Business & Policy
Who pays for an AI crisis?
By Melanie Epp
An overview of compensation schemes around the world.
By Melanie Epp
Controlling highly pathogenic avian influenza (HPAI) outbreaks is a costly business. Quarantine, culling and depopulation, poultry movement control and increased biosecurity amount to high costs for the industry. So, too, does establishing transparent communication with both the public and producers.
Compensating farmers – and not compensating them – brings costs of its own, as proper compensation facilitates reporting and disease control. Unfortunately, not all compensation schemes are created equal, and lack of compensation is a problem that extends far beyond geographical borders. One could say that its consequences are global in scale.
Compensation around the world
At this year’s International Egg Commission (IEC) conference in Warsaw, HPAI was a hot topic. Concerned poultry producers from around the globe met in an economics workshop to listen to Peter van Horne speak about compensation schemes around the world. Van Horne is a poultry economist from Wageningen University in the Netherlands.
There are a lot of regulations in the EU on how to compensate, said Van Horne as he dove into his presentation. The European Union clearly says where there is an outbreak of AI and birds are culled, farmers are compensated for the market value of that bird – both pullets and layers, he said.
“The EU, at the same time, says that it is very important that all of the member states have good control of the outbreak,” he continued. “If there’s an outbreak in one country, the neighbouring countries are also impacted.”
The EU compensates 50 per cent of direct losses because it believes that it’s in the best interest of all member states to do so. The EU, however, does not compensate for consequential losses, so all of the empty periods on the farm. That’s the risk of the farmer. How governments operate at the state level is their decision, said van Horne.
But how do you determine the market value of a layer? Do the eggs she could have laid determine her worth or is the farmer simply compensated for the value of the bird? Turns out that there’s no clear answer.
In the Netherlands, value is assigned to pullets beginning at seven weeks. Feed costs are also calculated and included up to a maximum of 23 weeks. There are two main points where market value is determined, at the beginning and at the end. Since there is no market for hens at 50 weeks of age, value is simply estimated. Value is also based on revenue that would have been earned from the eggs. Consequential costs, including the costs to destroy the birds, transport, and the cleaning and disinfection of farms, are not covered.
“The Dutch say that there should be a maximum that the farmers can pay,” said van Horne. “There is a fund with levies. For five years the levies go into a fund and then there is a certain amount of money compensated from this fund to give compensation payments to the farmers – so there is a ceiling because otherwise it would be too expensive for the farmers.”
“When there’s a big outbreak, like 2003, there are very, very high losses with a lot of birds culled, then it’s just only the first part [that is] paid by the farmers,” he continued.
Belgium’s compensation scheme, said van Horne, is very straightforward. With regards to direct losses, the EU pays 50 per cent and farmers pay the remaining 50 per cent. Regarding the cost of control, the EU pay 50 per cent and the Belgian government pays the remaining 50 per cent. Consequential losses are at the risk of the farmer.
In Germany, direct losses are paid by the EU (50 per cent), by the government (25 per cent) and by the farmer (25 per cent). The scheme is similar for control costs, although Germany is a little more complicated as the various states have different regulations. Like Belgium and the Netherlands, there is no compensation for consequential losses. There are, however, insurance companies that will cover consequential losses.
In France, farmers don’t have to pay anything for control or direct losses. The EU pays the 50 per cent, and the government pays 50 per cent. Consequential losses are not covered, but like Germany, there are insurance options.
Like the other EU member states, Spain gets 50 per cent compensation for direct losses. While van Horne couldn’t speak with great certainty on what happens beyond that, he did say that there are plenty of public-private insurance schemes in place.
Outside of Europe farmers have very different schemes. Australian farmers, for instance, are only compensated for direct losses. The amount of compensation is dependent on the type of disease. Diseases fall into three categories – one, two or three. The government compensates 100 per cent of direct losses for those diseases that fall into category one. Diseases that fall into category two, like HPAI H5 and N7, are paid for by the government and industry at 80 per cent and 20 per cent respectively. Category three diseases, such as HPAI other than H5 and N7, and LPAI subtypes H5 and H7, are paid for 50 per cent by government and 50 per cent by industry.
