Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait

Transcription

1 Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait Ahmed Hafi, Tony Arthur, Michael Symes and Nicola Millist Research by the Australian Bureau of Agricultural and Resource Economics and Sciences Report to client to National Biosecurity Committee October 2013

2 Commonwealth of Australia Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms. Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. This publication (and any material sourced from it) should be attributed as: Hafi, A, Arthur, T, Symes, M and Millist, N, 2013, Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait, ABARES Report to client prepared for the National Biosecurity Committee, Canberra, October. CC BY 3.0. Cataloguing data Hafi, A, Arthur, T, Symes, M and Millist, N, 2013, Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait, ABARES Report to client prepared for the National Biosecurity Committee, Canberra, October. ABARES project: ISBN No: Internet Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait is available at: daff.gov.au/abares/publications. Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Postal address GPO Box 1563 Canberra ACT 2601 Switchboard Facsimile info.abares@daff.gov.au Web daff.gov.au/abares Inquiries regarding the licence and any use of this document should be sent to: copyright@daff.gov.au. The Australian Government acting through the Department of Agriculture, ABARES, has exercised due care and skill in the preparation and compilation of the information and data in this publication. Notwithstanding, the Department of Agriculture, ABARES, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law. Acknowledgements The authors acknowledge the contributions of Philippe Frost of the Australian Chief Plant Protection Office, and comments and advice provided by Darryl Barbour and Sarah Hilton of the Australian Chief Plant Protection Office, Barbara Waterhouse and James Walker of the Northern Australia Quarantine Strategy, Andrew Tomkins of the Torres Strait Fruit Fly Strategy review panel and Lisa Elliston of ABARES. i

3 Foreword In July 2010 the National Biosecurity Committee endorsed an initiative to apply the National Framework for Biosecurity Benefit Cost Analysis (BCA) to all BCAs that evaluate future biosecurity investments. This initiative aims to ensure national consistency and transparency in BCAs to improve the efficiency and timeliness of management decisions on biosecurity investments. Under this initiative a national core capacity for biosecurity BCAs has been created within ABARES. The role of ABARES, under the core capacity, is to undertake BCAs on alternative options to manage selected potential or existing pest and disease incursions. ABARES consults with relevant experts and stakeholders and then communicates the results and policy implications to various decision-making entities. These entities include consultative committees, the National Management Group and the National Biosecurity Committee. Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait is the sixth in a series of BCAs prepared under the national core capacity. The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is designed to prevent the entry of 6 exotic fruit fly species to the Australian mainland. It was established following the incursion of exotic papaya fruit fly in 1995 around Cairns that cost $34 million (equivalent to around $55 million in dollars) to eradicate and resulted in bans on imports of Australian horticultural products by overseas countries. The absence of exotic fruit fly incursions into mainland far north Queensland since 1995 suggests that the Strategy has been successful and avoided the cost of expensive eradication programs and significant economic costs should eradication fail and the incursion spread to the rest of Australia. A key component of the Strategy is a nationally cost shared response program to eradicate the seasonal exotic fruit fly populations from the Torres Strait islands. However, this border protection program is currently fully funded by the government, compared to industry sharing of some of the costs of eradicating post border fruit fly outbreaks. This report presents a benefit-cost analysis of the response component of the Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait, including a business case for the horticultural industries to invest in it. It provides information that would help convince the industry to participate in the cost sharing arrangements, which would result in the better alignment of the funding base of the response activities of the Strategy with that of other nationally cost shared detection and eradication initiatives. Paul Morris Executive Director October 2013 ii

4 Contents Foreword... 2 Summary Introduction The threat of exotic fruit flies Surveillance for exotic fruit flies Methodology An illustrative economic framework Specification of the scenarios Modelling the spread of the incursion Estimation of economic impacts Results Conclusions Appendix A: Gross value of production by states Appendix B: Estimating the benefits of the Torres Strait Fruit Fly Strategy Incorporating uncertainty Estimating producer and consumer losses References Tables Table 1 Potential losses without and with eradication (present values over 100 years).. 4 Table 2 Benefits of eradication without the Strategy (present values over 100 years)... 5 Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years). 6 Table 4 Benefits to industry of cost sharing (present values over 100 years)... 7 Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategy Table 6 Host crop - exotic fruit fly mapping Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit flies Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait Fruit Fly Strategy to Table 9 Cost of the response component of the Torres Strait Fruit Fly Strategy Table 10 Jurisdictions' share of the total cost Table 11 A 4 by 4 Markov probability transition matrix iii

5 Table 12 The number of additional sprays of insecticides per hectare by state and territory Table 13 Cost of on-farm sprays and disinfestation of produce Table 14 Production volumes affected by state of incursion Table 15 Producer losses in the event of an incursion without the Strategy (present values over 100 years) Table 16 Consumer losses in the event of an incursion without the Strategy (present values over 100 years) Table 17 Economic losses in the event of an incursion without the Strategy (present values over 100 years) Table 18 Benefits of eradication in the event of an incursion without the Strategy (present value over 100 years) Table 19 Benefits of eradication in the event of an incursion with the Strategy (present value over 100 years) Table 20 Benefit - cost analysis of the Torres Strait Fruit Fly Strategy (present values over 100 years) Table 21 Benefits to industry of cost sharing (present values over 100 years) Table 22 Sensitivity of the benefits to change in incursion probability and the budget (present values over 100 years) Table 23 Gross value of production of fruit crops that are potential hosts to exotic fruit flies Table 24 A 4 by 4 Markov probability transition matrix Figures Figure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special Quarantine Zone and movement restrictions for biosecurity risk material including fruit fly hosts Figure 2 Transition probabilities used to model the spread without eradication Figure 3 The impact of eradication on transition probabilities Figure 4 Basic supply and demand model for exotic fruit fly susceptible crop product. 50 Boxes Box 1 Target species of the Torres Strait Fruit Fly Strategy Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy Box 3 Northern Australia Quarantine Strategy (NAQS) Box 4 Queensland government activities targeting exotic fruit flies in Torres Strait Box 5 An illustrative economic framework to estimate the benefits of the Torres Strait Fruit Fly Strategy iv

