|CCP: ME 02/3 |
COMMITTEE ON COMMODITY PROBLEMS
INTERGOVERNMENTAL GROUP ON MEAT AND DAIRY PRODUCTS
Rome, 27-29 August 2002
ANIMAL DISEASES: IMPLICATIONS FOR INTERNATIONAL MEAT TRADE
1. Recent epidemics of foot-and mouth disease (FMD), Bovine spongiform encephalopathy (BSE) and classical swine fever (CSF) have demonstrated the enormous losses that can accrue to an exporting country from animal disease outbreaks or from a change in a country disease status. At its 17th Session in November 1998, the IGG on Meat requested that the Secretariat monitor and report on work undertaken elsewhere to assess the potential impact of major animal disease outbreaks in affected countries. This document briefly summarises the information collated from country surveys and literature reviews covering financial, economic and social costs associated with recent disease outbreaks in selected countries, their impact on international meat trading patterns, and policy responses to cope with their effects.
2. Six developed and developing countries were among the cases studied, which include the United Kingdom BSE crisis in 1996/97, the CSF epidemic in the Netherlands in 1997/98 and the FMD outbreaks in the Chinese Province of Taiwan in 1997, Republic of Korea and Japan in 2000, Uruguay in 2000 and 2001 and the United Kingdom in 2001. The main findings of the case studies are summarised in Section 3. The conclusions and recommendations of the report are presented in Section 4.
3. The global livestock and poultry sectors play a significant role in the economic development of many nations; the production of meat and other animal products generates valuable income, employment and foreign exchange. This is particularly so in many developing countries where agriculture makes a relatively larger contribution to the process of economic development. Since the early 1980s, global meat production, consumption and trade have expanded considerably, particularly poultry and pig meat. Such trends have been driven by population growth, rising incomes, rapid urbanisation, changing dietary habits and the opening up of international markets. These trends are set to continue with global meat consumption estimated to increase annually by 2 percent through 2015 (Table 1). Most of this increase will occur in the developing world, where consumption is expected to grow by 2.7 percent per year, compared to 0.6 percent per year in the developed world.
Table 1: Actual and projected meat consumption by type of meat
|`000 tons||Growth rates, percent p.a.|
Source: FAO, Agriculture: Towards 2015/30
4. It is expected that global production of meat will increase at a similar rate to demand and that with progressive reductions in trade barriers so will trade in meat and meat products. However, increased volume of trade and improvements in transportation, infrastructure and technology hold potential risks of spreading of animal diseases rapidly worldwide. Policy makers require information on the range of financial, economic and social losses caused by these outbreaks, the factors influencing the magnitudes of these costs, and the nature and costs of preventive measures in order to make informed choices. However, few precise estimates on the magnitude of these losses exist. Furthermore, the costs of animal disease quoted are invariably not the total cost of disease, but rather those of one or more of its many components which understate the true costs of animal diseases.
5. The review of recent animal disease epidemics demonstrates the enormous financial and economic losses that can accrue to both developed and developing nations following the outbreak of a trans-boundary animal disease. The following two factors were identified as important in determining the magnitude of these losses:
6. In the United Kingdom, the cost of foot-and-mouth disease totalled US$ 9.2 billion, compared to US$ 6.6 billion in the Chinese Province of Taiwan, US$ 433 million in Republic of Korea, US$ 80 million in Uruguay and US$ 15 million in Japan (Table 2). The cost of BSE in the United Kingdom in 1996/97 amounted to US$ 3.8 billion and the cost of classical swine fever in the Netherlands was US$ 2.3 billion. To put these figures into perspective for those countries where relatively complete cost information was available, the actual loss in GDP resulting from animal disease outbreaks ranged from 0.2 percent to 0.75 percent.1
Table 2: Cost of recent animal disease outbreaks (US$ million)
Chinese Province of Taiwan
2000 & 2001
Rep. of Korea
|- control measures||66||138||20||1,335||66||14.5|
|- agricultural sector||2,202||423||489|
|- related industries||3,212||596||60||267|
|impact on GDP||-0.4%1||-0.64%||-0.75%||n.a.||-0.2%2||n.a.||n.a.|
|cost to public sector||63.5%||3.8%||43.5%||25.0%||38.6%|
|cost to private sector||36.5%||96.2%||56.5%||75.0%||61.4%||n.a.||n.a.|
1 -0.1 to -0.2% if the cost of compensation, which accounts for 64% of total costs, is excluded.
