. One model for the establishment process is that used for the New Zealand Agricultural Greenhouse Gas Research Centre.26 The strong support expressed by all participants leaves the Inquiry in no doubt as to how such a centre would be received by the dairy industry, and the wider food sector.

A suggested minimum level of funding is $5 million a year (which could if necessary be re-allocated from other science funding), a fraction of the economic loss and damage to reputation that a food safety incident can cause – a point amply illustrated by the recent food safety scare. Adequate funding is especially important, too, in light of the fact that food makes up half of the country’s exports, or $25 billion annually.

Protecting new Zealand’s reputation

New Zealand’s reputation is priceless. Food produced here is synonymous with high quality, purity and integrity. As many participants noted, what this especially means is that consumers can have “trust and confidence in safe food”. While it is difficult to gauge to what extent association with those qualities contributes to the success of the country’s food exporters, it is certainly significant.

Interviewee after interviewee pointed out to the Inquiry the absolute importance of acknowledging, protecting and strengthening New Zealand’s “brand”, a prized asset that gives this country an enviable advantage in a crowded marketplace.27 Many emphasised the importance of the regulator working with industry participants to ensure that message is well understood.

It is worth noting, if only because the point was made so often, that New Zealand’s ranking as one of the most transparent, corruption-free countries in the world feeds into that perception of integrity in what we say, do and sell.

The best insurance against any tarnishing of the New Zealand brand is to ensure sound food safety mechanisms are in place, and that regulators and industry keep protection of the brand at the forefront of their minds.

This is especially so in decisions about managing and communicating food safety risks, which must be a priority.

markets and consumers

Dairy export flows today bear little resemblance to the patterns of even two decades ago. As already noted, the balance has tilted firmly towards Asia, especially China. Each market necessitates adjustment of products offered, marketing position and back-up support. Each also requires people fluent in the local language, who understand local ways and customs, and who can build relationships of trust with local regulators, government officials and business leaders.

Fonterra has invested heavily in the infrastructure to support its increased volumes and sales in China, as well as in other parts of Asia. Other exporters have also been expanding their presence.

The Inquiry heard repeated calls for a corresponding boost in resourcing by the ministry. A properly funded China team would involve people in key ports and trading centres, as well as the capital, whether permanently or as required, to strengthen relationships and deal effectively with difficulties when they arise. As more than one interviewee noted, relationships are tested not during the good times, but during periods of difficulty.

This building of infrastructure cannot be achieved by the ministry alone. It requires a whole-of-government approach, involving collaboration with the Ministry of Foreign Affairs and Trade and New Zealand Trade and Enterprise, and close links with New Zealand companies operating in China, as well as in other emerging dairy markets such as South-East Asia and the Middle East.

In collaboration with other parties, the ministry is already taking steps to increase its presence in China, where it plans almost to double the size of its New Zealand-based team.28 A number of interviewees warned that the size of any China-based team is not, however, the primary consideration (nor indeed, whether that China expertise should be China-based or deployed from New Zealand when needed).

26 Another option could be the establishment of a Centre of Research Excellence. Some participants with whom the Inquiry tested the option considered the New Zealand Agricultural Greenhouse Gas Research Centre was a suitable model.27 This theme is similar to that contained in the KPMG Agribusiness Agenda 2013.28 Steps under way include the appointment of a public affairs manager in the Beijing embassy, use of a local public relations agency to support a communications programme in China, a Chinese-optimised web presence and China-specific content about New Zealand’s food safety system.


27

What matters most is whether its members can cultivate personal connections and establish trust and understanding with Chinese leaders in a position to expedite matters and make decisions. This ability requires a level of seniority and also an appreciation that China is an ancient civilisation with instincts, practices and social values distinctly different from those of Western-style societies. Both countries can learn from each other.

None of this expanded presence will happen on its own. It will require an investment over the long term, but it should not, as several interviewees emphasised, come at the expense of the ministry’s existing operations, which already stretch across regulatory, policy, certification and enforcement fronts. Funding will be needed: section 8.

Collaboration

An industry that works co-operatively will always have a greater prospect of achieving its individual and collective goals. In the dairy industry, that co-operation takes three forms:

Collaboration between regulators

Regulators – both ministries and recognised agencies – need to work together more closely to protect dairy food safety and promote exports. The Inquiry acknowledges work is under way to improve performance in this area, but also points out that in the view of many interviewees there is still some way to go. In recent times the ministry has worked more closely, as it needs to, with the Ministry of Health. A protocol is currently being developed and should be concluded as soon as possible. Generally, the Inquiry recommends greater priority and resources for collaboration between regulators.

Collaboration between ministry and industry

The Dairy Products Safety Advisory Council is the principal avenue for collaboration at this level. Its membership comprises a broad range of industry participants, who oversee improvements in the sector, provide advice to the ministry on largely regulatory and technical questions, and promote an exchange of views and information between the ministry and the industry.

Reports to the Inquiry about the council were mixed, a few considering it “worked well” but most of the views were

that meetings are “unwieldy”, “lacking in good debate” and “favour technical over strategic issues”. By contrast, the meat industry equivalent, the Strategic Directions Group, co-chaired by the ministry and industry, is smaller and places more emphasis on strategic issues.

The Inquiry recommends the establishment of a new body, with more focus on strategic (including market access) issues to benefit the industry and the ministry. To make the group a more manageable size, dairy company representation could perhaps be by rotation. The Dairy Technical Advisory Group could then take on more of the workload concerned with technical questions which, in an area as complex as dairy processing, demands the strongest co-operation to ensure a sound regulatory framework. (Coincidently, this advisory group has begun to move in that direction in recent times.)

However, the Inquiry considers there is still scope for this group to make more of the expertise available. It suggests its replacement with three technical groups covering on-farm production (including milking), dairy processing (manufacture) and trading (consumer and export sales and related activities).29 In this way, smaller groups could focus on more defined areas and share the workload more evenly. Such an approach has worked well in the electricity sector and the Inquiry suggests the group’s members assess the way they work against that model.

Collaboration between the regulator and industry could also benefit from the involvement of recognised agencies and accreditors, which play a key role in oversight of the system.

Collaboration between dairy companies

The Dairy Companies Association of New Zealand is the means by which processors work together for the betterment of the industry. Views on its effectiveness varied from “demonstrating good leadership” to “almost irrelevant”. The Inquiry is not in a position to reach a view either way. No doubt competitive pressures restrain full co-operation, but there are many non-commercially sensitive areas where members could collaborate more. Food safety is one such area.

The Inquiry understands the association is aware of the need to achieve greater collaboration and is considering

29 Section 4 of the Animal Products Act 1999 defines “dairy processing” to include “the extraction of milk from milking animal for the purpose of export or sale”. However, milking is generally regarded as an on-farm activity.

THE WIDER VIEW 3

28

how best to structure and manage itself accordingly. The Inquiry’s view is that all dairy companies need to adopt a more collaborative approach in the interests of the New Zealand brand. Fonterra especially is in a position to lead by example and encourage more teamwork on risk management, market access and general dairy food safety. The Inquiry notes that the Fonterra board inquiry report recommended one of the most important steps Fonterra should be taking is to review and enhance its engagement with others. 30

The Inquiry notes comments from several interviewees about the previous “industry good” standards developed by the former New Zealand Dairy Board and at the time available to all dairy participants. One specifically mentioned was pathogen management standards. Some participants questioned whether these standards could not, in fact, be used by other companies, and that to reserve them to Fonterra only was “counter-productive” to New Zealand’s interests. The Inquiry considers that, consistent with the approach signalled by Fonterra of meaningful changes, including in its culture, the company should give very serious consideration to sharing such information.

Ultimately, New Zealand’s reputation for safe dairy food relies on “every company that exports from New Zealand doing the right thing every time”.31 The preservation of consumer trust is vital. Improved collaboration at all levels is a necessary step in that direction. In some cases this may also include collaboration across the wider dairy sector, including, importantly, farmers.

Improving crisis response

Some food safety incidents are relatively small-scale and straightforward. Others can rapidly become widespread and serious. Complex international supply chains, rapid communications through the internet and social media, the need to work in different cultures and languages, and to co-ordinate numerous agencies in different countries, can all make the response complex and difficult.

With so much potential for things to unravel, it is essential to have adequate planning, preparation and testing of crisis procedures. All participants need to have plans in place: the industry, verifiers, laboratories and scientists, the regulator and the broader public sector. Those plans

must be rehearsed, both by individual participants and as an overall response, which suggests a need for preparation on several levels, from desktop exercises through to full-scale nationwide exercises co-ordinated by the regulator.

The Inquiry will examine the response to the incident in stage two, but it is fair to record that it received mixed views on the effectiveness of all parties’ crisis management and recall processes. Some were positive; others were not. Fonterra’s board inquiry has already concluded that better crisis management processes and planning, including rehearsals and a dedicated crisis management team, would have made a substantial difference. No participant should hold back from making progress on this important issue pending the Inquiry’s next phase.

The Inquiry suggests that the ministry undertake its own internal review of its response. Such a review is best practice, following any serious event (as occurred after the confusion over certificates for meat exports to China). It would also be helpful to the Inquiry to have the outcome available at the next stage.

recommendations

The Inquiry recommends:

• The ministry, in consultation with the industry and other relevant government agencies, should focus on emerging risks and prepare a high-level risk register identifying such risks to dairy food safety and supply.• The ministry should convene a working group to develop a strategic plan to build up sector-wide dairy processing and regulatory capability.• A centre of food safety science and research, which could be a virtual centre, should be established to ensure New Zealand remains a leader in the food safety field.• In collaboration with other government agencies, the ministry should step up its role and resources, both here and abroad, to allow more effective interaction with New Zealand’s most important, and emerging, export markets, particularly China.• All organisations in the sector should endeavour to increase collaboration, whether among regulators, the ministry and the industry, or within the wider dairy industry.

30 See fn 6, at 8.31 See fn 27.

29

32 Animal Products (Risk Management Programme Specifications) Notice 2008. The requirements are conveniently set out in the Risk Management Programme Manual for Animal Product Processing, available at <http://www.foodsafety.govt.nz/elibrary/industry/manual-risk-management-programmes/amdt-4.pdf>33 Advice of RISQ Resolution to Inquiry, 4 October 2013.34 Australian Productivity Commission, performance benchmarking of Australian and New Zealand Business Regulation: Food Safety (December 2009), at 95.

7. regulatory design

New Zealand’s dairy food safety system is fundamentally sound and as effective as any in the world. That is the Inquiry’s conclusion after examining the appropriateness of the regulatory framework – and it is a view unanimously shared by those, both in New Zealand and overseas, with whom the Inquiry consulted. The Inquiry could find nothing to suggest high-level failure. Nevertheless, every system should be subject to continuous improvement, and the Inquiry has identified some areas where improvements are recommended.

balance of outcomes and prescription

The centrepiece of the present regulatory system is the risk management programme. All participants supported the role of such programmes and associated processes, which help businesses to manage the hazards and risks specific to their operations. These programmes should contain 19 key requirements, which are set out in the Animal Products Act 1999, together with the Risk Management Programme Specification Notice.32

The Inquiry sought the views of an Australian food safety and risk management expert, who advised that the 19 requirements are appropriate and that any business complying with them will have adequately addressed the steps needed to minimise food safety risk.33 The Inquiry accepts this advice.

The New Zealand regulatory framework is designed to strike a balance between outcome-based and prescriptive standards. Prescriptive standards can provide greater certainty and clarity, although they can limit flexibility, prevent development of new technologies and impose unnecessary costs.34

Outcome-based standards give businesses greater flexibility to choose how they will meet regulatory requirements. They are often highly valued by larger operations, which may develop non-standard processes and adopt innovative ways to comply with required outcomes. However, they can also lead to uncertainty and rely on businesses having the capability to design appropriate systems.

Process-based regulations require businesses to follow specific processes. New Zealand, in common with many similar countries, has moved from a heavily prescriptive model to a balance of outcome-based, process-based and prescriptive regulations.

Many participants referred to a “good balance” between prescription, outcome-based and process regulation. Others said:

• “A more prescriptive approach would carry a risk of locking in practices and technologies and slowing down the process of continuous improvement.”• “The current risk management programme approach to food safety is very powerful and in the best interests of consumers and industry … any move back to a generic prescriptive approach would be a retrograde step.”• “Overall, New Zealand has one of the best food safety systems in the world.”• “New Zealand’s food regulatory system ranks extremely highly.”

The Inquiry endorses those views. The limited areas in which more prescription may be warranted, such as infant formula manufacture, are dealt with later in the report.

PART FOUR: ISSUES

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PART FOUR: ISSUES

International principles

New Zealand’s regulatory model is consistent with international principles. Codex published a comprehensive set of principles for food safety systems in 2013, and these are widely regarded as reflecting international best practice. New Zealand’s system is consistent with those principles. 35

Codex principles recognise that no one system must be adopted by all countries. However, Codex favours a standardised approach to risk management, flexibility in the application of control measures, preventive controls based on HACCP principles, vigorous verification and audit procedures, market surveillance, sampling and analysis, and review of verification. Where a product or process is found not to conform, the regulator should take action. The effectiveness of the food safety system should be regularly assessed against its objectives. Food-related non-compliances and/or incidents should be reviewed and used by the regulator as opportunities for continuous improvement.

By all these measures, the New Zealand system complies with international principles. One area in which New Zealand differs from standard international models is the extent to which it relies on contestable verification. The Inquiry is satisfied that this is appropriate, a topic considered in depth in section 9.

In December 2012, the United States Food and Drug Administration (FDA) formally recognised New Zealand’s food safety system as providing comparable assurance of food safety to that found in the United States system.36 This followed a comprehensive review of New Zealand’s system, including site visits and detailed examination by several FDA teams. New Zealand’s regulatory framework met each of 25 elements considered by the United States agency.37

Five FDA teams visited New Zealand, including a two-week study by a dairy team,38 who concluded the New Zealand system was above and beyond the minimum regulatory requirements for the United States dairy industry.39

To date, New Zealand is the only country to have achieved systems recognition with the United States. The Inquiry understands Australia, Canada and the European Union are currently working with the United States to develop similar agreements.

The European Union has similarly carried out a detailed assessment, concluding that New Zealand’s food safety system provides equivalent protection for milk and milk products to that offered by European regulations.40 Canada and the United States have similar agreements with the European Union.

The European Union has carried out five audits since 2000, noting a steady improvement in standards in the dairy sector. Overall, the European Union has concluded the official control systems in New Zealand are capable of delivering satisfactory assurances regarding the implementation of European Union requirements.

New Zealand’s system is subject to regular international audits and visits from overseas regulators. In recent times there have been at least 14 delegations from such places as Thailand, China, Peru, Iran, Korea, Indonesia, Malaysia, Egypt, Taiwan and Vietnam. None indicated fundamental concerns with the integrity of New Zealand’s dairy food safety system.

Finally, New Zealand dairy exporters are frequently audited by international customers according to private standards, such as the British Retail Consortium (BRC) and FSSC 22000 standards. These are frequently higher than regulatory standards and provide a further level of assurance of New Zealand’s system. Fonterra underwent 97 such customer audits in the 2013 financial year.

Private standards have the advantage, several interviewees pointed out, of responding to changed conditions “more nimbly” than regulatory standards. They complement the regulatory standards well, although participants predict increasing convergence between regulatory and voluntary standards. The Inquiry notes with interest that China is working to benchmark its food safety HACCP certification system with the private standards of the Global Food Safety Initiative (GFSI).41

35 Codex Alimentarius Commission, Principles and Guidelines for National Food Control Systems, CAC/GL/82/2013, available at http://www.codexalimentarius.org/ standards/list-of-standards 36 Food Safety Systems Recognition Arrangement between the Ministry for Primary Industries of New Zealand and the United States Food and Drug Administration, 10 December 2012. See also FDA, Report of the Comparability Determination of the Food Safety Component of the New Zealand Ministry for Primary Industries.37 Ibid, at 12.38 Ibid, at 10.39 Ibid, at 9, 10 and 22.40 Agreement between the European Community and New Zealand on Sanitary Measures Applicable to Trade and Live Animals and Animal Products, (97/132/EC), 17 December 1996; Agreement in the Form of Exchange of Letters Constituting an Arrangement with New Zealand on the Amendments to Annex V and Annex VIII to the Agreement between the European Community and New Zealand on sanitary measures applicable to trade and live animals and animal products, 19 June 2006.41 The Global Food Safety Initiative is a business-driven initiative focused on food safety management systems to ensure confidence in the delivery of safe food to consumers worldwide: www.mygfsi.com. For reference to the work with China see http://www.just-food.com/news/danone-sees-food-safety-boost-from-gfsi_ id119887.aspx; http://www.mygfsi.com/gfsi-benchmarking-general/applications-update.html (visited 15 November 2013)

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ISSUES 4

In short, the Inquiry is satisfied that the overall regulatory framework for dairy food safety in New Zealand is fundamentally sound, consistent with internationally recognised principles and considered among the best in the world.

areas for improvement

As noted, all food safety systems should be subject to continuous improvement. The Inquiry’s proposed improvements are the sort of reforms that should be made from time to time to any well-functioning system.

