Country of origin labelling for seafood in hospitality settings: regulation impact statement

2 August 2023

To whom it may concern

Country of Origin Labelling (“CoOL”) – Regulation Impact Statement
Key Questions for Consideration

Background

I am the Director of Pitliangas Food Group Pty Ltd. We are a second-generation seafood business that is vertically integrated downstream. We have been in business catching, processing, and distributing
Australian caught gummy shark since 1972. We are the biggest processor and distributor of gummy shark in Australia. We have been servicing fish shops, pubs and restaurants in Victoria for nearly half a century. So we are very well placed to make informed observations on the key questions requested in the Regulatory Impact Statement.

1. Are there alternative ways to address the problem?

I think your own summaries capture the problem and the alternatives. Namely:

(i) Do nothing – maintain the status quo;
(ii) A voluntary standard; or
(iii) An education and awareness campaign.

In Australia, we have tried all of those 3 options. And all have failed. The Government has tried by providing funds to Seafood Industry Australia to run voluntary education campaigns, but they don’t work. The Fisheries Research and Development Corporation has formulated a fantastic Fish Names
Standard, but the food service operators ignore it because they know they can profit from mislabelling and not follow the standard. Again, the standard is voluntary. No retailer will voluntarily give up margins, by correctly labelling. A retailer will only comply in this space if there is compulsion. It’s like having a voluntary tax. Would they work to collect Government revenue? Like taxes are not voluntary, Retailers need compulsion and the threat of enforcement action for them to comply.
2. What is the impact of this lack of consumer information on seafood origin information in
hospitality settings?

The impacts of misinformation at the retail level can be summarised, as follows:

(i) Consumers pay higher prices for seafood, imported seafood is getting passed off as
Australian or locally sourced product.
(ii) Australian Fishermen get paid less for their seafood, as the demand for their products are
artificially kept low.
(iii) Retailers make more money, because they buy imported fish and pass it off as fresh
Australian sourced product.
(iv) Importers and foreign fishing companies sell more seafood in Australia, under the guise that
it is Australian product.
(v) Consumers assume they are eating products that have been harvested and processed under
Australian conditions. So, they assume the fish is healthy, its fresh, its sustainable, it
complies with the very strictest Environmental standards in the world, it has been handled
under the strictest Food and Hygiene laws and processed in Australia by Australian
processors being paid under Australian working conditions.

3. Is there a market-based solution with the capacity to solve the lack of consumer
information around the origins of seafood without government intervention?

The simple answer is no there is not. We effectively have 3 ways to solve the problem. Ban all imported seafood. Then all seafood consumed in Australia is Australian. Not a great policy response.
Secondly, we could ban all commercial fishing in Australia. Then all seafood consumed is imported unless you catch your own fish recreationally. Again not a great policy response. Or thirdly, we acknowledge the market failure, and we address it by enacting laws that make labelling mandatory and provide enforcement capability.
4. How important is price point when you make decisions about buying seafood in
hospitality settings?
5. Will seafood origin information in hospitality settings change your purchasing behaviour
with buying seafood?

As a consumer, I make my own personal decisions based on quality, and origin of my seafood weighs heavily in my choices. That’s not to say that I only buy Australian. I often also purchase New Zealand seafood and will preference it over Australian occasionally. For instance, baby snapper out of New
Zealand is magnificent.

At a hospitality setting, absolutely it will influence my purchases. If I’m selecting a seafood dish, I want to know that the prawns are for example from Australia and not from China, or my scallops are from Australia and not Japan, or my flathead is from Australia and not from Argentina, or my
Barramundi is Australian and not Vietnamese.

If I choose to eat Vietnamese Barramundi, at least I have made an informed choice. Further, the
Retailer will not be profiteering and selling me Barramundi that I thought was Australian.

So Country of Origin labelling is simply about providing informed choice to the consumer. The benefit of regulatory change will be reduced pricing of seafood in Australia. That is, Retailers will not be able to charge premium pricing on imported seafood. Consumers will not pay the same amount for non-Australian produce.