2 The impact on UK GDP is relatively low because the cancellation of tourism and leisure to the countryside (53% of total costs), was largely offset by increased consumer spending in other sectors of the UK economy (Thompson, 2001).
n.a. = not available.
7. There was a wide difference between the direct costs of the disease outbreaks and the measures undertaken to control them. For example, in Japan and Republic of Korea foot-and-mouth disease was successfully contained in a limited area. In contrast, in the United Kingdom and the Chinese Province of Taiwan large parts of the country were infected, although the majority of the outbreaks were concentrated in the main livestock producing areas. The direct costs were generally much lower than the indirect costs in both developed and developing countries2. There was also wide disparity between the direct costs of controlling disease and the consequential losses to the private sector. The case studies highlighted that the early detection and appropriate reaction to a disease outbreak is paramount in minimising the consequential losses. Foot-and-mouth disease outbreaks in Japan and Republic of Korea were promptly identified, contained and eradicated effectively, limiting the loss (Table 3) 3. However, costs were relatively high in a number of cases where detection was delayed such as:
8. Furthermore, disparities in costs suggest that more resources could have been employed at an early stage to control and eradicate the disease. Valuable time is often lost because of inappropriate early reaction by the authorities and the effectiveness of control measures can be impacted by logistic difficulties. For example:
Table 3: Summary of recent animal disease outbreaks
Chinese Province of Taiwan
(2000 &) 2001
Republic of Korea
|Disease confirmed||1986||20 Mar 1997||4 Feb 1997||24 Apr 2001||20 Feb 2001||2 Apr 2000||4 Apr 2000|
|Duration of disease||On going||4.5 months||18 months||4 months||7.5 month||1 month||1 month|
|Number of outbreaks||6,271||6,147||429||2,057||2,033||15||3|
|Control policy||Stamping out||Stamping out and mass vaccination||Stamping out||Initially stamping out, followed by mass vaccination||Stamping out||Stamping out and ring vaccination||Stamping out|
|infected||6,271||4.03 million||0.7 million||20,406||1.30 million|
|pre-emptive||1.1 million||3.10 million|
|welfare||9.2 million||5.43 million|
|total||6,2711||4.03 million||11.0 million||20,406||6.24 million||2,216||740|
1 not including animals culled on over-thirty month slaughter (OTMS) and Calf Processing Scheme (CPAS).
9. The timing of responding to animal disease epidemics and the deployment of appropriate resources can be facilitated through the development of contingency plans, which set up a system of personnel, laboratory resources and emergency funding. A clear decision-making structure which allocates responsibilities in case of an emergency is critical for enhancing the speed of early response to disease outbreaks (Burrell).
10. The magnitude of the consequential losses highlights the serious adverse impact that animal disease can have for the wider economy and thus the process of economic growth in both developed and developing countries. While it has always been known that agriculture makes an important contribution to the generation of income and employment in other industries, the extent of this interdependence was highlighted by recent disease outbreaks. For example, the negative impact of the foot-and-mouth disease outbreak in 2001 on the United Kingdom tourism and recreational sectors (other indirect cost) totalled US$ 4.9 billion due to restrictions on access to the countryside, constituting over half of the total cost of the disease. Similarly, in other case study countries, the Chinese Province of Taiwan, the Netherlands and Uruguay, it was upstream and downstream industries operating in the agricultural supply chain that incurred the greatest losses.
11. It is likely that as nations become wealthier and spend a greater proportion of their incomes on value added food products and devote more of their time to tourism and leisure activities in rural area, these sectors will suffer proportionately more than the agricultural sector following the outbreak of an animal disease epidemic. Furthermore, in developed countries producers often receive compensation which covers the cost of animals slaughtered, limiting the relative impact on the agricultural production sector. However, as in the case of United Kingdom foot-and-mouth disease, such compensation does not cover the losses resulting from idle production resources following depopulation nor the income forgone from the potential production that would have been obtained in the absence of disease.
