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The value of Australia’s biosecurity system at the farm gateAn analysis of avoided trade and on-farm impactsAhmed Hafi, Donkor Addai, Kyann Zhang and Emily M Gray

Research by the Australian Bureau of Agriculturaland Resource Economics and Sciences

Research report 15.2June 2015

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Hafi, A, Addai, D, Zhang, K & Gray, EM 2015, The value of Australia’s biosecurity system at the farm gate: an analysis of avoided trade and on-farm impacts ABARES research report 15.2, Department of Agriculture, Canberra, June.

ISSN 1447-8358ISBN 978-1-74323-228-6 ABARES project 43482

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Acknowledgements

The authors acknowledge the valuable advice, comments and information provided by staff across the Department of Agriculture, particularly Jean Chesson and Paul Pheloung. Lisa Elliston, Peter Gooday and Edwina Heyhoe of ABARES provided helpful comments on drafts.

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The value of Australia’s biosecurity system at the farm gate ABARES

ContentsSummary vi

1 Introduction 1

2 Valuing the benefits of Australia’s biosecurity system 2

3 Methods 5

Case studies 5

Estimating the farm gate value of biosecurity activities 6

Estimating the value of biosecurity activities to broadacre farms 8

4 Key assumptions 10

Estimates of incursion probabilities 10

Estimates of the impacts of pests, diseases and weeds on farm enterprise profits 11

5 Results 14

Farm gate value of biosecurity at the enterprise level 14

Value of biosecurity for multiproduct farms 17

6 Conclusion 19

Appendix A: Foot-and-mouth disease 20

Appendix B: Mexican feather grass 26

Appendix C: Citrus greening 30

Appendix D: Highly pathogenic avian influenza 35

Appendix E: Karnal bunt 38

Appendix F: Red imported fire ants 41

Appendix G: Limitations of this analysis 45

References 47

TablesTable S1 Contribution of biosecurity activities to broadacre farm profits, dollars a

yearvii

Table 1 Case studies 5

Table 2 Broadacre farming systems 9

Table 3 Profiles of Australian broadacre farms a 9

Table 4 Expected frequency of pest, disease and weed incursion events and probability of at least one incursion event per year10


Table 5 Farm gate value of biosecurity at the enterprise level (dollars a hectare)a

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Table 6 Contribution of biosecurity activities to broadacre farm profitsa, dollars a year17

Table 7 Contribution of biosecurity activities to whole-farm broadacre gross margins (%) 18

Table A1 The direct impact of foot-and-mouth disease on livestock production 20

Table A2 Livestock production systems 21

Table A3 Biological parameters used for cattle and sheep production systems for the simulation of impacts of foot-and-mouth disease 22

Table A4 Biological parameters used for pig production systems for the simulation of impacts of foot-and-mouth disease 22

Table A5 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a hectare—beef and dairy production systems 23

Table A6 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a hectare—sheep production systems

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Table A7 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a sow—pig production systems 24

Table A8 Value of biosecurity in preventing foot-and-mouth disease at whole-farm level 25

Table A9 Percentage change in land use at farm level after a foot-and-mouth disease incursion 25

Table B1 Impact of Mexican feather grass, farm financial performance and value of biosecurity, dollars a hectare 28

Table B2 Value of biosecurity in preventing Mexican feather grass at whole-farm level 29

Table B3 Percentage change in land use at the farm level with Mexican feather grass incursion 29

Table C1 Biological parameters used in estimating spread, disease severity and relative yield of trees affected by citrus greening 31

Table C2 Impact of citrus greening on farm financial performance and value of biosecurity, dollars a hectare 34

Table D1 Model broiler and layer farms unaffected by highly pathogenic avian influenza 36

Table D2 Assumed changes to the broiler and layer farms caused by highly pathogenic avian influenza incursion 36


Table D3 Impact of highly pathogenic avian influenza on farm financial performance and value of biosecurity, dollars a farm a year 37

Table E1 Impact of Karnal bunt on farm financial performance and value of biosecurity, dollars per hectare 39

Table E2 Value of biosecurity in preventing Karnal bunt at whole-farm level 40

Table E3 Percentage change in land use at the farm level because of a Karnal bunt incursion 40

Table F1 Cost-minimising levels of losses and treatment expenditure in controlling red imported fire ants 43

Table F2 Impact of red imported fire ants on farm financial performance and value of biosecurity—broadacre farms at whole-farm level ($) 44

Table F3 Impact of red imported fire ants on farm financial performance and value of biosecurity—single activity farms ($) 44

FiguresFigure 1 Reduction in annual farm enterprise profits after an incursion (%) 15

Figure C1 Gross margin of Washington navel orange orchard unaffected by citrus greening 32

Figure C2 Gross margin of Washington navel orange orchard affected by citrus greening 33

Figure F1 The loss–expenditure frontier in controlling red imported fire ants 42

BoxesBox 1 Pest, disease and weed threats 6


SummaryBiosecurity is the management of risks to the economy, the environment and the community from pests and diseases entering, establishing or spreading in the Australian landscape. Through the combined efforts of the Australian, state and territory governments, industries, landholders, and the community, Australia’s biosecurity system reduces the risk of exotic pest and disease incursions that could cause harm to people, animals, plants and other aspects of the environment.