Clearer and more accessible tertiary instruments

The regulatory framework governing the dairy industry is spread across a variety of instruments, including the Animal Products Act 1999 and numerous regulations, specifications, notices and approved criteria, listed in the ministry’s 11-page Dairy Roadmap.42 These various specifications, notices and so on are known as the tertiary layer of regulation.

This tertiary layer includes numerous instruments of different types and runs to about 12,000 pages, taking up more than three metres of shelf space. Submitters noted this layer as “difficult to navigate”, “inaccessible” and “a bit of a nightmare”. The burden of navigating the tertiary layer is particularly felt by small to medium-sized businesses. As part of its work, the Inquiry prepared a supply chain matrix that mapped every dairy regulatory requirement to a particular part of the supply chain, an exercise that confirmed the complexity of the tertiary layer of regulation.

The ministry acknowledges the difficulties with the tertiary layer, including:

• The growing number of instruments• The spread of legal requirements governing imports, exports and domestic production across numerous documents on different websites• The lack of clear distinction at times between requirements and guidance• Poorly structured documentation that often makes information difficult to find.

Such weaknesses create problems for industry, verifiers and the ministry itself. The ministry is working on a five-year standards integration programme to clarify the tertiary layer and make the law more consistent and easier

to understand. Dairy regulation is the first area to undergo review. The Inquiry endorses the ministry’s programme, but considers the five-year timeframe is too long. Moreover, the Inquiry considers that the Parliamentary Counsel Office should be involved at a high level in the process.

The Parliamentary Counsel Office supports the Inquiry’s view that the tertiary instruments for the dairy sector could usefully be consolidated into a smaller number of principal instruments divided into subject or sector-specific parts. Ideally, as the Parliamentary Counsel Office points out, the process would begin with the design and planning of the enabling provisions in the primary legislation. This should include an analysis of the secondary and tertiary legislation that will be required. The tertiary layer could then be simplified and rationalised.43

Creating a set of simple rules of general application for the creation, amendment and publication of all tertiary instruments would also result in order, continuity and better accessibility. This could serve as a model on which to shape future regulation. To ensure future consistency with the new template, the ministry should involve specialist drafters, as well as technical experts, from the start of the process.

The Inquiry considers this work should be undertaken as a priority, with sufficient resources made available to ensure completion within two years. Industry and recognised agencies should be involved in the project from an early stage. A suggestion at an Inquiry forum was the establishment of a group comprising all parties to assist the ministry in this work.

The ministry also suggested that the requirements for risk management programmes should be contained in regulations rather than tertiary instruments, as discussed further below. There was support for this among many participants, and the Inquiry agrees. This is a matter best dealt with as part of the rewrite of tertiary instruments.

Clearer notification (or reporting) rules

Regulations require industry and verifiers to notify or report certain events. Such notification (or reporting) obligations need to be clear, accessible and well understood, for several reasons:

42 http://www.foodsafety.govt.nz/elibrary/industry/dairy-legislation-roadmap.pdf43 This work might also be helpfully informed by the forthcoming report by the Productivity Commission: Regulatory Institutions and Practices- Issues Paper August 2013.

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PART FOUR: ISSUES

• Early involvement of the regulator and verifier may help to ensure better decision-making when food safety incidents arise.• Collection of information relevant to food safety incidents may provide important surveillance data for the regulator on the performance of the system.• The regulator needs to know of any matters that may potentially affect New Zealand’s relationship with foreign markets, including access to those markets.

Currently those obligations are neither clear nor easy to identify. Spread across primary and tertiary legislation, the numerous notification requirements are complex, overlapping and at times difficult to interpret. Analysis by the Inquiry indicates that 14 provisions relevant to notification are spread over seven legislative instruments. For example, risk management programme operators must:

• Notify the ministry “as soon as possible, and in any case not later than 24 hours after the event or first knowledge of the event” when export product is not fit for intended purpose, refused entry by a foreign government or lacking the necessary official assurances44

• Notify the ministry (Director-General) “as soon as practical” after discovering any “emerging, new or exotic biological hazards” 45

• Notify their verifier in writing “without unnecessary delay” when there is “any significant concern” about the fitness for intended purpose of an animal product46

• Notify their verifier “without delay” if there is any “suspected or known” non-compliance with requirements under the Act47

• Notify their verifier “without delay” where there is “non-conforming dairy material or product”48

• Notify their verifier “as soon as practicable but no later than 24 hours” after either the “identification of non-conforming dairy product”, or a “critical non-compliance”. Non-conforming product is that which is “suspected or known not to meet regulatory requirements”, and a “critical non- compliance” includes a “critical situation”, namely one that “in the professional judgment of an animal products officer, places public health,

animal welfare, market access, official assurances, national good, or the credibility of MAF or the Director-General at risk, or where an offence is suspected”. 49

• Notify their verifier “within 72 hours” when product is destroyed or sent to landfill.50

This regime generates more than 800 notifications a year to the ministry, with a much larger number to verifiers.

Several submitters raised the related question of whether there should be defined escalation paths to give industry and the regulator clear guidance on the steps to follow in dealing with dairy food safety incidents. Such paths would cover responses at all stages of an incident and from the perspective of all participants.

Others pointed to the incentive for full and frank communication with the regulator if the regulator’s response to a notification can be safely predicted. It is essential for industry confidence that notifications are dealt with predictably, appropriately and without causing undue harm. Defined escalation paths would assist, ideally drafted jointly by industry, laboratories, verifiers and the regulator.

The current law needs to be reconciled, clarified and simplified. Many suggested a review of requirements to ensure they are clear and proportionate to any relevant risk. The Inquiry agrees:

• The ministry should prioritise work to rationalise notification requirements and establish a coherent, accessible and workable regime.• The ministry should elevate notification requirements to regulations in order to improve accessibility. • The ministry, verifiers, laboratories and industry should jointly draft and publish escalation guidelines for food safety incidents.

administrative changes

Submitters highlighted four areas for improvement to the current risk management programme system, all largely related to their administration.

44 Animal Products Act 1999, s 51(c).45 Animal Products (Risk Management Programme Specifications) Notice 2008, cl 13(2).46 Animal Products (Risk Management Programme Specifications) Notice 2008, cl 13(3).47 Animal Products (Dairy Processing Specifications) Notice 2011, cl 7(1) . 48 Animal Products (Dairy Processing Specifications) Notice 2011, cl 5(2).49 DPC 1: Animal Products (Dairy) Approved Criteria for General Dairy Processing 2011, cl 7(5) and Animal Products (Dairy Processing Specifications) Notice 2011, cl 4. 50 Animal Products (Disposal of Non-conforming Dairy Material or Dairy Product) Notice 2013, cl 9.

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ISSUES 4

First, the ministry considers operators to be increasingly using risk management programmes as business process tools, which can make the programmes unwieldy and confusing, especially for those assessing them for compliance. The suggestion is that risk management programmes be limited to food safety and related regulatory matters.

This idea was supported at a forum that included industry participants. Some risk management programmes have grown to thousands of pages, made up of dozens of individual documents. There is some acceptance that there would be benefits in rewriting and reorganising risk management programmes to focus on the essentials – the regulatory requirements.

The Inquiry agrees that risk management programmes in general should be limited to such regulatory matters. This is best done, however, following the ministry’s rewrite of the tertiary instruments. Simplified risk management programmes should follow simplified regulations. However, industry should not be deterred from beginning to review the design of existing risk management programmes in the interim.

Overall, the Inquiry’s best estimate is a timeframe of three to four years comprising:

• Reform of the tertiary layer: two years• Redesign of risk management programmes by industry: a transition phase of one year• Full implementation (including re-evaluation and registration with the ministry): by the end of the fourth year.

Secondly, the ministry suggested it should receive full copies of risk management programmes and all amendments. Again, this is best implemented following the rewrite of the requirements and programmes. The Inquiry notes there will be logistical implications for the ministry in keeping track of the various documents, and protocols will need to be established to ensure the system is workable.

Thirdly, risk management programmes are currently evaluated for registration purposes and verified for continued compliance. Yet some programmes are 15 years old and there is no legal obligation for periodic review to ensure they continue to meet best practice

requirements.51 A precedent exists with certification (to voluntary standards) and a three-yearly cycle of certification, surveillance and recertification (with the latter process generally taking two-thirds of the time of the initial appraisal).

In light of environmental, technological and risk-profile changes occurring in the industry, a re-evaluation would provide an opportunity to check that individual risk management programmes match best practice. Such reappraisals would ensure the industry was well placed to respond to future, rather than just existing, challenges.52

Re-evaluations would be periodic only, possibly every three or five years depending on the risk profile of the particular plant or process. Mindful of the extra expense for dairy producers and processors, the Inquiry recommends that the ministry, relevant recognised agencies and the industry consult to determine appropriate timing, coverage and cost of periodic re-evaluations.

A first re-evaluation could potentially take place following the rewrite of tertiary regulatory requirements and the consequential revision of risk management programmes.

Fourthly, the ministry provides simple risk management programme templates, mainly to smaller businesses to reduce their compliance costs. However, a template can undermine the purpose of a risk management programme. The Inquiry supports the continued availability of templates, provided that businesses using such documents are subject to more rigorous scrutiny: section 9.

the Food bill

The Food Bill will replace the Food Act 1981, a 30-year-old statute that is out of step with the regulatory framework in the Animal Products Act 1999. The Inquiry endorses the intention of the Food Bill to establish a risk-based system and notes this has received widespread support from industry. In the limited timeframe of this Inquiry, and given its terms of reference, which relate to the regulatory system for dairy only, the Inquiry’s focus has necessarily been on the Animal Products Act 1999 and associated instruments.

51 A previous re-evaluation requirement became impracticable, the Inquiry was told, because the workload became too great and because of the tendency for reviews to become a box-ticking exercise. Such concerns can be appropriately managed. 52 A point emphasised by Professor Archer in his article, fn 15.

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PART FOUR: ISSUES

There are some areas, however, of obvious overlap between the new Food Bill and Animal Products Act 1999, including compliance and recall, which should be aligned: section 12.

The Inquiry recommends any further work on the Bill be completed promptly and sees no reason to delay the enactment of the Bill.

recommendations


• The ministry should accelerate the standards integration programme, using specialist drafters, technical industry experts and recognised agencies from the start of the process. In particular:

○ Risk management programme requirements should be elevated to regulations, along with the requirements for the notification and reporting of food safety events.

○ There should be a new requirement that risk management programmes be limited to food safety and related regulatory matters.

○ The ministry, verifiers, laboratories and industry should jointly work on drafting and publishing escalation guidelines for food safety incidents.

• Following the rewrite of the requirements for risk management programmes, the ministry should receive and maintain records of full and up-to-date programmes.• Risk management programmes should be periodically re-evaluated.

8. role of the regulator

No food safety system works without an effective regulator. New Zealand’s primary regulator of dairy food safety is the Ministry for Primary Industries,53 tasked with the responsibility to “ensure that New Zealand produces safe, sustainable, high-quality products for domestic and international markets”. 54

Goals and statutory roles

The ministry is one of New Zealand’s larger government agencies, with more than 2,000 full-time-equivalent staff.

Its job is equally large. It is responsible for primary production, biosecurity and food safety, all areas of fundamental importance to a country with an economy so reliant on food production for its prosperity.

Interviewees unanimously praised its high international standing and leadership in the development of dairy, meat, animal health and export certification regulations and standards. As one interviewee noted: “It punches well above its weight, given the size of the New Zealand economy.”

The ministry is subject to oversight at a number of levels. It is accountable to two ministers, one of whom is a minister with the specific portfolio of food safety – not a common feature in comparable countries. As with other ministries, it is reviewed by three central agencies (the State Services Commission, Treasury and the Department of the Prime Minister and Cabinet). Overseas delegations frequently audit the food safety system, for which the ministry has overall responsibility.

Formed from the merger of the Ministry of Agriculture and Forestry, Ministry of Fisheries and the New Zealand Food Safety Authority in 2011, it has much more of an economic development focus than its predecessor parts. Its long-term strategy (endorsed by the Government) has four goals: to maximise export opportunities, improve sector productivity, increase sustainable resource use and protect against biological risk.55 The first of these, to maximise export opportunities, involves a doubling of exports by 2025. The Inquiry has two observations. First, these goals make no mention of the importance of food safety – a point it will return to later. Secondly, in relation to the doubling of exports, the ministry’s role can of course be facilitative only.

The Inquiry considers that no changes are needed to the ministry’s statutory roles of, among other things, setting standards, providing official assurances, monitoring and auditing the risk management system and addressing non-compliance.56 For reasons already discussed, it considers that the statutory allocation of overall systems responsibility for the risk management programmes to the ministry, and responsibility for verifying such programmes to recognised agencies, to be appropriate. An important addition, however, is for the ministry to have statutory

53 The Ministry of Health has public health responsibilities under the Health Act 1956 and the Health (Infectious and Notifiable Diseases) Regulations 1966. Its role in relation to dairy food is confined to such food safety incidents as give rise to notifiable diseases. 54 Ministry for Primary Industries Annual Report 2012/13, at 5. 55 Ministry for Primary Industries Statement of Intent 2013-2018, at 23.56 Animal Products Act 1999, s 3(3).

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ISSUES 4

responsibility for food safety contingency planning, discussed in section 12.

Nevertheless, aspects of the ministry’s general “practices” or “operations” (defined widely in the terms of reference) came up consistently in interviews, as discussed briefly below.57 (Specific aspects of its operations are discussed in other sections.)

Structure

Following the merger, the ministry established a structure based on the functional roles of policy, standards, verification, compliance and so on. A diagram of that structure is attached as appendix 2. The Inquiry understands the ministry considered that such a structure would better reflect its “key activities”, prevent so-called silo behaviour and improve collaboration across the organisation. 58

However, one potential weakness with this structure is the absence of a single branch responsible for food safety, or a dairy sector team. The Inquiry endorses the comments of the performance improvement framework review that the “integrative mechanisms of the Food Operational Co-ordination Group and, for strategic thinking, the relevant Strategy Advisory Group are critical”. 59 (The first group co-ordinates operational aspects of food safety, while the second co-ordinates strategic and policy aspects of food safety). Without these, there is a real risk of loss of an integrated focus on food safety.

Importantly, MPI agrees and is currently reviewing the way in which the Food Operational Co-ordination Group will work to ensure greater integration in, and visibility of, the ministry’s food safety role. Although ultimately a matter for the ministry’s new Director-General, the Inquiry considers that the necessary integration is unlikely to be achieved merely by a review of the Food Operational Co-ordination Group.

There may well be a case for the creation of a new role to head the ministry’s food safety system. Such an appointment would also help raise the profile of the ministry’s food safety role among stakeholders, industry, consumers and markets while still preserving the functional roles of policy, standards and so on.

Moreover, in order to achieve, as one interviewee described it, the “missing view across the sector supply chain” (that is, from policy to compliance), the Inquiry recommends five new senior roles of dairy, meat, horticultural, forestry and seafood sector co-ordinators. It would be a matter for the Director-General to decide the precise level for these appointments. Based on feedback from many interviewees, the Inquiry considers the appointment of one such co-ordinator in each sector would:

• Achieve the necessary integration and co-ordination of functions for sectors • Ensure accountability • Strengthen stakeholder relations and ensure they are well managed.

The Inquiry has little doubt, based on its many interviews, that such appointments would be welcomed by participants, especially industry.

multiple roles

Opinions differed as to the merits of absorbing the New Zealand Food Safety Authority into the ministry. However, a common theme among interviewees was the plea not to subject the ministry to more major structural change, but rather to give it a necessary period of consolidation. Moreover, a number of interviewees favoured the merger. Typical comments included:

• “Biosecurity and food safety are two sides of the same coin.”• “The ministry and industry both benefit from synergies between food safety and facilitating trade.”• “It’s a convenient one-stop shop.”

But many noted the “obvious tension” stemming from its dual role as a trade facilitator and food safety enforcer. Some interviewees proposed greater internal functional separation of the two modes of operating because it was “sometimes unclear what role the ministry is performing at a particular point in time”. This blurring of roles is particularly evident, it is said, when export non- conformance or exception reporting problems arise. Ministry officials in the market assurance team (dealing with trade access issues) may become involved in compliance

57 The terms of reference define practices as including decision-making, procedures, processes, services and systems.58 State Services Commission, the Treasury and the Department of the Prime Minister and Cabinet, Performance Improvement Framework Formal Review: Ministry for Primary Industries, March 2013, at 17.59 Ibid, at 35.

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matters, while simultaneously helping to ensure continued market access.

The ministry recognises it can be a “challenge for [its] officials to manage the distinction between the roles of regulator and enabler of industry, and it is important for industry to be left in no doubt about what role [the ministry] is playing at any given time”. The Inquiry endorses its proposal to clarify potentially conflicting roles, particularly as between, to use the industry’s words, its roles as “enabler” and “enforcer”.