12. In addition there are hidden costs to animal disease epidemics. In total, 4.03 million, 11.0 million and 6.24 million animals were slaughtered in the Chinese Province of Taiwan, the Netherlands and the United Kingdom respectively. The disposal of slaughtered carcasses has huge environmental implications; during the first six weeks of the United Kingdom foot-and-mouth disease outbreak, the burning of carcasses released dioxins into the atmosphere amounting to some 18 percent of the United Kingdom's annual emissions, and one burial site had to be dug up due to concerns that buried carcasses were polluting the water table. Furthermore, the mass slaughter of animals resulted in the loss of bio-diversity of native livestock populations, with some breeds left critically endangered following the UK foot-and-mouth disease outbreak (Alderson, 2001).
13. From an international trade perspective, recent outbreaks of transboundary diseases and the imposition of disease-related export restrictions have had an immediate impact on world meat trade. Meat trade in 2001, disrupted by temporary market closures and food safety-induced shifts in consumer preferences, grew only fractionally, the slowest gains in 13 years. Beef trade, in particular, destabilised by FMD outbreaks and escalating reports of BSE cases outside Europe, fell by 4 percent. However, it is difficult to disentangle the impact that specific disease outbreaks have had because of the complexities in determining the trade developments that would have occurred in the absence of disease outbreaks. Nevertheless, the case studies have demonstrated that animal disease outbreaks in major meat exporting countries appear to have:
14. In the case of the 1996/97 United Kingdom BSE crisis, the impact on extra-EU cattle and beef exports was limited because the UK was not a significant exporter outside the EU. The crisis did cause temporary shifts in world beef demand to other meat products due to concerns over its safety. In 1997, the EU classical swine fever outbreak significantly affected intra-EU trade, as the Netherlands was a major exporter of pork and live pigs within the EU. However, world pork trade was largely unaffected because the Netherlands, as well as Germany, Belgium, France, Italy and Spain, were not major exporters of pork outside the EU. In addition, at the time of the outbreak, EU pork production was increasing in response to higher demand (and domestic prices) as a result of the BSE crisis the previous year.
15. In response to the outbreak of foot-and-mouth disease in the Chinese Province of Taiwan, pork production fell by 19 percent in 1997, 13 percent in 1998 and 8 percent in 1999. Meanwhile, its pork exports, valued in 1996 at US$ 1.6 billion, fell to US$ 234 million in 1997. It is possible that in the absence of disease the cumulative value of pork exports to 2001 would have been US$ 7.8 billion compared to actual aggregated export value of only US$ 245 million. The broader impact of the disease was the major realignment in pigmeat going into the Japanese market. The drop in product movement from the Chinese Province of Taiwan resulted in expanding pork shipments into the Japanese market from the US, Denmark, Canada and Republic of Korea.
16. However, the Republic of Korea's outbreak of foot-and-mouth disease in 2000 ended its recent growth in trade with Japan, valued at US$ 300 million, allowing other major exporters to increase their share of the Japanese market. Together with BSE outbreaks in the EU and foot-and-mouth disease outbreaks in the United Kingdom, Uruguay, Argentina and the Republic of Korea, world meat trade slowed during 2000 and 2001, with shifting consumption patterns between meats resulting in rising prices for meats other than beef. Meanwhile, trade losses from Uruguay and Argentina are estimated at US$ 178 million and US$ 440 million respectively.
17. These animal disease epidemics do not appear to have resulted in long-term market disruptions. This is partly because price responses to reduced exportable supplies from one producing country have typically resulted in increases in supplies elsewhere. The impact of FMD and BSE on world production, consumption, trade, and prices of the various meats, compared to actual baseline projections, was quantified using the FAO World Food Model. The results, which were presented to the 17th Session of the Intergovernmental Group on Meat in July 2001, revealed that consumers, as well as producers, suffer from FMD crises in meat exporting countries. The short term impact of the FMD disease outbreaks in major exporting countries was estimated to be:
18. In fact, the international meat market in 2001 witnessed a 4 percent drop in beef trade, rising demand and prices for meats other than beef, particularly poultry, in the wake of animal disease outbreaks which closed markets. These price gains for other meats were offset by a steady erosion in international beef prices, which dropped by more than 4 percent as a result of lower demand in FMD-afflicted regions and in Asia in the wake of Japan's first report cases of BSE.
19. Trade diversion and the shift in market shares between exporting countries are associated with significant resource costs. The opportunity cost of the "misallocation" of world resources from not pursuing trade based on comparative advantage as well as the adjustment costs associated with supplying the new quantity and quality of products demanded are significant. For example, following the Chinese Province of Taiwan's exit from the Japanese market, significant costs were incurred by overseas processing firms investing in the appropriate production lines and re-training of staff to produce pork to the desired specification for this market. In the case of processing firms in Republic of Korea, this investment was short-lived with the introduction of foot-and-mouth disease and loss of the Japanese export market three years later.