6 Summary The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is designed to prevent the entry of exotic fruit flies to the Australian mainland. It was established following the 1995 papaya fruit fly incursion around Cairns that cost $34 million (equivalent to around $55 million in dollars) to eradicate and reduced horticultural income due to a ban on imports of Australian horticultural products by overseas countries. According to Cantrell et al. (2002), the incursion lasting 5 years has cost the horticultural industries approximately $100 million. The absence of exotic fruit fly incursions into mainland far north Queensland since then suggests that the Strategy has been successful and avoided the cost of expensive eradication programs, short term losses from reduced market access, and long term productivity losses to horticultural industries should eradication fail and the incursion spread to the rest of Australia. The avoided potential economic cost represents the benefit to horticultural industries of the early detection and rapid response program implemented under the Strategy. The Beale review of Australia s quarantine and biosecurity arrangements lauded the Strategy as an initiative with a small investment ($200,000) each year that has prevented expensive response actions ($35 million). However, unlike the arrangements for post-border fruit fly outbreaks, the current arrangements for this key border prevention measure only shares the cost between Australian governments with no contribution being made by the horticultural industry. In recognition of the significant benefits to horticultural industries, the Primary Industries Standing Committee (PISC) in 2012 announced a review of the Strategy, focussing particularly on the development of a business case for the participation of the horticultural industry in the long term cost sharing arrangements. ABARES was asked by the secretariat of the National Biosecurity Committee to conduct a benefit-cost analysis with the focus on developing a business case for the horticultural industries to invest in maintaining the Strategy. The overall benefit-cost analysis is positive with robust benefit-cost ratios. This report shows there are significant benefits for the horticultural industry in its participation in the cost sharing arrangements for the Strategy, resulting in better alignment of the funding base of the Strategy with that of other nationally cost shared detection and eradication initiatives. The threat of exotic fruit flies Given the presence of multiple species of exotic fruit flies in neighbouring countries immediately to the north, Australia faces a risk of these flies entering northern parts of the country. A potential incursion of exotic fruit flies is recognised by the National Fruit Fly Strategy as one of the six key risks facing current fruit fly management arrangements (Plant Health Australia, 2010). Compared to the Queensland and Mediterranean fruit flies, other exotic fruit fly species can potentially cause more damage because some species attack fruits at an earlier stage of development (unripe fruits) and can survive in a wide range of climatic conditions. Given the wide range of species of fruit fly exotic to Australia, there are very few fruit crops that would not be susceptible to infestation by at least one exotic species. For example, despite its name, papaya fruit fly attacks most edible fresh fruits, both tropical and temperate, with the exception of pineapples, and most vegetables other than root vegetables, leafy vegetables, peas and chokos (ABARE, 1995). The gross value of Australian horticultural products that would be susceptible to infestation by exotic fruit fly species targeted by the Strategy is estimated at $2.1 billion in which is 54 1

7 percent of the total gross value of all horticultural products produced in that year. If an exotic fruit fly incursion in mainland far north Queensland spreads to the entire state, then approximately half of the gross value product of all Australian host horticultural products, around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of the value of tomatoes, mandarins, avocados, mangoes, eggplants, passionfruits and chillies are expected to come under threat. In Queensland, the most threatened commodities in terms of gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million), mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados ($53 million). Economic losses to affected industries can arise from lost profits due to additional costs being incurred from insecticide sprays on-farm to avoid the potential reduction in marketable yields of fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the area of incursion due to export bans imposed on the affected areas and the cost of regulations implemented during an incursion could also be significant. To some extent these sales losses can be mitigated by appropriate disinfestation of products. However, development of effective treatments and subsequent negotiations to have them accepted for either domestic or international trade may be time consuming, resulting in ongoing loss of market access until the negotiations are successful. The cost of complying with these treatment protocols represents the ongoing additional cost of disinfestation of produce destined to export market, though this cost could be significantly less than the value of sales that could have been potentially lost if the export bans were maintained (ABARE 1995). The Torres Strait Fruit Fly Strategy The Torres Strait Fruit Fly Strategy targets six exotic fruit fly species that have established populations in South East Asian countries and Papua New Guinea. Australia is most concerned with populations of 3 species in Papua New Guinea, namely Bactrocera papayae (papaya fruit fly), B. cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the Australian mainland via the Torres Strait islands. Papaya and New Guinea fruit flies and to a lesser extent melon flies have been found in some Torres Strait islands in most years over the last decade. The flies disperse to the islands through wind-assisted natural dispersal, especially during the annual monsoon season, when northerly winds assist dispersal from Papua New Guinea. However, the surveillance and eradication activities implemented under the Strategy have prevented the flies from establishing permanent populations in the Torres Strait islands, which would otherwise have increased the likelihood of these species entering the Australian mainland. The Strategy has two components: 1) The Australian Government Department of Agriculture funded and implemented trap based monitoring program for early detection of target flies, carried out under the Northern Australia Quarantine Strategy (NAQS); and 2) A nationally cost shared response program to eradicate the flies from the affected islands by supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis, while the male annihilation blocking (lure and kill) is implemented directly by QDAFF. The current arrangements for the second (response) component of the Strategy are to share the on-going cost between Australian governments, with no contribution from industry. As these arrangements came into being prior to the establishment of the Emergency Plant Pest Response Deed (EPPRD), they do not include industry contributions. While cost sharing arrangements 2

