13th June 2006: The consequences of animal diseases in domesticated birds and livestock can be complex and generally go well beyond the immediate effects on affected producers. These diseases have numerous impacts, including:
* productivity losses for the livestock sector (e.g. production losses, cost of treatment, market disturbances)
* loss of income from activities using animal resources (in such sectors as agriculture; energy; transportation; tourism)
* Loss of well-being of human beings (morbidity and even mortality rates; food safety and quality)
* prevention or control costs (production costs; public expenditure)
* suboptimal use of production potential (animal species, genetics, livestock practices)
These economic and social effects can be classified as “direct,” “ripple” (impact on the industry’s upstream and downstream activities), “spillover” (impact on other sectors), “long-term”, or “remote.”
Direct Effects
The most direct economic impact of animal diseases is loss of production and/or productivity, and ensuing income losses for farmers.
If the farm economy is diversified or if there are other opportunities to generate income, the impacts can be mitigated. However, if the economy depends on one or some of the vulnerable products, the impacts can be serious, and local food security can be threatened.
The economic impact also depends on response strategies adopted by farmers and possible market adjustments.
The economic impact also depends on response strategies adopted by farmers and possible market adjustments. The loss of the farmer’s “well-being” will generally be lower than the value of the lost product, except where the farmer has few alternatives or is wholly dependent on the affected product, which is quite often the case in developing countries.
Direct losses are therefore the result of the disease itself (they may be very high when mortality rates are between 50 percent and 100 percent), or from animal health measures (stamping-out policies).
In Vietnam, the country most seriously affected by the avian flu, almost 44 million birds—17 percent of the country’s poultry population—had to be destroyed at an estimated cost of US$120 million (0.3 percent of GNP). The smaller scale producers lost the least in absolute terms, but the most in relative terms, as the outbreak resulted in losses equivalent to upwards of 50 times their daily income (from US$2 a day or less).
In Africa, abortions caused by the Rift Valley fever virus not only affect birth rates, but also, owing to lower levels of milk production, push human consumption of milk downward in the year following an outbreak.
In the dairy farming sector in Kenya, it is estimated that losses in milk production accounted for 30 percent of all losses caused by an outbreak of foot and mouth disease in the 1980s.
Direct costs are generally well below the indirect costs of animal diseases and are directly linked to the rapid containment of outbreaks: case studies have shown that early detection and the implementation of appropriate measures in the event of an outbreak are essential to help minimize direct losses as much as possible. Conversely, inappropriate control and eradication measures are at the root of such endemic situations, which are much more difficult, and infinitely more costly, to keep under control or eradicate
Ripple Effects
The livestock sector plays a significant role in the economic development of many countries. The production of meat and other animal-based food items generates income, jobs, and foreign exchange for all stakeholders in the animal industries. Consequently, an epizootic can affect the industry’s upstream (inputs, genetic resources) and downstream activities (slaughterhouses, butchering operations, processing, marketing) in terms of jobs, income for the stakeholders in the industry, or market access.
A survey by the Food and Agriculture Organization of the United Nations (FA0) on avian flu revealed that in the most seriously affected regions of Indonesia, 20 percent of permanent workers at industrial or commercial farms lost their jobs.
Similarly, an outbreak of contagious bovine pleuropneumonia in Botswana led to the destruction of more than 300,000 animals in the most seriously affected province, and the immediate closure of the export slaughterhouse, which employed 200 persons. Owing to the catalyst role of livestock raising in the rural economy as a whole, the costs of the indirect effects of these measures were later estimated to be seven times higher than the costs caused by direct losses.
In Vietnam, 60 percent of the poorest segment of the population, for which poultry farming accounts for six to seven percent of household income, is particularly vulnerable to income losses caused by avian flu.
The FAO and World Organisation for Animal Health (OIE) estimate that between one-third and one-half of the populations living in the most seriously affected areas of Southeast Asia depend on poultry farming for at least a part of their income. In France, the leading European poultry producer, it is estimated that farmers affected by the crisis lost 40 percent of their income in three months (between January and March 2006).