20. Various domestic policy measures are being implemented by exporting countries following the outbreak of transboundary diseases, which affect the future competitiveness and availability of supplies for export. These measures originate from the need to minimise the mechanisms through which disease is spread. The Chinese Province of Taiwan and the Netherlands have implemented measures to reduce the national pig herd while the United Kingdom is in the process of reducing its national sheep flock. Furthermore, the system by which sheep are marketed in the UK is being changed to restrict the scale of animal movements and the potential for cross-contamination and improved identification and traceability is being considered.
21. The case studies have emphasised the large socio-economic losses than can accrue to both developed and developing nations following the outbreak of a transboundary disease. The magnitude of the accrued losses was primarily dependent on the scale of the outbreaks and the speed and type of control measures implemented. In this respect, those countries which sustained the greatest losses were those where the disease lay undetected for some weeks and, once detected, inadequate or insufficient resources were made available.
22. In terms of international meat trade, animal disease outbreaks in major meat exporting countries appeared to have caused trade diversions, shifting market shares between exporters of the same product as well as accelerating the shifts in consumption away from red meat to poultry. Although these do not appear to have long lasting effects, the costs in terms of resource misallocations were still found to be significant, despite being based on limited information. The limitation were particularly conspicuous for the indirect costs of animal diseases; especially for Japan, the Republic of Korea and Uruguay.
23. The impression that animal disease epidemics are fundamentally a problem which concerns only the agricultural sector underestimates their real cost to society. Without appropriate cost information, economic analysis may mislead policy-makers in understanding the complex interactions and likely effects of various disease control options on the allocation of resources and value that this resource allocation provides to society.
24. More resources are therefore needed, particularly in developing countries, to collect and analyse information on which policy decisions are to be made. However, it is important that policies introduced to control disease outbreaks are those that minimise economic costs across all levels of society that are affected by a disease outbreak. Once accurate and complete information concerning the financial and socio-economic losses emanating from animal disease outbreaks has been collected and analysed, policy-makers will be able to make more informed decisions on the appropriate control strategies. Of particular importance from this case study analysis is the apparent lack of preparedness of many countries in disease surveillance and effective emergency implementation of control measures.
25. Recent animal disease epidemics highlight the role that stock movements play in the spread of disease. Increasing intensification of production and the movement towards larger slaughter facilities, often more geographically remote from production areas, prompts increasing movement of animals over a broader region. Countries are encouraged to recognise animal disease transmission mechanisms and take precautions against the potential spread of disease. In the case studies reviewed, action included limitations on animal movements, the setting up of animal traceability systems, and in the case of the Chinese Province of Taiwan, the downsizing and re-structuring of the pork industry.
26. The need to improve national capacities for the early detection and containment of transboundary animal diseases as well as the importance of a global information network that provides early warning for countries to take measures against the international spread of these diseases are apparent. Given the increasing global scale of movement of livestock and livestock products, both from developed to developing countries and vice versa, it is in the interest of all countries to enhance the international resource base for the co-ordination of activites related to transboundary animal disease prevention and control. Donors, international institutions and participating countries need to co-ordinate information gathering and dissemination, as well as provide technical assistance for field activities in developing countries, with the aim of enhancing the national and international capacity for early detection, contingency planning and control of outbreaks of transboundary diseases.
1 To the extent that the direct costs presented in the case studies are complete, some of the case countries lack full information on the indirect costs of animal disease. For example, such information was not readily available for Japan and the Republic of Korea and, in the case of Uruguay, the indirect costs of foot-and-mouth disease only concerned the impact on the meat packing industry.
2 The only exception was in the case of the CSF outbreak in the Netherlands; the large-scale slaughter of animals suffering overcrowding on farms under movement restrictions (9.2 million pigs) increased the direct costs relative to the indirect costs which were comparatively low since the disease is not as disruptive to the wider economy as some other diseases (e.g. foot-and-mouth disease).
3 In this respect BSE is unique in that it is not spread by contact and has an incubation period of many years. So, by the time the disease had been diagnosed as a new disease of cattle in 1986, thousands of animals had already been infected.