In early part of 20th century, the major emphasis of veterinarians was on the control of diseases that decimated animal population over large geographical area. Decision on whether to control these diseases could usually be made without aid of formal economic appraisal as generally the losses greatly exceeded control costs.
However, in recent years trends have changed to typify animal production, particularly in those areas where intensive agricultural methods are practiced, resulting in knowledge of diseases and disease complexes that manifest themselves primarily through a decrease in productive efficiency and that in most cases area endemic becoming the most significant with respect to decrease in farm income.
Since various intensities on control measures are often possible, it is necessary to determine the level of control strategy that makes economically optimal choice. The feature of disease control that makes it such a valuable investment is that it generally increases the efficiency of production process and hence it is unlike most other goods and service that farmer may generally to increase output without changing the nature of the process. That is why return on investments in disease control is usually high.
Today decision regarding animal health activities can rarely be made solely on biological rather a dynamic and integrated approach combining epidemiology and economic analysis is required to determine the nature and scope of health problem and implications if interventions.
In general, economic analysis is to be regarded as a tool providing additional information on which to base a decision, rather than a definitive method on which to base the final policy decision. The advances in economic analysis of livestock diseases are to be described and compared with the traditional methods of simple loss measurement and cost/ benefit accounting.
It is suggested that the traditional methods have restricted the development of economic applications in the field of animal disease. However, the developing framework of economic analysis of livestock disease requires further work to structure economic models, develop analytic methods and assemble the data necessary to feed them.
It has been realized how economically important is animal disease and why, economic decision making in animal health management, basic methods of economic analysis and economic impact of common health and fertility problems should also be considered. The strength and credibility of animal disease economics analysis, and especially ‘production economics’ stem from its clear links with identifiable technical processes and commonly confronted decisions about resource use.
Despite its importance as a serious imperfection in livestock production, the phenomenon of disease has not been widely explored within this analytical framework. Animal disease is characterized as an economic problem and an economist’s approach to what might otherwise be considered an essentially veterinary problem is explored.
Some basic models, rotted in conventional production economics, are proposed to illuminate the economic costs of disease and the conceptual basis for optimal strategies in disease control. A number of areas for further methodological and empirical development are put forward.
Animal Disease Economics:
Animal health economics as a relatively new discipline divided the field into three inter-related aspects as quantifying the financial effects of animal disease, developing methods for optimizing decisions when individual animals, herds or population are affected and determining the costs and benefits of disease control measures. The four most common economic, modelling techniques (i.e., partial budgeting, cost-benefit analysis decision analysis and systems simulation) are applied on three levels of veterinary decision-making, the animal herd, and national level.
Financial Evaluation:
Financial evaluation has become a necessity in intensive livestock enterprises for the animal disease control at farm, national and international level. Economical justification is usually demanded by public sector funding agencies for long-term disease control programmes so as to harmonize the international trades of livestock products in developing countries like India, where livestock diseases are barrier to benefits.
Livestock production is a type of physical transformation process, where disease impairs this process and there is loss of efficiency posing both technical and economic problems. Technical efficiency loss occurs as to difference between the production function of healthy and diseased animals. Disease acts as a negative input and the relationship between input and output for given input is shifted downward. Recovery of planned output is possible only by utilizing veterinary and non-veterinary inputs in best possible least cost combination.
Assessing the Economic Cost of Disease:
Total economic cost of disease can be measured as sum of output losses and control expenditure. Output losses refer to reduction in out-put, i.e., it is benefit that is taken away (when milk of mastitis cow is totally discarded) or may be unrealized losses (decrease in economic traits of animal thus enhancing culling percentage). Expenditures are increased in input associated with disease control, i.e., veterinary interventions used therapeutically or prophylactically or increased use of manpower.
Thus, economic costs are more than just sum of financial outlays. The outbreak of a highly infectious animal disease in a disease-free area is an ever-present risk. Recent epidemics in livestock populations in Europe suggest that the cost in terms of eradications, production losses and trade disruption may be high. The implications for meat and livestock industry, government policy and international trade rules are to be taken care of.