The effects of the production losses are also linked to price variations, which are caused by supply and demand (im)balances. Depending on the market, prices can rise sharply (consumer product on the domestic market) or plummet (product banned for export but cleared for consumption on the domestic market, product deemed too dangerous for human consumption or perceived as such). In Brazil, where 30 percent of products are exported, the price of a day-old chick, an early indicator of a possible change in production, reportedly fell by 50 percent. And even in cases where the country is not infected, market uncertainties and the fall in prices prompted the largest producers to cut back production by 15 percent this year.
Loss of access to, or the opportunity to access, regional and international markets generally have more significant economic implications than just production losses. In 1997/1998, the Rift Valley fever outbreaks in East Africa seriously affected pastoral economies in Somalia, with a decline of more than 75 percent in exports (which generate more than 90 percent of foreign exchange in “Somali land”), following an embargo declared by Saudi Arabia on all animal products from the Horn of Africa.
Conversely, the eradication of certain major diseases to facilitate access to “high value” export markets can provide considerable benefits.
Loss of access to, or the opportunity to access, regional and international markets generally have more significant economic implications than just production losses.
Uruguay is a good example of a country that gained access to a lucrative market after eradicating foot and mouth disease. Beef exports increased in volume by more than 100 percent and in value by 52 percent after the OIE declared Uruguay to be officially foot and mouth disease-free without vaccination in 1996. Access to the U.S. market (where prices are double those of the domestic market) provides Uruguay with additional revenue to the tune of US$20 million each year. A medium-term analysis showed that access to “Pacific Rim” markets would generate additional revenue of US$90 million each year, and yet, before the disease was eradicated, Uruguay had been spending (only) US$8 million to US$9 million each year on vaccines to combat foot and mouth disease. In this case, control costs would account for less than 10 percent of the revenue generated by exports alone.
The poultry feed sector in Europe, which has a turnover of US$42 billion, has been affected by the avian flu crisis, with a 40-percent reduction in demand for poultry products in a number of European Union countries.
Spillover Effects
Animal diseases can have major effects on food availability and quality for poor communities. It is well known that agriculture plays an important role in the generation of income and jobs in other sectors but the closeness of this interdependence became particularly obvious during recent epizootics.
For pastoral societies, animal husbandry contributes directly and indirectly to food security and to nutrition as a source of quality proteins, vitamins and trace elements, traction, and commercially tradable products. Certain diseases could have significant repercussions on food supply and the nutrition of poor communities that do not have readily available substitute products, which could therefore lead to famine (rinderpest for example).
Poultry meat is the primary animal protein in Africa (which has little to begin with) and the indispensable source of discretionary income for the survival of millions of small farmers. The high mortality rates as a result of avian flu, which is extremely pathogenic, and the sanitary slaughter of poultry would therefore have a negative impact on the food available to the entire population, as well as on rural revenue.
Furthermore, developing or transition countries which generally have poor public health systems are particularly at risk from zoonoses.
In 1977/1978 a major Rift Valley fever epidemic in Egypt resulted in 200,000 human cases and 600 fatalities. Twenty years later, a new epidemic affected over 500,000 persons in East Africa, and 500 persons succumbed to the hemorrhagic form of the disease.
But zoonoses also affected industrialized countries with high health standards as was the case with the bovine spongiform encephalopathy crisis in Europe. Food borne diseases (over 200 have been classified) are a major source of acute gastroenteritis (which costs the Netherlands US$27 million per year) and the cause of major morbidity with fatalities among children in the Third World.
In the specific case of a pandemic, most of the economic loss is caused by the increase in morbidities and fatalities in the human population and its repercussions on the world economy.
The most recent estimates suggest that the “Spanish” influenza in 1918 caused the death of 50 million persons, that is, 2.5 percent of the population at the time. The most obvious economic losses were the reduction in quantity and productivity of the workforce, and according to the experts, in the case of a pandemic could represent 10 times more than all the other losses combined .
