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Foot and Mouth
The Economic Impact of Vaccination
by Peter Midmore |
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In March of this year I argued, in a paper prepared for a group of farms challenging the Government's extended slaughter policy as a solution to the outbreak of foot an mouth, that the costs of vaccination as an alternative were significantly cheaper in economic terms: specifically, and on an abundantly conservative basis, an expenditure of nearly half a billion pounds. Clearly, however, much has changed since that paper was produced: mass culling, of 3,634,000 animals to date (at a predicted cost of 拢2.28 billion ), has taken place, and the anticipated impact on tourism has been rather less than the early forecasts suggested. However, as vaccination has again become a prominent issue, it is worth reviewing the economic implications of various alternatives to the present favoured approach.
At the outset, it is worth pointing out the perilous nature of the forecasting exercise. The situation has continued to change rapidly, from the pre-election optimism of the home straight, to the rising concern about the reservoirs of infection in Yorkshire and Mid Wales, which may lead to a further wave of new cases. The announcement on 2 August that the Government will purchase the entire light lamb crop from hard-pressed hill farmers also changes the economic situation to a great extent. Therefore, this paper concentrates as far as is possible on what can be known with certainty, and highlights the conditional nature of estimates where necessary.
The key to the overall debate is economic in character: specifically, FMD must be eradicated before exports of livestock and livestock products can be re-established, both to our EU partners and to third countries. The value of these exports are negligible when viewed in the context of the overall UK economy, but crucial to the health of the farming industry, particularly in the more marginal, upland areas of Britain. In 2000, exports of livestock and livestock products were provisionally worth 拢555 million in terms of their farm gate value; whilst in terms of overall food exports, the processing and distribution sectors add considerably to these values, there is evidence that, in the context of highly globalised agro-food industry, some of these industries are able to import their raw materials requirements. Also, with appropriate veterinary safeguards, a proportion of this farm gate value (particularly that relating to dairy products, for instance) need not be affected by the ban on exports, which means that the exported farm products most significantly affected are the FMD susceptible livestock and meat products from cattle, sheep and pigs, worth 拢310 million.
Conversely, however, recent years have seen a sharp depression in livestock-based exports, due to BSE and the high value of sterling, and much hope has been invested in restoration and further growth based on their value in earlier years. Just before the outbreak of FMD, there was, for example, considerable optimism about prospects for re-establishing beef exports in volume, so it could be argued that the long-term potential value is more important than that from recent years. In 1995 (the most recent "normal" year"), the value of cattle, sheep and pig exports, in farm gate terms, was 拢533 million, which when adjusted for inflation would be worth 拢630 million in today's terms. Here, the significance of vaccination is paramount: under phytosanitary rules, such export markets cannot be accessed until at least three months after the last vaccinated animal has been slaughtered; however, if vaccination is not employed, the exports may be re-established three months after the animals associated with the last outbreak of FMD have been slaughtered.
This helps to establish one of the necessary baselines in arriving at an economic assessment; if it is considered that the current virulent strain of FMD has become endemic to the UK, and that global mobility has become so firmly established that it is likely to continue to be so (by becoming established, for example, in wildlife populations), then these export markets need to be considered closed for the foreseeable future. Then it might be appropriate to consider a scheme of general vaccination of all susceptible livestock. There are grounds to doubt whether the more optimistic valuation of lost exports should be employed, particularly as there is continuing uncertainty about the entry of sterling into the Euro, and the difficulty of reclaiming lost European beef markets; a realistic assessment of prospects lost might be half way between the 2000 and adjusted 1995 values, of 拢470 million.
However, to be added to that are the costs of the vaccination programme. Vaccines themselves are cheap, and might cost between 拢25-50 million in total; however, to ensure coverage there would be heavy administrative costs, possibly at least equivalent to those involved in the culling programme itself. A rough guess, based on those costs, might be of a further 拢500 million, making a total incremental cost to the UK economy of about a billion pounds annually. However, added to this are three further intangibles: the effectiveness of vaccination, which is not absolute; the fact that consumers might be resistant to the idea of meat from vaccinated animals, even though they currently are blissfully unaware of the practice in other species; and the general image of the UK when considered against other countries where the disease is endemic. Both the latter could further depress both agricultural and tourism demand, although it would be hazardous to speculate by how much.
Clearly, this is a rather pessimistic economic assessment, although it is within the bounds of possible necessity. A further option relating to FMD becoming considered endemic, which might just briefly be considered, is of the government abandoning its veterinary health responsibilities and transferring them to farmers. The prospect of uncontrolled FMD outbreaks and the consequent need for farmers to take their own bio-security measures could lead to a complete collapse of the UK livestock industry as a whole, rather than just the export trade. Access to the countryside, already a contentious issue, would become more so, and the intensity of town-country relationships (and within the countryside, farm-nonfarm relationships) amplified to a new pitch.