The need for strict biosecurity and effective contingency plans needs to be stressed. Options such as private insurance, animal tracing systems and emergency vaccination are to be adhered to. Current measures for controlling animal disease epidemics raise various social and ethical issues that complicate the policy makers’ task.
Though increase in level on control expenditure decreases out-put losses but it is worth increasing the level of control expenditure to achieve incremental reduction in output losses. That combination of control expenditure and output losses which provide satisfactory level of disease control in least cost is best option using suitable allocation of resources available up to a point where the expenditure on the last unit of resource is just recouped by the additional returns.
In a mastitis control campaign, regular use of test dipping and praying, dry-cow therapy and annual testing of milking machine with regular screening of herd are best measures with least total cost of disease providing the maximum decrease in incidence of mastitis.
Before implementation of any disease control strategy, it is necessary to consider how much variation in input to the animal production process influences the quality and quantity of output. If the intensity of control can be raised over a continuous spectrum so that a mathematical equation can be used to represent the data which can be interpreted as a production function and the optimum level of control is determined. Farmer should continue to increase production function until reaching the points where marginal (additional units) cost (expenses) equal marginal (additional units) benefits (revenue).
The animal health related sufficient information is always lacking to produce full production function due to greater involvement of intangibles and least concern of externalities and hence it is impossible to calculate values from it. So partial farm budget may be used, as it does not presuppose the estimation of continuous function and the knowledge of two or more and three discrete input-output relationship is sufficient.
The economic arguments surrounding the use of foot and mouth disease (FMD) vaccination as an emergency, measure were analyzed. The trade arguments for disease-free status, the costs of an epidemic without vaccinations and the impact of emergency vaccination on costs were analyzed and it has been concluded that emergency vaccination would be rational within a wider radius of a detected farm, and that the earlier this can be done the more likely it is that disease spread and economic costs will be minimized.
Microeconomic vs. Macroeconomic Losses:
In an epidemic, time series analysis of output and input data might reveal a sudden behavioural change in local farmers’ activities thus allowing the measurement of the associated short run economic losses. The losses can be more easily associated with the particular disease under study.
In the endemic setting, it would be perhaps possible to estimate differential economic behaviour attributed to animal disease if selected groups of farms with recurring outbreaks were contrasted with comparable disease-free producers in a time series analysis. Macroeconomic impact of improving livestock efficiency through better herd health.
Using economic surplus analysis with pre-weaning mortality in swine as the example, they demonstrated the importance of improving livestock production efficiency in the face of international competition and how consumers gain from improved animal health should be adapted to other livestock commodities, variations in mortality levels, or production losses due to morbidity. Such analysis methods can be used to examine the appropriateness of expenditures on animal disease control programmes and animal health research.
Partial Farm Budgeting:
It is simple description of financial consequences of particular change in farm management procedure of which disease control programme is a part. Partial indicate assessment is restricted to factors that are likely to change as a result of procedure changes. It is only aimed at disease problems that are assumed to occur on a farm with a high degree of certainty means study of endemic disease in individual farm bases, e.g., bovine mastitis and internal parasitism.
In these analyses, fixed costs are ignored and assess only small changes that do not affect total farm management or assess economic consequences of a change in farm procedure. It is beneficial since it permits realistic estimation of values to be made of the consequence of various actions without necessitating the keeping of complete financial records for the farms. But have arbitrary decisions are to be made, about which items to be included, and thereby any item that is affected may be included. Only comparisons can be made between the strategies to be tested but not necessarily provide optimum solution. Doubt counts usually create problem so these are not included.
In mastitis control campaign, the components that may be utilized for partial farm budgeting include additional revenue realized from the changes, r1, i.e. more sales of milk due to increased production after control programmer’s implementation, reduced costs stemming from change, c1, i.e., reduced cost of treatment of mastitis further, increased costs as a result of the change, r2, i.e., cost of increased feed utilized due to increased production, and costs of implementing the change, c2, i.e. cost of strategy.