The question is how best to achieve that. At a minimum, it requires greater clarification about roles and expectations when problems involving food safety and market access arise. Another option is to ensure individual staff do not perform potentially conflicting roles.

One submission highlighted as “worthy of consideration” the mechanisms for internal functional separation contained in the State Sector Amendment Act 2013 for the market assurance team.60 However, with market access issues involving inter-related policy and operational aspects, the Inquiry doubts that a functional separation would be appropriate. Furthermore, the Inquiry can only emphasise the point made by others that any further restructuring of this magnitude would divert resources and attention from more pressing operational priorities.

Skilled staff

Another recurring theme was the need for the ministry to build its ranks of skilled staff in food safety generally and dairy specifically, especially given the growing size and importance of dairy and food exports to the New Zealand economy. Succession planning for key roles is also critical. The ministry notes that technical expertise in dairying is especially “hard to come by, and turnover of staff [mostly to dairy processing] in these areas can be costly”. The Inquiry is satisfied that the ministry is endeavouring to deal with this problem, although a solution may well require more staff and funding.61 The need for ministry involvement in an industry-wide discussion on dairy processing and regulatory capability has been examined in section 6.

role priorities

Plainly, food safety must be given its due in the ministry’s priorities and culture. While the ministry’s role in promoting export growth should not be undervalued, a critical focus must be that of regulator of food safety, biosecurity and primary production systems.

One concern is the perception that the ministry’s core role in food safety has taken second place to securing market access, particularly with the heavy emphasis on doubling exports. The performance improvement framework review observes that some staff now perceive protecting food safety to be of secondary importance to expanding food markets.62 Yet what this incident has so starkly shown is that unless the country protects its reputation for safe food, the growth goal will be hard to achieve.

The Inquiry does not doubt the ministry’s assurance that food safety “is a given”. As the ministry emphasised to Inquiry members, “[when] making judgments that require us to balance interests, we are clear that we must err on the side of safety”. So long as those judgments are sound and based on accurate and reliable information, the Inquiry agrees.

But perceptions to the contrary require attention – and those perceptions are not allayed by the low profile of the ministry’s food safety role in public communications, such as its strategic outcomes and most recent statement of intent and annual report. The Inquiry observes that the New Zealand Food Safety Authority was active in generating publications, reports, guidance material and the like. Since the merger, this activity has slowed considerably and much of the material retains the authority’s brand, rather than that of the ministry. Yet a regulatory brand matters a great deal in some key markets, as the naming confusion surrounding certification of meat exports to China demonstrated.

Greater visibility of the ministry’s important food safety role is required, especially when, in many countries, a separate food safety authority exists to ensure the strong delivery of that message.

60 This enables the establishment of departmental agencies, particularly for operational functions, to be undertaken autonomously while located within the host department. One directorate within the ministry that is primarily operational is MPI Verification Services, which is an alternative verification option to other recognised agencies in certain areas and operates on a full cost-recovery model. Possibly the departmental agency concept might be one for this directorate if it were considered greater separation would be helpful.61 See also MPI Action Plan, the ministry’s response to the report Delays to New Zealand Meat Exports to China: A Learnings Review, 1 August 2013, at 3.62 See fn 58, at 48.

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ISSUES 4

risk communication

The ministry has general responsibility for managing risks to food safety, but an equally important role is communicating information about those risks. Risk communication can be the business-as-usual relaying of information to other government agencies, industry members and consumers, or it can convey information to respond to a crisis like the recent incident.

The ministry and Fonterra both acknowledge they need to improve their risk communication and crisis management policies. In the next stage, the Inquiry will consider the subject of risk communication in a crisis against a full factual understanding of the responses to the incident.

For now, the Inquiry simply observes that the ministry is working on a single organisation-wide risk communication framework in the event of a crisis. The proposed framework will elaborate on, among other things:

• The role of science and scientists (in the Inquiry’s view a top priority)• How to resolve the tension between technical accuracy and consumer comprehension• The difference between communication that informs and communication that aims to change behaviour• The decision-making process in calculating when to wait for more details and when to communicate incomplete information (again, something the Inquiry particularly endorses)• Explaining to the public what are food safety, rather than food quality, issues and how to mitigate risks.

The ministry is well aware of the need to prioritise this work. The Inquiry emphasises:

• Properly resourcing risk communication and integrating it into all aspects of its core functions• Making sure it is focused and appropriate• Involving industry members in developing and communicating the new framework• Bringing in specialists in food risk communication.

Greater use of forums and overseas links

Many parties referred to more frequent events run by the ministry’s predecessor, such as regular workshops, road shows and seminars, through which the regulator, recognised agencies and industry members could discuss technical issues, better understand the regulator’s expectations and provide refresher training. While requiring extra resourcing, more regular events like these would seem sensible, and could also be given a digital component via, for example, web-based seminars.63 The ministry can also draw on the extensive availability of food safety information available on the internet.

A recent initiative the Inquiry applauds is the forum the ministry hosted last year with primary industry chief executives. The forum initiated many good ideas and highlighted the importance of the ministry working closely with primary industries so as to ensure, among other things, safe food with its obvious public and economic benefits.

While the ministry is already well represented at forums such as Codex and the International Dairy Federation, several interviewees considered the ministry should step up its involvement in, and engagement with, other influential international food safety bodies. Examples include the APEC Food Safety Co-operation Forum and GFSI.

a Food Safety and assurance advisory Council

A specific recommendation is the establishment of what the Inquiry has termed a Food Safety and Assurance Advisory Council (although the precise title may differ). The Inquiry notes the importance of including the word “assurance” in the title to indicate that such a body would be concerned with all food safety-related issues, including consumer confidence.

Essentially, its purpose would be to provide the ministry with a strategic, external viewpoint on issues relating to food safety and assurance. It would provide the ministry, as one interviewee put it, with access to “sage, smart advisors” – some of the country’s best senior individuals with experience in these issues, whether from a business, scientific or regulatory perspective.

63 The Irish Food Safety Authority, for example, runs many forums for the benefit of industry, including “breakfast bites” – meetings focusing on current issues.

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PART FOUR: ISSUES

The Inquiry emphasises that the council’s membership should be small. It is not intended to be a pan-sector body.64 It would be more akin to a company board of directors, but with its primary focus on advice rather than governance.

The new body’s precise terms of reference, frequency of meetings and so on are matters of detail. But the Inquiry would anticipate it might meet, say, four times a year and essentially would:

• Provide the ministry with the benefit of high-level independent strategic advice on important food safety and assurance issues • Advise on current and emerging risks • Seek information on the performance of the food safety and assurance system• Provide the ministry with, in effect, a sounding board for new ideas• Encourage the ministry to attain levels of excellence in its food safety-related work • Report annually to the Director-General on the performance of the country’s food safety and assurance system.

A comparable body exists in the form of the Electricity Security and Reliability Council, although that body, unlike the one proposed here, has its membership focused exclusively on industry representatives.65 There is some parallel with the Biosecurity Ministerial Advisory Committee, which provides the Minister for Biosecurity (as well as the ministry) with high-quality independent advice on the performance of the overall system. Such a council would also assist to give the necessary visibility to food safety among industry and consumers, particularly in foreign markets.

Whether the council is established by statute, or simply by the ministry under direction from the Government, is, in the Inquiry’s view, of no particular consequence.

resourcing

The ministry’s work is funded under Vote Primary Industries and Vote Food Safety. In the 2012-2013 financial year, the ministry’s budget for food safety totalled slightly more than $85 million, and for primary industries slightly more than $307 million.

The Inquiry considers additional funding for Vote Food Safety is required for particular needs relating to:

• More food safety and dairy-related capability • An expanded China and new markets team (here and overseas)• Contracting experts to assist with redrafting the tertiary layer of regulation• A Food Safety and Assurance Advisory Council.

This additional funding would not only help ensure food safety, but would also help achieve the Government’s objectives to lift growth and productivity in industries involving animal and plant products. MPI is currently working on an estimate of the likely costs.

recommendations


• A Food Safety and Assurance Advisory Council should be established to provide the ministry with high-level independent strategic advice and risk analysis and report annually to the Director- General on the performance of the system. • The ministry should consider the following aspects of its operations:

○ Structure: ensure a more integrated focus on the dairy sector and food safety generally.

○ Roles: ensure greater clarification of multiple, and sometimes conflicting, roles.

○ Capacity and capability: ensure additional skilled staff in food safety generally and specifically in the dairy sector.

○ Visibility: ensure greater prominence of the ministry’s food safety role.

○ Risk communication: ensure greater resourcing of, and priority for, this role.

○ Engagement: hold regular workshops and participate fully in overseas forums.

• Additional funding should be allocated to Vote Food Safety, targeted at food safety and dairy- related capability; China and new markets capability; the redrafting of regulations; and the Food Safety and Assurance Advisory Council.

64 Other forums exist, or have existed, for this, such as the APEC Policy Partnership on Food Security and the New Zealand Food and Beverage Exporters Council. A number of industry organisations also exist such as the New Zealand Food and Grocery Council and the New Zealand International Business Forum. Previously, a New Zealand Food Safety Advisory board existed and it, too, was a wider industry board and had a specific mandate in reviewing New Zealand’s domestic food regulations. The Inquiry notes that the Riddet Institute in a June 2012 paper, A Call to Arms, has suggested the establishment of an agri-food board as a focal point for sector leaders to work together. 65 See terms of reference for the Electricity Security and Reliability Council 15 March 2011 available at http://www.ea.govt.nz/dmsdocument/9726

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ISSUES 4

9. role of verifiers

Recognised agencies play a vital role in New Zealand’s regulatory framework. Verifiers ensure that operators are properly implementing their risk management programmes. Laboratories, which must also be formally recognised, test products and ingredients for some of the hazards identified in those risk management programmes. These are discussed in section 10.

Of special interest to the Inquiry is the process verifiers undertake in checking dairy risk management programmes. Evaluation is done at the point the programme is established and registered with the ministry; verification is the ongoing inspection work, which consists of confirming through a range of auditing, testing and other checks that dairy producers and processers are meeting regulatory requirements.

In spite of limited competition between verification agencies, there is unanimous support among interviewees for continued independent verification by third parties – not by the regulator. The Inquiry suggests no fundamental change, although ways to strengthen verification are recommended later. But first, the Inquiry has looked at the soundness of the regulatory model, the verification process and reporting requirements.

model sound

The Inquiry considers the verification model to be sound. Recognition as a verifier (both for the agency and individual auditors) requires accreditation to stringent internationally accepted standards (ISO17020 for inspection bodies). Both of New Zealand’s accreditors, JAS-ANZ and IANZ, are recognised, independent, non-profit organisations established respectively by treaty and statute. 66

The accreditation process assesses the competency of the agency to perform specific inspection tasks, examining, among other things, the agency’s management systems, inspection methodologies, technical proficiency, personnel, contractual arrangements, facilities and equipment, and record-keeping. Accreditors must be accompanied by a ministry technical expert, consistent with the verifier’s status as the regulator’s agent.

One issue raised with the Inquiry was whether the appropriate standard should be ISO17065 for product certification, which is said to be internationally more widely recognised.67 Participants have differing views on whether this standard gives more, or less, rigour to the verification process. Which ISO standard is the more appropriate is for the regulator, accreditors and verifiers to consider in consultation with industry. The regulator, however, has the ability to tailor ISO standards with the use of secondary criteria to ensure its needs are met. In the event of significant change, consideration may, however, need to be given to the present contestability model, which is discussed later.

Verifiers are subject to various legal duties, including:

• Adequately resourcing and maintaining systems so as to be able to carry out their functions• Having documented policies and procedures in place• Having systems to manage appropriately any conflicts of interest• Not compromising in any way their impartiality and independence.

The operator must advise the ministry of any change in its recognised agency, and the ministry has the power to suspend or remove a recognised agency or person.68

Auditors must meet high competency standards, which until 2011 included personal assessment (observation of work by the accreditation body). Since then, the regulator has amended the criteria for recognition of agencies, reducing this requirement to a sampling of inspectors within an agency, a change that so far has raised no concerns.

The Inquiry is satisfied that recognised agencies attach sufficient importance to recruitment, induction and continuing training. The Inquiry is aware of the challenge posed by the shortage of expert dairy auditors. Attracting sufficient skilled staff, as already noted, is a difficulty for all areas of the dairy sector.

The ministry subjects recognised agencies to regular systems audits to maintain oversight of the verification process. It takes corrective action when there is non-compliance. The Inquiry has reviewed systems audit reports from mid-2009 until the end of November 2012,

66 JAS-ANZ was established in 1991 by the Australian and New Zealand governments and operates within the terms of the Trans-Tasman Mutual Recognition Arrangement. IANZ is governed by the Testing Laboratory Registration Act 1972. 67 Certification is a means of providing assurance that products, processes or services comply with specified requirements in standards and typically results in the issue of a certificate.68 See Animal Products Act, ss 16(2) and 112.

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most of which involved systems auditors acting as technical experts in the accreditation process. On the information available to the Inquiry, and apart from some relatively minor, but common, themes, these reports show that the verification process works well.69

Who, however, checks the checker? At present, the ministry’s systems audit team (regarded as the ministry’s “eyes and ears” in checking compliance) is not accredited. The Inquiry suggests that the ministry should consider such accreditation, or equivalent peer review in order to maintain stakeholder, consumer and market confidence.70

Recognised agencies are also subject to overseas-equivalence audits, which include a comprehensive assessment of their competency, programmes and the witnessing of audits. The recent United States equivalence audit (discussed in section 7) approved New Zealand’s verification regime.71

verification rigorous

On the whole, industry participants consider that the system delivers sound outcomes. Typical comments included, “the verification systems are generally pretty good” and “recognised agencies are very good at their jobs”. (A few exceptions are discussed below.) Interaction, both formal and informal, between risk management programme operators and their verifiers is frequent.

A performance-based system gives operators an incentive to comply with requirements, including less frequent verifications. The Inquiry recommends no change to this aspect of the system, which ensures that new or under-performing operators are subject to more frequent audits, and accordingly, cost.

Even high-performing manufacturers audited three-monthly are subject to intense scrutiny, including at least one unannounced audit in every 10 visits.72 They, like other businesses, are obliged to grant verifiers access to their sites, all relevant records and information, production objects, animal material, containers and packaging, as well as allowing examination and testing of samples.73

The audits cover a comprehensive range of matters (see appendix 3). For a large manufacturer, an audit takes the equivalent of about 12 days, which, multiplied by four quarterly visits, amounts to almost 50 days – a substantial period of scrutiny.74

Audit numbers further demonstrate the rigour of the verification assessment. AsureQuality reported to the Inquiry more than 500 performance-based dairy audits (covering 162 risk management programmes) in the 2012-2013 season. Fonterra’s New Zealand Milk Products Division was the subject of 212 regulatory audits, in addition to a significant number of internal or customer audits for compliance with voluntary standards in the same season. Total audits exceeded 850.

reporting obligations

A range of reporting activities, generally known in the industry as contact and escalation, takes place after each audit. The recognised agency will work with the operator to manage any failure to meet a particular requirement (known as a non-conformance). Non-conformances are dealt with according to the level of risk to the system’s integrity, process or product safety. All are covered in a detailed “programme verification report” provided to both the operator and the ministry.

The auditor manages any reported exceptions, with the ministry routinely advised of resolution. Where an operator fails to take appropriate action, or a critical situation arises, the auditor advises the ministry.

Monthly reports from the verifier to the ministry provide high-level summary data of operator performance, conformance management, exceptions data, trends and other general matters. The Inquiry is satisfied, on the information available to it, that reporting is frequent.

What the Inquiry has not been able to do, however, is to audit independently a sufficient sample of non-conformance and exception reports to confirm participants’ views that reporting is sound. The Inquiry considers it may be timely for the ministry’s systems audit team to carry out such an exercise.

69 Common themes include dairy capability (sometimes marginally competent verifiers are given the benefit of the doubt for accreditation purposes, although in these cases increased surveillance follows); verifiers’ lack of knowledge of relevant overseas market access requirements; improvement in audit techniques, such as greater use of open questions; and the need not to act as a “consultant” to industry.70 The Inquiry understands the team was once accredited but it was considered inappropriate, when systems audit assessors usually accompany IANZ or JAS-ANZ to carry out accreditation audits, to be both accreditor and accreditee. 71 See fn 36, at 15 to 19.72 Animal Products (Export Verification Requirements) Notice 2011, cl 10(3). 73 Animal Products (Risk Management Programmes Specifications) Notice 2008, cl 17(1). 74 Normally a team of four will be on site for three days.

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ISSUES 4

Independence and impartiality

Although New Zealand is not alone in using third-party verifiers, there are differences in the arrangements between countries. In Ireland and in Victoria, Australia, for example, third-party auditors contract with the relevant food safety authority. In the United States and New South Wales, as in New Zealand, third-party auditors contract with relevant food businesses. One participant suggested the model can be likened to a financial audit completed by an accounting firm on behalf of the Auditor-General, but with the auditor paid directly by the firm.