Managing biosecurity is critical to maintaining the productivity of Australia’s agricultural sector by supporting business as usual operating conditions for farmers. Freedom from many of the world’s major pests and diseases provides agricultural industries with a significant trade advantage and is important for maintaining access to valuable export markets. Biosecurity activities help maintain this advantage by reducing the risk of pest and disease incursions and managing outbreaks when they occur, thereby reducing the potential for harm and damage to agricultural industries.

The value of Australia’s biosecurity system to the agriculture sector can be estimated in many ways. Previous ABARES research has demonstrated the value of biosecurity to Australian agriculture by estimating the potential economic impacts of individual pest and disease incursions at the national or regional level. However, little analysis of the benefits of biosecurity at the farm level has been done.

Australia’s biosecurity system protects farms from a large number of pests, weeds and diseases, but to the extent that this ensures business as usual operating conditions for farmers, the importance of biosecurity to farms can be easily overlooked. The potential value of an effective biosecurity system is usually only evident following an incursion—when farmers face additional costs to control and mitigate pest and disease damage, and earn less as a result of production losses and disrupted access to export markets.

Biosecurity activities also provide benefits to the environment, communities and the economy. By safeguarding Australia’s natural environment, Australia’s biosecurity system ensures Australians can continue to enjoy the social amenities to which they are accustomed. While these benefits are important, this report focuses on the farm-level benefits of biosecurity only. It does not consider the benefits to the environment, communities and the broader economy.

This study estimates the value of Australia’s biosecurity system ‘at the farm gate’, using a case study approach. The report considers the effect on annual farm enterprise profits (or gross margins, defined as gross revenue from an activity less the variable costs incurred) of an outbreak of six potentially significant biosecurity threats to Australian agriculture: foot-and-mouth-disease (FMD), Mexican feather grass, citrus greening, highly pathogenic avian influenza (HPAI), Karnal bunt and red imported fire ants (RIFA).

The value of biosecurity is approximated by the on-farm costs and losses avoided as a result of biosecurity activities that target the pathways through which pests, diseases and weeds enter, become established and spread throughout Australia. Without an effective biosecurity system, the likelihood of a pest, weed or disease incursion is expected to be significantly higher and, in the event of an incursion, pests, weeds and diseases are expected to become endemic. As a result, farm profits may be lower because of:


direct production losses (for example, reductions in the productivity of crops and livestock and output quality)

additional expenditures on control measures and damage mitigation (for example, additional chemical inputs)

export market losses (for example, because of trade bans or the loss of price premiums as products are diverted to lower value markets where the pest, disease or weed is endemic).

The additional costs and losses incurred by farmers following a pest, weed or disease incursion can be significant. This is particularly the case for biosecurity threats that disrupt market access and reduce farm-gate prices. For example, biosecurity activities to reduce the risk of an FMD outbreak make a significant contribution to the profitability of livestock production; the annual profits of beef, dairy and sheep enterprises would be 8 to 12 per cent lower in the absence of an effective biosecurity system. Annual profits of pig enterprises would be 15 per cent lower, reflecting the impact of a loss of market access on farm revenue. Similarly, annual profits of cropping enterprises would be around 7 per cent lower because of the higher risk of a Karnal bunt incursion, which could result in lower revenues from the downgrading of grain to feed quality.

Without Biosecurity activities that reduce the risk of HPAI, RIFA, Mexican feather grass and citrus greening, annual profits of affected crop and livestock enterprises are estimated to be 1 to 8 per cent lower. In the case of HPAI, annual profits are estimated to be almost $4 000 a property lower for chicken producers and more than $6 600 a property lower for egg producers. In the case of citrus greening, annual enterprise profits are estimated to be 5 per cent or $237 a hectare lower.

In Australia, broadacre farms typically undertake a combination of cropping and livestock activities—so farm profits may be affected by several pests and diseases. This analysis uses five broadacre farm profiles that represent an average set of activities in the broadacre sector. ABARES estimates that Australia’s biosecurity system improves the annual profits of these average broadacre farms by $12 000 to $17 500 (Table S1) because it reduces the risk of FMD, Karnal bunt and Mexican feather grass outbreaks. Moreover, because broadacre farm profits are higher than they would be in the absence of Australia’s biosecurity system, agricultural land values can also be expected to be higher.

Table S1 Contribution of biosecurity activities to broadacre farm profits, dollars a year

Broadacre farm type Total ($)

Mainly crops 12 254

Crops and livestock 12 626

Mainly sheep 11 744

Mainly beef 12 927

Sheep and beef 17 533

Note: The value of Australia’s biosecurity system for an average multiproduct broadacre farm is equal to the estimated reduction in whole farm gross margin in the absence of biosecurity activities. ‘Gross margin’ is the gross revenue from an activity less the variable costs incurred and does not include fixed or overhead costs. Expressed in dollar terms, the reduction in whole farm gross margin is equivalent to the reduction in farm profit.

The report demonstrates the important contribution that Australia’s biosecurity system makes to the financial performance of farms, in terms of the on-farm costs and losses avoided as a result of biosecurity activities that reduce the risk of an incursion. However, it is not possible to infer the total value of Australia’s biosecurity system from the analysis. This is because a case


study approach is used to consider the benefits of biosecurity activities that reduce the risk of six key biosecurity threats. Australia’s biosecurity system protects Australian agriculture from a large number of pests, diseases and weeds not included in this analysis.

Moreover, it is not possible to aggregate the farm-level results to the national level. This is because the broadacre farm profiles used in the analysis comprise an average set of cropping and livestock activities, and do not encompass the full range of activities carried out on Australian farms or the range of farm sizes in the broadacre sector.