8 with industry contributions are in place for the management of post-border exotic fruit fly outbreaks, efforts need to be made to convince the industry of the significant benefits it receives from the response element (second component) of the Torres Strait Fruit Fly Strategy and the justification, therefore, in it contributing to the costs of the program. Currently, the importance of sharing the cost of a mainland eradication campaign is more easily understood by stakeholders than that of an eradication program to prevent the pest from entering the mainland, as is carried out in the response component of the Strategy. The government fully funding the response element of the Strategy, as happens now, is inconsistent with the principle of the EPPRD and this deed process would provide a mechanism for industry input. For example, the 1995 papaya fruit fly incursion on mainland far north Queensland was eradicated with funds raised using similar cost sharing arrangements even before the deed became operational (PHA 2011 and Abdalla et al. 2012). The benefit cost- analysis The business case developed in this study for the participation of horticultural industries in the cost sharing arrangements for the response component of the Strategy is based on the estimated long term benefits of the Strategy to horticultural industries and their sensitivity to key parameters. A group of 25 host crops are included in this study. The benefit from the Torres Strait Fruit Fly Strategy is equal to the difference in the costs without and with the Strategy. Without the Strategy, it is assumed that any incursion is detected late on mainland Australia with an established population in mainland far north Queensland. It is further assumed that an eradication program is undertaken with some uncertainty surrounding its success. The economic costs of the without Strategy scenario equals the sum of: 1) the cost of the eradication program; 2) the cost of development of product disinfestations; 3) the cost of implementing necessary regulations; and 4) depending on the probability of eradication, the expected losses arising from the spread of exotic fruit flies to the rest of Queensland, other eastern states and the Northern Territory. The uncertainty surrounding the success of the eradication program is handled by estimating losses at 5, 10, 25, 50, 75 and 95 per cent probability of eradication. The expected losses include short-term, short to medium term and long term losses. The short term losses arise from lost sales due to reduced access to both domestic and overseas markets. In the short to medium term, there needs to be investment in research and development for appropriate product disinfestation processes. The long-term losses include on-going costs of additional insecticide sprays to avoid yield losses, on-going additional marketing costs from complying with export protocols to regain access to markets. The short term losses are difficult to predict and therefore the one-off disinfestation development cost and long term revenue losses arising from additional production and marketing costs only are estimated. Following ABARE (1995), three different long-term economic impacts of exotic fruit flies are considered. 3

9 1) Cost of additional disinfestation of produce from the affected area destined to overseas markets assuming that government would be able to develop necessary export protocols with countries importing Australian horticultural products; 2) Cost of additional insecticide sprays for exotic fruit flies for fruit and vegetable growers in the affected area; and 3) Cost of disinfestation of fresh fruits and vegetables moving out of affected areas to the rest of Australia. The above industry impacts result in higher costs of production and marketing for producers in the affected areas resulting in lower production and higher average market prices for horticultural products across Australia. Higher prices are due to affected horticultural producers transferring some of the increase in cost of production to consumers, depending on the relative responses by producers and consumers to changes in prices. Economic impacts on producers and consumers are estimated in terms of reductions in economic welfare to these groups. Potential losses from exotic fruit fly incursion In the event of an incursion, the potential losses to producers and consumers from an exotic fruit fly incursion in mainland far north Queensland spreading to the rest of Australia are estimated at $2.1 billion and $1.2 billion, respectively (Table 1). If an eradication program is implemented, these losses could be reduced provided a higher probability of eradication is achieved. The expected producer and consumer losses can be reduced to $269 million and $174 million, respectively, if there is a 95 per cent chance of achieving eradication. The total economic losses incurred until the flies are eradicated decrease from $2.7 billion with a 5 per cent probability of being eradicated to $443 million with a 95 per cent probability of being eradicated. Table 1 Potential losses without and with eradication (present values over 100 years) Without eradication With eradication Probability of eradication 5% 10% 25% 50% 75% 95% $m $m $m $m $m $m $m Producer Consumer Total The losses estimated for three commodities (oranges, tomatoes, and bananas) account for half of the total with the losses estimated for melons, mandarins and pumpkins accounting for an additional 25 per cent. The remaining 19 host crop commodities account for the remaining 25 per cent of the losses. Producers lose more than consumers as the additional cost of complying with export protocols reduces profits further on export sales and the asset fixity, particularly in perennial horticultural crop farms, reduces flexibility in supply adjustment in response to cost increases. Benefits of eradication In the event of a mainland incursion, the potential losses from an exotic fruit fly incursion in far north Queensland spreading to the rest of Australia can be avoided if the incursion is eradicated while it is still confined to far north Queensland as demonstrated during the 1995 papaya fruit fly eradication campaign. For each target probability of eradication, the losses avoided by eradication equals the losses without eradication (column 2, Table 1) less the losses estimated 4