Some participants, including overseas regulatory authorities, have voiced concerns about the potential for conflicts of interest, perceived or otherwise, in the New Zealand model, pointing to the vulnerability of recognised agencies to commercial pressures from operators. Others, including the FDA, have raised no difficulties with this.

Views differ as to whether existing checks and balances are sufficient to deal with such conflicts of interest (real or perceived).75 Some parties advocate greater separation between the verifier and businesses, identifying such possible options as:

• Allowing businesses to negotiate terms and payment with the verifier, but with contracts between the ministry and the verifier76 • Requiring businesses to pay the ministry for verification services, which the ministry would contract out (by tender) to one or more verifiers in each field. 77

Opponents of change favour greater transparency. Measures they propose include:

• Requiring all communications and reports to stipulate that recognised agencies serve as “agents”• The ministry’s warranting of approved personnel as its agents, as can occur during biosecurity incidents.78

The Inquiry has concluded that fundamental change is not required and rather the ministry and recognised agencies should agree on ways to improve transparency, that is, to make clear that the true client is the regulator – the verifier

is, after all, the ministry’s agent. This was generally the view also of most participants.

MPI has signalled that it plans more generally to review third-party verification, including contestability. The Inquiry would question whether this is a high priority, given the general satisfaction with the contestable model and other more pressing work the ministry needs to undertake. In the longer term, fundamental change would, as the ministry recognises, require consultation among all parties and appropriate cost-benefit analysis.

Improvements

Suggested improvements are discussed briefly below.

Auditing of template risk management programmes

The Inquiry has already noted that one of the risks of providing template documents is that it can undermine the very purpose of the risk management programme, namely, to ensure an operator fully considers and deals with the specific risks inherent in an operation.

The Inquiry considers that when a dairy processing operator simply uses a template risk management programme, it should be subject to more rigorous scrutiny.79 It recommends that the ministry and recognised agencies consider what might be involved in that process. One option would be to require auditors to question in detail dairy processing operators using such templates when first evaluating (or re-evaluating) the risk management programme, to ensure the operator “fully understands and owns” (to use one interviewee’s words) the programme. The ministry must, however, be conscious of the costs that might impose on small businesses. If confined to the evaluation stage only, any additional cost should be minimal.

Expanded evaluation component by the verifier

The principal function of verification is to assure the regulator that risk management programme operators meet regulatory requirements and assure customers that food safety obligations are met. It appears that, without compromising their independence and impartiality, verifiers could also benefit operators by suggesting ways of lifting individual performance beyond mere compliance.

75 These checks and balances include accreditation; risk committees that manage any conflicts of interest; codes of ethics and so on. The FDA considered AsureQuality’s documents revealed that “conflict of interests policies are implemented consistently and effectively”: fn 36 at 17.76 But this option would not necessarily remove perceived commercial pressure put on verifiers by the industry if businesses still paid verifiers. 77 This is similar to the tender system run by Dairy Food Safety Victoria.78 This is a reference to the practice that applies when the ministry contracts personnel to help out during such incidents. Trained and approved non-ministry personnel are given appointment warrants and a badge to indicate they are acting on behalf of the regulator.79 Risk management programmes for farm dairy operators do not require evaluation if the operator uses a ministry template. The Inquiry sees no need to subject these operators to greater scrutiny. Nor would such a requirement necessarily extend to food businesses under the proposed Food Bill.

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Some operators asked for more feedback on the “operation of the system and best practice”, rather than “housekeeping issues” and “individual performance compared with overall industry averages”. Trends, it was suggested, could be discussed in regular forums between the operator and recognised agency. The Inquiry recommends that auditors and industry (with the ministry’s approval) consider if, and how, the regular auditing process could provide for a greater evaluation component, without straying into consultancy and raising conflict of interest questions.

Greater analysis of, and response to, audit information by the regulator

MPI’s access to information from a variety of sources, including systems audit data, puts it in a unique position to identify areas of particular concern, emerging issues or risks, compliance trends and ways of assisting the verifiers (as well as industry generally) to improve. Many interviewees considered that the ministry could “step up” its important work in this area.

The Inquiry is pleased to note the ministry’s intention to use existing and additional data to obtain a “deeper and more critical view of how the system is operating”. It is currently identifying ways in which it can extract more value from its operations, particularly from its systems audit function. The Inquiry recommends giving priority and resources to this work.

To a similar end, verifiers are also encouraged to collaborate, probably under the ministry’s supervision, to ensure informed analysis of data and trends.

Product dispositions

One of the recognised agency’s roles is to manage operators’ requests to dispose of dairy products because of, for example, contamination. (These are called disposition requests.) The operator is required to propose the means of disposal, for example, by reworking.80 Both the operator’s request and the agency’s decision require ministry input.

Where a product disposition specifies the disposal method, the operator must adhere to these specifications, and the verifier will review the product disposal after the

event, typically at the time of the next audit. As the Inquiry understands, only occasionally will the ministry require the auditor to supervise directly the product disposition. It would be impractical otherwise, and the Inquiry views current requirements as generally suitable.

However, the Inquiry considers there is a strong case, whether by regulation or operationally (for example, a ministry-imposed condition on the product disposition) for requiring verifier involvement when an operator intends to employ a novel or improvised product reworking.

The issue of the product disposition that set in train events leading to the recent incident will be addressed at the next stage after completion of MPI’s compliance investigation. But this is no impediment to the ministry, with verifiers and the industry, addressing this issue now.

accreditation of verifiers

While IANZ and JAS-ANZ are not recognised agencies, they are significant players in the regulatory model as the accreditors of the verifiers. The Inquiry considers no changes are needed to the accreditation model.

Views differ on the benefits of contestability.81 Whatever the merits of that debate, contestability does mean there is a need to ensure the two accreditation bodies’ interpretations and practices do not significantly diverge. The Inquiry would encourage a suitable level of consultation and collaboration between the two, again probably under the ministry’s supervision, to ensure continued improvements to the accreditation and verification systems. Both accreditors agree.

Current practice diverges between IANZ and JAS-ANZ in the provision of all their accreditation reports directly to the ministry (at the same time as the verifier receives its copy).82 The Inquiry considers consistency of practice essential, including full and transparent reporting to the ministry. All parties agree.

recommendations


• The independent verification system should be strengthened in the following ways:

80 Reworking in this context is the reprocessing of product and not intended to mean the reworking of product that operators undertake daily such as at the start and end of runs. The agency will discuss options with the operator and can approve the disposal directly where this meets ministry criteria: Animal Products (Disposal of 81 Non-conforming Dairy Material or Dairy Product) Notice 2013. Contestability is limited, with JAS-ANZ entitled to compete against IANZ to accredit inspection bodies but IANZ unable to compete against JAS-ANZ to accredit certification bodies. JAS-ANZ, however, cannot compete with IANZ to accredit laboratories.82 Currently one provides all its reports – with the consent of the verifier – to the ministry; the other does not, leaving it to the verifier to do so.

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ISSUES 4

○ Provide greater clarity of the verifier’s role as agent of the ministry to make clear the true client is the regulator, not the industry.

○ Subject dairy processing operators using template risk management programmes to more rigorous scrutiny.

○ Encourage verifiers and the industry (with ministry approval) to consider how the regular auditing process can provide more evaluation without straying into consultancy.

○ Involve verifiers in product dispositions featuring novel or improvised reworking.

○ Provide verifiers’ accreditation reports directly to the ministry to ensure full and transparent reporting.

• The ministry should carry out more analysis of audit information to identify areas of particular concern, emerging issues or risks and compliance trends.• Accreditors and verifiers should endeavour to consult and collaborate as appropriate to ensure continued improvements to the accreditation and verification systems.

10. testing: quality and Integrity

New Zealand spares no effort in conducting tests on food it produces for the world’s table. During the 2012-2013 season, dairy processors completed millions of tests at a cost of about $64 million, of which Fonterra’s 6.7 million tests totalled $45 million. The ministry also commissions a substantial number of tests on food intended for domestic and foreign consumption – more than a million a year, nearly a fifth of which are for dairy products or ingredients.

The Inquiry has considered the quality and integrity of product testing in the dairy industry, in particular whether:

• Laboratory competency is sufficient• Current testing is sufficient • The correct tests are conducted (and especially whether some or all dairy products should be subjected to routine testing for sulphite-reducing clostridia and/or C. botulinum)• The ministry, in its regulatory role, has sufficient oversight of testing procedures and results.

The Inquiry is confident the regulatory framework for testing is appropriate and that few improvements are necessary.

Laboratory competency

As with the verification model, the Inquiry regards as sound the model that requires industry and regulators to have access to competent testing facilities for any work they need. New Zealand’s food testing facilities include research institutes and analytical laboratories. Some are independent commercial laboratories, some are government owned and some are industry owned. Dairy testing laboratories fall into all three categories.

Compliance testing of dairy products must be undertaken in a recognised and accredited dairy laboratory, of which there are 48 nationwide, 13 of them independent operations. Regulatory and accreditation requirements dictate that laboratories have sufficient well-trained staff and are adequately equipped. In addition, laboratories that offer pathogen testing must have contingency plans and sufficient staff and resources to handle higher workloads if pathogen trace-back testing is necessary.

To help confirm the competency of testing laboratories, there are legislative mechanisms such as the independent verification programme, as well as the requirement for laboratories to take part in inter-laboratory comparison programmes.83

Accreditation to international standards helps assure the regulator that tests carried out to demonstrate conformity with regulatory requirements are indeed trustworthy and of a high, consistent quality. One such standard is ISO/IEC 17025:2005: General requirements for the competence of testing and calibration laboratories. Best practice dictates that a third party assesses laboratory testing competency and compliance with relevant standards. IANZ performs this role.

ISO/IEC 17025 is a generic standard used to accredit laboratories in fields ranging from food testing to fibre optics testing. Accreditation specifies the testing a laboratory is allowed to perform. The scope of work is very specific. Some laboratories may be accredited to conduct Listeria testing in food, but not in human clinical samples, or vice versa, while others may be accredited for both.

83 Two programmes cross-check laboratory results. The independent verification programme cross-checks dairy companies against independent laboratories. The inter-laboratory testing programme cross-checks laboratories against one another.

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IANZ’s accreditation work consists of:

• Ensuring compliance with standards• Examining the competence of laboratory staff• Verifying the accredited scope of testing • Monitoring the effectiveness of laboratory quality management systems. (Necessary controls include documentation review and on-site assessment of systems in operation before the issuing of a certificate of accreditation.)84

Dairy companies commission tests for reasons other than demonstrating compliance with regulatory requirements, such as for research and development purposes. In these cases, testing of this nature can be in any laboratory of their choosing. Fonterra’s commissioning of AgResearch in relation to the incident will be examined at stage two of the Inquiry.

The Inquiry is satisfied laboratory accreditation is strong and effective.

uses and limitations

Testing is integral to food safety systems. Against the background of this incident, the Inquiry’s primary focus is microbiological sampling and testing – a subset of a wider regime in the food industry, which includes testing for chemicals and physical (or foreign matter) contaminants. For dairy processors, microbiological testing will generally account for the major share of testing (for Fonterra, 51 per cent).

Experts agree it is impossible for producers to test their way to safe food because:

• They cannot test all of their production for pathogens• There is a probability of not identifying pathogens even when testing a large number of samples85 • Different test methods for the same pathogen can yield different results.86

Managing food safety risks therefore needs more than final-product testing. As discussed earlier, it requires the use of preventive measures – good operating practices and risk assessment procedures based on HACCP principles – alongside other tools, such as visual inspections and audits. It also requires the testing of ingredients and raw

materials, the environment and equipment. Exactly which combination of tools is most useful will depend on the type of product and how it has been processed and packaged.

Food safety breaches

Despite New Zealand’s comprehensive microbiological testing regime, food safety problems do occur. As the chart below shows, nearly a fifth of all incidents of non-conforming food exports reported to the ministry during a 12-month period related to food safety, of which a further fifth were due to microbiological contamination.

But in the words of one interviewee: “It is impossible to test all production – that’s the reality.” Rather, testing is guided by risk and statistical analysis. This gives an estimate of the likelihood of microbes or pathogens in food and determines how much of a batch, or how many batches, to test, and how often.

Some determining factors in sampling frequency are specific to individual businesses. For this reason it is right that legislation relating to the dairy industry seldom specifies the frequency of final-product testing.87 However, this does not mean a hands-off regulatory approach. Dairy businesses must include sampling plans in their risk management programmes, specifying what will be tested when. Those plans are checked for appropriateness during evaluation and verification of the risk management

Make-up of New Zealand's dairy export markets June 1991 - June 2013


‘91 ’92 ‘93 ’94 ‘95 ’96 ‘97 ’98 ‘99 ’00 ‘01 ’02 ‘03 ’04 ‘05 ’06 ‘07 ’08 ‘09 ’10 ‘11 ’12 ‘13

Rest of the world

EU 27

South-East Asia

OPEC

Japan

United States

Australia

China

Per

cent

35

30

25

20

15

10

5

0

Food safety Documentation errorsContainer failure including incorrect temperature Trade issue Other export non-compliance Product not/no longer eligible for market Labelling errors

Type of export non-compliance (ENC) reportsfrom June 2011 to July 2013

121

77

45

73

97

155

7

22

22

22

12

65

Foreign matter complaints Failed micro testingOther Positive residue tests

Further breakdown of food safety

export non-compliance

Source: MPI

84 Once a laboratory has demonstrated technical competence in, and compliance with, accreditation criteria, it is granted a certificate of accreditation (which includes a scope that describes the laboratory’s technical capabilities) and a copy goes on the IANZ website.85 Pathogens are typically not found evenly distributed through a product so “hot spots” can be missed in testing. This is mitigated as much as possible by robust sampling protocols.86 This risk is managed by validating methods to an international “gold standard test”.87 The Animal Products (Dairy Processing Specifications) Notice 2011 states “routine testing of product safety attributes may not be required where a HACCP Plan can demonstrate an equivalent level of confidence in meeting product safety outcomes”. DPC1 Animal Products (Dairy): Approved Criteria for General Dairy Processing states “if testing is required, the rate of sampling for each organism/product combination should be decided as part of a HACCP analysis performed on the manufacturing process”.

45

88 http://www.codexalimentarius.org/download/standards/394/CXG_021e.pdf.89 http://www.foodsafety.govt.nz/elibrary/industry/Food_Sector-Sets_NZFSA.pdf at 15.90 Modified from Lindström et al. (2010) Clostridium botulinum in Cattle and Dairy Products,critical reviews in Food Science and Nutrition, 50: 281-304. 91 Johnson, E.A., Tepp, W.H., Bradshaw, M., Gilbert, R.J., Cook, P.E. and McIntosh, D.G. (2005) Characterisation of Clostridium botulinum strains associated with an infant botulism case in the United Kingdom. J. Clin. Microbiol. 43 (6): 2602-2607.

ISSUES 4

programme. The ministry also provides guidance for sampling plans.

Overall, the Inquiry has seen no evidence to suggest more frequent testing is required, a view reinforced by most participants. Comments included:

• “New Zealand’s testing regime is consistent with international best practice ... it is one of the more detailed aspects of the overall food safety regime.”• “Testing quality and integrity are good, as long as operators follow the rules and use accredited laboratories.”• “The issue is not the quality of testing, but rather what information is generated and shared with the industry.”

basis for tests

Regulations governing what to test for vary according to product type, which raises questions as to why regulators – and businesses – test for some micro-organisms and not others. That, in turn, has raised the question of whether routine testing should be undertaken in the dairy industry for C. botulinum and sulphite-reducing clostridia.

Most microbes are harmless, or even beneficial, to humans, but some can be harmful if they, or their toxins, are eaten. Referred to as pathogens, such micro-organisms are the subject of testing most commonly specified in regulations. However, there may be reason from time to time to test for non-pathogenic micro-organisms, which generally are used to indicate quality or hygiene issues. Sometimes a non-pathogen will be used as a surrogate for a pathogen, for example, when a pathogen is difficult to test for.

Testing for pathogens

The Inquiry notes that the ministry, in setting limits for pathogens in some foods, has followed the internationally recognised collection of codes and standards contained in Codex, in particular the Principles for the Establishment and Application of Microbiological Criteria for Foods. Put simply, Codex says that a “microbiological criterion should be established and applied only where there is a definite need and where its application is practical”. 88

The ministry has developed a ranked list of pathogens, as well as the foods with which they are associated.89

The Inquiry is satisfied that New Zealand’s regulation is consistent with comparable countries in specifying which pathogens to test for in dairy products: appendix 4.

Clostridium botulinum

The bacterium C. botulinum produces the toxin that causes the muscle-paralysing disease botulism. The bacterium grows from spores, which are in the ground, in the air – even in the human digestive system. Nevertheless, the disease is rare because the digestive system moves the spores through the body before they can cause any harm. To contract the disease from food, it would be necessary to consume food containing the toxin.

However, susceptible babies (generally under 12 months) can contract the rare infant botulism by consuming food containing only the spores. Their immature intestinal tracts are less able to fight off those spores, which can colonise the gut and produce the toxin. Few cases occur worldwide and most babies recover fully. Dairy products have a particularly low risk of causing botulism compared with other food types.