In addition, the analysis does not consider the benefits that Australia’s biosecurity system provides to the environment, communities and the broader economy. These include social amenity values from reducing risks to Australia’s natural and urban environments. These factors would also need to be considered to estimate the total value of Australia’s biosecurity system.


1 IntroductionBiosecurity is the management of risks to the economy, the environment and the community from pests and diseases entering, establishing or spreading in the Australian landscape. This is achieved through a combination of biosecurity activities: offshore and border measures to prevent new pests, diseases and weeds from entering Australia; onshore eradication measures to prevent pests, diseases and weeds from establishing initial populations; and onshore containment measures to prevent established populations from spreading further or to slow their geographical spread over time.

Australia’s biosecurity system provides benefits to the environment, communities and the economy by keeping Australia free of many of the harmful pests, diseases and weeds that exist in other parts of the world. This is despite an increase in the likelihood of pest and disease incursions as a result of increasing international movement of people and goods, population spread, and a changing climate that is altering pest, disease and weed habitats.

In addition to providing a broad range of benefits to the community, biosecurity activities directly benefit farmers. Australia’s status as relatively pest, weed and disease-free provides agricultural industries with a significant trade advantage by facilitating access to valuable export markets. For example, Australia’s FMD-free status has helped it maintain access to premium markets for red meats, where prices are significantly higher than for meat products originating in FMD-endemic countries. Australia’s relative freedom from harmful pests, weeds and diseases allows farmers to earn greater returns through relatively higher yields or lower production costs compared with those of competing producers in countries where these pests, weeds and diseases are established.

Despite the importance of biosecurity activities in protecting Australia’s agricultural industries, relatively little analysis of the benefits of biosecurity activities at the farm level has been done. Similarly, little effort has been made to estimate the total value of Australia’s biosecurity system. This is in contrast to the attention given to estimating the payoff to public investments in agricultural research and development in Australia, which also plays a key role in the Australian Government’s commitment to maintaining the competitiveness and resilience of agricultural industries (for example, Mullen & Alston 1994; Scobie, Mullen & Alston 1991; Sheng et al. 2011). Biosecurity efforts and agricultural research and development policies have much in common; both lower the cost of production and increase the supply of agricultural commodities.

ABARES has previously examined the economic impact of individual pest and disease incursions at a national or regional level and demonstrated the value of biosecurity to agricultural industries. In this study, ABARES estimates the ‘farm gate’ value of Australia’s biosecurity system for selected case studies by examining the on-farm costs and export market losses that biosecurity activities prevent.

Chapter 2 describes Australia’s biosecurity system and the broad benefits that accrue to society from its operation. The approach taken in this study and the key assumptions underlying the analysis are outlined in chapters 3 and 4. Results are summarised in chapter 5 and the paper is concluded in chapter 6. The appendixes provide greater detail on the approach, assumptions and results for each case study.

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2 Valuing the benefits of Australia’s biosecurity system

Australia’s biosecurity system provides benefits to the environment, communities and the economy by reducing the risk of exotic pest and disease incursions that could cause harm to people, animals, plants and other aspects of the environment. Exotic pests, diseases and weeds could enter Australia through several pathways: with passengers, mail and cargo or by natural dispersal through wind or migrating birds. Biosecurity threats are managed through a combination of offshore and border activities to reduce the risk of incursions, and onshore activities to manage the impact of an incursion.

Offshore and border biosecurity activities are designed to prevent the entry of exotic pests, diseases and weeds through many of these pathways. Offshore biosecurity activities include import risk assessments (IRAs) and import conditions. Border arrangements for early detection and prevention of entry include monitoring and surveillance activities (such as those carried out under the Northern Australia Quarantine Strategy (NAQS) and by quarantine officers at airports and seaports) and the detention of high-risk animals and plant material in quarantine facilities. Onshore biosecurity activities include emergency preparedness plans and coordinated response programmes that are used in the event of an incursion. These arrangements are in place to eradicate or control the spread of a pest, disease or weed. Coordinated programmes for containing and slowing the spread of an incursion are also pursued where this is deemed the most appropriate course of action.

Nature of the benefits of Australia’s biosecurity systemBiosecurity activities benefit farmers economically by lowering their production and marketing costs. Farmers’ production costs are lower because they are able to avoid direct production losses and on-farm expenditure on additional inputs to control and mitigate pest and disease damage. Farmers’ marketing costs are lower because they do not have to pay to disinfest produce destined for domestic and export markets that are free from specific pests, diseases and weeds. In addition, because many of Australia’s agricultural industries are relatively free from pests, diseases and weeds, farmers receive a premium price because they can export to markets that are sensitive to pests, diseases and weeds.

Australia’s biosecurity system also provides benefits to the environment and communities. Exotic pests, diseases and weeds could affect the environment through increasing competition and predation, threatening the existence of native species and causing some species to become endangered. For example, Mexican feather grass could adversely affect native vegetation and native species.

Australia’s biosecurity system also confers benefits on the broader community. Some animal diseases are zoonotic and could adversely affect human health. For example, the highly pathogenic avian influenza could mutate to create an influenza pandemic in human populations. Pests such as red imported fire ants can affect communities by reducing the amenity of outdoor spaces such as backyards and parks because of the likelihood of being bitten.