6. How much will it cost for business to implement the AIM model? If possible, please
provide estimates for immediate, short-term and long-term costs.

(i) Regulatory Burden – Menu Costs

In short, the cost is negligible. You will get responses from Restaurant and Hotel operators arguing that the cost of AIM will be insurmountable, it will run into the thousands per annum. It’s all rhetoric aimed to derail good policy, and regulation that is overdue. My reasoning is outlined below.

1. When a chef or owner of a pub, club, restaurant, café or take away (collectively let’s call them
“foodservice operators”) order their seafood, they know what they are ordering from their
foodservice wholesaler. The invoice by law requires the wholesaler to identify the species and
the origin. The packaging that contains the seafood must also by law identify the “species and
the origin” of the food product. These are not voluntary they must be adhered too.
2. So, when the foodservice operator orders for example, barramundi, they will receive an invoice
that stipulates what was sold to them. So, it would relevantly say “Barramundi -200/300g fillet
size – 5kg net – product of Vietnam” with a “price $X”. When the operator cross checks the
invoice with the delivery, they will confirm what has been invoiced has been delivered. The
box delivered will have on it what the product is, the net weight of the contents, any sizing eg
200-300 gram fillets and the origin of the item eg Vietnam. Again, to re-iterate the obvious,
this is what is required by law.

3. The Chef once it has its delivery of all its menu items will then need to determine if they need
to change their menu based on seasonality or variability of supply or even based on their
delivery from their food suppliers. This is a constant in any foodservice operation. When these
food service businesses place an order with BidFood, PFD, Superior Foods or with our
company PFG or any foodservice wholesaler in the country, as distributors we cannot always
guarantee that we will have the identical item week in week out. Further we can’t guarantee
that the price hasn’t moved. Prices and supply are constantly changing. When you have over
5000 stock units, you have many price changes daily. That is the life of a broad-based food
distributor and the life of a foodservice operator.

4. For example, you can source scallops from China, Japan, New Zealand, Chile or Australia. If a
foodservice operator wants a particular type of scallop, they order it. Based on price points, the
wholesaler will provide the one they have and if they can’t get that particular brand or an
alternative brand, they substitute the next closest alternative. Most wholesalers will contact the
chef and clarify if they want the substituted item. If the Chef does not want a substituted brand,
they will then have to make a change to their menu.

5. If they take the substituted item, they simply substitute it for the ordered item. In most cases,
the substituted item will have a price differential. If the cost is higher, the chef either accepts a
lower margin or will have to adjust their menu accordingly. Again, if the substituted item is not
going to be available till the next season (which is often the case with seasonality), the chef will
have to adjust the price or change their menu.

So what you find is foodservice businesses are constantly changing their menus for seasonality and for variability in costs of the inputs. Consequently, when I hear the argument that CoOL will increase costs or increases the burden of red tape on business, it is a fallacy.
Only people who have never operated a food service business will accept that argument as being true.
A food service business to survive changes its menu daily. Costs of raw materials are constantly fluctuating and given how tight margins are, any fluctuation in cost will quickly erode margins.

Most good operators know that pricing variability, seasonality and supply variability is a given and they adjust by having printable menus and chalk boards. And in fact, most menu changes are now electronic, which makes changing menus even easier and cheaper.

(ii) Real Cost of AIM

For the businesses that have sourced and supplied Australian seafood in their foodservice operation, they will not encounter any additional costs. They have already been trying to educate their customers on their seafoods origin, so it will have no added costs. And good regulation, should have minimal costs.

However, for foodservice operators who have been substituting, their costs will be significant. Not in menu changes, or their argument about red tape and burdensome regulation etc, but instead it will be related to margin loss.

Foodservice businesses who have been substituting imported fish species and selling them like they are
Australian sourced produce, will lose significant margin when they must declare where their seafood is coming from.

In the Australian Government’s Seafood Origin Working Paper in 2017 the work of the Australian
Seafood Cooperative Research Centre (ASCRC) was referenced. It relevantly found that

“50 per cent of consumers assume the seafood they purchase is Australian origin, if not otherwise disclosed.”

