News

FMD risk: How would affected businesses be compensated?

James Nason, July 8, 2022

WHAT kind of financial arrangements are in place for impacted businesses should a foot and mouth disease outbreak occur in Australia?

An FMD infected animal in Indonesia unable to stand due to painful food lesions.

Australia’s nationally agreed plan for responding to an emergency animal disease outbreak acknowledges that compensation for directly affected parties is needed to encourage early reporting of emergency diseases.

It adds that compensation is important to ensure that people who report suspicion of disease early are not financially disadvantaged.

So who would receive support in the event of a disease outbreak, and would it constitute substantial compensation?

Beef Central and Sheep Central have been exploring this issue for the past week to help readers understand what current rules in place allow for.

How compensation to be paid would be cost-shared by governments and industry is detailed in Australia’s Emergency Animal Disease Response Agreement, which is referred to as ‘the EADRA’.

Under the EADRA, governments agree to fund 80 percent of the response costs of an FMD outbreak, while industry would fund 20 percent.

Who can receive compensation?

A reading of the EADRA documents indicates that while allowance is made for financial assistance, there are limitations around who can receive it and how much compensation they would receive.

For example, existing arrangements under the EADRA relate to cost sharing of financial assistance to those whose animals or other property is destroyed to control disease, which would typically be livestock producers or processors.

There is no allowance made for other livestock industry businesses that might also be heavily impacted, such as stock and station agents, livestock transporters, veterinarians, farm suppliers etc.

How much?

Compensation would be limited to the farm-gate value of livestock that either die from FMD infection or are destroyed as part of an official emergency animal disease response to an FMD outbreak.

Compensation would not include the value of lost future production. The EADRA stipulates that “no allowance shall be made for loss of profit, loss occasioned by breach of contract, loss of production or any other consequential loss whatsoever”.

Questions around timing of valuation

The timing of the point at which farm gate value is determined for the purposes of compensation is important, because it is widely accepted that an FMD outbreak in Australia would trigger a reduction in the value of livestock, due to the likely immediate loss of important export markets under current trade agreements.

If taken on the day stock die or are destroyed, the value of affected stock could obviously be far less than where their value stood immediately prior to the outbreak.

The EADRA cost-sharing document states that for the purpose of calculating the value of the stock or property, “that value shall be calculated upon the basis of a sale at the place where the stock or property was when it was destroyed or where the stock was when it died of the disease, that is, farm gate value”.

However it also states that at the time of re-stocking following the outbreak, there is provision for a ‘top-up’ payment, which is the difference between the compensation paid at the time and the value of the stock at the time of re-stocking.

But information in the AUSVETPLAN valuation and compensation manual (which can be downloaded here) appears to outline a different approach.

It states that the ‘current value’ of animals will be determined by the prices paid at the “last substantial dispersal sale/livestock market or published MLA prices from the most recent sale at two saleyards.

It states that beef cattle would be valued according to their market category, weight and condition, and the value will be the average of the published Meat & Livestock Australia prices, from the most recent sale at each of the two saleyards closest to the affected area, if available, for that category, for the average weight of the mob.

The wording for dairy cattle is slightly different, stating that the current value of dairy breeds would determined by the prices paid at the last substantial dairy cattle dispersal sale (ie a sale where the majority of a herd is sold) for the same category of stock, multiplied by the current MLA beef benchmark, divided by the equivalent MLA benchmark at the time of the dairy dispersal sale.

Stud cattle would only be considered to be stud cattle if they are registered with a breed society. In summary the insured value of the animal would be used as a guideline for determining value. If uninsured, registered stud cattle would be valued above the value of non-stud cattle by 25pc for heifers, 50pc for cows, 200pc for bull calves and 400pc for bulls. Stud cattle may receive a greater “top-up” payment at the time of restocking.

Similar processes apply to sheep and goats.

Currently available national documetation on compensation for affected businesses demonstrates that the question is complicated and situation dependent, but also highlights a need for further clarity before Australia endures a major livestock disease outbreak.

