Economic Investigation of Mitigation of Foreign Animal Disease Introduction

Transcription

1 Economic Investigation of Mitigation of Foreign Animal Disease Introduction Levan Elbakidze Texas A&M University Department of Agricultural Economics This research is supported by the National Center for Foreign Animal and Zoonotic Disease Defense created by the Department of Homeland Security. Views expressed are those of the author and do not necessarily represent those of the FAZDD.

2 Agricultural Terrorism food terrorism - an act or threat of deliberate contamination of food for human consumption with chemical, biological or radionuclear agents for the purpose of causing injury or death to civilian populations and/or disrupting social, economic or political stability (WHO, 2002)

3 Outline The economic problem Some theoretical deductions - hypotheses Conceptual modeling A simplistic first cut Broader project efforts

4 Justification: Vulnerability Implementation difficulty and magnitude of damages. Food borne diseases cause approximately 76 million illnesses, 325,000 hospitalizations, and 5000 deaths annually in the United States (Mead et. al. 1999) Lost consumer/producer surplus Food and water contamination remains the easiest way to distribute harmful chemical and biological agents (Khan et. al 2001) Two General Categories of Agricultural Sabotage Direct Food contamination (Torok, et. al. 1997, Mermin et al. 1999) Introduction of non-indigenous species (Pinmentel et al. 2000, Shogren, 2000)

5 The Food Process: Farm-to-Table Farm Livestock Poultry Eggs Sale Barn Feedlot Slaughter House Processing Facility Rendering Distributor / Warehouse Wholesaler Edible Non-edible Retail Consumers Table Source: FSIS 2003

6 Economic Problem Goals Mitigation strategies Minimize costs Form best investment strategies considering cost, disease vulnerability, risk, and event characteristics? Manage market information to minimize impacts Major elements Irreversibility cannot instantly install investments when an event occurs Conditional response depending on investments Fixed cost versus infrequent occurring events Income depends on event and there is a large span of possible events Best strategy depends on investment cost, operating cost and probability

7 Ex-Ante Invest Prevention Surveillance H 0 : Tilting Factors Ex-Post Fix Detection Response Recovery Tilt toward ex-ante Event is more likely Ex-ante Activity has multi benefits Ex-ante Activity is more effective Ex-ante Activity is cheaper Ex-post treatment more costly Fast spreading disease More valuable target Big demand shift -- health Tilt toward ex-post Event is less likely Ex-ante Activity is single purpose Ex-ante Activity is less effective Ex-ante Activity is expensive Ex-post treatment less costly Slow spreading disease Less valuable target Little demand shift -- health

8 Simple Model -Two Stages STAGE 1 STAGE 2 No FMD Invest in vaccination Invest in surveillance and detection Do nothing Pr (1-Pr) Normal: No FMD Do nothing FMD Vaccinate Slaughter Do nothing Ex ante Ex post

9 Analytic Conceptualization Cost Encountered Ex-Post Cost Ex-Ante Cost Total Cost Expenditure on Ex-Ante

10 Analytic Conceptualization Two Stage Maximizing Expected Utility P probability of event, L monetary losses, V - Industry profits, r ex post actions, s ex ante actions, δ event severity, w - prices MAX: U ( V L( δ, r, s) w s w r) + ( P) U ( V w s) = P U 1 E s r NE s

11 Very Simplistic Case study Impact of prevention and treatment strategies in FMD setting Region Texas Unknown probability Investigate adoption of Ex-ante periodic animal examinations Ex-post ring slaughter of affected animals as a treatment strategy Look at expenditure balance as influenced by Probability level Spread rate Costs of implementation Effectiveness of response Recovery programs

12 Foot and Mouth Disease (FMD) 2001 UK Outbreak: 2026 cases, billion, Effects:, Tourism , farmers and related industries (Mangen, and Barrell 2003) Exports Decreased productivity Found in 34 Countries during 18 month prior to Apr 2001 (The Economist, 2001)

13 Foot and Mouth Disease (FMD) Spread: air, transportation, artificial insemination, milk related transmission, direct contact, and wildlife Don t show signs of disease for one or two weeks but are contagious. (Garner and Lack, 1995, Economist 2001) Virus can survive even in processed meet and dairy products (Economist 2001) Not harmful to humans