10 for that eradication probability (columns 3 8, Table 1). The avoided losses or the benefits of the eradication campaign increase with the probability of eradication as shown in Table 2. The estimated benefits of eradication increase from $590 million to $2.8 billion as the probability of eradication increases from 5 per cent to 95 per cent. The estimated cost of eradication also increases (from $51 million to $90 million) as the probability of eradication increases. The benefit of the eradication program considered more than exceeds the cost, and the benefit-cost ratio exceeds 12:1. Table 2 Benefits of eradication without the Strategy (present values over 100 years) Performance measure Probability of eradication of a localised incursion 5% 10% 25% 50% 75% 95% ($m) ($m) ($m) ($m) ($m) ($m) Producer benefits Consumer benefits Economic benefits Disinfest R&D cost saved Cost of eradication Net present value Benefit cost ratio Benefits of the Torres Strait Fruit Fly Strategy In the event of an incursion, the likely losses with the eradication program, presented in columns 3 8 in Table 1, plus the cost of the eradication campaign plus the cost of developing product disinfestation processes could have been avoided if the exotic fruit flies had been prevented from entering mainland Australia. For example, if the hypothetical on-going outbreak considered can be eradicated with a 95 per cent probability, a cost of $543 million ($443 million expected losses plus the $90 million eradication cost plus the $10 million cost of developing disinfestation processes) could have been avoided if the exotic fruit flies were prevented from entering the mainland. However, currently there is no exotic fruit fly incursion in Australia and there is uncertainty surrounding a mainland incursion as well as uncertainty surrounding the probability of eradication if an incursion is to eventuate. Therefore, the expected avoided losses or benefits from the prevention of an uncertain incursion could be significantly lower. The Torres Strait Fruit Fly Strategy is assumed in this study to reduce the annual probability of incursion of exotic fruit flies to the Australian mainland from 20 per cent to 5 per cent. The expected producer and consumer benefits of the strategy and savings for government in eradication costs, estimated after taking into account the reduction in the incursion probability, are given in Table 3. 5

11 Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years) Performance measure Probability of eradication of a localised incursion 5% 10% 25% 50% 75% 95% ($m) ($m) ($m) ($m) ($m) ($m) Producers Consumers Government Total Cost of strategy Net present value Benefit cost ratio The expected benefit from the strategy increases from $298 million to $1173 million as the probability of eradication decreases. That is, the smaller the likelihood of being able to eradicate an incursion, the higher will be the benefits of preventing the incursion. Expected producer benefits increase from $150 million to $732 million while expected consumer benefits increase from $97 million to $420 million. Producers are expected to gain more than consumers, mirroring the relative magnitudes of the losses to each group that are avoided. The response component of the Strategy costs an estimated $200,000 a year to implement and the present value of the stream of expected investment over 100 years is estimated to decrease from $4.7 million to $3.5 million as the probability of eradication decreases from 95 per cent to 5 per cent. This is because, the larger the likelihood of the incursion spreading further afield (as eradication fails) the smaller the likelihood of the Strategy being continued. The net present value (NPV) increases from $293 million to $1169 million and benefit-cost ratio (BCR) from 63:1 to 339:1 as the probability of eradication decreases from 95 per cent to 5 per cent. The smaller the probability of eradication the larger the NPV and BCR of the response component of the strategy. At a 5 per cent probability of eradication, the response component of the Torres Strait Fruit Fly Strategy returns a BCR of 339:1 compared to 63:1 for a 95 per cent probability of eradication (Table 3). This shows that the investment in the Strategy is more attractive when there is large uncertainty that an incursion detected late can be eradicated. Business case for industry participation in cost sharing arrangements Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry shares one fifth of the total cost in the event of an incursion. Early detection and prevention of exotic fruit fly entry could save the industry funds that would otherwise be spent eradicating an incursion resulting from late detection. Taking these savings also into account the total benefits to industry increase from $161 million to $736 million as the probability of eradication decreases (Table 4). Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy, seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities carried out under this component are very similar to those undertaken during an eradication of a post-border outbreak of fruit flies and therefore industry contributions towards their costs are not inconsistent under the current arrangements. Under the EPPRD cost sharing arrangements, papaya fruit fly is treated as a Category 2 pest and the industry shares 20 per cent of the cost of eradication (Access Economics 2010). The melon 6

12 and New Guinea fruit flies have not been categorised yet and therefore the industry shares of their eradication costs have not been determined. Assuming a potential industry share of 20 per cent of the response cost under the Strategy regardless of the exotic fruit fly species, it would cost just under one million over 20 years ($40,000 per year of a $200,000 budget) compared to benefits ranging from $161 to $736 million depending on the probability of eradication (Table 4). For the industry, a small investment in the strategy, thus, yields a benefit cost ratio of at least 169:1. The returns on investment increase as the probability of eradication decreases. Table 4 Benefits to industry of cost sharing (present values over 100 years) Probability of eradication of a localised incursion 5% 10% 25% 50% 75% 95% ($m) ($m) ($m) ($m) ($m) ($m) Avoided losses Saved eradication cost Benefits Cost Net present value Benefit cost ratio As the industry receives over 50 per cent of the benefits but in this example shares only 20 per cent of the costs, its investment in the Strategy yields producers greater returns compared to the returns to all groups from the total investment for example - a benefit-cost ratio of 63:1 compared to 169:1 at 95 per cent probability of eradication (Table 3 and Table 4). Therefore, there are clear and significant benefits to industry of its participation in the cost sharing arrangements for the Torres Strait Fruit Fly Strategy. This would result in better alignment of the funding base of the strategy with that of other nationally cost shared detection and eradication initiatives. Sensitivity analysis The analysis is replicated with incursion probabilities of 10 per cent (lower bound) and 50 per cent (upper bound) around the most likely value of 20 per cent chosen. For each of the three incursion probabilities, the net present values and benefit-cost ratios are also estimated for an annual response cost of $400,000. As expected, without the Strategy, the higher the probability of incursion the greater the benefits of having the Strategy to producers, consumers and the governments. The net present values and the benefit- cost ratios for the two budgets considered, also increase as the probability of incursion without the strategy increases. The doubling of the annual response budget to $400,000 halves the benefit-cost ratios, but they still remain positive. As discussed under the business case for the horticultural industry, for a given overall investment, the industry contribution to this investment yields producers greater returns compared to the returns to all groups from the total investment. Therefore, when the annual response budget is doubled, the industry would still receive higher returns on its potential 20 per cent share of the annual budget. 7

