Impact of a Foot and Mouth Disease outbreak on Australia

Herb Plunkett and Stuart Wilson

Herb Plunkett is an Assistant Commissioner within the Productivity Commission.

Stuart Wilson is a Research Manager within the Productivity Commission [1] .

Control And Eradication Costs

The Impact Of Trade Restrictions

Loss Of Livestock Industry Revenue

In 2001, an outbreak of Foot and Mouth Disease (FMD) in the United Kingdom (UK) had a dramatic effect on rural areas in that country. This article looks at the possible effects that an outbreak of FMD would have on Australia. It draws on the Productivity Commission's recently completed study of the Impact of a Foot and Mouth Disease outbreak on Australia . The study is an input to the review that all governments and the livestock industries are currently undertaking into the prevention, preparedness for and management of major animal disease outbreaks such as FMD.

The study considered the economic, social and environmental impacts of three hypothetical FMD outbreak scenarios which were developed by the Commonwealth Department of Agriculture, Fisheries and Forestry - Australia (AFFA) in consultation with State Governments. The outbreak scenarios were:

• A small single point outbreak in the wheat-sheep zone of south west Western Australia, primarily affecting sheep. It lasts for around 3 months and results in the slaughter of 38 000 livestock to stamp out the disease.
• A medium outbreak lasting 6 months, which has been depicted as starting in north Queensland and spreading to central Queensland and the Northern Territory. The outbreak results in the slaughter of around 50 000 animals.
• A multi-state outbreak taking 12 months to control, which has been assumed to begin in southern New South Wales and to spread to Western Victoria and South East of South Australia. The outbreak involves the slaughter of around 750 000 animals.

Broadly, the impacts of an FMD outbreak arise from two sources:

• the costs of control and eradication of the disease itself; and
• the loss of revenue from the closure of export markets to Australian products.

While there would be some similarities in the economic and social impacts of an outbreak in Australia compared to the UK, there would also be some key differences. In particular, the far greater importance to Australia of livestock exports - almost $10 billion in 2000-01, or 6 per cent of total exports - means that the trade effects of an outbreak would be far greater in Australia than was the case in the UK.

Control And Eradication Costs

A nationally agreed strategy to control an FMD outbreak is set out in the Australian Veterinary Emergency Plan. This strategy - known as 'stamping out' - includes:

• establishing a quarantine area around all known infections;
• slaughtering all infected herds and other herds that have been in 'dangerous contact' with them;
• disposing of animals;
• disinfecting properties; and
• compensating stock owners for the livestock slaughtered as part of the stamping out activity.

Significant government and industry resources would be required to 'stamp out' FMD. The Commission estimates that control and compensation costs could range from around $30 million for the 3 month outbreak scenario, to up to $450 million for the 12 month scenario. Compensation for livestock slaughtered to control the disease could cost between $4 million for a small outbreak scenario up to around $40 million for a large outbreak.

Measures to control the disease could have an impact on other industries. For example, in the UK, control measures had a large effect on the tourism industry, although the relationship between the livestock and tourism industries is not as strong in Australia.

Control and eradication measures would have a significant social impact. Within control zones, there would be significant added pressures on individuals, communities and emergency workers from: loss of income; the trauma associated with the compulsory slaughter and disposal of livestock; the disruption and inconvenience associated with movement restrictions; the long hours of work (such as by emergency workers), often in stressful circumstances and the need to provide emotional support.

Drawing on the experience of previous animal disease outbreaks in Australia, the Productivity Commission noted that stresses arising from an outbreak, and the subsequent control and eradication procedures, could lead to a range of personal and family problems. In addition there could be disruption to the cohesiveness of affected communities. In many instances, the elimination of the disease would reduce the sources of stress and people's wellbeing would quickly recover. But some of the impacts identified above would result in longer-term problems. For instance, previous experience suggests that community divisions and antagonism can persist long after the event.

The potential environmental impacts of an FMD outbreak would be largely associated with the disposal of animal carcasses. Burial can lead to contamination of ground water by leachates from the disposal pit, while burning can also potentially contaminate soil. Despite the need for some remediation work on early disposal sites, monitoring of sites in the UK to date has found that no water sources used for public supply have been affected by FMD disposals. The key to minimising potential environmental problems is good preparation. Given the considerable work on carcass disposal that is underway in Australia, the Commission concluded that significant environmental problems could be avoided. However, this would involve ongoing monitoring and remediation costs as necessary.

