Bovine TB: APPENDIX D - Economic Studies to Inform the ISG's Work
The Group has recognised from the start that, if it is to offer recommendations on sustainable policies for the control of bovine TB, its proposals must be built on the kind of dependable technical data that the trial and other scientific enquiries currently underway are designed to produce. But they must be sustainable also in the wider sense of being convincing to those involved in the commercial operations of cattle farming; defensible in terms of the financial costs and benefits accruing to the public purse; and consistent with the general perceptions of a society that voices strong concern over aspects of the rural environment.
This implies that by the time we are in a position to construct and evaluate alternative TB control policies we will need appropriate information relating to the economic and financial aspect of the disease and its control. This means studies relating more to the operational farm/sector/countryside level than the more narrowly focused 'scientific' (i.e. natural science) and technical levels of the already established research programmes. These latter studies will allow us to answer questions about proposed policy approaches along the lines of "does it work?", "how will it work?" or "what is necessary to ensure it will work?". The economic studies should be designed to answer questions about "is it worth it?", "to whom is it worth it?", "is this the best way of doing it?" and "supposing we don't do it, what then?". To give useful advice to Ministers we need to have considered some of these non-technical aspects of a control policy. This is not to say that the final choice will be on economic grounds, but only that the economic dimensions are an integral part of the complex issues involved. In the end, regardless of the formal information framework and policy analyses we may be able to present, there will be still a number of political judgements that only Ministers can make.
There are three main types of economic studies that we need to pursue, each adding an essential dimension to our ability to understand and construct what might be "sustainable".
Farm-level effects of bovine TB and its control
A TB breakdown has a potentially severe impact on the profitability of the affected farm business. There will be a direct loss of revenue from reduced milk or animal sales, loss of quality assurance or other price premia, disruption to breeding programmes and the general operation of the farming system, and from movement restrictions imposed until the herd is declared clear. (Even at 100% of the financial value of reactor cattle, compensation will almost always fall well short of those losses.) The magnitude of these revenue losses obviously depends on many individual farm factors (size and productivity of herd, length of time before clear tests, type of farming system, etc).
In addition there will be additional expenditures exacerbating the financial damage to the farm business - unplanned feed and husbandry costs associated with the forced holding of animals, costs of conducting further TB tests, ultimate acquisition of replacement animals, etc. Added to those are an array of possible avoidance costs that may be incurred by farms in response to the threat of a breakdown when it is known there is a TB risk in the area; like all insurance premiums these are real costs, even though an actual event may not occur.
In simple terms the sum of these financial effects on a farm business - "the farm level costs of a TB breakdown" - are by the same token the benefits to be gained by avoiding a breakdown. This is therefore essential information in evaluating the economic implications of any proposed control policy predicted to reduce the number of breakdowns, for it provides a first (although limited) estimate of the benefits to be set against the cost of the control measures. In the context of a political concern over the impacts of TB on farmers' incomes, it is a prime area of information need.
We know very little about this aspect. The National Farmers' Union study which suggests a TB breakdown costs an average of around £36,000 per farm does not have a reliable provenance in terms of research methodology (self-selected sample, restricted information framework, unverifiable responses). An independent and rigorous survey of, say, 150 breakdown farms structured to reflect size and type of farm and breakdown history, collecting conventional farm management data on costs and revenues of the breakdown event is essential to fill the void and provide a basic data set for economic analysis and any further modelling of policies.
Economics effects of TB in the agricultural sector
From an economic standpoint it is not the personal incomes of farmers that is the primary issue of cattle TB. Rather, it is the implications of TB incidents on the wider agricultural economy (the 'national farm') and its cattle livestock sector. If private and public resources are to be employed via some policy action specifically to control cattle TB, what are the aggregate private and public gains that are expected to arise as a result of that?