Quantifying the value of Australia’s biosecurity systemThe value of Australia’s biosecurity system can be estimated in many ways. Ideally, an analysis of the value of Australia’s biosecurity system would estimate the magnitude of the overall economic threat from exotic pests, weeds and diseases and the total benefit to Australia of

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biosecurity activities that reduce that risk. Moreover, it would take into account the benefits that biosecurity activities provide to the broader economy, as well as the environment and communities. These benefits include social amenity values from reducing risks to Australia’s natural environment.

Previous research has analysed the economic impact of individual biosecurity threats on directly affected industries at the national or regional level. This includes estimating the cost that a pest, disease or weed incursion would impose on affected industries through production losses, higher costs associated with control measures and damage mitigation, and lower prices received because products are diverted to lower value export markets. Other analyses have examined how the economic impacts are shared between farmers and consumers. For example, ABARES used a partial equilibrium model to analyse the potential impacts on horticulture from exotic fruit fly. The analysis found that some of the increases in farmers’ production and marketing costs were transferred to consumers through higher average market prices for horticultural products across Australia (Hafi et al. 2013).

It is also possible to estimate the value of biosecurity activities more broadly by considering the potential economy-wide impacts of an individual biosecurity threat. The economy-wide benefits of biosecurity activities may be significant for animal diseases such as foot-and-mouth disease (FMD), where the large losses faced by livestock producers flow on to affect processors and regional and national economies. For example, Buetre et al. (2013) found that an FMD outbreak in Australia would generate very large adverse economic impacts on farming and other industries inside and beyond the outbreak area. A general equilibrium model can be used to estimate direct impacts on affected industries, as well as indirect impacts on other sectors of the economy.

Researchers can also account for the non-market benefits that biosecurity activities provide to the environment and communities. Examples include asking householders to indicate their willingness to pay to reduce the chances of invasive ants and other biting insects becoming established in their backyards and outdoor recreation areas (Akter, Kompas & Ward 2011), or the use of face to face interviews with farmers and other stakeholders to identify the social impacts of FMD (Buetre et al. 2013).

This analysis expands on ABARES biosecurity research by estimating the value of biosecurity activities that reduce the risk of six potentially significant biosecurity threats to Australian agriculture: foot-and-mouth disease (FMD), Mexican feather grass, citrus greening, highly pathogenic avian influenza (HPAI), Karnal bunt and red imported fire ants (RIFA). In an advance on previous research, it estimates the value of biosecurity at the farm gate by considering the effect of an outbreak on the annual profit of affected farm enterprises using case studies. Each pest, disease and weed (and the agricultural activities they affect) is investigated as a separate case study. Then it considers the benefits of excluding multiple biosecurity threats to broadacre agriculture at the farm level. Specifically, the value of biosecurity is approximated by the on-farm costs and losses avoided as a result of biosecurity activities. Avoided costs and losses include:

direct production losses (for example, reductions in the productivity of crops and livestock and output quality)

additional expenditure on control measures and damage mitigation (for example, on additional chemical inputs)

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export market losses (for example, because of trade bans or the loss of price premiums as products are diverted to the domestic market or lower value markets where the pest, disease or weed is endemic).

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3 MethodsAustralia’s biosecurity system benefits the environment, communities and the economy. This study focuses on estimating the economic benefits to farmers of biosecurity activities that reduce the risk of an incursion of six key pests, diseases and weeds, where the benefits are approximated by the on-farm costs and losses avoided as a result of biosecurity activities. Without an effective biosecurity system, the likelihood of a pest, weed or disease incursion is expected to be significantly higher and, in the event of an incursion, pests, weeds and diseases are expected to become endemic. As a result, farm enterprise profits are expected to be lower because it is assumed that, in the absence of government action, farmers would manage the consequences of each pest, disease or weed becoming endemic.

Case studiesAustralia’s biosecurity system protects agricultural industries from a large number of pests, diseases and weeds. This study does not estimate the benefits to farmers from excluding all biosecurity threats. Instead, it uses case studies to estimate the value of biosecurity activities targeting six potentially significant biosecurity threats to Australian agriculture. Each pest, disease and weed (and the agricultural activities they affect) is investigated as a separate case study. Then the benefits from excluding multiple biosecurity threats to broadacre agriculture are considered at the farm level. Table 1 lists the case studies and selected agricultural industries affected by the biosecurity threats. Box 1 contains a description of the case study pests, diseases and weeds.

Table 1 Case studies

Biosecurity threat Selected agricultural activities affected

Foot-and-mouth disease beef, dairy, pig meat, sheep meat and wool

Mexican feather grass grazing livestock (beef and sheep)

Citrus greening citrus

Highly pathogenic avian influenza poultry (chicken meat and eggs)

Karnal bunt wheat and triticale

Red imported fire ants beef and dairy cattle, sheep, annual crops and citrus

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Box 1 Pest, disease and weed threats