Thus, it seems as if the hub around which the debate revolves is the question of whether emergency ring vaccination, or continuation of the culling policy would be more effective in eradicating FMD, compared with the baseline costs of a general policy of vaccination. These in turn depend entirely on alternative perspectives of their effectiveness: if culling continues to be ineffective and there are fresh outbreaks as a result, emergency vaccination as a complementary policy looks favourable; however, if vaccination does not work effectively, it may postpone the restoration of exports and impose further costs on the farming sector. In either case, there would be continuing losses due to the depression of tourism and consequent downstream impacts; and both upstream and downstream impacts deriving from agriculture. The relative costs and benefits can be organised around four sets of assumptions:
- An optimistic case for ring vaccination, in which current hotspots are damped down, and tourism revives more quickly;
- An optimistic case for continued culling, as for vaccination;
- A pessimistic case for ring vaccination, which postpones the resumption of exports and causes losses in excess of a successful alternative culling policy;
- A pessimistic case for continued culling, in which its limited effectiveness fails to reduce outbreaks and tourism and economic multiplier relationships continue to depress the rural economy.
Under the first two assumptions, the current waves of new cases in the Northeast and in Mid Wales would tail off: extrapolating the tail of cases in each case may yield about a further 24 cases, which in either case would be slaughtered, at an approximate cost in compensation and administration of 拢12.2 million; estimates of the upstream and downstream multiplier losses of 9.9 million need to be added, making a total of 拢22.1 million.
Under the first assumption, ring vaccination would be used on contiguous farms, with a total of 57,000 livestock involved, at a cost of 拢4.9 million (on the basis of an average cost of vaccine and control of administration of 拢86 per animal). Under a vaccination scheme currently being proposed by the Foot and Mouth Disease Alliance, if successful it would be possible to resume exports by February 2000, and thus a proportion of the light hill lambs which would be most affected by the export embargo could be sold abroad. The corresponding costs, either to the Government in terms of compensation, or to the farming community in terms of lost export sales, might thus be around half of the value of the light lamb crop, or 拢23 million. On this basis, total additional costs incurred from the present would be 拢50 million. Depression of tourism revenues, already the subject of a revised upward forecast by the British Tourism Authority, would be roughly as predicted.
Under the second assumption, contiguous culling would continue. The cost of this, using an estimate of administrative costs and compensation figures based on the current Welfare Livestock Disposal Scheme (as amended on July 31) would be 拢10.1 million; to this upstream and downstream losses of 拢8.2 million need to be added, making a total of 拢18.3 million. The final cases might be anticipated to occur up to five weeks from now, and so exports could resume somewhat earlier, in the second week of December of this year. A significantly greater proportion of the light lamb crop could be exported, amounting to perhaps 80 per cent; saving compensation payments such that only 拢9 million would be required. On this basis, the total additional cost to all stakeholders would be close to that of the vaccination option, at about 拢49 million. Again, the current predictions with regard to tourism would apply.
The third and fourth assumptions might be expected to diverge, if vaccination works (as is claimed) more effectively in dampening down the spread of disease. Under each of these scenarios, three factors work to rekindle the outbreak: the current outbreak in Yorkshire spreads to the extensive pig population in adjacent areas; the latent infection of hill sheep flocks is transmitted to cattle at the start of the winter, as the former are brought down to in-bye and tack pasture at the start of the winter; and existence of the disease in susceptible wildlife populations causes a fresh set of entirely new farm infections. That might imply fresh cases running on average between 3-5 per day, and possibly higher (10-15 per day) if large new areas such as West Wales, Cornwall, Central Scotland or the West Midlands became foci of serious new outbreaks. Since the epidemiological profile of FMD involves peaks and tails, a conservative estimate might be based around 5 cases per day.
Under the third assumption, ring vaccination would have two effects: employed on a more widespread basis, it would have an impact on the infectivity of the virus, and being timelier in its prophylactic employment, would work more swiftly in dampening down its spread; but correspondingly, it would delay resumption of exports at greater length. Working on five cases per day for the coming winter season (current outbreaks, between 27 July and 3 August, average 3.7 cases per day), there could be a further 150 cases by next spring; using the averages of numbers involved in the current outbreak, that could involve a further 52,000 cattle, 313,000 sheep and 13,000 pigs, at a culling costs (again using the Livestock Welfare Disposal Scheme minima) of 拢42.6 million, to which linkages with allied of industries of 拢34.5 million must be added. Again, assuming vaccination of stock on contiguous farms, additional costs of administration of a further 拢32.1 million should be added. Exports would not resume until well into 2002, and the entire cost of compensating losses from the light lamb crop would have to be borne, together possibly with a portion of that of the following year; this could amount to 拢68 million.
