As the apple import ban crumbles, is it time to go bananas?

The benefits of lifting the import ban on bananas outweigh the risks. Maxey

The ban on importing apples from New Zealand was lifted earlier this month, bringing to an end a restriction established in 1921.

With this long history of protection from imports, it is not unexpected that growers of apples and pears in Australia would protest vigorously with the Federal Government.

The growers argue that their protest is not motivated by a desire for continued protection from competition, but by concerns about the associated risks from importing various exotic pests and diseases that could substantially diminish their livelihood.

It has been known for a long time that people’s perceptions of a risk and the actual risk can be substantially different. Individuals tend to make decisions, or form opinions, based upon their perceptions of risk.

This divergence between perception and reality causes difficulty in the design of public policy. It does so especially where a decision may cause irreversible damage.

Core issues

In trying to understand the controversy over imports of apples, it is necessary to understand what caused the imposition of the ban some 90 years ago, what has changed in recent times to cause the reversal of policy, and what may be the economic consequences in Australia of importing apples from New Zealand.

It is also instructive in the current situation to consider the economic consequences of the de facto ban on imports of bananas from the Philippines.

The ban on imports of apples from New Zealand in 1921 was imposed because of the discovery in that country of fire blight – a bacteria that reduces yields of healthy fruit and which may cause the death of fruit trees.

New Zealand farmers have pushed for Australia to lift the ban for years.

The risk of fire blight arriving in Australia through imported apples and causing severe biological and economic damage to the industry here, was deemed at the time to be unacceptably high.

Given the scientific knowledge available at the time, this may have been a correct policy response. However, today, with greater scientific knowledge and better ways of managing risk, the policy response to the risk has changed. It is now possible to consider a range of strategies, short of an import ban, to control risk.

International obligations

The key to understanding the change of Australia’s import policy is to know that since 1995, Australia has been bound, as a Member of the World Trade Organization (WTO), by the rules set out in the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS measures).

These rules are underpinned by scientific risk assessment. Any member may challenge another member’s SPS measures on the basis that they may not be consistent with the Agreement.

It is in this context that New Zealand brought Australia’s import ban to the Dispute Settlement Body of the WTO in 2007.

The Dispute Panel made its report in August last year on the basis of the legal and scientific evidence provided to it by both countries. It recommended that Australia bring its SPS measures for apples into conformity with its obligations under the Agreement.

These measures related to fire blight, to European canker and to apple leaf curling midge. The Australian Government appealed the ruling but lost, thus the change of policy on the 17th of August this year.

Whether the domestic political economy of the issue would have continued in the absence of the external ruling, is a matter for speculation. What is certain is that there will be imports of apples from New Zealand and that these will have been subjected to risk management protocols that New Zealand must put in place.

Banana split

Another fruit that has been in the news twice in the past five years is bananas. On each occasion, Australian production was substantially reduced because of cyclone damage and, in the absence of imports, prices at retail increased approximately five-fold.

Had there been imports, there would have been little appreciable increase in the price and consumers would have benefited. The reason why there were no imports is that they have been deemed to pose too great a risk to domestic production because of the possibility of importing exotic pests and diseases.

Cyclone Yasi destroyed much of this year’s banana crop.

Since 2000, Biosecurity Australia has undertaken a number of import risk assessments for fruits and vegetables, including bananas from the Philippines.

In 2008, it produced a report in which it recommended that imports of bananas from the Philippines be permitted if, and only if, certain risk management protocols were put in place in that country.

In 2009, a Senate committee criticised the import risk assessment on which the recommendation was based and, in particular, the imposition on the Philippines of risk management protocols which the committee judged to be impracticable. Therefore, there remains in place a de facto ban on imports of bananas from that country.

It should be noted that quarantine policy is based on the result of scientific risk assessment, largely without reference to economics. The benefits to consumers of lower prices and more choice is not taken into account, nor are the alternative uses to which resources could be put which are currently being used to produce apples and bananas.

In other words, decisions about quarantine policy are not based on a public-interest test using cost benefit analysis. There have been at least three economic studies conducted on the import policy on bananas and each has concluded that overall national benefits would accrue were imports to be allowed.

The most recent research made use of economics and statistical methods to conclude that it would be optimal for Australia to move to the free importation of bananas in the next six or so years.

This research took into account reasonable assumptions about the probability of entry of exotic pests and diseases and the damage that might be caused, the benefits of delaying an opening up of imports in order to undertake further scientific study, as well as the benefits to consumers from lower prices.

It is an uncomfortable truth that the world is full of risks and that our perceptions of them are often quite different from reality.

The measurement of risk alone is insufficient for designing public policy, although that is the basis of the trade rules contained in the SPS agreement.

Public policy decisions about import risks ought to take account of the economic costs and benefits of the status quo compared with alternative import regimes.

When that has been done, it has been shown repeatedly that Australia would benefit from allowing higher levels of imports.

With the success of New Zealand for apples, it is probably only a matter of time before exporters of other fruits and vegetables appeal to the World Trade Organisation for a ruling on Australia’s very restrictive import regime for these commodities.