Foot-and-mouth diseaseFoot-and-mouth disease is caused by a virus that affects all cloven-hoofed livestock species, including cattle, pigs and sheep. It causes high morbidity in affected herds, but mortality rates are generally low except in young animals. The disease results in lower fertility, reduced weight gain and reduced wool and milk production.Mexican feather grassMexican feather grass is a low-protein, high-fibre grass with little grazing value. If it replaces other grass species in a paddock, it can significantly reduce the carrying capacity of pasture. Mexican feather grass is closely related to serrated tussock grass (N. trichotoma), which causes an estimated annual loss of $40 million in New South Wales (Jones & Vere 1998).Citrus greeningCitrus greening or huanglongbing (HLB) is a devastating disease that affects the productivity of mature citrus trees and kills younger plants before they become productive. It is caused by a bacterium that is spread by the Asian citrus psyllid. It is present in Brazil, Florida and Papua New Guinea and other countries in the Pacific region.Highly pathogenic avian influenzaHighly pathogenic avian influenza (HPAI) can have potentially devastating economic impacts on the poultry industry. The potential risk of a mutated strain of the virus causing a human influenza pandemic is of considerable concern. HPAI caused by the H5N1 strain spread from Asia to Europe in 2005–06, affecting both domestic poultry and wild birds and causing more than 400 human fatalities (OIE 2014). More recently, the related H5N8 strain has been detected in Asia and Europe (OIE 2014).HPAI caused by the H5N1 and H5N8 strains has not been detected in Australia. However, there have been outbreaks of less virulent strains of avian influenza that have been successfully eradicated.Karnal buntKarnal bunt is a fungus that can severely reduce the quality and marketability of wheat. Export markets for wheat are highly sensitive to Karnal bunt. Consequently, an incursion would be likely to result in a widespread ban on Australian wheat exports, as even countries where the fungus is present can be sensitive to the threat of Karnal bunt. For example, in 2004 Pakistan suspended access to its markets for Australian wheat following a suspected detection of Karnal bunt in wheat shipped from Western Australia.Red imported fire antsRed imported fire ants (RIFA) can damage crops, livestock and farm assets such as machinery and equipment, and injure people. Soon after RIFA colonies were discovered in Brisbane in early 2001, the National Red Imported Fire Ant Eradication Programme was established with funding from Australian, state and territory governments. The ongoing eradication programme has contained the ants in south-east Queensland, but they have not yet been eradicated.

Estimating the farm gate value of biosecurity activitiesThe farm gate value of Australia’s biosecurity system is defined as the farm enterprise profit attributable to biosecurity activities, where farm enterprise profit is given by the enterprise gross margin (the gross revenue derived from the enterprise less the variable costs incurred in the enterprise). While gross margins do not include fixed or overhead costs such as depreciation or interest payments, they are an indicator of relative profitability.

In this analysis, farm enterprise profit attributable to biosecurity activities is estimated as the difference between enterprise gross margins with and without biosecurity activities that reduce the risk that pests, diseases and weeds enter, become established and spread throughout Australia. Farm enterprise profits are expected to be higher as a result of biosecurity activities for three reasons. First, in the event of an incursion, farmers’ production and marketing costs will be higher because pests, diseases and weeds are expected to become endemic. In addition, farmers may lose access to premium export markets so products will be diverted to lower value export markets where the pest, disease or weed is endemic or to the domestic market. Finally, in the absence of Australia’s biosecurity system, the likelihood of pest, disease and weed incursions would be significantly higher.

Farm enterprise profit attributable to biosecurity activities is estimated in three stages. For each case study, these are:

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1) two enterprise gross margins are calculated for each of the agricultural activities affected by (one or more of) the case study biosecurity threats: before an incursion and after an incursion when pests, diseases and weeds are endemic

2) enterprise gross margins with and without biosecurity activities are calculated as the weighted average of the gross margins before and after an incursion, using as weights the probability of an incursion with biosecurity and the probability of an incursion without biosecurity

3) farm enterprise profit attributable to biosecurity activities is estimated as the difference between enterprise gross margins with and without biosecurity activities.

Enterprise gross margins before and after an incursionFirst, enterprise gross margins are calculated before an incursion for each of the agricultural activities affected by the case study biosecurity threats (Table 1). Enterprise gross margins (per hectare or per animal) for beef cattle, citrus, dairy cattle, pigs and sheep are derived from activity budgets prepared by the NSW Department of Primary Industries (NSW DPI 2013). For chicken meat and egg production, whole-of-farm gross margins were calculated using information provided by the Australian Chicken Growers Council and from Hafi, Reynolds and Oliver (1994).

Second, for each of the case study biosecurity threats, enterprise gross margins are calculated for each of the affected agricultural activities—assuming the pest, disease or weed was endemic. To calculate enterprise gross margins with the pest, disease or weed, the on-farm costs and losses incurred by farmers are estimated. These include:

direct production losses (reductions in the productivity of crops and livestock and output quality)

additional expenditures on control measures and damage mitigation (including chemical inputs and pest, disease or weed-resistant planting materials)

export market losses (estimated as the difference between prices in markets that are free of the pest, disease or weed and prices in markets where the pest, disease or weed is endemic).

Enterprise gross margins when pests, diseases or weeds are endemic are then calculated as the gross margin before an incursion, less the on-farm costs and losses incurred by farmers when the pest, disease or weed is endemic.

In general, it is not optimal to eliminate on-farm losses completely, as farmers may spend more on controlling a pest, disease or weed than the amount in revenue losses they expect to avoid. For this reason, the trade-off between on-farm losses and expenditure on control measures and damage mitigation is taken into account for each enterprise. Control measures are chosen so that the sum of additional expenditures and remaining on-farm production losses is less than the potential losses without any control measures or the cost of complete damage mitigation.

The methods used to estimate on-farm costs and losses differ between the case study biosecurity threats because of differences in the types of impacts and the quality of the available data. For example, only three of the case study biosecurity threats result in export market losses (citrus greening, FMD and Karnal bunt). RIFA is unique among the case studies in that the ants cause damage to farm infrastructure. For each biosecurity threat, more detail on how enterprise gross margins are calculated (for the scenario before an incursion and for the endemic scenario) is provided in chapter 4 and in the appendixes.