14 FMD mitigation options Vaccination (Schoenbaum and Disney 2003, Carpenter and/or Bates, Ferguson 2001,Berentsen 1992, etc.) Slaughter (Schoenbaum and Disney 2003, Carpenter and/or Bates, Ferguson 2001,Berentsen 1992, etc.) Movement Ban (Ferguson 2001) Surveillance and Detection (McCauley et al. 1979) Monitoring imports (McCauley et al. 1979) Monitoring travel Tracing Recovery/information (Ryan et al {for milk})

15 Formation of Animal Disease Management System Prevention -- systems where there are actions undertaken to try to avoid disease introduction Detection -- systems designed to screen animals to detect disease early to allow more rapid treatment and much lower spread than would otherwise be the case Response systems which involve actions to stop the spread and ultimately eradicate the disease and to avoid further economic losses. Recovery -- systems put in place to restore lost assets or demand shifts due to introduction of animal disease

16 ( N, R) = Y FTC + N VTC + P [ V H ( R) D( t) + CR R] L P Probability of outbreak L(N,R) - losses associated with prevention, response and occurrence of potential FMD outbreak. N - number of tests performed annually on cattle in the region. R - response activities in the state of nature where outbreak occurs. Y - binary variable representing investment in surveillance system. CR - costs of response activities FTC - fixed testing costs VTC - variable testing costs. H(R) response effectiveness function. proportion of animals lost in case of an outbreak under various levels of response actions D(t) - is the disease spread function expressed in terms of days that the disease is allowed to spread before detection. V Value of losses per infected herd t Maximum number of days disease is undetected, 365/(N+1)

17 Assumptions Cost minimization of ex-ante costs plus probabilistic weighted cost of response. Response effectiveness Slaughter (Schoenbaum and Disney, 2003) Convexity Disease spread Exponential (Anderson and May, 1991)and Reed-Frost (Carpenter et al. 2004) Fast (0.4) and slow (0.15) contact rates (Schoenbaum and Disney, 2003) Source: Elbakidze, Levan, Agricultural Bio-Security as an Economic Problem: An Investigation for the Case of Foot and Mouth Disease, In process PhD Thesis, Department of Agricultural Economics, Texas A&M University, 2004.

18 Model Experimentation Event levels: Probability Severity or spread rate: slow vs. fast Response effectiveness: 17% - 30% Variable costs of detection 0.1TVC, 0.01VTC Average herd size: 50 to 400. Ancillary benefits: FTC-$50 per herd Recovery actions: decrease loss of GI per animal by 30%

19 Slow RF Results Spread Rate N i ii iii iv v vi iii i v vi vi P iv ii N Fast RF i ii iii iv v vi P 1 iii vi v iv i ii i Full variable Costs (VC), Response Effectiveness (RE)=0.17 ii VC, RE =0.3 iii 0.1VC, RE=0.17 iv 0.1VC, RE=0.3 v 0.01VC, RE=0.17 vi 0.01VC, RE=0.3

20 Results Event probability, Response effectiveness, VTC costs N i ii iii iv v vi P 1 iii vi v iv i ii RF i Full variable Costs (VC), Response Effectiveness (RE)=0.17 ii VC, RE =0.3 iii 0.1VC, RE=0.17 iv 0.1VC, RE=0.3 v 0.01VC, RE=0.17 vi 0.01VC, RE=0.3

21 Herd Size Increasing herd size from 50 to 400 increase # of tests. Reached 39 for fast spread. Ancillary benefits Decrease FTC by $50 per herd No change in # of tests Lower the probability of adoption in slow spreads Recovery actions Results Decrease in losses of GI per animal by 30% Did not have a noticeable effect on surveillance intensity.

22 Costs of an outbreak with and without ex ante action With detection 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Losses i ii iii iv v vi P 1 Without detection, Only response 80% 60% 40% 20% 0% Losses P1 i Full Variable Costs (VTC), Response Effectiveness (RE)= 0.17 ii VTC, RE=0.3 iii 0.1VTC, RE=0.17 iv 0.1VTC, RE=0.3 v 0.01VTC, RE=0.17 vi 0.01VTC, RE=0.3

23 Conclusions Relationship between ex ante (detection) and ex post (slaughter) strategies. effort in a priori surveillance increases with: threat level, cost reductions in surveillance, with disease spread rate, lower degree of effectiveness in response, and average herd size Lower bounds of benefits from ex ante detection systems. Trade, consumer scare, other industries not considered.