13 1 Introduction Compared to Queensland fruit fly, exotic fruit fly species such as papaya fruit fly attack a greater number of crops and could therefore cause a greater damage to Australian horticultural industries (ABARE, 1995). The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy)was established following the 1995 papaya fruit fly incursion in far north Queensland that cost Australian governments and horticultural industries $34 million (in 1995 dollars) to eradicate over 5 years and reduced horticultural incomes resulting from the ban on imports of Australian horticultural products by overseas countries. According to Cantrell et al. (2002), the incursion has cost the horticultural industries approximately $100 million over the 5 year period. The National Fruit Fly Strategy (NFFS) recognises a potential incursion of exotic fruit flies as one of the six key risks facing current fruit fly management arrangements (Plant Health Australia, 2010). Under the Torres Strait Fruit Fly Strategy, seasonal incursions of exotic fruit flies in the Torres Strait islands are detected and the incursion is promptly eradicated before the flies enter the mainland. The early detection and response to incursions delivered under the Torres Strait Fruit Fly Strategy is complemented by related initiatives under the NFFS and Queensland government activities targeting exotic fruit flies. For example, specific initiatives to further strengthen the Torres Strait Fruit Fly Strategy are contained in one of the fifteen projects identified under the NFFS implementation action plan. These projects are designed to deliver improved market access, emergency response arrangements against fruit fly incursions and minimise the impact of fruit files on horticultural industries (Plant Health Australia, 2010). The lack of an incursion of exotic fruit flies in mainland Australia since 1995 suggests that the Torres Strait Fruit Fly Strategy has been successful to date. According to NFFS, the Strategy since its establishment has detected over 2800 exotic fruit flies belonging to three species in regular seasonal incursions in the Torres Strait islands. These incursions have been promptly eradicated thus preventing the establishment of residual permanent populations (Plant Health Australia, 2010). According to some expert opinion, without the Strategy, a mainland incursion could be expected within months and therefore the Strategy has apparently prevented the recurrence of such incursions. When expressed as a likelihood of incursion in any given year, considering the lack of an incursion since 1995, the strategy could be seen as greatly reducing that likelihood. Consequently, the likelihood of recurrence of a localised incursion in far north Queensland similar to the one that occurred in the Cairns area, is reduced and the costs of an expensive eradication campaign and the economic impact of the incursion potentially spreading into an Australia wide incursion are avoided. These avoided economic costs, including the lost sales in the short-term, represent the benefit from a successful detection and eradication program implemented under the Torres Strait Fruit Fly Strategy. However, there is little information available on the magnitude of the avoided losses or the benefits that can be directly attributed to the Strategy. Specifically, the information on the benefits to different horticultural industries is useful in identifying the key beneficiaries of the Strategy so that they could be convinced to contribute to the cost sharing arrangements in line with the principles of the Emergency Plant Pest Response Deed (EPPRD). The broader participation of beneficiaries in these arrangements is expected to better secure ongoing funding for the maintenance of the Torres Strait Fruit Fly Strategy. In this context, it is timely, that the Primary Industries Standing Committee (PISC) 8

14 announced in 2012 a review of the Strategy to particularly examine the longer term funding arrangements and make recommendations on options for cost sharing with beneficiary industries. 9

15 2 The threat of exotic fruit flies Exotic fruit fly species There are a number of exotic fruit fly species, including papaya fruit fly that cause significant damage to fruit and vegetable crops in South East Asia and the Pacific. For example, papaya fruit fly has established populations in Thailand, Malaysia, Singapore, Borneo, Indonesia, Sulawesi, Christmas Island and Papua New Guinea (Drew and Hancock, 1994). The exotic fruit fly populations in the neighbouring countries to the north of Australia present a real risk of these flies entering the northern parts of the country. A significant pathway for their entry from Papua New Guinea exists in the Torres Strait region. The Torres Strait Fruit Fly Strategy lists 6 lure-responding exotic fruit fly species that have established populations in Papua New Guinea and South East Asian countries (Table 5). The Strategy particularly targets three of these species (papaya fruit fly, melon fly and New Guinea fruit fly) that have established and unmanaged populations in the Western Province of Papua New Guinea. The Strategy also refers to three additional species of non lure-responding fruit flies that are known to be present in neighbouring New Guinea and Timor Leste. Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategy a Species Common name Nearest known location Likely host crops B. carambolae Carambola fruit fly Sumbawa, Indonesia Most fruit crops B. papayae Papaya fruit fly PNG (Western Province) Most fruit crops B. philippinensis Philippine fruit fly Philippines Most fruit crops B. cucurbitae Melon fly PNG (Daru, Western Province) All cucurbits B. tau Java, Indonesia All cucurbits B. trivialis New Guinea fruit fly PNG (Western Province) Most fruit crops Note: a. There are about 80 other species of fruit flies currently found in Australia, many being native species. However only six of them have any significant impact on horticulture (Drew, Hooper and Bateman, 1982) with the species that cause most of the damage to horticultural industries being Queensland fruit fly in the eastern states and the Mediterranean fruit fly in Western Australia. Source: Technical Advisory Panel for exotic fruit flies (2013) Host crops of exotic fruit flies The range of Australian crops that would be affected by the three target flies is not accurately known; however, the crops targeted by these flies in other countries, particularly in South East Asian countries, could help in the identification of their potential Australian hosts. ABARES obtained the assistance of the Australian Chief Plant Protection Office (ACPPO) of the Department of Agriculture in identifying the host crops. ACPPO has consulted a number of sources including Allwood et al. (1999), Hamacek et al. (1997), Drew et al. (1994), Crop Protection Compendium of the Centre for Agricultural Bioscience International (CABI), Pacific Fruit Fly Web of the Secretariat of the Pacific Community (SPC), various Industry Biosecurity Plans and Plant Health Australia in identifying the host crops. ACPPO has identified a total of 68 crops; however, only 25 major crops are included in this study as production data were not available for the remaining minor but emerging cropping industries. The crops selected are listed in Table 6 along with the information for each crop on which exotic fruit fly species would choose it as a host. Each crop is affected by at least one target fly species with 9 crops affected by two species and just two (mango and guava) affected by all three species. Of the 25 host crops, papaya fruit fly affects 20 crops, melon fly 15 crops and the New Guinea fly 4 crops. The list includes 15 fruit and 10 vegetable crops (Table 6). 10