Participants agreed that routine testing for C. botulinum is unnecessary, given the very low risk of this pathogen occurring in the New Zealand dairy industry. Reasons include:

• C. botulinum can grow only in an oxygen-free environment – a setting not found in dairy processing.• C. botulinum cannot grow in most dairy products (which contain too little water or too high a level of growth-inhibiting ingredients, such as salt or preservatives).• Cases of C. botulinum affecting human health are not commonly found in New Zealand.• Pasteurisation kills C. botulinum toxin-producing cells.

Few botulism cases worldwide have been linked to dairy products.90 Infant formula was linked to only one botulism outbreak – in the United Kingdom in 2001 – but experts ultimately concluded that the formula was not the source.91

46

3PART FOUR: ISSUES

In a paper in August 2013, the International Commission on Microbiological Specifications for Food said C. botulinum was “not considered a hazard in infant formula … and [it] does not recommend routine testing”. 92 As noted by many interviewees, routine testing for C. botulinum in dairy products would not improve food safety, but would add significantly to industry costs. The Inquiry agrees. Routine C. botulinum testing is unnecessary.

Testing for indicator organisms

There are three types of indicator organisms. Each has a distinct function, acting as a pointer to what is known in the industry as “food safety”, “quality” (or spoilage) or “hygiene”:

• Food safety testing looks for the presence of organisms associated with increased risk of exposure to a pathogen.• Food quality testing looks for microbes that cannot cause illness but may affect product quality such as shelf life, which is important to consumers.• Food hygiene testing looks for organisms that serve as an early warning that something unusual or unexpected has occurred during manufacture.

As Codex notes: “If a test for an indicator organism is applied, there should be a clear statement whether the test is used to indicate unsatisfactory hygienic practices or a health hazard.”93 A one-size-fits-all approach should not apply. This is a vital point. Knowing the reason for a test can help determine what should happen if a result exceeds specified limits. Sometimes an indicator may fall into more than one category – it may be a hygiene indicator in some circumstances and an indicator for a pathogenic species in others.

Sulphite-reducing clostridia testing

Sulphite-reducing clostridia are among the oldest forms of micro-organisms. By far the majority of such species are harmless to humans. Some species, however, can cause food spoilage (C. perfringens); and in particular circumstances, some can produce toxins dangerous to humans.

The Inquiry heard conflicting views about the value of regulating for SRC testing. Some suggested it should be mandatory, at least for consumer-sensitive products such as infant formula. Others argued it would provide no greater assurance of safety and should not be required. Still others acknowledged it would not improve safety in principle, but might be advisable for reasons of reputation.

The Inquiry notes that before this incident Codex did not consider SRC testing necessary in infant formula.94 At that time, several well-regarded experts described the process for developing the Codex infant formula testing requirements as an “excellent example of an evidence-based approach for the establishment of consensus microbiological criteria”. 95

Since the incident the International Commission on Microbiological Specifications for Food has concluded that SRC testing is “appropriate as an indicator of process hygiene with respect to the control of anaerobic sporeformers”.96 Writing in the same paper, the commission notes that such testing is not, however, a good candidate as a food safety indicator organism for C. botulinum.97 In other words, it emphasised that it is a food hygiene, rather than a food safety, indicator.

The cost of an SRC test has been estimated at between $30 and $40, which, multiplied many times for mandatory testing for all dairy products, would impose a considerable expense on dairy processors. More importantly, however, no scientific basis exists to justify such a requirement.

Overall, based on all available information, particularly scientific opinion, the Inquiry sees no need for mandatory SRC testing for all dairy products. As one interviewee put it, SRC testing should not be required as a “prescriptive regulatory requirement for all manufacturers”. Rather, “whether SRC testing is required is a commercial decision for supplier and customer, applying the HACCP risk-based approach”. An even stronger opinion suggested that “to require standardised SRC testing would be a complete waste of time”.

However, the Inquiry considers there may be a stronger case for SRC testing for products such as infant formula, a topic addressed in section 12.

92 International Commission on Microbiological Specifications for Food: Usefulness of testing for Clostridium botulinum in powdered infant formula and dairy-based ingredients for infant formula: “Given that Clostridium botulinum is not considered a hazard in infant formula (CAC, 2008), the important constraints related with the analysis of C. botulinum likely being heterogeneously distributed at very low levels normally in powdered dairy products, the [commission] does not recommend routine testing for this pathogen.” Available at: < http://www.icmsf.org/pdf/ICMSF_Infant_Formula_Testing_27_Aug_2013.pdf93 Codex Alimentarius: Principles for the Establishment and Application of Microbiological Criteria for Foods (CAC/GL 21 – 1997).94 Codex Standard 72-1981, Standard for Infant Formula and Formulas for Special Medical Purposes Intended for Infants [Amended 2011]95 Robert Buchanan and Ruth Oni: Use of Microbiological Indicators for Assessing Hygiene Controls for the Manufacture of Powdered Infant Formula, Journal of Food Protection, Vol. 75, No.5, 2012, at 989–997.96 See fn 92.97 “While originally proposed as an index test for pathogenic Clostridium (Mossel, 1959; Weenk et al., 1991), this goal has been elusive due to different sources of Clostridium in foods… there is no direct mathematical correlation between levels of spores of sulphite-reducing clostridia and those of C. botulinum.”

47

98 IANZ is a signatory of the International Laboratory Accreditation Cooperation (ILAC) Mutual Recognition Arrangement (MRA). ILAC is a globally recognised inter national grouping of laboratory and inspection accreditation bodies. Members participate in a rigorous peer evaluation process based on a common standard (ISO/ IEC 17011) to ensure each signatory maintains competence to provide accreditation services. As a result, the reports of laboratories accredited by an ILAC- recognised accreditation body are accepted by governments and industries worldwide. 99 IANZ already maintains a list of accredited laboratories in New Zealand, and is able to obtain information at short notice regarding overseas laboratories.

ISSUES 4

methods

Recognised dairy laboratories must use methods validated for testing against regulatory requirements and assessed as part of the accreditation process. In some cases, they may use only ministry-approved methods. (However, this does not apply to microbiological methods, other than when an overseas market access requirement specifies use of approved methods.)

On the rare occasion that a New Zealand laboratory lacks a new or required method within the scope of its accreditation:

• The laboratory can apply to the ministry to use the new or required method• The laboratory may contract the work to an overseas laboratory accredited by an IANZ-equivalent body • The dairy company may go directly to that equivalent body to have the testing done.98

Laboratories commonly choose the second option because buying new equipment or facilities for a single test is not cost-effective. Furthermore, it can be difficult to maintain accreditation for a test performed so seldom as to offer few opportunities to demonstrate competence.

New Zealand currently has no laboratory accredited to test food samples for C. botulinum. Experts regard the test as difficult and highly specialised. Given the low risk of C. botulinum in dairy products here, the Inquiry considers such a laboratory unnecessary when there is international expertise to call on. However, the Inquiry has been advised that Environmental Science & Research (ESR) is seeking accreditation for this test.

new threats

Interviewees described the technical competency of New Zealand’s laboratories as “generally excellent”. They questioned, however, whether they are sufficiently resourced to handle new or rare strains of pathogens or chemical risks – what might be described as “what if” scenarios.

The Inquiry considers it important for the ministry, with the support of accreditors and industry, to compile and maintain a list of overseas laboratories accredited to conduct tests in such instances. Industry should know

immediately where to go if an unusual test is needed and could help identify hazards for inclusion in such a list.99

Any list should contain details of requirements for the transport of samples. For example, very strict controls and time limits exist within which some tests must be conducted on samples potentially contaminated with C. botulinum. Government-to-government or laboratory-to-laboratory arrangements may be necessary or even contracts with selected laboratories to minimise delays in transporting and testing.

regulatory oversight

Laboratories notify test results to clients. They are not required to report results to a regulator or recognised agency. However, the question has been raised as to whether the ministry should hold some or all of the testing results in a national database to allow better trend analysis.

The Inquiry was advised that independent laboratory MilkTestNZ, for example, conducts raw milk testing for all but one of the country’s dairy companies. This laboratory has the ability to undertake industry-wide trend analysis, but confidentiality obligations prevent the release of information to the ministry or the wider dairy industry.

The removal of identifying particulars has overcome this obstacle in the case of the ministry’s national microbiological database in the red meat sector and the Civil Aviation Authority’s incident-reporting database for near-misses.

The Inquiry considers a national dairy database worthy of examination and notes this is the subject of one of the ministry’s interim measures following the incident. Such a resource might assist in identifying trends, particularly when, as noted in section 6, many emerging risks are appearing on the horizon. The Ministry of Health could usefully be involved in the establishment and review of any such database. However, for reasons discussed below, the Inquiry stops short of recommending the establishment of such a database pending greater analysis of existing data and extension of existing surveillance programmes for emerging risks.

Another important aspect of regulatory oversight is the need to ensure that all potential food safety issues

48

100 Respectively Dairy Industry (National Residue Monitoring Programme) Regulations 2002; and Animal Products (Regulated Control Scheme – Contaminant Monitoring and Surveillance) Regulations 2004.

3PART FOUR: ISSUES

detected through testing are reported to the regulator, in this case the ministry. That, of course, requires clarity as to what should be reported, when and to whom, as discussed in section 7. In relation to testing, interviewees commonly mentioned the need to ensure that notification requirements strike an appropriate balance, to avoid both under- and over-reporting. Many said notification should not be necessary when SRC testing is a customer requirement.

Equally prevalent was the view that once any test, SRC included, raises a “suspicion of a serious food safety issue”, notification should be required. However, interviewees emphasised the need for great care in determining when a “suspicious” result must be notified. Many notifications will not be confirmed as food safety issues.

The Inquiry is mindful that the ministry’s compliance investigation will be considering reporting issues in the context of the recent incident, and that it must be careful not to prejudice that process in any way. For now, it notes that the question could be dealt with more generally through defined escalation paths (including notification for a “suspicion of a serious food issue”). These paths would need to be agreed to by industry, laboratories, verifiers and the regulator, and would helpfully sit alongside actual regulatory requirements for reporting, as discussed in section 7.

Effective escalation paths would also allow ministry access to additional data, which, in tandem with verification reports, export and non-compliance reports, system audit reports and more, would provide a valuable opportunity to identify trends.

The Inquiry’s view is that more generally the ministry needs to strengthen its current piecemeal analysis and reporting of data. Indeed, better use of existing data would seem the first logical step before considering whether a national database is required.

Finally, it is important to note the key role of the ministry in surveillance testing, undertaken primarily through two regulated control schemes applying to the dairy industry: the national residue monitoring programme and the contaminant monitoring and surveillance regulated control scheme.100

The Inquiry considers that both provide appropriate regulatory oversight and should continue to be expanded where emerging risks are identified. For example, SRC testing need not be mandatory, but temporary SRC surveillance (such as the ministry is already undertaking) may be appropriate to detect any significant hygiene problems.

recommendations


• SRC testing should not be mandatory for all dairy products. • The ministry should compile and maintain a list of accredited laboratories for non-standard or novel tests. • The ministry should give priority and resources to better analysis of existing data to identify trends, including extending its surveillance programmes where appropriate.

11. Implementation of Food Safety Standards

The best food safety system in the world will not be effective unless well implemented. Many parties expressed the view that New Zealand’s system is “as good as anywhere in the world”. Indeed, New Zealand could not be ranked as one of the world’s leading food exporters, without the equivalent status for its food safety systems. The Inquiry has identified no major concerns with the implementation of food safety standards. But as in any system, there is room for improvement.

Culture shift

The most evident improvement required is the need to foster a stronger food safety culture among those working in the dairy processing sector. Such a shift would be one of the most effective ways of preparing New Zealand’s dairy industry for future challenges.

Food safety systems have traditionally focused on sanitation, temperature control and other aspects of food science, with less attention paid to those controlling such operations. But several participants pointed out that food

49

101 Eddy, Douglas, Recognising the hazard in time, Australian Dairy Foods Dairy Science Digest October / November 2013 at 28-31.102 Assessment of options may include whether regulation is necessary or whether industry self-regulation is sufficient, and also the costs and benefits of each option.

ISSUES 4

safety success depends on a strong food safety culture. As dairy consultant Doug Eddy notes: “Food safety culture is still emerging … for many companies the culture is lagging behind.”101

Developing such a culture starts at the highest level in an organisation. While culture is ultimately about the way individuals think and behave, an organisation’s board of directors and senior management can deliberately create a positive culture. Among other things, this requires systems to ensure:

• There is adequate allocation of resources to food safety• Staff are well trained • Staff are empowered to report any concerns • Thorough internal auditing of reporting and response takes place to confirm that the correct matters are being reported and dealt with appropriately • Regular steps are taken to identify new or emerging risks • Risk management exercises are carried out by those with the appropriate expertise • Lessons are learned from all incidents and near-misses.

Responsibility for a strong food safety culture starts with the board, which must prioritise the active monitoring of the company’s food safety systems within its overall corporate risk management framework. The chief executive and senior managers must then take responsibility for creating a positive food safety culture. That is principally a matter of designing and operating effective systems and practices, rather than a question of individual attitudes, much less slogans or platitudes.

Senior managers should actively create systems to ensure a fast flow of information to the top, especially in cases of “bad news”. To take a phrase from the health and safety context, managers should adopt an attitude of “chronic unease” regarding food safety, spending time on the factory floor asking questions, especially following an incident or near-miss.

The Inquiry will return to these issues in stage two. In the meantime, it recommends that all dairy companies should

review their organisational systems to ensure a strong food safety culture. Fonterra has already taken steps in this regard. As one interviewee put it, “a good food safety culture involves a responsibility that all industry has to carry and to care about – it’s not just about compliance”.

The regulator can also play a role in promoting a food safety culture. Although not currently a focus within the regulatory system, a company’s management systems and processes can be evaluated to assess the health of its food safety culture. The Inquiry considers that the ministry and recognised agencies should work with industry to identify mechanisms to achieve such evaluations, whether internal only or external.

Finally, the regulator must have a culture – including systems – that sufficiently emphasises the importance of food safety. The Inquiry has already observed that the current ministry structure does not, if only visibly, reflect a clear focus on food safety as one of its core systems. The Inquiry notes this is reflected in the numbers and levels of senior managers with responsibility for food safety in the ministry, compared with biosecurity. It is important that the ministry, especially its senior management, plays its part in fostering a strong food safety culture at all levels.

Setting standards

The ministry sets standards by the following internationally accepted three-step process: defining the problem and desired outcome; developing and assessing options to achieve that outcome; and consulting interested parties.102 No Inquiry participants voiced concerns about this process. As noted, the Inquiry sees the need to consolidate standards, but views the standards development process itself as generally fit for purpose.

Link between development and implementation

The process of setting standards is usually seen as extending into implementation, a phase that includes the monitoring and evaluation of the new standards. The development of standards is conducted in parallel with the development of implementation processes and guidelines. This twin-track approach recognises that:

50

103 Animal Products Act 1999, s 163.104 Animal Products Act 1999, s 40(1)(b).105 Only two per cent related to hazards or processing problems: Dairy non-compliance trends, July 2011-September 2013.

3PART FOUR: ISSUES

• The most successful standards are those developed in consultation with their users, who have an interest in wanting them to work well. • Users and other interested parties are well placed to provide feedback on how proposed standards will work in practice, including how to demonstrate compliance.

By the time a standard comes into effect, regulators and stakeholders will already have discussed with one another what is needed to make that standard effective. The proposed Food Bill’s voluntary implementation programme demonstrates the dual development of implementation and standards. Although Parliament has yet to pass this bill, more than 1500 food businesses are already trialling compliance with the proposed new requirements.

overseas market access requirements

Under the Animal Products Act 1999, the ministry’s Director-General must consult those likely to be affected by new animal products standards before their inclusion in regulations or specifications.103 MPI can make a consultation exemption when setting standards to meet access requirements for overseas markets, although in some cases it may conduct a short or targeted consultation before finalising and notifying the standard.104

In practice, notification means publication on the ministry’s website, often in a password-protected area accessible only to registered exporters. Several interviewees said removal of the consultation exemption would allow them to better understand overseas market access requirements and how to implement them.

Implementing these standards does not begin until after the standard has been set, sometimes with very little time between the two. The ministry expects dairy exporters to register for an alert mechanism on its website to notify them of any new or updated standards and take steps to comply.

The Inquiry notes that the ministry’s audits of non-compliance trends during the past two years indicate that the system has not been effective. More than two-thirds of non-compliance incidents related to failing to meet export requirements, and such non-compliance levels are unacceptable. 105 Problems included:

• Inconsistency by the industry in keeping up to date with overseas market access requirements• Poor verification of industry compliance with those requirements by recognised agencies• A lack of good systems and communication processes among the ministry, the industry and recognised agencies.

The Inquiry recommends the ministry take steps to improve industry understanding of, and compliance with, these critical overseas market access requirements. This should include where practicable consultation with industry (which can provide useful insights about overseas markets relevant to such access requirements). The Inquiry acknowledges that this requires the ministry to have additional resources in its market access team, something that is already under way.