From my personal experience, I think that percentage is even higher. So consumers have been easily misled. The foodservice operator by staying silent on origin information, then only needs to lift their prices to what Australian sourced seafood is selling at, so there is no differential, and the consumer thinks they are buying Australian sourced seafood. The foodservice operator then pockets the extra margin. The foodservice operator has been incentivised by our existing lax regulations to cheat the consumer. Further, the foodservice operator is not breaking the law, because they are not actively misleading.
That is, if the consumer asked the foodservice operator “are the scallops from Australia?”, and the foodservice operator knew they were Chinese, then the operator is only breaking the law if they state they are Australian. Whereas most customers assume the produce is Australian so foodservice operators are getting way with it.
In Australia right now you can buy imported seafood at up to a 30% discount on the Australian equivalent. So having a 30% buffer in your margin is worth fighting for. That is why the Seafood
Importers Association of Australasia, the Restaurant & Catering Industry Association of Australia and the Australian Hotels Association will fight tooth and nail for this margin.

7. How will hospitality businesses benefit from the AIM model in the short and long term

The real winner will be the consumer.

The other substantial winner will be the foodservice operators who have been selling to customers the genuine Australian produce. They will get even greater patronage. For businesses who have been lying, misleading or straight out cheating their customer base, they will lose substantial patronage.
And frankly it would be well deserved.

Customers entrust their health and well being to foodservice operators. If the foodservice operator is selling you farmed barramundi from Vietnam, or farmed scallops from China and the customer thought they were buying Barramundi and Scallops from Australia, once that customer works out that the
Barramundi was in fact from Vietnam or the scallops were not Tasmanian or Victorian, then keeping that customer will be problematic. Trust is broken.

These disgruntled customers will gravitate to the Stores who have been selling the genuine items.
Ones that have consistently paid more for their produce and who have advertised that they have been selling Australian produce.

Long Term

Consumers trust in our food service operators will also improve. Consumers will receive correct pricing for their seafood buying decisions. And more importantly, consumers will be protected from retailers who have in the past chosen to exploit our lack of regulation in the Country of Origin space.

8. Which of the 3 policy options do you prefer and why?

My personal preference is Option 3. Option 1 – the status quo is designed to rob the consumer of informed choice. And it perpetuates the ability of businesses to exploit the consumer, and to use cheaper imported products over the Australian produce yet achieve higher pricing.

Option 2 or 3 are both far better than Option 1. The only reason I would pick Option 3 over Option 2, is simply to be more transparent to the consumer. Whether the menu is changed to say “Imported” or product of “Thailand”, the cost of the menu change is the same.
We have already established that menu changes and board changes costs are negligible, because the menus and boards are constantly being changed for seasonality of produce and price variability based on supply factors.

Option 2 still then raises a question in the consumers mind, ok I know it is imported, but where is it coming from? As a consumer when I’m feeding my children, I want to know where my produce and food is coming from. As an Australian consumer, I’m well aware that Australian food standards and food quality is world class. The regulatory burden to produce food in this country is the highest. That is why our produce is exported globally. Likewise, for example, fish that is coming from New Zealand is also highly valued. But seafood coming from China, Vietnam, Thailnad and Malaysia is cheaper.
Our waters are cleaner, our environment is better, our fishing methodologies and proximity to market means we can land our fish fresh into the Australian marketplace. Wheraes you cant get fresh fish out of the other countries or if you can the cost is prohibitive.

So the retailers will have the same opportunity of saying their seafood (whilst imported) is New
Zealand product, even though it may be from China or Vietnam. And the cycle of deception will continue. So if we are going to make the change, make it once and do it properly.

The food service operator when they receive their invoices and goods from their suppliers, by law have the origin of the species on the cartons and on the invoices. So, the Barramundi will state on the carton that it is from Vietnam. So there is no further cost or complexity to the food service operator. If they sell Chinese scallops, they just need to state Scallops – China. There is no difference in cost or complexity and the consumer knows perfectly well all the information they need before they make an informed purchasing decision.