16 Table 6 Host crop - exotic fruit fly mapping Crop B. papayae B. cucurbitae B. trivialis (Papaya fruit fly) (Melon fly) (New Guinea fly) Avocados - Bananas - - Beans - Bitter gourds - Capsicums - - Cherries - Chillies - Cucumber - Eggplant - - Grapefruit - - Guava Lemons - - Limes - - Lychees - Mandarins - - Mangoes Melons - - Okra - - Oranges - - Passionfruit - Pawpaw and Papaya - Peaches - Pumpkins - - Rambutan - - Tomatoes - Source: ACPPO (2013) The gross value product of horticultural hosts potentially susceptible to attack by papaya, melon and New Guinea fruit flies in Australia is estimated at $2.1 billion in which is 54 percent of the total gross value of all horticultural products produced in that year (Table 7). If an exotic fruit fly incursion in mainland far north Queensland spreads to the entire state, then approximately half of the gross value product of all Australian host horticultural products, around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of the value of tomatoes, mandarins, avocadoes, mangoes, eggplants, passionfruits and chillies are expected to come under threat. In Queensland, the most threatened commodities in terms of gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million), mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados ($53 million). The information on the gross value of exotic fruit fly host fruits in other Australian states is given in Appendix A. 11

17 Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit flies Fruit commodity Type Australia Gross value as a per cent of total gross value of Australian fruit produce a Queensland Queensland gross value as a percent of Australian gross value $m % $m % Tomatoes Vegetable Bananas Fruit Oranges Fruit Melons Vegetable Mandarins Fruit Beans Vegetable Capsicums Vegetable Avocados Fruit Mangoes Fruit Cherries Fruit Peaches Fruit Pumpkins Vegetable Lemons Fruit Cucumber Vegetable Limes Fruit Pawpaw and Papaya Fruit Eggplant Vegetable Passionfruit Fruit Lychees Fruit Grapefruit Fruit Chillies Vegetable Bitter gourds Vegetable Okra Vegetable Guava Fruit Rambutan Fruit Total Note: a. Total value of Australian fruit and nut production in is estimated at $3953 million Source: ABS (2012) and ABARES calculations Nature of the damage and economic implications Compared to the Queensland fruit fly, exotic fruit flies can potentially cause more damage because some attack fruits at an earlier stage of development (unripe fruits) (ABARE, 1995) and can survive in a wide range of climatic conditions. Papaya fruit fly attacks most edible fresh fruits, both tropical and temperate, with one exception being pineapples. It also attacks most vegetables other than root vegetables (potatoes, sweet potatoes, carrots and onions), leafy vegetables (such as lettuce and cabbages), peas and chokos (ABARE, 1995). The adult females lay their eggs just under the skin of the host fruit or vegetable. Within two to three days the eggs hatch into larvae which, as they feed, damage the fruit by burrowing into healthy tissues causing decay and premature fruit drop. Considerable damage can occur under 12

18 the skin before obvious signs of infestation can be seen on the fruit or vegetable. The most obvious signs of infestation are small discoloured patches on the skin which develop from the punctures made by the female fly as she laid her eggs. Secondary infections, either bacterial or fungal, may also follow from the damaged host tissues leading to more markings on the surface of the fruit or vegetable. Economic losses to affected industries can arise from lost profits due to additional costs being incurred on insecticide sprays on-farm to avoid the potential reduction in marketable yields of fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the area of incursion due to trade restrictions imposed on the affected areas could also be significant. To some extent these sales losses can be mitigated by appropriate disinfestation of products. However, the development of effective treatments and subsequent negotiations to have them accepted for either domestic or international trade may take time; resulting in ongoing loss of market access until the negotiations are successful and agreed protocols take effect. The cost of complying with these protocols represents largely the cost of disinfestation of produce destined to export markets and this cost could be significantly less than the value of sales that could have been potentially lost if the export bans were maintained (ABARE 1995). The rationale for government response to exotic fruit fly threat In general, when faced with pest and disease threats, governments have a role in providing biosecurity in terms of pre-border, border and post-border services that market forces, if left alone, would fail to provide adequately. These services, due to the public good nature of their demand, benefit all users including those who can choose not to pay thus making it unprofitable for a private supplier to provide (Sumner et al. 2005). Government responses to the threat from all species of fruit flies include quarantine restrictions, monitoring and surveillance, eradication and ongoing control (Abdalla et al. 2012). The success of the Torres Strait Fruit Fly Strategy in keeping exotic fruit flies out of the Australian mainland since 1995 has benefitted producers and consumers of fresh fruits and vegetables. It has benefitted producers by lowering the marginal cost of production and marketing and consumers by keeping prices lower compared to the levels they would have increased to had a widespread incursion of exotic fruit flies occurred. The reduction in marginal cost of production and marketing results from the avoidance of on-farm expenditure on additional insecticide sprays and disinfestation of produce destined to exotic fruit fly free domestic and export markets. Following Sumner et al. (2005), the reduction in per unit cost of production and marketing attributed to the Strategy does not depend on the volume of production that is protected by the Strategy. In other words, it doesn t depend on whether the exotic fruit fly incursion is confined to mainland far north Queensland or it spreads to the rest of Queensland or to other eastern States and the Northern Territory. Assuming each host horticultural industry is perfectly competitive; per unit cost reduction experienced by an individual producer is not affected by the number of other producers who would also experience similar reductions. On the other hand, in most situations, assuming that there are no natural barriers to the spread of exotic fruit flies within Australia, the cost of implementing the Strategy does not increase in proportion to the volume of production protected (Sumner et al. 2005). The case for cost sharing by industry Following Ekboir (1999) and Sumner et al. (2005), when private incentives to provide border services are less apparent, horticultural producers are expected to respond to incentives created by collective actions through industry organisations. This means horticultural industry organisations representing producers would be expected to respond positively to incentives 13