Implementation phases

Implementation involves five main areas of work, some of which, in the Inquiry’s view, the ministry performs well, and some of which it needs to improve:

• Operational readiness • Providing the implementation tool kit • Fostering a food safety culture (which has already been covered)• Compliance and enforcement • Measuring success.

Operational readiness

Implementation planning makes up a major part of this phase, which involves keeping the relevant people informed of new standards, giving the necessary training, and ensuring mechanisms are in place for approvals, cost recovery, gathering and holding data and the like. With the exception of the overseas market access requirements noted above, the Inquiry is confident the ministry executes the operational readiness phase of implementation effectively.

Providing the implementation tool kit

Most interviewees considered the regulatory and non-regulatory tools available to the dairy industry to implement food standards to be comprehensive – a view

51

ISSUES 4

shared by the Inquiry. These tools range from guidance documents and codes of practice through to manuals, technical briefs and clarifications, fact sheets and template risk management programmes. In section 8, the Inquiry has suggested more regular training sessions for the regulator, recognised agencies and industry members to work through technical issues and better understand the regulator’s expectations.

Several interviewees suggested that such an extensive tool kit could allow business operators to look compliant on paper without fully understanding the implications of implementation. The ministry needs to consider how it can be confident that dairy company managers and staff fully comprehend their food safety obligations.

Compliance and enforcement

An effective compliance framework depends on striking the right balance between carrot and stick, carrot being incentives for compliance, and stick being the threat of prosecution, closure and other sanctions. The ministry currently applies the VADE compliance model in the food sector:

• Voluntary: voluntarily comply and informed• Assisted: attempting to comply and uninformed • Directed: propensity to offend (opportunistic) • Enforced: criminal intent and illegal activity.

The Inquiry agrees with the concept of the VADE model.

A recent Australian Productivity Commission report into 12 agencies in Australia and New Zealand suggested that the food system here has fewer compliance tools available to it than most Australian states. The ministry emphasises that it does have a broad range of compliance tools, but in any event the Inquiry notes that the Food Bill will expand these for many food sectors.

The Inquiry agrees with the ministry that enforcement tools in the Animal Products Act 1999 should be aligned with those in the Food Bill. The enforcement pyramid referred to by the Australian Productivity Commission provides a useful template of the range of possible tools available within a new regulatory framework for effective compliance and enforcement.

The Inquiry particularly recommends that the ministry have a broad suite of compliance tools available to it, including both criminal and civil penalties and enforceable undertakings. A civil penalty regime, in particular, would facilitate negotiated settlements. Such settlements, used by agencies such as the New Zealand Commerce Commission and the Financial Markets Authority, have proved particularly effective as fast and public compliance tools. Furthermore, the Inquiry recommends the ministry create transparent guidelines about when it will invoke the various tools available to it. For guidance, it could look to some of the guidelines produced by other agencies such as the Commerce Commission. Industry participants indicated they would greatly welcome this step.

Measuring success

The Inquiry consulted national and international organisations for evidence of measures of successful implementation of food safety systems and their impact on food safety outcomes – in particular, mechanisms allowing a comparison of New Zealand’s performance with that of similar countries. No such evidence emerged to enable the Inquiry to make a definitive comparison of their effectiveness.

Incapacitativecriminal & civil

penalties & othermanagement

banning orders

Pecuniary criminal & civil penalties

Remedial civil law-based activities

Letters of warning & penalty notices

Investigations, inspections & examinations

Negotiation & settlement

Persuasion & education

An enforcement pyramid

Source: Australian Productivity Commission

52

106 The Inquiry referred this information to the Ministry of Health. With the exception of one minor matter, which was not material, the information was verified as accurate.

3PART FOUR: ISSUES

Participants noted the lack of an international agreement on identification of key performance indicators to measure the effectiveness of official food controls. The reasons are numerous and complicated. Instead, many countries, including New Zealand, use somewhat isolated indicators of success – such as a reduction in the number of food-borne illnesses, outcomes of compliance audits and opinions of trading partners’ regulators – to assess whether regulatory controls are working well.

Monitoring programmes are important performance indicators. The Inquiry is satisfied about the effectiveness of regulatory monitoring programmes, such as the national chemical contaminants and food residue surveillance programmes. The ministry has identified the need for, and begun work on, more in-depth monitoring of performance measures relating to the timeliness and completeness of reporting. The Inquiry endorses the work and recommends it be prioritised.

Food-borne illness statistics provide another performance indicator. Although the Inquiry sought to compare New Zealand dairy food-borne illness statistics with those of other countries, the only such statistics available relate to notifiable enteric diseases (gastro-enteritis).

New Zealand has higher levels of some diseases than other comparable countries. But this is not a measure of the performance of the food safety system because the statistics are not specific to food-borne causes. In addition, notification rates can vary significantly from country to country. The ministry advised the Inquiry that after taking into account variables between countries, the estimated rates are comparable with those of other countries.

In an attempt to provide dairy-specific data, the ministry reviewed illness outbreak data for the past five years. It identified only one New Zealand case of food-borne illness (listeriosis) convincingly linked to a dairy product other than unpasteurised milk, namely, feta cheese.106

Other performance indicators include overseas audits, systems audits and exception reporting for non-compliance. The Inquiry has already addressed the need for the ministry to improve its systems audits, as well as its analysis of tests and exception reporting for trends: sections 9 and 10.

After reviewing the available performance indicators, the Inquiry’s view is that New Zealand satisfactorily evaluates the implementation of dairy food safety standards. The Inquiry supports the ministry, however, in continuing to develop more sophisticated performance indicators, which, where possible, should be directly attributable to food safety controls, rather than simply public health outcomes.

The Food Safety and Assurance Advisory Council could play a role in setting such performance indicators and reviewing the extent to which they are being achieved.

As one submitter noted: “From an overall perspective, New Zealand has one of the best dairy food safety systems in the world today.” It is critical that all participants in the sector are vigilant in order to protect, and continuously strengthen, that excellent reputation.

recommendations


• The ministry, recognised agencies, and industry should work to foster a positive food safety culture, and identify mechanisms to evaluate the food safety culture within companies.• The ministry should promptly inform industry of new overseas market access requirements and where practicable consult industry about such requirements.• The compliance and enforcement tools in the Animal Products Act 1999 should be aligned with those in the Food Bill, which is currently before Parliament, and should include a full range of tools.• The ministry should prioritise analysis of food safety compliance data.

12. traceability, recall and Contingency Planning

Despite everyone’s best efforts, food safety problems are inevitable. The first step in putting things right is the swift identification and removal of all affected items from the supply chain. But where exactly are those defective

53

packets, bottles or sachets? And will it entail the removal of a single batch, the whole production of a factory or an entire product range?

If traceability systems fail, or work poorly, then potentially every last item has to be recalled. As one expert group has observed, a business can survive the loss of recalled products. Much harder is surviving the loss of consumer trust. 107

A theme of inquiry submissions was the importance to modern food production of effective tracing and recall systems and more general contingency planning. The qualification, however, was that mechanisms must be technically feasible, cost-effective and, most importantly, able to handle increasingly complex supply chains.

traceability – theory and practice

An effective traceability system is able to track food and ingredients through all stages of production, processing and distribution, based on a “one up, one down” principle.108 Each business in the chain is responsible for obtaining all necessary product information from its suppliers; then, post-transaction, all necessary product information is passed to its customers.

An effective system must recognise the difference between internal and external traceability. The former enables a business to trace ingredients used in its manufacturing process and finished products moving between different divisions of its business. The latter allows the tracing of the physical transfer of ingredients or finished products to another business in the supply chain. Collected data accompanies the physical flow of ingredients and products, the degree of detail of that data varying according to the dictates of each business.

Success depends on co-operation throughout the process. To facilitate this, locations and physical items have unique identifications captured, for example, on a bar code that can be accessed by anyone in the supply chain. The following diagram shows how traceability works across the supply chain.109

That is the theory. In practice, however, things can be less clear-cut. Complications within the overall tracing process were described by one interviewee as “one of the most complex challenges a company has to deal with”.

Regulatory traceability systems both here and overseas are typically based on well-established international standards and guidelines, with amendments to suit particular food types and local risks.110

In New Zealand, risk management programme operators (and exporters) are required to have a “one up, one down” system identifying and tracing dairy products and ingredients in both directions in the supply chain.111 Subject to further requirements in notices under the Animal Products Act 1999, it is up to each business as to how its tracking mechanism achieves its goal consistent with New Zealand’s outcome-based regulatory approach.

These notices essentially require products for export to be labelled with a unique identifier or the name and address of the final premises of manufacture, along with either a product lot identification, such as a bag, box or quality unit number, or the manufacturing or packaging date in code or in plain text.112

TraceabilityPartner

TraceabilityPartner

TraceabilityPartner

ExternalTraceability

InternalTraceability






TRACEABILITY ACROSS THE SUPPLY CHAIN

Physical Flow Information Flow

Traceability across the supply chain

Source: GS1

ISSUES

107 Innovation Center for U.S Dairy, Guidance for Dairy Product Enhanced Traceability 10 September 2013, at 2. 108 See the definition of traceability in ISO 22005 Traceability in the feed and food chain - General principles and basic requirements for system design and implementation, and the Submission from GS1 New Zealand to the Inquiry, which contains a list of definitions at 16. New Zealand is one of 111 member countries of GS1 International, which is a confederation of non-profit standards organisations. The New Zealand board includes senior executives from major food producers and retailers.109 Diagram supplied by GS1.110 See ISO 22005 Traceability in the feed and food chain – General principles and basic requirements for system design and implementation, GS1 Global Traceability Standard, Issue 1.3.0 November 2012, Codex - Principles for traceability/product tracing as a tool within a food inspection and certification system CAC/GL60-2006 and Innovation Center for U.S Dairy, Guidance for Dairy Product Enhanced Traceability 10 September 2013.111 Animal Products (Dairy) Regulations 2005, reg 17. 112 Animal Products (Export Requirements - Dairy Products) Notice 2005, cl 14 contains a requirement that labelling must occur in a way that ensures traceability. The Animal Products (Dairy Processing Specifications) Notice 2011 requires a risk management programme to have a system that allows all ingredients to be traced to the product in which they have been used. Recognised agencies are required to audit the traceability system of dairy producers seeking official assurances.

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New Zealand’s regulatory requirements are broadly comparable with those in similar countries, particularly Australia’s.113 However, there are differences in the degree of precision.

Supply chain complexity

The growing complexity of supply, manufacturing and distribution chains presents real hurdles to effective product tracing. In the dairy sector, products can often move through the hands of several processors and manufacturing cycles (both domestic and international) before reaching consumers.114

This complexity is magnified as products move from one business to another and from one country to another, at which point shipments can be subject to a variety of often inconsistent regulations and tracing systems. One interviewee cited the example of a pizza that could in theory have “35 products from 60 countries across five continents in one box”.

The different information technologies used within supply chains further complicate traceability, leading to potential confusion and gaps appearing in what should be a continuous flow of data.115 Cross-border food safety incidents can result in acute difficulties when information is needed urgently to minimise risks to public health.

The number of submissions recommending improvements in this area in relation to dairy products and ingredients (indeed food more generally) outweighed those that consider the current system adequate. Those favouring change pointed to the need to:

• Have all traceability provisions in one piece of regulation• Increase the level of prescription for traceability, particularly for consumer-sensitive products• Improve the linking ability of different company systems• Carry out more testing of traceability systems.

In short, an export-dominated country such as New Zealand should be at the forefront of traceability using best practice international standards.

range of solutions

New Zealand is not alone in grappling with the challenge of improving traceability. International regulators and businesses in the United States, Canada and the European Union are also giving considerable attention to the challenge.

A series of serious food safety incidents in the United States and Canada in recent years, including some that resulted in deaths, has acted as a catalyst for improving food safety systems, including traceability, in both countries.

In the United States, the law requires “one up, one down” traceability. However, a discussion by the Inquiry with the FDA disclosed that more comprehensive traceability (beyond one up, one down) for infant formula and the like is under consideration. Pilot projects between government and industry groups to “explore and evaluate methods to rapidly and effectively identify recipients of food” have been completed and are the subject of a very comprehensive report. Once the report has been evaluated, the FDA intends to develop a product tracing system for these types of products.116

In Canada, the Canadian Food Inspection Authority is proposing regulations requiring as a minimum “one up, one down” traceability for inclusion in the Safe Food for Canadians Act, due to become effective in 2015.117 Details about Canada’s traceability requirements will not be known until regulations are drafted.

The European traceability system, while also applying “one up, one down”, is the most developed, demanding traceability across the food production system of all inputs used to make food. European regulation requires that all parties in food and feed supply chains are able to trace the inputs into, and outputs from, food production.

European Union regulations were drafted in response to a dioxin incident in Belgium in 1999 that cost the country about 1.5 to 2 billion euros. More recent food safety incidents (such as the BSE crisis) have led the European Union to stipulate more specific traceability requirements for some foods of animal origin and to specify the information a food business must provide to its customer (and also to the regulator on demand).118

PART FOUR: ISSUES

113 Australia New Zealand Food Standards Code standard 4.2.4. See also the Victoria Dairy Food Safety Code 2002 made under the Dairy Act 2000.114 The Ministry for Primary Industries Whey Protein Concentrate Incident Tracing and Verification Report dated 25 August 2013 shows how products move through different businesses.115 See fn 6, at 84.116 See http://www.fda.gov/downloads/Food/GuidanceRegulation/UCM341810.pdf. 117 This is the proposal the Canadian Food Inspections Agency has recently consulted on in the discussion document - A New Regulatory Framework for Federal Food Inspection. 118 European Union Regulation (EC) No 178/2002 article 18 and European Union Regulation (EU) 931/2011 article 3 requires a description of the food, volume, name and address of supplier and recipient of the food and a reference identifying the lot, batch or consignment and date of dispatch must all be provided to the recipient of the food. This does not apply to foods that are a mix of plant and animal products.

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the way forward

The Inquiry considers that New Zealand’s traceability systems for dairy foods (and ultimately other food sectors) can and should be improved. Any upgrades will require a collaborative approach, best achieved by a working group. No single participant can implement effective change in such a complex environment.

As one submission noted, given “the scale, complexity and cross-cutting nature of traceability issues”, a working group is the way to proceed and is consistent with the current approach adopted internationally (particularly in the United States) to encourage collaboration between industry and government in this area. All interviewees supported the proposal.

The working group should be asked to consider worldwide best practices for traceability at both regulatory and industry levels, and to recommend any necessary changes to the regulatory framework for dairy products. The Inquiry considers that the working group could approach the task in two phases:

• First, to consider the most appropriate regulatory provisions for traceability of dairy products, which, consistent with the scheme of the Animal Products Act 1999, should be outcome-based (that is, “what” must be achieved)• Secondly, to consider a code of practice or similar to guide industry in implementing the requirements (that is, “how” to achieve it).

In practice, it is not always easy to separate the “what” from the “how”, and the Inquiry considers it best to leave both aspects to the working group. Moreover, issues arise as to whether traceability provisions for dairy products should be the same for domestic and export product. However, the Inquiry anticipates that settling on the appropriate regulatory provisions will be a more straightforward task, which should be completed first, and relatively swiftly.

While the details of any recommendations are for the working group to determine, the Inquiry’s view is that, at a minimum, current traceability requirements should be redrafted (they are unclear, ambiguous in parts and outdated) and consolidated into regulations. The Inquiry

leans towards the view that the European Union regulation is a good model to follow.

The Inquiry also notes the need to ensure that traceability requirements are clear and accessible and take into account the challenges identified above. The United States report on the pilot projects referred to earlier is a good starting point. The working group may also want to consider the part that technology can play in improving tracing. Submitters noted the online portal ProductRecallNZ, which the grocery trade uses for product tracing, recall and withdrawal notifications by means of standardised electronic notification.119

The membership of the working group should comprise the ministry, dairy industry, Food and Grocery Council, an international customer’s perspective, and GS1 representing the largest private standards body. Draft terms of reference for the working group, including reporting and timing, are in appendix 5.

Finally, while the Inquiry’s view – supported by the majority of participants – is that the working group should be confined to the dairy sector, any solution developed by the working group could well be a model for other sectors. In effect, this was the approach of the United States pilot projects focusing on particular food sectors. Therefore, the working group should, at a minimum, consult other food sector groups, more particularly meat,120 especially in the first phase of its work. The seafood sector may also be usefully consulted – the Inquiry is advised that the seafood industry has well-developed traceability systems.

recalls and contingency/crisis planning

Tracing affected food is always the first priority in managing a food safety incident. Recalling the food is the next. In today’s complex and global food production and distribution world, recalls are not always easy. But they can be swift and effective if there is thorough planning, decisive decision-making and clear communication with stakeholders.