Another category of economic impact is linked to individual strategies to avoid contamination—or to survive possible contamination. The example of the severe acute respiratory syndrome (SARS) clearly shows the sharp drop in demand in the services sector (tourism, public transport, retail trade, hospitality and food services) resulting from the combined efforts of individuals to avoid any close contact. Based on the experience with severe acute respiratory syndrome in South-East Asia, the World Bank thinks that an avian flu pandemic could result in a 2 percent loss of the world’s gross domestic product and cost the world economy US$800 billion in the space of one year.
The losses are difficult to calculate and would undoubtedly be much more significant in light of the extremely high mortality rates in developing countries which do not have good health care systems.
The impact of animal diseases on the tourism and leisure sectors could also be quite significant. The negative effect of foot and mouth disease in the United Kingdom on these two sectors amounted to US$49 billion because of restrictions on access to rural areas and represented more than half of the total cost of the disease.
The effects on the environment must also be taken into account when wildlife is threatened, or in cases where the combating measures themselves have negative effects on the environment (such as, use of pesticides in the fight against vectors and in case of contaminated waste).
Long Term Effects
It is difficult to calculate the cost of the public’s loss of confidence in animal industries in their countries, or of an importer country towards the Veterinary Services of the exporter country.
Animal diseases can have major effects on food availability and quality for poor communities.
Consumers’ obsessive fear of bovine spongiform encephalopathy (mad cow disease), fed by the media and which a good communication strategy could have prevented, would have tremendous social repercussions on a Europe still reeling from long term economic repercussions.
In Italy, the baseless perception of a food risk related to avian flu coupled with low confidence in public health services eventually resulted in a 70 percent reduction in the consumption of poultry and eggs.
The loss of confidence by an importer country can trigger a lasting embargo and major economic and social repercussions (Arabian Peninsula embargo on the Horn of Africa, affected by the Rift Valley fever virus).
Loss of access to, or the opportunity to access, regional and international markets generally have more significant economic implications than just production losses.
Animal diseases might also have indirect long term impacts, affecting deferred productivity. This is the case for example of the reduction in the fertility rate of long-cycle species, the effects of which span periods of 10 to 20 years.
In short, the long term costs of a slow response are rarely taken into account. Economic analyses focus primarily on the effects of the outbreaks and rarely take into account the long term effects of an endemic situation (characterized by less virulent outbreaks which recur for several years). This is the case of classic swine fever in Haiti where recurrent outbreaks reduced the usage rate by 10 percent, which for pig farmers meant a loss of revenue of US$2.7 million per year.
With major crisis, long-term impacts would make themselves felt, since the additional costs of financing prevention and control measures would lead to an equivalent reduction in savings and investments.
Remote Effects
Assessing the global impact of an animal disease on international markets would warrant a framework of analysis which would connect markets in spatial terms as well as by products.
For example, the analysis of the global impact of the avian flu crisis in Europe is complicated by recent outbreaks of foot and mouth disease in Brazil, the largest global exporter of beef and poultry. It is therefore easy to imagine what the combination of these two events would mean in terms of the upward push of prices of all meats, similar to what occurred in 2004 with North American beef and bovine spongiform encephalopathy. The European Union, a net importer of beef, especially from Brazil, would see an increase in the price of beef in its internal markets stemming from the embargo imposed on Brazilian beef because of the foot and mouth disease.
It must be pointed out that the crises could have a cumulative impact, particularly since they are amplified by the effects of globalization The following example therefore illustrates the ripple, spillover and remote effects: in the United States, where 62 percent of oleaginous and cereal production is geared towards animal production. An epizootic which reduces animal production by 10 percent would have the immediate consequence of the loss of 418,000 jobs, a surplus of 18.4 tons in cereals and oleaginous products, a 10 percent reduction in world trade and, crises in other producing countries. The highly pathogenic avian influenza is the perfect example of an animal disease with the capacity to generate all the impacts described in this paper.
By Dr. Francois Le Gall, Lead Livestock Specialist, World Bank