Another point made in the EADRA is that the owner or livestock that die or are destroyed would have 90 days to lodge a claim for compensation.

Additionally, the aim of an emergency animal disease response is “to ensure destruction of the minimum number of non-infected animals and maintenance of acceptable animal welfare standards for all livestock species, without compromising disease control and eradication efforts”.

State-based programs

It is also worth noting that some States have their own biosecurity funding schemes for cattle and sheep producers.

Victoria has livestock compensation funds resourced via a stamp duty on the sale of cattle, sheep and goats.

South Australia and Western Australia have voluntary livestock biosecurity funding programs based on levies (67c per head sold in SA and 17c/head on sheep and goats sold in WA).

Producers in SA or WA can voluntary ‘opt-out’ of paying the levies, but those who do forgo the right to assistance from the fund in the event of an emergency animal disease outbreak.

The above programs are also used to fund projects to benefit the cattle industry in each State each year (Victoria’s fund is used to subsidise the costs of NLIS tags in that state, for example).

As a result substantial reserves are not accumulated year on year, and the amount of money collected would not be large enough to be considered a “full insurance safety-net” to ensure full compensation for all affected producers in the event of a major disease incursion.

New South Wales does not have a dedicated fund, but regional agencies under the Local Land Service Network can use local rates to raise funds to manage biosecurity issues as they arise.

Tasmania, the Northern Territory and Queensland do not have specific livestock biosecurity funds to Beef Central’s knowledge.

Queensland toyed with the idea of creating its own State-based biosecurity fund following the expensive and painful Bovine Johne’s Disease outbreak in 2012/13, which saw many animals destroyed and more than a hundred properties quarantined for an extended period.

In the aftermath of that calamity the-then Newman Government announced seed funding of $2 million along with a $3 million loan to kick start a voluntary biosecurity fund in Queensland, which was to be matched by voluntary producer contributions.

However no agreement was ever reached with industry on a levy rate or scheme structure, and the proposed biosecurity fund in Queensland has so far not proceeded.

Govt won’t ‘ride over the hill and save us all’

In the absence of assured assistance, experts are warning that industry must be prepared for the potential for a significant financial impact in the event of an FMD outbreak, or a similar high-impact disease such as Lumpy Skin Disease.

Chair of the SAFEMEAT Advisory Group Andrew Henderson gave a sobering message to a recent Ag Watchers podcast, warning that if producers think the government is going “to come riding over the hill and save us all” if FMD reaches Australia, that is not going to happen.

The simple reality was that the capacity of governments has been significantly diminished in recent years, he told podcast hosts Andrew Whitelaw and Matt Dalgleish.

“So if any of us think ‘well, it’s alright, the Government is just going to pay for it’, or they’re going to come over the hill and save us all, or they’re going to have the resources to do this, that and the other, they simply are not in the same position as they might have been once upon a time,” he said.

“So what that means is that we as industry are going to have to be prepared and take a much greater role in how we prepare for these types of things and that in a lot of ways is what our reforms were about.”

The reforms he was referring to were five recommendations from a Safemeat Partners review in 2020 for the National Biosecurity Committee to improve the effectiveness of national livestock traceability systems, including the mandatory adoption of electronic ID for Australia’s sheep industry.

When FMD was confirmed in Indonesia, Beef Central asked the National Biosecurity Committee whether it had made progress on the 2020 reform recommendations and was told they were still under consideration.

An Animal Health Australia producer fact sheet also reinforces the importance of producers having their own plans in place.

“Compensation is not intended to maintain profitability or business continuity,” it states.

“Its primary intention is to promote early reporting, which promotes rapid response and early return to trade.

“As such, owners should have their own business continuity plans in place.”

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Comments

  1. David Everist, July 9, 2022

    A great summary of the situation. Presumably it would fall on state government departments of agriculture to implement compensation and disposal of dead and slaughtered livestock.

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