Such a level of outbreak might have both short-term and more medium-term consequences for the tourism industry. June figures from the British Airports Authority show a revival of growth, of 3.4 per cent over the previous June, compared with static results for the previous three months. However, June was a month with a relatively low level of outbreaks, and a future upsurge and image problems related to them might well mean this improvement was temporary. An estimate of the likely losses to tourism, on a simplistic ad hoc basis of reductions on the level experienced during the early part of the outbreak, might reduce activity overall by more than the 10% currently forecast. Economy-wide modelling by Nottingham University published in early July, on the basis of more pessimistic assumptions than at present, suggested a loss of tourism revenues in 2001 of 拢7.5 billion, and a GDP reduction of 拢2.5 billion. Tailoring those estimates to current circumstances, prolongation of current hotspots and fresh outbreaks might incur further losses in revenues of 拢0.7 billion, at a net cost to the aggregate economy of 拢250 million. There is some evidence of displacement of that expenditure (spending on other things than tourism) through strong retail sales despite intimations of a coming economic recession, although as overseas tourism from Britain has grown even more than the corresponding losses from inbound activity, such influences might safely be disregarded. All in, under the third assumption, the net additional costs to the economy in such pessimistic circumstances would be 拢396 million.
Under the fourth assumption, it might be expected that fresh new outbreaks involved a higher level of average daily cases between now and next spring, due to the consequently greater infectivity implied in continuing to deal with concentrated numbers of animals for slaughter. On the basis of an average of 8 daily new cases, there could be 240 fresh cases by next spring, with culling costs of 拢69 million. The costs of contiguous culling would in this instance be significant, and on the basis of averages so far experienced might amount to 拢65 million. Exports might restart more quickly than under the third assumption, implying lower costs of compensation of 拢45 million. Together with consequent losses to allied industries estimated at 拢108 million, the total economic impact from agriculture and the food chain in which it is located could amount to 拢287 million.
As with the third assumption, it might be expect that tourism would be influenced roughly in proportion to the scale of outbreak. Again, employing the Nottingham economy-wide estimates as a base, proportionately greater reductions of revenue of 拢1.5 billion could be anticipated, linked to estimated GDP losses of 拢500 million. Summing up the implications of projected costs under this final assumption, the total is 拢787 million.
The results of the analysis of these four assumptions are outlined in the graph.
Undoubtedly, the varying results described above are highly contingent, depending as they do on conjecture, as yet unknown influences and simplified price and animal number averages. However, they do take into account the correct issues, and provide some kind of pointer at least for the necessary detailed research to be pursued, if the question of vaccination versus continued culling is to be addressed with an open mind. Their validity can be assessed, at least rhetorically, by the following argument. There does not seem to be much difference in cost between vaccination and culling, if optimistic assumptions are held; what is lost in terms of slower access to export markets might reasonably be expected to be offset by lower compensation.
There is, however, a significant difference between the two approaches if pessimistic assumptions are employed, in that culling would appear to cost about half the amount. The critical question, however, concerns the likelihood of either approach in being successful; Government spokespersons have continually emphasised culling as the only effective method of controlling the disease; clearly, however, it has not worked effectively, and what are currently termed hotspots are actually fresh outbreaks of the disease.
In summary, the key issues to emerge from this analysis, given the assumptions, are that if either culling or ring vaccination were successful in bringing about an early close to the current epidemic, the costs would be roughly similar, at about 拢50 million. If, however, outbreaks continue, costs of ring vaccination would be about half that of continuing with the culling policy, at 拢400 million rather than 拢800 million, in the coming year to next August. If the FMD outbreak continues further than that, annual costs might well be similar; then the option of general vaccination, even though it might cost upwards of 拢1 billion annually, might need to be considered as an alternative.
Because of the limited nature of the analysis, it cannot be claimed that vaccination would be a definitively cheaper option than continued culling; however, a case for dispassionate reassessment, based on more detailed research, would seem to be compelling.
As a final comparison, if we contrast the amount culling has cost the economy compared to a vaccination programme throughout this foot and mouth crisis, the figures are stark. We can approximate that culling has cost the economy around 拢5 billion compared to between 拢1.5 - 2 billion amount that a ring vaccination policy would have cost the economy.
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