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Enterprise gross margins with and without biosecurity activitiesAustralia’s biosecurity system provides benefits to farmers by reducing the risk of pest, disease and weed incursions that could cause harm to agricultural industries. However, biosecurity activities do not eliminate that risk. Equally, the absence of biosecurity activities does not mean that a given pest, disease or weed will enter and establish in Australia or attain its maximum spread. Instead, biosecurity activities reduce the likelihood of an incursion relative to the probability of an incursion without biosecurity activities.

For this reason, enterprise gross margins with biosecurity activities are calculated as the weighted average of enterprise gross margins before an incursion and after an incursion. The probability of an incursion with biosecurity activities (the probability of the pest, disease or weed entering, establishing and spreading) and the probability of no incursion with biosecurity activities (the probability of the pest, disease or weed not entering, establishing and spreading) are used as weights. The probability of no incursion with biosecurity activities is equal to one minus the probability of an incursion with biosecurity activities.

Enterprise gross margins without biosecurity activities are calculated as the weighted average of enterprise gross margins before an incursion and after an incursion. The probability of an incursion without biosecurity activities and the probability of no incursion without biosecurity activities are used as weights. The probability of no incursion without biosecurity activities is equal to one minus the probability of an incursion without biosecurity activities.

More detail on the incursion probabilities used is provided in chapter 4.

Finally, for each case study, farm enterprise profit attributable to biosecurity activities is estimated as the difference between enterprise gross margins with and without biosecurity activities.

Estimating the value of biosecurity activities to broadacre farmsEach case study pest, disease and weed affects specific farming activities (Table 1). However, Australian broadacre farms are typically mixed enterprises and undertake a combination of cropping and livestock activities. As a result, broadacre farm profits may be affected by several pests and diseases.

In this study, ABARES estimated the combined value of biosecurity activities that reduce the risk of FMD, Karnal bunt and Mexican feather grass incursions. Data collected from the annual ABARES Australian Agricultural and Grazing Industries Survey are used to construct five broadacre farm profiles with relevant land use and financial data (Table 2 and Table 3). All broadacre farms have both crop and livestock enterprises, with a varying mix of the two. For example, on farms mainly growing crops, beef and sheep activities contribute 11 per cent to total gross farm receipts. Enterprise gross margins with and without biosecurity activities are incorporated into representative multi-activity farm models that account for how farmers may change their enterprise mix in response to an incursion. For example, a farmer managing an FMD outbreak may increase the land allocated to crop production. This would mitigate the negative impact of the pest, disease or weed incursion.

The value of Australia’s biosecurity system for the multiproduct broadacre farm is equal to the estimated reduction in whole-farm gross margin.

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Table 2 Broadacre farming systems

Broadacre farming system Share of each activity in gross farm receipts (%)

Mainly crops Wheat (48), oilseeds (13), barley (11), legumes (8), sheep (8), beef (3), grain sorghum (2), other crops (7)

Crops and livestock Sheep (33), wheat (31), oilseeds (11), barley (9), beef (9), other crops (4), legumes (2), grain sorghum (1)

Mainly sheep Sheep (79), wheat (7), beef (6), oilseeds (3), other crops (3), barley (2)

Mainly beef Beef (94), sheep (2), other crops (2), oilseed (1), wheat (1)

Sheep and beef Sheep (56), beef (39), wheat (2), other crops (2), barley (1), oilseeds (1)

Source: ABARES farm surveys

Table 3 Profiles of Australian broadacre farms a

Activity and performance

Unit Mainly crops

Crops and livestock

Mainly sheep

Mainly beef Sheep and beef

Crop and livestock activities

Wheat ha 806 341 56 8 14

Barley ha 214 97 13 5 5

Grain sorghum ha 25 8 0 0 1

Legumes ha 135 26 3 1 1

Oilseeds ha 159 59 7 2 5

Other crops ha 100 68 31 25 56

Sheep no. 710 1 811 2 854 67 2 647

Beef no. 47 113 47 891 410

Farm financial performance

Total cash receipts $/yr 862 786 456 346 258 246 244 745 354 760

Total cash costs $/yr 638 919 340 568 175 939 181 341 244 022

Farm cash income $/yr 223 867 115 778 82 307 63 403 110 738

a For each farm type, values given are averages across sampled farms.Source: ABARES farm surveys

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4 Key assumptionsIn this analysis, the two factors that determine farm enterprise profits attributable to biosecurity are the probability of an incursion (with and without biosecurity activities) and the impacts of pests, diseases and weeds on farm enterprise profits. This chapter summarises the key assumptions underlying estimated incursion probabilities and on-farm costs and losses if the case study pests, diseases and weeds become endemic.

Estimates of incursion probabilitiesABARES developed assumptions on the expected frequency of pest, disease or weed incursion events for each pest, disease or weed. The probability of at least one incursion event a year (with and without biosecurity activities) was then estimated using a Poisson distribution (Table 4).

Limited information is available on the frequency of an incursion event, particularly if biosecurity activities were to be discontinued. Therefore, the assumptions were informed by whether:

the pest, disease or weed was known to be present in Australia

an earlier incursion had occurred and the time since the most recent incursion

the pest, disease or weed was the focus of an ongoing eradication or containment campaign.

