Everyone wants to know what it would cost if foot-and-mouth disease were to hit U.S. shores. The quick answer is billions. The honest answer is "who knows".
It's not simply an avoidance tactic when an economist sighs deeply and says "it's difficult to say" in response to the FMD cost question. There are just too many factors to wrap your arms around and come up with a realistic figure.
Providing a snapshot example is a much more manageable task, which is what Chris Hurt, Purdue University agricultural economist agreed to do for The Summit on FMD, presented by Watt Publishing and Vance Food Systems Group earlier this week. Even then, there are a lot of unturned rocks in the equation. For example, he looked only at the beef and pork industries.
The one point Hurt insists you begin with is that the cost outcome depends on a whole host of unknowns.
"We need to be cautious in talking about economic impact," says Hurt. And he points to the following reasons:
- The outbreak sequence is unknown – specifically the location, whether it's a low- or high-density animal area; whether it starts in a concentrated or small operation.
- Will it involve one species or several.
- Would all U.S. exports be curtailed?
- How quickly could the U.S. achieve regionalized status for exports?
- What control and clean-up strategies would the United States use?
"Producers certainly would be affected, animals will be killed and there will be some compensation," says Hurt. "But that didn't even make my top list of economic impacts."
Leading Hurt's impact list is loss of exports, which he estimated conservatively at 10 percent of current beef production, 7 percent of pork production.
In order of importance, he listed loss of U.S. consumption close behind imports. He believes some consumers would back away from beef and pork in the face of an FMD outbreak, perhaps by as much as 25 percent early on. He would expect that reaction to soften somewhat as time passed, but some fallout would remain.
Third on his list involves losses to related industries – feed related sectors, animal health, building and equipment suppliers, lenders, packers, processors, exporters and more.
"Producers would be the biggest losers in an FMD break, but it's not because of lost animals," says Hurt. "It's because of all the other losses aligned with the outbreak."
Before he reveals his dollar figures, Hurt lays out the following assumptions:
- United States breaks with FMD and it is widespread.
- No U.S. exports for one year.
- No imports into the United States of beef or pork from current FMD-infected countries.
- Canada and Mexico do not break with FMD during the U.S. outbreak.
- U.S. consumers reduce consumption of both beef and pork by 5 percent of current production. Poultry picks up three percentage points of beef and pork's loss, which equals a net reduction of 2 percent.
- Number of animals terminated is a small percentage of inventory.
- Corn use drops by 290 million bushels; soybean meal use drops by 560 short tons.
Under this scenario, Hurt estimates losses for the beef industry at $4.3 billion; $2.4 billion for the pork sector. Add in the impact on the corn and soybean industries, related input and output sectors, poultry, U.S. consumers and taxpayers, and Hurt figures a cost of $8.4 billion to $14.4 billion.
He also sees a potential for controversy over compensating very large and corporate-type production units. "Would the government and the public be as sympathetic toward these producers as smaller, independent producers?" he wonders.
"An avoidance plan must be a priority," concludes Hurt. "The United States has a great financial incentive to keep FMD out of our country."