In Indonesia, where there’s no clear preventative or control program, farmers are offered little to no compensation. This creates an additional problem, van Horne pointed out. That is, when farmers are not compensated, they are not motivated to report cases to the government. In many cases, they take the birds to market as quickly as possible. Sometimes, though, farmers are offered credit schemes to return to farming once the crisis is over.
“There should be compensation to motivate the farmers to be involved in solving the problem,” said van Horne.
This has been a problem in South Africa where there is no compensation for consequential losses. “The difficulty we have, if it’s a controlled disease, then the government will depopulate,” one South African farmer said at the workshop. “But you don’t know what you’re going to be compensated when they depopulate.”
“It’s never happened with chickens, but it’s happened with ostriches and cattle, so we don’t have any poultry experience,” he clarified. “But it is a practical problem for us, and private insurance is too expensive.”
Just as schemes vary in other parts of the world, they differ from country to country in North America as well. Although no official details on Mexico’s compensation scheme could be found, a Mexican farmer at the workshop, Sergio Chavez, quoted a price of $0.50 per bird. Chavez’s concern went beyond compensation, though. In 2012, there was a major outbreak in Jalisco, he explained. This was particularly problematic for the industry, as Jalisco represents 55 per cent of Mexican production.
“I think that’s important to measure – the social impact, the political impact – because what happened at that time?” he asked. “The prices to the consumer skyrocketed – doubled or tripled.”
Until 2012, U.S. poultry farmers hadn’t faced large outbreaks, so they didn’t have a compensation scheme in place. “If you don’t have a problem then you don’t know how to compensate for it,” said Chad Gregory, president and CEO of United Egg Producers. “Clearly, with the high-path AI outbreak of 2015 where we lost 35 million layers… we got intimately familiar with indemnity, and the formula and the areas that it was lacking.”
The first figures, said Gregory, weren’t good. The U.S. government came to a figure by calculating costs, including the costs for buying in and moving chicks, feed, vaccinations and service costs. One of the big problems was that the government was taking 90 per cent or more for dividends, earnings and taxes, he said.
“You’re left with about $1.00 to $1.10,” he said. “They add that to the figure to start of layer capitalization – so $4.25 to 4.50 – that is what she’s worth at 19 weeks.”
“That doesn’t come anywhere close to helping pay for the bird or helping the farmer staying in business,” he concluded. “We had a lot of upset farmers last year.”
The U.S. government also paid for cleaning and disinfecting, but Gregory says they hired contractors who had no idea what they were doing. “It took five times longer and it wasn’t done well,” he said.
Since then the U.S. government has changed the rules about virus elimination. The farmer now gets a cheque for around $6.45 per bird. “The total package is very fair,” said Gregory. “We think the reimbursement package is nice.
In Canada, the order to have animals destroyed as part of disease control activities comes from the Canadian Food Inspection Agency (CFIA) under the Health Animals Act.
“The amount of compensation is the market value, as determined by the Minister of Agriculture and Agri-Food, that the animal would have had at the time of its evaluation if it did not have to be destroyed,” explained Tammy Jarbeau, media relations person for CFIA.
The maximum amount established for this type of animal is in the Compensation for Destroyed Animals Regulations. If there is no readily available market for the animals, said Jarbeau, the market value is estimated using CFIA economic models. These models take into consideration factors such as incomes and costs for feed and bedding.
AI is a global issue
Avian influenza, unfortunately, is here to stay. As it affects farmers globally, prevention and controls programs, as well as compensation schemes are necessary to prevent its spread, especially as migratory birds don’t recognize geographical and economic borders. The meeting in Warsaw was a good start, though, as it provided a space to increase dialogue between affected countries.