Product recalls, that is, the removal of food that may pose a risk to consumers, at any stage in the supply chain, including once it has reached consumers, are a central part of the food safety system.121 They protect public health

ISSUES

119 See also the OECD Global portal on products recall at http://globalrecalls.oecd.org/120 Notably, the dairy and meat sectors have been working together recently on the identification and traceability of animals that have been treated with particular drugs. The national animal identification and traceability scheme was another initiative jointly developed by the ministry and dairy and red meat sectors. 121 In New Zealand, a consumer recall, where food is recalled from consumers, is different from a trade recall, where food is withdrawn from the wholesale and retail supply chain when there is no public health and safety issue, but where there may be, for example, a packaging or labelling fault. This is typically called a withdrawal rather than a recall and is not normally notified to consumers. Information given to the Inquiry indicates that since January 2011 there have been no mandatory recalls and 121 voluntary recalls, 12 of them for dairy products.

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and assure customers and overseas regulatory authorities of the integrity of the food safety system.

Food businesses with a risk management programme or food safety plan are required to spell out in those documents the procedure they will follow to determine when to initiate a recall (as well as the criteria that will guide the decision).122 They are also required to spell out the steps they will take to give effect to that decision.

Contingency planning enables a more effective implementation of those steps, and includes such things as co-ordination and communication with other businesses, government agencies and customers, mock implementation of recall plans and regular reviews of those plans.

authority to recall

Under New Zealand’s regulatory model for dairy products and ingredients (and indeed other animal products), operators must have the systems necessary to execute an effective recall. The system includes the government’s mandatory recall power and businesses’ voluntary recall responsibilities. Most importantly for the purposes of the Inquiry, the regulator has significant powers to respond to food safety incidents, but it has no statutory responsibility under the Animal Products Act 1999 to undertake food safety incident planning (contingency planning).

Under the Food Act 1981, the Minister for Food Safety can recall food “for the purpose of protecting the public” where it is “unsound or unfit for human consumption or is damaged or deteriorated or perished, or that is contaminated with any poisonous, deleterious, or injurious substance”. Under the Animal Products Act 1999, the Director-General has wider powers allowing the recall of not just unsafe food, but any food that is “not fit for intended purpose or whose fitness is in doubt, or that is mislabelled or incorrectly identified”.

The ministry publishes guidance material on recalls and provides industry assistance in the event of a food recall.123 It notifies Australian authorities of all food safety recalls

through Food Standards Australia New Zealand, regardless of whether the recalled food has been sold in that country. Australia similarly advises New Zealand.

If enacted, the Food Bill before Parliament would allow only the Director-General to recall food where there was a reasonable belief that it was not safe or suitable, or could contaminate other food or was mislabelled. The Inquiry agrees and considers that a power of recall does not “sit comfortably” (as one interviewee put it) with ministerial responsibility.

The proposed legislation would continue to give the government the power to issue “privileged statements” to inform the public about, and protect it from, a food safety risk, regardless of whether a recall occurs.124 Such a power is appropriate.

how others confront the problem

It is hardly surprising, given traceability and recall are two sides of the same coin, that the challenges are very similar: complex supply, manufacturing and distribution chains, and differing and often inconsistent recall requirements among New Zealand’s trading partners. The assumption that recall practices in one country will match those in another can have heavy financial consequences for global food businesses, as participants at a recent food law conference heard.125 There are also challenges for governments, New Zealand’s included, which cannot recall food in another country.

Regulators in the European Union, Canada and the United States have a statutory responsibility for crisis management protocols and planning.126 Australia also has a clear management protocol for food incident responses.127 In New Zealand the ministry simply assumes this function operationally and is currently integrating its food, biosecurity and other response functions into one system.128

As in New Zealand, governments in Australia, Canada, the European Union and the United States have the power to require a food recall129 and to impose responsibilities

PART FOUR: ISSUES

122 Animal Products Act 1999, s 17 (2) (c), Animal Products (Risk Management Programme Specifications) Notice 2008 cl 14, Food Act 1981 s 8G(g). 123 Ministry of Agriculture and Forestry Recall Guidance Material April 2012.124 The government cannot be held liable for any loss caused by issuing a statement subject to qualified privilege, provided it was issued in good faith.125 This question was discussed at the 3rd European Food Law Association EU-USA Conference 22 October 2013.126 In the European Union see Regulation (EC) No 178/2002 article 55 and Regulation (EC) No882/2004 article 13; in the United States see United States Food Modernization Act s 108; and in Canada see the Emergency Management Act 2007 s 4. Note that in New Zealand, the Civil Defence Emergency Management Act 2002 contains statutory planning responsibilities.127 Australia – National Food Incident Response Protocol. 128 A recently enacted requirement makes the chief executive responsible for the stewardship of his or her department, which includes planning, in the State Sector Act 1988, s 32. However, the Food Act 1981 and Food Bill do not impose any responsibility on the ministry for food safety incident planning.129 In Australia see, as an example, Victoria’s Food Act 1984 s 44A and the Trade Practices Act 1986, s 65F. In Canada see the Canadian Food Inspection Agency Act s 19. In the United States see the Food Modernization Act, s 206 and in the European Union see reg (EC) No882/2004 article 54.

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on food businesses to have recall systems in place.130 Despite these similarities, there are differences.

In Canada, as in New Zealand, the government does not have to notify a food business before issuing a mandatory recall. In Australia and the United States, however, the federal governments must notify the business and give it the opportunity to put its view on the recall. In Australia, this can be overridden when there is an imminent risk of death, serious illness or injury, and in the United States, this requirement does not apply to infant formula where a health risk exists.131

Where the power to recall resides varies. In Canada, it lies with the Minister of Agriculture and Agri-Food; in the United States, with the Secretary for Health and Human Services; in Ireland, with an authorised officer of the Food Safety Authority after consultation with the authority’s chief executive; and in Victoria, Australia, with the Secretary of the Department of Health. In New Zealand, as noted, it is split between the Minister for Food Safety and the ministry’s Director-General.

The threshold for a mandatory recall differs from a risk to public health in Canada to a serious risk or danger to public health in the United States, Victoria, Australia, and Ireland. In New Zealand, the threshold varies between that contained in the Food Act 1981 (unsound or unfit for human consumption) and that in the Animal Products Act 1999 (not fit for intended purpose or where fitness is in doubt, or that is mislabelled or incorrectly identified).

In Australia, as in New Zealand, no clear regulatory trigger prompts a voluntary food recall because that mechanism is contained in the risk management programme or food safety plan of each business.

Lifting performance

The Inquiry heard a range of suggestions, including more standardised recall provisions; simulated recall testing involving businesses and regulators; clearer authority for verifiers to test recall systems; and clearer rules about the use of privileged statements. As one interviewee put it, the recall provisions “need more teeth”.

The Inquiry considers that the ministry should have statutory responsibility for food safety contingency

planning, as is the case in other countries. A statutory responsibility better reflects the crucial importance of this role.

The Inquiry will address the issue of contingency planning in more detail at stage two. All it notes now is that it should be absolutely clear before any food safety incident occurs that all ministry officials likely to be involved in a response understand their roles and responsibilities, as well as the escalation, communication and recovery strategies they will have to implement. New Zealand should look to countries that have completed such planning. One example is Australia where responsibility lies with Food Standards Australia New Zealand.

Regarding mandatory recalls, the Inquiry’s view is that the Animal Products Act 1999 (a lower threshold) and the Food Bill should contain consistent wording to avoid the incongruity of subjecting the same dairy food to different provisions depending whether it is destined for domestic or export markets.

That incongruity will potentially be exacerbated by a proposed compulsory product recall in the Consumer Law Reform Bill which, at least in theory, applies to food. In many respects, the Bill proposes a risk-based approach, taking into account the likelihood and seriousness of any potential harm. But it is far from good regulatory design, and increases Crown legal risk, to have three inconsistent recall provisions simultaneously applying to the same food.

The Inquiry also recommends changes to voluntary recalls. It considers the circumstances in which businesses must recall products should be spelled out in regulations, rather than in risk management programmes or food safety plans. The threshold for voluntary recalls must be based on actual risk.

It may be stating the obvious, but the mere fact an ingredient may have been contaminated does not mean the end product must be recalled. The Inquiry was given the example of sports drinks containing the affected WPC80. Because the drinks underwent ultra-heat treatment any risk was removed.

In the Inquiry’s view, the relevant legislation should be amended to provide for simulated recalls from time to

ISSUES

130 For Australia see Standard 3.2.2 of the Australia New Zealand Food Standards Code. For Canada the proposal of the Canadian Food Inspections Agency is currently consulting on A New Regulatory Framework for Federal Food Inspection. In the United States see of the Food Modernization Act s 103.131 In Australia, see the Trade Practices Act 1974, s 65F and in the United States, the Food Safety Modernization Act, s 206. In the state of Victoria, there is no need for prior notification.

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time, and for verifiers to be able to audit such simulations. Currently, there is no requirement in the regulations, unlike in voluntary standards, for operators to test recall procedures.

To similar effect, it is important for industry participants and regulators to simulate responses to a food safety incident as part of the planning process, in the same way the ministry has in the past run large simulation exercises for biosecurity responses. As one interviewee noted, “simulations are hard, but pay dividends”. While these exercises would not happen every year, they are essential to ensuring strong, effective and well-prepared systems to manage the inevitable food safety incidents.132

The Inquiry considers that the circumstances in which privileged statements can be made requires clarification. The best option may be to make clear in regulations the factors the ministry may take into account in making a privileged statement.133 The Inquiry observes, too, that currently there is no obligation on the Director-General, when making a privileged statement, to supply any underlying scientific or test results to affected parties. Inevitably, faced with such a statement, affected parties will choose to undertake a voluntary recall, and so avoid a mandatory one. The Inquiry considers the ministry may wish to consider whether such disclosure is appropriate.

recommendations


• The ministry should convene a working group to consider first, the most appropriate regulatory provisions for traceability of dairy products, and secondly, a code of practice or similar to guide industry in implementing such provisions.• Recall provisions should be revised. In particular:

○ Mandatory recall provisions in food legislation should be aligned.

○ Voluntary recall obligations should be set out in regulations rather than in risk management programmes.

○ Regulations should require industry to simulate recalls, audited by verifiers.

○ The circumstances in which privileged statements can be made should be clarified.

• The ministry should be given statutory responsibility for food safety contingency planning, and industry and regulators should simulate tracing, recall and general food safety incidents from time to time as part of such contingency planning.

13. Infant Formula

The Inquiry has been asked to consider regulation of “potentially affected products, including infant formula”.134 In the WPC80 incident a number of products, including soft drinks and energy bars, were initially suspected of being contaminated, but by far the greatest attention – and understandably so – has centred on infant formula.135

It was the only product recalled in this incident, and it is a special case because of the particular vulnerabilities of babies, the unique features of the Chinese market, the justifiable sensitivity among parents, the growing number of infant formula exporters in New Zealand, and the economic significance of the export trade – currently estimated at $1 billion a year, and growing.136

These factors make infant formula a topic in its own right, although it is also part of a broader class of products for vulnerable population groups, including those for the immuno-compromised and for patients in palliative care.

Current work

Several streams of work are under way in New Zealand and abroad on possible revisions to infant formula regulation.

MPI market assurance work programme

In June 2013, the Minister for Food Safety announced a market assurance programme focusing on infant formula exports to China, in particular to ensure New Zealand systems and products meet China’s import requirements. China is currently developing new rules for infant formula imports, which will be taken into account in any New Zealand changes.

PART FOUR: ISSUES

132 The 2012 FAO/WHO Guide for developing and improving national food recall systems suggests that every few years is appropriate.133 Currently, there is only brief guidance on these in the ministry’s predecessor’s publication Ministry of Agriculture and Forestry, Recall Guidance Material, at 7.134 The Ministry’s Whey Protein Concentrate Tracing and Verification Report, 25 August 2013, referred to a number of potentially affected products including sports drinks and bars, yoghurt beverages, and fruit and dairy beverages. Other than infant formula, the products were considered low risk due to factors including heat treatment and low pH. The Inquiry has focused on infant formula because of its particular risk profile.135 The broader category of formula products for young children is frequently split into different categories based on the age of the intended consumer. The ministry’s working categories are: infant formula designed for babies aged 0-6 months; follow-on formula for those aged 6-12 months; and toddler milk for those aged 12-36 months. The first category is associated with the highest risk because it is often used as the sole source of nutrition for babies.136 This figure includes ingredients exported to make infant formula.

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The ministry has established two working groups to assist with this programme. The first, chaired by the Dairy Companies Association of New Zealand, comprises 10 members drawn from industry to provide strategic policy input. The second, co-ordinated through the Dairy Product Safety Advisory Council, comprises six industry members to provide technical input. The Infant Formula Exporters Association and the Infant Nutrition Council will also be consulted.

Stage one involved a systems audit, the collection of information and a review of potential regulatory enhancements. Stage two will consider options, together with the recommendations of the Inquiry. Implementation of changes will occur in stage three.

The ministry’s current infant formula work programme also deals with a number of topics beyond food safety, including providing input into the revision of one of the FSANZ standards (described below), the application of health claims to certain formula products for young children, export exemptions and several other issues.

FSANZ review of infant formula standards

Food Standards Australia New Zealand is currently reviewing the infant formula standard in the Australia New Zealand Food Standards Code. An initial proposal, prepared in July 2013, identified more than 45 issues relating to composition, labelling, category definitions, advertising and marketing that needed examination. FSANZ intends to produce an issues paper for public consultation by March 2014. Overall, the project is expected to take five years.

International regulation of infant formula

All comparable countries regulate infant formula products, particularly labelling, composition and advertising. In a number of countries, regulation specifically controls manufacturing standards.

United States

In 1980, Congress passed the Infant Formula Act as a result of an incident involving a deficiency in product formulation. This recognised infant formula as a special class of food and exerted greater regulatory control over its formulation and

production. In particular, manufacturers of infant formula must register with the FDA and must demonstrate that formula complies with regulatory requirements before the product can be distributed. Regulations provide for recall, quality-control procedures, labelling and nutrient requirements. In 1986, the Act was amended to allay concerns about quality-control testing, manufacturing practices, record-keeping and recall requirements.

Canada

There is no specific regulation for infant formula manufacture, but Health Canada has published a code of practice, Good Manufacturing Practices for Infant Formulas, which sets out general requirements for the effective control of ingredients, processes, facilities and equipment for the production of infant formulas. These guidelines were updated in 2006 following consultation with infant formula manufacturers and importers. The Canadian Food Inspection Agency verifies against the Good Manufacturing Practices code.

European Union

Infant formula is regulated as a food for “particular nutritional use”, that is, broadly food for vulnerable consumers. There are specific compositional and end-product standards (pesticide levels, micro-organisms), labelling and advertising requirements. There are no specific manufacturing or processing standards required by regulation – it is a matter for operators to ensure they meet the end-product standards by applying the HACCP approach.

the issues

The Inquiry focused on three key questions:

Should there be specific standards for the manufacture of infant formula?

New Zealand currently regulates the manufacture of infant formula in broadly the same way as standard dairy products, although there are stricter limits for six pathogens set out in the Animal Products (Dairy): Approved Criteria for General Dairy Processing. These limits apply to products designed for more susceptible members of the population, including infants and young children, and the old, pregnant and immuno-compromised.

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Many in the industry favour higher regulatory standards for the manufacture of both ingredients and final infant formula products. There was a common view that high consumer sensitivity about the safety of infant formula warrants greater regulatory control. Typical comments included:

• “Current standards are well below international customers.”• “We need stricter standards – this is a chance for us to lift our game.”• “We support tougher standards, so long as innovation isn’t stifled.”

While the Inquiry is aware of the need to avoid, as one interviewee said, a “knee-jerk reaction” to the recent incident, imposing specific manufacturing standards would be consistent with the risk-based approach to food regulation. Sensitive foods like infant formula are higher risk. The current approach no longer reflects international consumer expectations.

The Inquiry notes that the standards set by international customers provide a potential benchmark for the review of New Zealand’s requirements. As one participant put it, international customers are the company’s “toughest auditor”.

The Inquiry recommends the ministry should prioritise the work already under way to review the food safety regulatory requirements for the manufacture of infant formula. These should be measured against relevant commercial and international standards such as Codex, as well as any current or proposed standards for important export markets. The Canadian Good Manufacturing Practices code provides another possible benchmark. This work should be given sufficient priority to be completed within six months.

The Inquiry also agrees with one submitter, who argued that all infant formula manufacturers should be regulated under the same or equivalent regimes. Currently, at least in theory, some manufacturers can choose to be regulated under the Food Act 1981 rather than the Animal Products Act 1999. The submitter’s concern was that there was the potential for fewer audits and reporting obligations to apply.

The Inquiry has raised the issue with the ministry. MPI has assured the Inquiry that any relevant Animal Products Act 1999 standards or specifications also apply to the production and processing of dairy products, including infant formula, under the Food Act 1981. As such, safety and suitability outcomes are the same.

It is obviously undesirable for differing standards to apply to the manufacture of infant formula, or for uncertainty to exist as to the relevant requirements. To remove any doubt, the Inquiry recommends the regulatory requirements under both statutes should be aligned.