Table 4 Expected frequency of pest, disease and weed incursion events and probability of at least one incursion event per year

Pest, disease or weed

Expected frequency of a pest, disease or weed event

Probability of at least one incursion event a year

With biosecurity Without biosecurity

With biosecurity Withoutbiosecurity

Foot-and-mouth disease

0.01 0.20 0.01 0.16

Mexican feather grass 0.20 0.50 0.16 0.30

Citrus greening 0.01 0.20 0.01 0.16

Highly pathogenic avian influenza

0.01 0.20 0.01 0.16

Karnal bunt 0.01 0.50 0.01 0.30

Red imported fire ants 0.10 1.00 0.09 0.37

Note: The probability of no incursion (with or without biosecurity) is equal to one minus the probability of an incursion (with or without biosecurity).Source: ABARES estimates

For example, under Australia’s current biosecurity system, incursions of FMD, Karnal bunt, citrus greening and HPAI are considered to occur less frequently than once in 100 years. As a result, for these biosecurity threats the annual expected frequency of an incursion event is assumed to be 0.01. Without biosecurity activities, the annual expected frequencies of FMD and citrus greening incursions are assumed to increase to 0.2 (once in five years). The annual expected frequency of a Karnal bunt incursion is assumed to increase to 0.5 (once every two years). This is because Karnal bunt could enter Australia through multiple pathways, including

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imported fertiliser, bulk grain, straw products, agricultural machinery and passengers travelling from Karnal bunt–endemic countries.

For each biosecurity threat, the estimated probabilities of at least one incursion event a year (with and without biosecurity activities) are also reported in Table 4. For example, with biosecurity activities the probability of at least one FMD incursion event a year is 0.01. Without biosecurity activities, this increases to 0.16.

Estimates of the impacts of pests, diseases and weeds on farm enterprise profitsPests, diseases and weeds can reduce farm enterprise profits through:

direct production losses

additional expenditures on control measures and damage mitigation

export market losses.

The following section outlines the key assumptions underlying estimates of the on-farm costs and losses for each of the case study biosecurity threats. More detail on how on-farm costs and losses are calculated (for the scenario before an incursion and for the endemic scenario) is provided in the appendixes.

Foot-and-mouth diseaseFoot-and-mouth disease (FMD) is expected to reduce farm enterprise profits by increasing farmers’ production costs (through necessity to vaccinate livestock) and reducing domestic prices as a result of farmers losing access to premium FMD-free export markets.

In the absence of control measures, FMD reduces production volumes (because it affects the fertility and productivity of livestock) and increases mortality rates. However, farmers can avoid production losses entirely by vaccinating animals, giving them full protection against FMD for six months. In this analysis, farmers are assumed to choose a vaccination strategy after weighing the cost of vaccination against the expected benefits (avoided production losses). Different vaccination strategies are assumed: twice a year for calves, heifers and steers; once a year for cows in beef and dairy systems; and once a year for all animals in sheep and pig systems. Following Buetre et al. (2013), the cost of the vaccine is assumed to be $4.12 a dose.

In the event that FMD became endemic in Australia, livestock producers would be refused access to premium markets worldwide. This would force producers to sell into less lucrative FMD-endemic markets. Also, meat from vaccinated animals is of lower value than meat from FMD-free regions. Following the United States International Trade Commission (USITC 2008), farm gate prices of all livestock products are assumed to be 30 per cent lower because of the loss of access to FMD-free export markets and the diversion of products to the domestic market or lower value markets where FMD is endemic.

Appendix A provides more detail on the methods and assumptions used to estimate the impacts of an FMD incursion on farm enterprise profits.

Mexican feather grassMexican feather grass is expected to reduce farm enterprise profits by reducing production (by reducing the carrying capacity of grazing land) and imposing control costs. A Mexican feather grass incursion would not result in export market losses.

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Mexican feather grass has little grazing value and an infestation could significantly reduce the carrying capacity of grazing lands, leading to a fall in beef, sheep meat and wool production. On-farm production losses caused by serrated tussock grass are indicative of the potential damage from Mexican feather grass. Heavy infestations of serrated tussock are estimated to reduce carrying capacity by up to 90 per cent and moderate infestations by 40 per cent (Vere & Campbell 1979).

Eradication scenarios for Mexican feather grass are based on control measures available for serrated tussock. Control measures include chipping and spot spraying, and establishing improved pasture. Control costs are assumed to increase in line with density at detection (0 per cent to 25 per cent), to a maximum of $125 a hectare. Eradication is estimated to take between 11 and 22 years. Farmers are also assumed to incur ongoing costs for continued surveillance and removal of any detected plants ($10 a hectare).

Appendix B provides more detail on the methods and assumptions used to estimate the impacts of a Mexican feather grass incursion on farm enterprise profits.

Citrus greeningCitrus greening is expected to reduce farm enterprise profits through production losses, additional costs for control measures and lower domestic prices as a result of a loss of market access.

The impact of citrus greening on farm enterprise profits depends on the age of affected trees and the control method used. Citrus greening reduces the productivity of mature trees and kills young trees before they become productive. Two control strategies are available to farmers: spraying against the insect vector that carries and transmits the disease, combined with the immediate removal of the infected trees (standard control); and nutrient supplementation, which is a newer practice. In this analysis farmers were assumed to follow the standard control strategy at a cost of $750 a hectare.

The analysis assumes that half of Australia’s citrus export markets will be closed following an infestation of citrus greening and that product will be diverted to the domestic market. Using a partial equilibrium model, domestic prices are estimated to fall by around 9 per cent. The analysis assumes that lower domestic prices are fully transmitted to farmers.