Net return here is given by (r1 + c1) – (r2 + c2). If r1 + c1 is greater than the proposed strategy is justified. A question arises whether net return or % return on marginal invested funds and marginal return most accurately reflect the profitable portion, if farmer has unlimited fund available to adopt any scheme than net return or % return on marginal investment is most profitable but if funds are limited, those available should be progressively invested in yielding highest and marginal return should be adopted.
The main financial difference between different control strategies in farm is by mortality rate, if a group with no strategic treatment suffered an x% mortality compared to y% in uncritical scheme group. So mortality rate in no treatment group needed to be as low as y% before benefit from adopting critical scheme would be reduced to zero (break-even point).
Gross Margin Analysis:
For judging benefits from an improvement in herd health, analysis may be carried out by means of partial farm budget (one problem under consideration) or by change in some economic index of performance within time. One such index gross margin analysis is expressed in relation to some unit of production.
It is most practicable and widely accepted methods for assessing enterprise profitability and for comparing profitability of different enterprises on a farm and for estimating the effect of change (within limit) of fixed assets and other resources available to farmer, so with regard to animal health activities gross margin perhaps finds its greatest application in assessing the effectiveness of integrated health management programme. In gross margin analysis, all actual incomes from the enterprise in question are totaled and all variable costs directly attributed to operating that enterprise are subtracted. The outcome is enterprise gross margin or “profit before fixed costs”.
Gross margin analysis is directly associated with the level of intensity of each activity. Many variable input costs determine the yield or level of output of activity as the level and type of feed, drenches and vaccine used may have a major effect on the animal production. Very little output would occur on farm unless money was spent on variable cost items. Fixed cost in short run is incurred regardless of the level of output.
Social Benefit-Cost Analysis:
Early reports concerned with economic techniques reflected themselves primarily with estimating the cost of a particular disease to an individual producer or a nation but it incorrectly suggests that this amount of money is completely recoverable. So presently, the value of economic analysis lie on evaluations of the benefits of the control procedure, which is more accord with economic theory and positive orientation on information by drawing attention to benefits of action rather than the cost of inaction.
It also aids decision-making regarding limited resource allocation, hence it provides a basis for making rational choice from among alternative preventive or control action under various circumstances. Monetary values are used only as a common denominator for the value of particular resources in society.
So, a complete economic analysis indicates the confidence in the monetary or utility ranking of the various strategies. Scientists estimated the losses and the benefits of theileriosis control by the infection and treatment methods of immunization using a computer spreadsheet models.
The parameters of the models included national size and structure of cattle herds, the estimated impact of the disease in terms of incidence, case morbidity and case fatability rates, and the effect of immunization on the disease. It is suggested that when adequate data are available, the approach could be used to generate more accurate results for any study site, production system, country and the region as a whole.
As economic impact study of the anaplasmosis outbreak was commissioned to provide advice during the course of the outbreak and thorough economic evaluation of available control options. The study estimated that if anaplasmosis was not controlled and the disease established, the yearly losses to producers through death and sickness of animals, treatment and testing costs would be almost three times.
The net present value and benefit-cost ratios were calculated for two possible control options. The results indicated that public control of anaplasmosis is questionably justified. The study went on to identify a number of steps, which could be taken to minimize the risk of future outbreaks or to minimize the size and cost of the outbreak. One important step is that authority be obtained under the Animal Disease and Protection Act to pay for treatment costs when it is feasible to use the test and treat option.
Points to Consider for Social Benefit-Cost Analysis:
The problem related to economic evaluation can be divided into either diseases loss at the producer level—essentially a matter for resource allocation from the private sector, or disease loss at the national and community level where large- scale public resources are required for disease control strategy and research and development programmes.
Three development areas requiring more immediate priority are:
(a) The development of analytical techniques for control and eradication programmes,
(b) The creation of a community-wide data bank limited to those infectious diseases that are seen as community problems, and
(c) The encouragement of health and production evaluations as a means of promoting greater efficiency at the producer level. The role of economists in the choices, which individuals and society at large make about exploiting various technical possibilities, has become inevitable.
Long-term animal disease control strategies require substantial investment and benefits gradually accumulate subsequently so necessity to weigh annual costs and benefits become more valuable than those occurring in future as in Rinderpest control in India and Swine fever eradication in Europe.
