Framework for Estimating Indirect Costs in Animal Health Using Time Series Analysis

Abstract

Traditionally, cost-benefit analyses (CBAs) focus on the direct costs of animal disease, including animal mortality, morbidity, and associated response costs. However, such approaches often fail to capture the wider, dynamic market impacts that could arise. The duration of these market dislocations could last well after an initial disease outbreak. More generally, current approaches also muddle definitions of indirect costs, confusing debate on the scope of the totalities of disease-induced economic impacts. The aim of this work was to clarify definitions of indirect costs in the context of animal diseases and to apply this definition to a time series methodological framework to estimate the indirect costs of animal disease control strategies, using a foot and mouth disease (FMD) outbreak in Scotland as a case study. Time series analysis is an econometric method for analyzing statistical relationships between data series over time, thus allowing insights into how market dynamics may change following a disease outbreak. First an epidemiological model simulated FMD disease dynamics based on alternative control strategies. Output from the epidemiological model was used to quantify direct costs and applied in a multivariate vector error correction model to quantify the indirect costs of alternative vaccine stock strategies as a result of FMD. Indirect costs were defined as the economic losses incurred in markets after disease freedom is declared. As such, our definition of indirect costs captures the knock-on price and quantity effects in six agricultural markets after a disease outbreak. Our results suggest that controlling a FMD epidemic with vaccination is less costly in direct and indirect costs relative to a no vaccination (i.e., “cull only”) strategy, when considering large FMD outbreaks in Scotland. Our research clarifies and provides a framework for estimating indirect costs, which is applicable to both exotic and endemic diseases. Standard accounting CBAs only capture activities in isolation, ignore linkages across sectors, and do not consider price effects. However, our framework not only delineates when indirect costs start, but also captures the wider knock-on price effects between sectors, which are often omitted from CBAs but are necessary to support decision-making in animal disease prevention and control strategies.

Impacts of African Swine Fever on Pigmeat Markets in Europe

“…A decrease in the producer price during the epidemic and an increase after the disease has been eradicated has been observed previously in simulation-based studies [e.g., (30,32,33)]. However, the present data did not suggest a substantial instantaneous drop in pigmeat price, which has been postulated in cases representing both ASF and other highly contagious animal diseases [e.g., (10,14,19,34)]. This may be because of the EU policies to limit intra-community trade on a regional basis (7).…”

“…There are also other market considerations which are relevant to the market implications of ASF. For instance, it has been found that the farm gate price of beef in the UK decreased and retail price increased, and the average marketing margin of beef (retail price minus farm gate price) increased by 3.1% following the FMD outbreak when compared with the pre-FMD period (14). The present study did not consider the possibility that ASF would affect consumer preferences.…”

The Carrier Conundrum; A Review of Recent Advances and Persistent Gaps Regarding the Carrier State of Foot-and-Mouth Disease Virus

“…Specifically, as seen within the past decade in South Korea, a strict approach of stamping out to maintain freedom from FMD without vaccination may not be feasible when the disease pressure is overwhelming [6,[154][155][156][157][158]. Additionally, when indirect costs associated with FMD outbreaks, such as job losses within the livestock sector, and losses associated with reduced tourism are accounted for, the estimated financial benefits of vaccination often increase [159][160][161].…”

Modeling Economic Effects of Vaccination Against Porcine Reproductive and Respiratory Syndrome: Impact of Vaccination Effectiveness, Vaccine Price, and Vaccination Coverage

“…The proportion of farmers that would switch from an alternative vaccine to nVac, as well as the proportion of farmers who would newly start vaccinating against PRRS, significantly depend on these key vaccine characteristics. Therefore, potential socio-economic benefits largely depend on farmers' attitude toward PRRS vaccination and their decisions with respect to switching to a new vaccine (31). The behavior of a few single farmers might have a significant impact at national level, depending on their farm size.…”