9. Do you agree with the costs and benefits set out for each option? If not identify which costs or benefits you disagree with and why.

The biggest cost that I disagree with, is the one that suggests that this change in the law will add significant costs to business. The costs that the food service operators are complaining about are negligible.

Takeaways and fish shops, mainly have chalk boards or stickers that they print, and they can readily make changes to their boards with little cost and effort. Most stores no longer print menus. They are all available on the internet via the stores websites. To make a change to a menu electronically is as simple as changing a board by chalk. So, there aren’t any considerable cost impositions.

The higher end restaurants already specify the origins of the seafood. They even specify that the Rock
Lobster is from South Australia as opposed to Tasmania or Victoria. They already provide more detail than this regulatory change will mandate. So, they have no additional costs.
The ones that are complaining the most, the Pubs, Clubs and Hotel Venues are the ones that this change is targeted at most. How will the costs impact them? Again, menu changes are occurring regularly due to seasonality, price and to availability of produce. So changing a menu solely for country or origin labelling will impact them on the margins, if at all. Further with the proliferation of ordering electronically from the table that you are sitting at, all the changes to the menus are done electronically. Again, the cost is negligible to change the menu electronically.

So I would argue, the actual cost of the regulatory change is far lower then what is being suggested.
The real cost is the loss of margin that all the business will incur when they have to correctly label.

10. Do you think there is any relevant information missing from the options? Please specify.

One last option, that I didn’t read in the paper could be as follows.

If the produce that you are selling is Australian, maybe you don’t need to identify it. So let the consumer maintain the notion that if the produce isn’t imported, then you don’t have to identify it as
Australian. So for example, on a menu if they specify Barramundi, you can assume its Australian. If it isn’t, then there is a duty for the food service operator to identify the Barramundi as imported from eg
Vietnam.

This will mean that food service operators who have always sourced and sold only Australian produce, don’t have to change their menus or their Boards. For all the others, who are happy to sell imported products, they can make the changes to their menus and boards.

Summary:

(i) The Real Reason Food Service Operators don’t want CoOL

It’s not the added burden of changing menus, because changing menus is a daily task of all foodservice businesses. We have relevantly established that in my earlier commentary.

The foodservice operator does not need to tell you by law the origin of the seafood, so they are being rewarded by the current system (that is, if you don’t ask there is no compulsion to provide the information requested).

Hence the real reason there is no will and a massive amount of resistance by foodservice operators to stop any changes to the CoOL. It is simply because it will cost unscrupulous foodservice operators margin.
(ii) The Reverse Onus

What I find even more extraordinary is the idea that it is the consumers responsibility to ask where their seafood is coming from. So we want consumers who walk into a busy pub on a Saturday night for dinner to enquire about the flathead on the menu, about the ling on the menu, whether the salmon is
Norwegian or Australian, or where the Barramundi is from? This is what the people resistant to this change think is the workable solution.

Therefore, we need to sit at the restaurant table review the menu and then interrogate the part time employee for the source of the proteins on the menu. That part time employee then needs to walk back and forth from the kitchen, find the owner or the chef and ask where the menu protein items are from?
When the answer comes back to the table, if I’m not happy with that menu selection I move down to the next one and ask where are the scallops from? Where is the barramundi from? Where is the flathead from? Then the circus of the part time employee walking in circles back and forth from the kitchen is the solution to CoOL. If that sounds ridiculous, it’s because it is a ridiculous concept.

Instead of placing the responsibility on the consumer, let the chef or owner who is adjusting the menu daily because of seasonality, availability and price make the origin information available.

In short it is ridiculous in today’s world that the Australian Consumer is being systemically mislead by foodservice operators. Worse still, we are still debating this market failure. The consequential damage that this has caused the Australian Fishing Industry cannot be overlooked any further.

The regulatory burden that apparently will increase, is a misnomer again perpetuated by well-resourced food service conglomerates who have poker machine revenues to assist them to wage war on any legislative change that threatens their margins.

In the meantime, should you require further information, please contact me

Yours sincerely

Director