Certain factors become more important to be considered while evaluating such large-scale control strategies:
i. Society as a whole is to be benefited or not.
ii. Whether there is transfer of financial or non-financial benefits between sections of the community.
iii. Whether project should receive priority over other such projects.
iv. How heavily economic and social achievements of the project be weighted.
So, economic evaluations in this situation require counting measurable costs and benefits with tabulation of non-financial consequences as well as raising necessity of social benefit cost analysis. A conceptual benefit-cost analysis framework model for the evaluation of economic usefulness of improved animal identification systems was designed to reduce the consequences of foreign animal diseases (FAD) such as production losses and contaminated animal foods.
The aspects that need to be considered include ― purpose of animal trace ability systems; strategies employed for the benefit-cost analysis of animal identification systems; and the background behind animal trace ability. The improved levels of animal identification in cattle may provide sufficient economic benefit in terms of reduced consequences of FAD.
Principle of Social Benefit-Cost Analysis:
The social benefit-cost analysis is attempted to quantify the social advantage/disadvantage of a policy in term of common monetary value not as a financial analysis or simply accounting but as a true economic analysis. Some cost of benefits are expressed easily in pecuniary values other cost or benefits, however, are much more difficult to translate into monetary terms, i.e., intangibles.
Only by using common denominator of money, it is possible to aggregate the gains and losses, which ultimately interest society as benefit and cost perceived in real terms. Consequently, it is important to quantify in monetary units all important factors as comprehensively as possible to make the problem area explicit although the values of intangibles are assessed somewhat subsequently.
The prefix social to benefit cost analysis is important, ad any organization involved to disease control programme should be aimed to maximize the net benefit to the society not its own purely private benefits. Economic appraisals are made of the benefits of research on vaccines for the control of Marek’s disease, bovine parasitic bronchitis and enzootic abortion of ewes.
Costs and benefits pertaining to brucellosis infection and its control and included a comparison of production and income levels for various herd situations were studied. Labour requirements and cost estimates for several disease control practices were compared and evaluated. Data were classified according to the geographic location of herd, herd size, and whether or not the herd was adult-vaccinated. Representative herd situations were developed to aid in the analysis.
It was concluded that:
1. Brucellosis infection causes substantial losses in income to the individual cattleman, to the beef industry and to the state;
2. In the representative herd situations, losses due to brucellosis generally exceed costs of an intensive eradication programme, making the control programme an economically sound option;
3. The average beef herd would benefit from an effective brucellosis prevention programme;
4. Official certification of a herd as ‘brucellosis-free’ can and often does add value to that herd and
5. Complete herd depopulation may be the most economical solution to eradicating brucellosis in small, heavily infected herds.
Components of Social Benefit-Cost Analysis:
Social benefit-cost analysis comprises three components:
1. Estimation of benefits and costs.
2. Adjusting them to account for timing.
3. Strategy evaluations and comparison.
Internal External Costs and Benefits:
Internalities (private cost and benefit) are those that accrue directly to an investment project whereas costs and benefits accruing to others are termed externalities. Later are not reflected in the price mechanism so inadequate to guide correct investment decision from view of society so to protect social benefit internalization of externalities is required.
As in case of mastitis control campaign beside all cost and benefit of farm budget, the high use of antibiotics resulting in antibiotic in milk (externality) which causes side effect to consumers requires internalization of these external effects beside budget and legislation limiting the use of antibiotic. Dynamic programme to establish the optimum replacement policy for dairy herds, taking into account sub-clinical mastitis caused by the bacteria Staphylococcus aureus was beneficial.
This particular pathogen is resistant to normal drug therapies and therefore, culling is the major method of control. Methods are described to account for output losses due to yield loss and a reduction in milk price caused by extra somatic cells secreted into the milk by infected cows. Extra culling was justified in both infected and control herds in order to reduce the level of infection in the herd.
The method described allows replacement policy to be treated as control expenditure rather than an output loss in the economic analysis of farm animal disease. This approach will become even more important as consumers demand an alternative to the prophylactic use of antibiotics in agriculture without compromising food quality and safety.