24 Conclusions Caution: functional forms, parameters, cost estimates. Future: Explicitly include vaccination, recovery, Disaggregate to localized strategies Cooperation/non-cooperation Include Risk Aversion Link to epidemiology model

25 Future Work: Link to Epidemiology An economic model linked to epidemiologic model Disease spread Multiple types of outbreaks Event occurrence and severity Broader mix of strategies Multiple vs. single purpose strategies Risk aversion Effects on optimal mix of strategies Localized decision making Possibly three stage formulation

26 Response Effectiveness Appendix ( 2 ) a + a R a H ( R) = + R Convex Normalized to R=1, H(R)=0.83 (Schoenbaum and Disney,2003) R slaughter of herds in direct contact with diagnosed herds Results in 17% decrease in number of lost animals H(R)=1-0.34R+0.17R H(R ) R 3

27 Value of losses per infected herd GI V = C NH + CV + TN NH C is the costs of slaughter, disposal, cleaning and disinfection and was assumed to be $69 per head (Bates et al, 2003). NH is average number of cattle heads per herd in Texas, which was found to be around 50 (Ernie Davis, Personal Communication, August 2004). CV is an average market value per cattle head reported to be $ GI is gross income for Texas cattle and calves operations reported to be $6,829,800,000 in 2001 (Texas Agricultural Statistics, 2001). TN is number of cattle heads in Texas reported to be approximately 13,700,000 in 2001.

28 FTC - $42,915,000, which was calculated by multiplying per herd testing costs ($150) for operations of less than 100 animal heads (Schoenbaum and Disney, 2003) and the number of cattle operations in TX (286,100). VTC - are assumed to be $50 per visit per herd (Schoenbaum and Disney, 2003), under the scenario where an outside expertise is required to conduct the screenings at each farm. for the whole Texas the costs per visit are 50*28611=$14,305,000. CR - include expenses for appraisal ($300 per herd), euthanasia ($5.5 per head), and carcass disposal ($12 per head) (Schoenbaum and Disney, 2003). $1175 per herd. costs or response strategy corresponding to R=1 are assumed to be 37*1175=$43475.

29 Exponential Spread 365 β βt D( t) = e = e N + 1 Simulate number of infected herds for slow and fast spreads Estimate ln(d)=βt Slow Spread β=0.026(3*10-15 ), R 2 =0.43 Fast Spread β=0.2(3*10-25 ), R 2 =0.9

30 Reed-Frost Formulation Simulate number of infected herds for slow and fast spreads * 7 t= t 1 Dˆ ˆ = ˆ t μ μ Dt TN Dt 1 q t= 0 t = t* t= 0 D t = D t ' * ˆ TN Total number of herds in the area q Probability of avoiding adequate contact 1-q - probability of making adequate contact = k/(tn-1) K number of adequate contacts a herd makes per time period Slow 0.15, Fast 0.4

31 Reed-Frost Formulation Use generated data to fit logistic function TN D( t) = 1+ β e 1 β t 2 Fast Spread: β 1 =512040, β 2 =-0.319, R 2 =0.99 Slow Spread: β 1 = , β 2 =-0.012, R 2 =0.97

32 STAGE 1 Pre Event Analytic Conceptualization: Three Stages 1-p STAGE 2 Possible Event STAGE 3 National and Local Management Decisions Normal: No Event No Event Invest in: Prevention Detection Response capability p Event Respond Prevent Detect Recover * 1 P2 * P2 No Event Recover Event Respond Recover

33 Big elements Modeling Conceptualization Multi disciplinary study Domain experts, Veterinarians, Epidemiologists, Information technologists, Economists Ties together a number of models Designed for insights not numbers Will run backwards to see what characteristics of diseases and event probabilities merit what types of strategies

34 Contemplated Studies Component strategy evaluations Anticipation, Prevention, Detection, Response, Recovery Investment / strategy mix study Strategy use Effects of disease characteristics Event probability that mandates actions Event specific vs multi outcome strategy value Risk / investment assessment Markets Information management and demand Dynamic response Demand suppression Other Recovery information management Carcass disposal Policy design and cooperative behavior