19 created by institutional arrangements for sharing the costs (with governments) of protecting the industry from potential exotic fruit fly incursions. Cost sharing arrangements with industry contributions are in place for the management of post-border exotic fruit fly outbreaks. Industry needs to be convinced that similar incentives also exist for sharing the cost of border services. Governments and industry sometimes share the cost of post-border fruit fly management as required under EPPRD (Abdalla et al. 2012). Access Economics (2010) states, that EPPRD cost sharing arrangements recognise that the failure to promptly eradicate an outbreak of exotic fruit fly on one property can undermine the pest-free status of an entire region or state, resulting in the exclusion of all growers in the region or state from accessing domestic and international markets. Papaya fruit fly incursion in 1995 The papaya fruit fly outbreak in 1995 around Cairns marked the second incursion of a serious exotic fruit fly pest in the Australian mainland (since the entry of Mediterranean fruit fly to Western Australia in 1895). In 1993, it was detected on five Torres Strait islands and subsequently eradicated by the then Queensland Department of Primary Industries (QDPI). It is believed to have been carried into Torres Strait by monsoon winds from Irian Jaya and Papua New Guinea, where it had been first detected in In 1995, papaya fruit fly established small populations around Cairns, in Mareeba and to a lesser extent around Mossman (Cantrell et al. 2002). Its source is unknown but the fly was speculated to have possibly come from the Torres Strait islands. Immediately after the detection, QDPI declared a 10,000 square kilometre quarantine zone. No fresh host fruits and vegetables were allowed out of the quarantine zone without a permit from QDPI. In response to this incursion, some overseas countries banned imports of specific Australian horticultural produce. These include imports of Australian mangoes by Japan, bananas by New Zealand and all fruits and vegetables by the Solomon Islands. The export bans affected 5 percent of the value of Australian mango exports and 10 percent of the value of banana exports in Approximately, one fifth of the value of exports from the quarantine zone was lost in that year (ABARE 1995). The Plant Health Committee (PHC) of the Standing Committee on Agriculture and Resource Management (SCARM) decided to undertake an eradication campaign costing an estimated $34 million (in 1995 dollars) over a 5 year period. A benefit-cost analysis conducted by ABARE (now ABARES) on the request of then AQIS estimated that if papaya fruit fly was not eradicated it would have cost $74 million (in 1995 dollars) a year in terms of additional production and marketing inputs (ABARE 1995). The campaign was successful in eradicating the pest in four years (Cantrell et al., 2002). 14

20 3 Surveillance for exotic fruit flies In addition to the Torres Strait island route, exotic fruit flies can also enter Australia through the increased flow of trade and people from South East Asian countries where these flies have established populations. Other surveillance activities for exotic fruit flies include pre-border, border and post-border measures. Pre-border import risk assessments are used to examine the likelihood that exotic fruit flies would enter, establish and spread through regulated pathways, and the consequences should that occur. If the assessed risks are above the very low score, then pre-border treatments may be required or access denied (Abdalla et al. 2012). Quarantine restrictions are in place as part of border measures to reduce the risk of fruit fly infested fruits entering the country and some states. Post-border measures include fruit fly trapping programs implemented in all states and territories to detect exotic fruit flies entering through other pathways. These measures are designed to provide an early detection mechanism in high risk areas and ongoing confidence to importers that Australia remains free from these exotic species. For example, exotic fruit flies belonging to the species Bactrocera philippinensis (Philippine fruit fly) were detected in Darwin in 1997 through the trapping program implemented by the Northern Territory government and were promptly eradicated. The purpose of this study is to undertake a benefit cost analysis exclusively of the investments in response (eradication) elements of the Torres Strait Fruit Fly Strategy. The analysis does not cover other pathways, nor the costs of monitoring and surveillance in Torres Strait which are borne by the Australian government and delivered under the auspices of the Northern Australia Quarantine Strategy (NAQS); however, the relevant information on these pathways is presented to provide the context. Target exotic fruit fly species Of the six exotic species listed in Table 5, Australia is most concerned about three species that are widely established in the New Guinea landmass, namely B. papayae (papaya fruit fly), B. cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the Australian mainland through the Torres Strait (Box 1). Papaya and New Guinea fruit flies and to a lesser extent melon flies (referred to as target flies in this report) have been found in some Torres Strait islands in most years over the last decade after being blown by monsoonal wind from New Guinea (Table 5). The surveillance and eradication activities conducted under the ongoing Torres Strait Fruit Fly Strategy have resulted in the prevention of the flies from establishing permanent populations in the Torres Strait islands which would have otherwise increased the potential of them entering the Australian mainland. 15