Assessing Costs:
Costs usually relate resources consumed so all physical resources are required to assign a monetary value to them. For any disease control programme, costs would include those of manpower, drugs; vaccines quarantine building, compensations for slaughters, transportation, and training programme.
Jactel (1987) analyzed losses due to mastitis and the cost/benefit of control measures after one and after three years in a model herd of 50 cows in different hypothetical situations. Gathura and Gathura (1991) evaluated the economic losses resulting from condemnation of cattle and small stock (sheep and goats) livers due to the presence of Echinococcus granulosus hydatids using meat inspection records.
Assessing Benefits:
It is assessed by knowing effect of disease in absence of control and by estimating the likely consequences, of control strategies. It is avoidance of losses or difference between losses experienced under no control and under current programme considering each alternative being investigated.
In FMD control programme, benefit may be avoidance of production losses, i.e. mortality, indirect and direct effects on meat and milk production, lameness in draught animals and from restriction on international trade.
Benefits:
1. Readily quantifiable (live birth weight gain, production, etc.)
2. Benefits that exist but are not readily quantifiable in financial term as market prices are not clear or susceptible to accurate calculation (effect of brucellosis eradication in export price of beef),
3. Benefits not suitably evaluated economically (psychological benefits, etc.)
Costs and benefits related to each production unit with different control strategies are calculated and non-financial cost and benefits are tabulated to take in account while analyzing social benefit cost.
Adjustment of Values:
The economic value of estimated costs and benefits needs to be adjusted to take account of time they occur. The adjusted values are referred as present values. Procedure used for adjustment is called as discounting where time movement is from future back to present.
It is calculated by the formula:
PV = FV/(1 + r)n where, r is relevant annual discount rate.
Carpenter and Howitt (1982) described effect of subsidization of disease control programmes justified it as economically efficient, if social costs of early detection and control of diseases are considered as well as the private costs to the individual are taken into account.
A method of analyzing the two sources of costs and the optimum investment in disease detection and control is developed. Subsidization of a diagnostic laboratory system can be shown to be efficient under this set of parameters. The distribution of the benefits from the increased surveillance level in the long and short run is shown to benefit both the producer and consumer.
Evaluation and Strategy Comparisons:
One or more combination of following three measures of economic efficiency or investment may be adopted:
1. Net Present Value.
2. Benefit-Cost Ratio.
3. Internal Rate of Return.
1. Net Present Value (NPV):
It represents present value of benefits less the present value of cost incurred. The positive value of NPV means highly feasible control strategy among all alternatives. It also gives idea of value of implementing the project.
2. Benefit-Cost Ratio (BCR):
It is present value of benefits divided by present value of costs. The cost incurred and benefits received during each period of project are stated as present value and total is divided to get benefit-cost ratio. If ratios are greater than one, the strategy is assessed economically feasible.
3. Internal Rate of Return (IRR):
It is return on investment in terms to an interest rate or discount rate. The rate of discount that makes the total of the discounted benefits equal to the total of discounted costs (NPV = 0). Higher value of IRR refers most likely strategy.
Cost Effectiveness Analysis:
This approach is appropriate where the benefits are difficult to quantity (monetary benefits of rabies control programme) or when production losses under each control strategy are equal. Under such circumstances, the requirement is for a method of analysis that determines how the desired results can be achieved at minimum (discounted) cost, what actually the cost effectiveness analysis does, and cost-effective disease control on the dairy farm could enhance productivity and subsequently profitability.
Previous economic studies on animal disease have focused on production losses and evaluation of disease eradication programmes and provided little guidance as to the optimal prevention action. The optimal strategy that minimizes total disease cost on the basis of farm survey results.
The results emphasize the importance of introducing checks before new animal enter the herd and adequate vaccination protection as cost-effective control strategies. True extent of losses incurred is often not realized. Two new methods for evaluation are monitoring of productivity figures, and regular pathological assessments, such as cell counts in milk, worm eggs in faeces, liver or lung damage at slaughterhouse inspection, and so on. These monitoring systems may indicate the effects of any control programmes also.