To answer this key question requires a rather wider and more intricate economic study. A framework needs establishing to identify all the negative effects in the UK economy of the existence of TB in its cattle herd (at current, projected and policy-controlled levels perhaps) and then to estimate the economic valuations they carry. The range of these effects is broad, not always obvious and covers direct and indirect impacts - from human health threats and consumer concerns over food safety at one level to the adjustments in farm production and resource use at the other, but including also public sector costs of disease monitoring, testing and the other veterinary reactions, coupled with any wider implications to the cattle economy due to trade effects and constraints on regional development or responding to changing market demands. This could develop into a fairly detailed conceptual and empirical modelling exercise, whose purpose is to allow a 'full' economic assessment of the benefits of TB control policies. The presence of price distortions due to agricultural policy interventions will need to be accounted for in an attempt to identify the real economic value of the components considered.
A second component is a detailing of the economic costs of those actual and potential intervention measures (culling badgers, vaccinating cattle, doing nothing, no-cattle areas, continuing research expenditures) that might underpin a sustainable policy for TB control. MAFF data will be the prime source of information for the public sector expenditures, the farm survey study should enable aggregate estimates of the private producer costs, and wider explorations will be necessary to include the more tangential and indirect implications.
Such a study lies at the core of any economic evaluation of public policies for TB control, for identifying the 'best' one or assessing the cost-effectiveness of a restricted set that are in some sense most acceptable/appropriate. There are standard economic methodologies for putting together the cost and benefit streams in making these assessments. It is the structured research on compiling the detailed database to underlie the final evaluations that is lacking.
The ecological economics dimension
The studies suggested above reflect the conventional micro and macro-orientations (firm level, sector level) of economics research. They are based on viewing the costs and benefits of cattle production, and its associated disease management actions, in the context of agricultural products which have a market value and resources which have a market value (perhaps distorted by policy or other interventions, but nevertheless having a recordable base of data). However, in the particular case of bovine TB there is this difficult element of the possible role of wildlife as a disease vector, and hence their control/elimination as part of a control policy. Wildlife are the classic 'public goods', things which have an economic value which is not reflected in a market price because they are not bought and sold by groups/individuals. They are genuine economic commodities (because people attach value to them and are prepared to incur financial or other costs to preserve/protect/gain more of them) and so must be included in any comprehensive economic evaluation; but they are not commercial commodities, and so an everyday market system does not throw up the data that reflects their valuation relative to everything else. (The fact that they do not enter into the accountant's calculations does not mean they can be excluded from the economist's.) It is desirable to have some idea of an economic weighting that can be attached (as a cost) to the badgers that are killed, or (as a benefit) to those that are not killed, as a consequence of particular disease control options that are being assessed. Without this the economic characterisation of any policy will be incomplete and inconsistent, giving no indication of how 'ecological' values and 'monetary' values are to be considered together.
Although difficult, the implicit valuation of non-market goods is not impossible and economic methodology has developed substantially over the past 10-15 years in discerning the values that society places on things - environmental features, access, countryside amenity, etc - equivalent to that which it would express through a market if such a thing existed. These methods generally are based on the concept of "willingness to pay" (which is precisely what a market records) but derived through techniques of preferences expressed and revealed by an appropriately structured socio-economic inquiry. Given the emotive and special interest prominence attached by some people to the badger as a wildlife species, while others range from being less frantically concerned to being totally indifferent, it would seem important to attempt to quantify the overall economic value that might be attached to the badger as a resource that is 'used up' (i.e. killed) in a TB control policy. This is a conceptually and empirically difficult study, for which there is no direct precedent to act as a model and so it would involve original research into the methodology of 'the economics of wildlife' - an area that will gain increasing importance in rural resource use in the future. However, we think it to be an important component in the broad research prospectus that the ISG is fostering. The aim is not to reduce the whole evaluation or selection of policies to an accountants formula. Rather, it is to broaden the base of the analysis of any proposed control policy; and to ensure the information base contains estimates of value that are not reflected in market price/cost data, as well as those from more conventional accounting sources.
All three research areas listed need to have delivered results by the time the Group is in a position to prepare and examine possible sustainable TB control policies.
On to Appendix
E 
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Page last modified:
12 August 2003
Page published: 5 February 2003