The Impact Of Trade Restrictions

For a country such as Australia with major exports of livestock products, the loss of revenue from the trade restrictions which would result from an FMD outbreak would be far greater than costs arising from the control of the disease. This is in contrast to the UK which only has a small livestock product trade. Trade costs would be large because countries that are free from FMD will not import meat (or a range of other agricultural products) from FMD-infected countries for fear of importing the disease. This effectively divides the world market for meat in two - an FMD-free market (in which meat attracts a price premium) and an FMD-endemic market. Currently, Australia exports over 85 per cent of its beef and around 40 per cent of its sheep meat to FMD-free countries.

If there were an FMD outbreak in Australia, all markets for livestock commodities would immediately close. Countries that do not have FMD, and even some that do, would not reopen their markets to Australian meat products until at least three months after the disease was eradicated in Australia. Some exports to FMD-endemic countries could resume if they were satisfied that the risk of introducing a new strain of FMD was low. Because wool and dairy products can potentially also carry the virus, it is likely that there would be an initial disruption to exports of these commodities until assurances could be given that they had been treated to inactivate the virus.

The closure of export markets would have a severe effect on the livestock industry throughout the nation, irrespective of the location of the FMD outbreak within Australia. Export prices and returns to exporters would fall dramatically. A glut of meat would cause the domestic price of all meats to fall. This would further lower returns to producers and processors although, at the whole of economy level, it is largely a transfer to consumers. In turn, low prices would affect both farm production and domestic consumption of meat. Notwithstanding the reduction in prices, it is unlikely that all livestock production could be sold, raising the spectre of some on-farm culling of animals beyond that required to eradicate the disease.

Loss Of Livestock Industry Revenue

The Commission estimated that the cumulative loss in export and domestic market revenue to the livestock and meat processing industries would be around $5 700 million for the single point outbreak scenario, rising to around $12 800 million for an outbreak lasting 12 months. In each scenario, the period of revenue loss would extend well beyond the time taken to eradicate the disease owing to the need to rebuild international markets (see figure 1 and table 1).

Figure 1. Estimated revenue losses to the livestock industries for each outbreak scenario Annual loss in export and domestic market revenue

Source: PC estimates.

Table 1 - Direct losses from the FMD outbreak scenarios

a Net present value of losses at the wholesale level over the outbreak.
Source: PC estimates.

With exports of around $4 billion annually, the beef industry would be the hardest hit in each outbreak scenario, although there would also be significant costs to the sheepmeat and pigmeat industries.

As Australia's major beef producer and exporter, Queensland would be more affected than other States in absolute terms. While the losses in other States would be smaller, the effects would, nevertheless, be significant. For example, a number of the regions likely to suffer the largest relative losses in output would be in South Australia. The effects within States would not be uniform, but would generally be concentrated in inland rural areas where livestock intensity is greatest and where a high proportion of people are employed in livestock production and related businesses.

The revenue losses to the livestock and meat processing industries would have wider impacts on the national economy. The Commission estimates that the 12 month outbreak scenario would reduce Australia's Gross Domestic Product (GDP) by around $2 000 million in the first year and by between $8 000 million and $13 000 million over 10 years. The effects of a 6 month outbreak on GDP would be around half that of the 12 month scenario (table 2).

Table 2 - Impact of the outbreak scenarios on Gross Domestic Product

a Net present value of losses at the wholesale level over the outbreak.
Source: PC estimates.

Reflecting the direct impacts, activity and employment levels in the livestock industries would be substantially reduced. For instance, employment in beef production and meat processing could fall by up to 30 per cent. The indirect impacts would also be significant. Employment in industries supplying inputs to livestock production would also fall, such as the workforce in road transport and in the agricultural equipment industry.

However, the Commission's modelling also shows that activity in some industries would increase, partially offsetting the livestock industry losses. For example, the loss of export markets for livestock commodities would add to pressure for a depreciation of the exchange rate. This could result in higher exports from other sectors of the economy, such as the mining industry and some manufacturing industries. It could also result in any initial adverse effect on tourism being offset over the recovery period.

Previous outbreaks and natural disasters have identified financial stress or hardship as one of the main causes of adverse social impacts. In the case of FMD, significant social effects would not be confined to the control zones - an outbreak would cause financial stress throughout rural communities in Australia. Many more people would be adversely affected through trade losses than through the disease control measures.

The Commission's study found that the economic and social effects of an outbreak could be significantly reduced if FMD-free trade zones could be established in Australia, which would allow unaffected areas to continue trading. It also found that emergency ring vaccination of livestock is likely to be an appropriate policy option whenever it could materially reduce the length of an outbreak.

The full report is available on the Productivity Commission website at www.pc.gov.au