21 Box 1 Target species of the Torres Strait Fruit Fly Strategy B. papayae (papaya fruit fly) A major plant pest of horticultural crops in South East Asia with over 190 host plant species belonging to 114 genera and 50 families (Allwood et al. 1999). It has established populations in Thailand, Malaysia, Singapore, Borneo, Indonesia, Papua New Guinea and Christmas Island. In Papua New Guinea, it is found in carambola, cashew, papaya, pomelo, mango and guava (Franco- Dixon and Francis, 2009). It was found in 35 host plant species in Australia during the 1995 papaya fruit fly incursion (Hancock et al. 2000). Papaya fruit fly has been recorded on some Torres Strait islands during the monsoon ( incursion ) season (usually November June) in most years since the original incursion there in Eradication and response measures implemented under the Torres Strait Fruit Fly Strategy have prevented the establishment of permanent populations. B. trivialis (New Guinea fruit fly) New Guinea fruit fly is found regularly in Papua New Guinea and Indonesia. It is also found occasionally in small numbers in some Torres Strait islands during the incursion season after being blown in by wind from the southern parts of New Guinea. New Guinea fruit flies found in the Torres Strait islands are detected and eradicated by trapping and response activities, respectively carried out under the Strategy. It attacks a range of fruits belonging to 11 genera and ten families. It is regularly found in guava and plants belonging to genus Syzygium (Franco- Dixon and Francis, 2009). B. cucurbitae (melon fly) Melon fly is native to tropical Asia. It is found in Asia and Hawaii in over 125 species of both cucurbit and non-cucurbit hosts. Non-cucurbit hosts found in Asia and Hawaii include beans and papaya. In South East Asia, it has been found in 42 host species belonging to 26 genera and 12 families (Allwood et al. 1999). It has established populations in Papua New Guinea (and the broader New Guinea landmass) affecting 95 per cent of bitter gourd fruits produced in the country (Franco-Dixon and Francis, 2009). The Torres Strait Fruit Fly Strategy The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait was established in 1996 as a result of a decision made by SCARM following the papaya fruit fly incursion around Cairns. The Strategy aims at reducing the likelihood of exotic fruit fly incursions in far north Queensland through continuous monitoring and eradication of seasonal fruit fly incursions in the Torres Strait islands. The implementation of the strategy is overseen by a Technical Advisory Panel (TAP). The Torres Strait Fruit Fly Strategy has two components: 16

22 1) Australian Government Department of Agriculture funded and implemented trap based monitoring program for early detection of target fruit flies, carried out under NAQS; and 2) A nationally cost shared response program to eradicate the flies from the affected islands by supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis, while the male annihilation blocking (lure and kill) is implemented directly by QDAFF. During the 10 years to , the Torres Strait Fruit Fly Strategy has detected around 500 exotic fruit flies belonging to the three target species. Papaya fruit fly is the most frequently detected species (75 per cent) with the New Guinea fruit fly being detected in 24 percent of all target detections (Table 8). Under the response component of the Strategy, additional traps are installed around the locations of initial detections to delimit the incursion and eradication activities are carried out by broad scale application of bait spray and installation of male annihilation blocks where pre-determined trigger points set in the Strategy are met or exceeded. Over the 10 years to , a total of 156 response traps have been installed (Table 8). Application of bait spray and male annihilation blocking have been undertaken in every year over the last 10 year period with the number of islands being subject to these treatments varying depending on the extent of the incursion. Four islands that lie closest to Papua New Guinea are pro-actively blocked and bait-sprayed annually, irrespective of the number of detections. The Torres Strait Protected Zone and Special Quarantine Zone are shown in Figure 1 and more details on the working of the Torres Strait Fruit Fly Strategy is presented in Box 2. Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait Fruit Fly Strategy to Year Number of detections Response activity levels Papaya Melon fly fruit fly New Guinea fruit fly No. of response traps installed No. of islands bait sprayed No. of islands where male annihilation blocking undertaken Source: Torres Strait Fruit Fly Strategy review 2013 background paper 17

23 Figure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special Quarantine Zone and movement restrictions for biosecurity risk material including fruit fly hosts Source:Torres Strait Fruit Fly Strategy review 2013, Background paper Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy Both detection and response elements of the Strategy rely on traps installed for exotic fruit fly detection. Paton traps are used for monitoring as they can withstand high rainfall or wind over a long period between collections; whereas Steiner traps that provide flies easy access while protecting the trapped flies from water and predators are used as response traps placed with the aim of delimiting the incursion. A commercially prepared lure dispenser comprising a cotton wick impregnated with a mixture of attractant and insecticide mounted within a plastic dispenser is used to lure the flies. A dosage of 4 ml of lure and 1 ml of insecticide (Maldison 50) is used per trap. Methyl eugenol is used to lure B. carambolae, B. papayae and B. philippinensis whereas cuelure is used to lure B. curcurbitae, B. tau and B.trivialis. Monitoring traps are cleared each fortnight during the wet season (January to June) and each month during the dry season. Traps are cleared more frequently in the wet season due to the high number of flies trapped and to facilitate more rapid notification and response to exotic fruit fly detections. Torres Straitbased NAQS staff, supervised by NAQS entomologists, are responsible for trap maintenance and clearances. Cairns-based NAQS entomologists identify, count and record all trapped flies (including nontarget species) and advise the Technical Advisory Panel (TAP) on the appropriate time to change from fortnightly to monthly trapping. After each clearance, the TAP is provided with a summary of trap catch data, which specifically lists the number of target fruit fly species recorded (if any) and the islands on which they have been trapped. The reports are also provided to the Queensland General Manager of the Australian Government Department of Agriculture, NAQS and other stakeholders. NAQS entomologists also advise on any response action required if exotic fruit fly detections reach thresholds set in the Strategy. The Torres Strait islands differ in terms of the risk of entry and establishment of exotic fruit flies depending on the distance from Papua New Guinea (Figure 1) and other infested islands, 18