One question prompted by the incident is whether there should be routine SRC testing for infant formula. Such a test is an effective indicator of good hygiene, as confirmed by the International Commission on Microbiological Specifications for Food.137 The Inquiry received mixed views on this topic. Some favoured mandatory testing; the majority considered this a matter for the processor and its customer.

One important export market has recently introduced SRC testing for some dairy products (although this is under review), and it is also required by at least one major international customer for infant formula. The ministry and working group will no doubt take into account any such international requirements.

Participants pointed out, however, that the position may change, and an inflexible regulatory requirement could impose unnecessary costs. The Inquiry is content to leave the decision on SRC testing for infant formula to the ministry’s current work programme, which will no doubt take into account appropriate scientific, market access and risk-based advice.

Some participants said the manufacture of ingredients for infant formula products should be regulated to the same level as final products. This will arise most immediately if SRC testing becomes mandatory, but may also arise more generally. Comments included:

• “Quality standards should be the same for ingredients intended for infant formula as for the finished product itself.”

PART FOUR: ISSUES

137 See fn 92.

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• “There should be a regulatory requirement for SRC testing in any product destined to be used in infant formula.”

Other participants said responsibility should sit with final-product manufacturers. As one interviewee said:

• “Any audit and verification regulation should be targeted at the finished-product manufacturers because they are best positioned to manage it effectively and are responsible for the food safety of their product. Infant formula manufacturing involves multiple inputs and complicated procedures, and as such, regulation is best aimed at the end product.”

In the words of another, it is a “difficult question whether any heightened testing regime for infant formula ought also to apply to ingredients for infant formula products. Many ingredients, including WPC80, are used for a broad range of products, including ice cream, sports drinks and other products”.

The ministry’s infant formula working group is to look into the matter, which involves scientific, technical and market access issues. A working group is the most appropriate forum to resolve this technical issue.

Should there be greater regulation of the “grey trade” in infant formula?

A number of participants raised concerns about the “grey trade” in infant formula. This includes the practice of buying infant formula in bulk from New Zealand supermarkets and wholesalers, and sending it abroad without export certification.

A ministry audit of the infant formula sector in 2012 revealed that an extensive parallel trade in infant formula had grown up to meet demand for New Zealand-sourced products in Hong Kong and China.138 In many cases, exporters exploit the fact Hong Kong does not require an official assurance for imported infant formula. Exporters to such markets must be registered with the ministry, but beyond that there is no requirement to provide the ministry with information about the products they export.

Participants favoured further controls on the grey market. These might include, for example:

• Requiring exporters to notify the ministry of the details of all infant formula shipments

• Imposing specific traceability and record-keeping requirements on infant formula exporters

• Imposing verification requirements on infant formula exporters to ensure they comply with the relevant obligations.

Exporters of infant formula are already required to have traceability systems, but the Inquiry recommends the ministry strengthen these requirements. The traceability working group could usefully address this matter. The other proposals are also worthy of further consideration.Any extra regulatory burden would be justified, in the Inquiry’s view, to protect New Zealand’s reputation. A failure by any one company affects the entire industry. It is important the ministry is aware of specific exports in the event of a recall.

Should the regulator do more to provide market assurance for New Zealand-manufactured infant formula?

Many participants expressed concern about products falsely marketed as originating from New Zealand. False or misleading practices of this sort can do real damage to New Zealand’s reputation and economy. MPI is currently investigating options to support consumers in identifying authentic New Zealand infant formula product overseas. Part of that work includes considering how to define “New Zealand infant formula”, along with working out the respective roles of government and the industry in providing the end consumer with product authentication information.

The ministry has accepted there is potentially a case for expanding its role in this area and the Inquiry endorses the work currently under way. One option would be for the ministry to provide further tools for use by foreign regulators and consumers to help them differentiate between genuine and non-genuine New Zealand products. The Inquiry recommends the ministry, in consultation with industry, should continue work to identify options to provide foreign markets with assurance of the authenticity of New Zealand-manufactured infant formula.

ISSUES

138 Systems Audit Team Audit Report, Sector Analysis – Infant Formulas, April 2012

4

62

recommendations


• The ministry should prioritise its infant formula work programme and complete the revision of food safety-related regulatory requirements for the manufacture of infant formula (and, if appropriate, ingredients for infant formula) within six months. • The ministry, with input from the relevant working groups, should resolve whether infant formula and other high-risk products should routinely undergo SRC testing, based on scientific, risk-based and cost-benefit analysis.• The ministry should strengthen requirements for exporters of infant formula to ensure traceability.• The regulatory requirements under both the Animal Products Act 1999 and the Food Act 1981 should be aligned.• The ministry, in consultation with the industry, should develop options to provide foreign markets with the assurance of authenticity of New Zealand-manufactured infant formula products.• Participants pointed out, however, that the position may change, and an inflexible regulatory requirement could impose unnecessary costs. The Inquiry is content to leave the decision on SRC testing for infant formula

to the ministry’s current work programme, which will no doubt take into account appropriate scientific, market access and risk-based advice.

Some participants said the manufacture of ingredients for infant formula products should be regulated to the same

dated in 2006 following consultation with infant formula manufacturers and importers. The Canadian Food Inspection Agency verifies against the Good Manufacturing Practices code.

European Union

Infant formula is regulated as a food for “particular nutritional use”, that is, broadly food for vulnerable consumers. There are specific compositional and end-product standards (pesticide levels, micro-organisms), labelling and advertising requirements. There are no

PART FOUR: ISSUES

63

APPENDICES

appendix 1: terms of reference

Extract from New Zealand Gazette, 12/9/2013, No. 126, p. 3512

establishment of the Government Inquiry into the Whey Protein Concentrate Contamination Incident

Pursuant to section 6(3) of the Inquiries Act 2013, I, The Honourable Nathan Guy, Minister for Primary Industries, and I, The Honourable Nikki Kaye, Minister for Food Safety, hereby establish the Government Inquiry into the Whey Protein Concentrate Contamination Incident (“Inquiry”).membershipThe following persons are appointed to and constitute the Inquiry:• Miriam Rose Dean, CNZM QC (chairperson);• Dr Anne Marie Astin, PSM (member); and• Anthony John Nowell, CNZM (member).terms of referenceBackground New Zealand has a reputation as a credible and trusted supplier of safe and suitable food to both domestic and international markets. This well-deserved reputation is a vital element in the continuing growth and productivity of the food industry. Exporting food is critical to New Zealand’s economy, with the food industry making up half of New Zealand’s merchandise export value. New Zealand has an excellent track record of exporting safe food, and our food safety system is considered world-leading. The whey protein concentrate (“WPC”) contamination incident risks damaging the reputation we have worked hard to gain. This Inquiry is about strengthening an already strong system, to ensure that New Zealand food products retain their status as among the world’s safest and most desired. Appointment and Order of ReferenceThis Inquiry will inquire into and report (making any recommendation it thinks fit) upon the following:

Inquiry into how the potentially contaminated whey protein concentrate entered the New Zealand and international markets, and how this was subsequently addressed

(a) In relation to this incident of potential contamination of whey protein concentrate at Fonterra’s Hautapu plant in 2012:

(i) The causes of this incident; (ii) the practices used at each stage, from sourcing the raw material to products containing the whey protein concentrate entering the market; (iii) the timeline of steps taken by Fonterra, and any other party, with regard to testing and reporting the potential contamination of whey protein concentrate; (iv) the implementation of contingency plans for food safety incidents by Fonterra; (v) Fonterra’s history as a significant manufacturer and exporter of safe dairy products; and (vi) an examination of the response of the regulator (that is, what actually happened).

This part of the Inquiry will not be undertaken until the Ministry for Primary Industries’ (MPI) compliance investigation is completed, subject to any views the Inquiry reaches on the application of section 16 of the Inquiries Act 2013. This part of the Inquiry will rely on findings of fact from the MPI compliance investigation and supplement this as required. Inquiry into regulatory and best practice requirements (b) The requirements of any Acts, Regulations, or other laws, or of any recognised practices, that govern the following aspects of food safety against the background of this incident in relation to the dairy industry, including how those legal and practice requirements interact with each other: (i) Quality and integrity of product testing; (ii) traceability requirements, including the requirements across the supply chain to retailers; (iii) reporting and risk management decision- making; (iv) implementation of food safety standards; (v) contingency plans for food safety and food quality; (vi) role of regulators, including any recognised agency; and

64

(vii) potentially affected products, including infant formula. (c) How the matters referred to in paragraphs (b)(i)–(vii) above compare with similar matters in other comparable jurisdictions.Matters Upon or for Which Recommendations Required The Inquiry will report on and make any recommendations it considers fit on: (a) the adequacy of legal and best practice requirements with regard to product testing, traceability, reporting, implementation of food safety standards, contingency planning and role of regulators (refer to paragraphs (b)(i)–(vii) and paragraph (c) above); (b) any legal or regulatory changes or additions necessary and desirable to prevent or minimise similar incidents; and (c) any changes or additions to operational practices for product testing, traceability, reporting, implementation of food safety standards, contingency planning and response of regulators, to address the lessons from this incident. Exclusions From Inquiry and Scope of RecommendationsThe Inquiry is not to inquire into, determine, or report in an interim or final way, or otherwise prejudice any of the following matters: (a) The Ministry for Primary Industries’ investigation into the compliance with any legal or practice requirements; (b) whether any questions of liability arise; and (c) the legislative structure of the New Zealand dairy industry. Definitions “Practice” or “practices” includes, without limitation, each of the following: (a) Decision-making; (b) procedures; (c) processes; (d) services; and (e) systems. Reporting Sequence The Inquiry is to report findings and opinions, together with recommendations, required and otherwise, that it thinks fit to make in respect of them, to the appointing Ministers in writing in the following sequence:

(a) Inquiry into regulatory and best practice requirements: (i) An interim report is to be provided by no later than three months after notification of the Government Inquiry in the New Zealand Gazette; (ii) a final report is to be provided at a date to be specified by the appointing Ministers, following the conclusion of the Ministry for Primary Industries’ investigation and any subsequent Court action; (b) Inquiry into how the potentially contaminated whey protein concentrate entered the New Zealand and international markets, and how this was subsequently addressed, at a date to be specified by the appointing Ministers, following the conclusion of the Ministry for Primary Industries’ investigation and any subsequent Court action.Consideration of EvidenceThe Inquiry may begin considering evidence on and from 12 September 2013.Dated at Wellington this 10th day of September 2013.HON NATHAN GUY, Minister for Primary Industries.HON NIKKI KAYE, Minister for Food Safety.

go5757

APPENDICES

65

POLICY OFFICE OF THE

DIRECTOR- GENERAL

STANDARDS VERIFICATIONAND

SYSTEMS

COMPLIANCEAND

RESPONSE

RESOURCEMANAGEMENT

AND PROGRAMMES

MĀORI PRIMARY SECTOR

PARTNERSHIPS

CORPORATE SERVICES

Source: MPI

SENIOR LEADERSHIP TEAM

STRATEGY ADVISORY GROUPS• Maximising export opportunities • Improving sector productivity • Increasing sustainable resource use • Protecting from biological risk

OTHER ADVISORY GROUPS• Regulatory performance • Science and risk assessment • Trade and market access management

DIRECTOR-GENERAL

FOOD OPERATIONAL CO-ORDINATION GROUP

appendix 2: ministry for Primary Industries’ structure

APPENDICES

66

appendix 3: audit details

quarterly audits

Quarterly audits comprise:

• operator/verification and management of corrective actions

Audits of activities are carried out by the recognised agency to ensure compliance by reviewing corrective actions to previous verification findings, as well as the operator’s own internal findings. Audits also review risk management programme oversight, to ensure all activities and any risk management programme amendments comply with MPI requirements.

• management of the processing environment

A sample area of the physical premises is reviewed, with a focus on maintenance and hygiene, but including observation of all processing activities. The intent is that all areas are reviewed at least once during the season, with some visited more frequently based on risk, history or plant design.

• Critical control points

A sampling of records for each critical control point is reviewed to ensure all are suitably controlled and appropriate actions taken. Operational observation is carried out where possible and operators may be questioned.

• management of product release, including summary of records (Sors), overseas market access requirements (omars), reporting and management of exceptions and product disposals

Auditing and reporting are divided into two separate areas: management of reporting and non-conforming product, and management of product eligibility.

Management of reporting and non-conforming product comprises audits of plant management of exception events, including corrective actions and investigations. Auditors will review different plant events to ensure appropriate reporting has occurred. MPI may also request

a follow-up of exporter non-conformances (ENCs) that have been reported as originating from the manufacturing premises.

Management of product eligibility comprises sampling a selection of OMARs and checking SOR processes against declarations made to MPI for compliance with requirements. Also reviewed are the records of market eligibility (ROMEs), which apply to selected export markets (European Union and the Customs Union).

annual audits

The following RMP elements are reviewed at one of the verification audits so that all matters are considered over the course of the full season:

• Pest, pathogen, water and heat treatment programmes

The verifier checks that each specific programme is implemented as documented, that it complies with relevant legislative requirements and is effective.

• Product traceability and labelling

Systems for product traceability and labelling are audited to ensure all dairy materials, ingredients and packaging are traceable, both through the plant and through records. The verifier also selects a sample for use as a trace-back or trace-forward exercise.

Audits also ensure that product labelling meets requirements. Where corporate development systems are centrally managed, audits at each plant ensure the implementation of both corporate and labelling requirements.

• Product testing and specification management

Product testing and specification management audits review the eligibility of the product for its intended markets, ensuring samples are representative of the product and that testing was completed in the correct laboratories using compliant testing methods.

Specifications are reviewed to ensure that operating systems identify all requirements, including composition,

APPENDICES

67

allowable ingredients and packaging, for a particular type of product, for both New Zealand and export markets

• manufacturing systems, site services and utilities

Manufacturing systems cover a number of different plant activities, including cleaning-in-place (CIP), housekeeping, intrusive maintenance, storage and ventilation. Site services and utilities include planned, preventive and breakdown equipment management, control of lubricants, building maintenance and waste management, as well as calibration systems, ventilation and site security.

• Personnel training systems

Systems and procedures for the training and ongoing development of operational personnel are reviewed to ensure the implementation of intended procedures and maintenance of suitable records to demonstrate staff competency as required by RMP.

• risk organism response programmes

Risk organism response plans (RORPs) are developed and maintained in accordance with MPI specifications and criteria to cover the eventuality of a biosecurity response, such as a foot and mouth disease outbreak. Site preparedness is also considered.

• Independent verification programme

Samples are taken for MPI for either the independent verification or the national chemical contaminants programmes, as identified on the MPI sample schedule.

APPENDICES

68

APPENDICES

appendix 4: a microbiological testing for dairy products

The following table indicates where legislation specifies tolerance limits for micro-organisms in dairy products. Note: A tick does not mean that all dairy products are subject to the limits – in some cases limits are specified only for particular products (for example, Cronobacter spp. in infant formula).

new Zealand

australia (anZ FSC)

eu and

Ireland

united States

Canada

Pathogens

Campylobacter spp.

Cronobacter spp. (E. sakazakii)

E. coli

L. monocytogenes

Salmonella spp.

S. aureusIndicator

usedIndicator

usedIndicator

used

Staphylococcal enterotoxinsIndicator

usedIndicator

used

Indicator used

Y. enterocolitica

Indicator organisms

Bacillus spp. (quality indicator or surrogate for B. cereus)

Coagulase-positive staphylococci (surrogate for S.aureus/staphylococcal enterotoxins)

Coliforms (hygiene indicator or surrogate for E.coli)

Enterobacteriaceae (hygiene indicator or surrogate for E.coli or Cronobacter spp.)

Listeria spp. (hygiene indicator or surrogate for L.monocytogenes)

standard plate count (SPC)/aerobic plate count (APC)/bacterial count/total viable count (TVC) (quality or hygiene indicator)

69

APPENDICES

appendix 5: draft terms of reference for the traceability working group

background

New Zealand needs to ensure its dairy traceability regulatory requirements and systems are consistent with international best practice, cost-effective and technically feasible.

The objectives for a traceability system are that it can: rapidly identify the location of food in the supply chain and ensure its effective recall if it is unsafe; support the facilitation of market access; and assist in preventing counterfeiting of food products.

Formation and role

A working group is to be formed to report to the Ministry for Primary Industries on how this traceability system can be developed.

membership

The working group will consist of the ministry, dairy industry, Food and Grocery Council, an international customer’s perspective and GS1 representing the largest private standards body in New Zealand.

Consultation with other food sectors

The working group should, at a minimum, consult other sector groups, more particularly meat, especially in the first phase of its work.

Sequencing and reporting

The working group is to approach its task in two phases:

i) First, to consider the most appropriate regulatory provisions for traceability of dairy products, which, consistent with the scheme of the Animal Products Act 1999, should be outcome-based (that is, “what” must be achieved)

ii) Secondly, to consider a code of practice or similar to guide industry in implementing the requirements (that is, “how” to achieve it).

The working group should report to the ministry in two phases:

i) On the first phase within six weeks of establishmentii) On the second phase within six months of establishment.

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