Appendix C provides more detail on the methods used to estimate the on-farm and market access impacts of citrus greening.

Highly pathogenic avian influenzaHighly pathogenic avian influenza (HPAI) is expected to reduce farm enterprise profits as a result of lost production (forgone revenue from contract fees and egg sales), decontamination costs and costs to return the farm to normal operations.

HPAI is a highly infectious virus that can cause flock mortality rates exceeding 50 per cent. Impacts on chicken and egg farms arise from production losses and costs of decontamination. This is because control measures require the immediate destocking of the entire flock, including healthy birds, and decontamination before restocking.

Australia does not export significant amounts of eggs or poultry so market access losses are assumed to be negligible. Concern over possible transmission of HPAI to humans may result in a fall in domestic demand for chicken or egg products, but the average annual domestic price is assumed to be unchanged. This is because, on average, the modelled fall in price during the

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outbreak is offset by above-average prices as demand returns to normal levels while restocking takes place.

Appendix D provides more detail on the methods used to estimate the on-farm impacts of HPAI.

Karnal buntKarnal bunt is expected to reduce farm enterprise profits by reducing yields and increasing production costs (fungicide treatments) and to result in lower domestic prices because of export market closures.

A Karnal bunt outbreak is expected to result in a small yield reduction. The impact of Karnal bunt on yield varies across crop varieties, following Wittwer, McKirdy and Wilson (2005), but average potential yield loss is assumed to be 0.1 per cent. Control of Karnal bunt involves treatment with a fungicide, at a cost of $7.12 a hectare (Wittwer, McKirdy & Wilson 2005).

Karnal bunt can severely degrade grain quality. For example, wheat containing more than 3 per cent bunted seeds is considered unfit for human consumption and may be downgraded to feed grain. The analysis assumes that around 45 per cent of exports are to Karnal bunt–sensitive markets. Using a partial equilibrium model, domestic prices are estimated to fall by around 12 per cent as a result of the closure of these markets

Appendix E provides more detail on the methods used to estimate the on-farm and market access impacts of Karnal bunt.

Red imported fire antsRed imported fire ants (RIFA) are expected to reduce farm enterprise profits as a result of reduced yields, control costs (chemical treatment), costs incurred to repair and replace damaged equipment, and the cost of veterinary services.

RIFA have the potential to affect several agricultural activities. RIFA can cause damage to crops, farm buildings, farm equipment, livestock and machinery. Data on damage and costs are not available for the infested area in south-east Queensland because RIFA have not yet spread to rural areas. Therefore, US studies (Lard et al. 1999; Segarra et al. 1999) have been used to identify potential on-farm impacts of RIFA. The cost of the impact has been converted to 2013 Australian dollars using the exchange rate and the rate of inflation between 1999 and 2013.

Losses can be mitigated if RIFA can be treated cost effectively. To eradicate RIFA, the cost of bait chemicals, bait toxicants and liquid chemicals used for treatment of fire ants is estimated at $90 a hectare (Hafi et al. 2014). However, rather than achieve full eradication, farmers are expected to undertake treatment at a lower intensity while incurring some losses.

Appendix F provides more detail on the methods used to estimate the on-farm impacts of RIFA.

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5 ResultsThis chapter presents estimates of the farm gate value of Australia’s biosecurity system. It presents enterprise-level results for the case study pests, diseases and weeds and then presents estimates of the farm-level benefits from biosecurity activities that reduce the risk of multiple threats to broadacre agriculture.

Farm gate value of biosecurity at the enterprise levelThis section presents estimates of the impacts of the case study pests, diseases and weeds on annual farm enterprise profits. First, Figure 1 presents estimates of the impact of an incursion on enterprise gross margins. Second, Table 5 presents estimates of the farm enterprise profit attributable to biosecurity activities, measured as the difference between enterprise gross margins with and without biosecurity activities. Estimates for beef, pigs, sheep, triticale and wheat are averages across different production systems, and results for each production systems are presented in the appendixes. Estimates for citrus greening are for orchards with trees more than 10 years old.

Farm gross margins after an incursionAn incursion of the case study pests, weeds and diseases—or, in the case of red imported fire ants (RIFA), their spread to rural areas—has the potential to significantly reduce enterprise gross margins. A foot-and-mouth disease (FMD) incursion is estimated to have the largest impact, reducing the gross margins of livestock enterprises by between 52 percent for beef enterprises to more than 100 per cent for pig enterprises (Figure 1). Pig production would be unprofitable in the event that FMD became endemic, with losses exceeding 100 per cent. In the event that citrus greening became endemic, gross margins of citrus enterprises would be 34 per cent lower. If Karnal bunt became endemic, the gross margins of wheat enterprises would be 23 per cent lower, and the gross margins of triticale enterprises would be 25 per cent lower.

Where pest and disease incursions result in the closure of export markets, this can have a significant impact on enterprise gross margins. The majority of estimated losses from FMD are attributable to loss of access to premium export markets, as potential production losses are mitigated by vaccination. Similarly, in the case of a Karnal bunt incursion, losses as a result of export market closures account for the majority of the reduction in gross margins. In contrast, export market losses for citrus greening are comparatively small because citrus producers are less reliant on export income.

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Figure 1 Reduction in annual farm enterprise profits after an incursion (%)

FMD Foot-and-mouth disease. MFG Mexican feather grass. KB Karnal bunt. CG Citrus greening. HPAI Highly pathogenic avian influenza. RIFA red imported fire ant.Note: Estimated reduction in the annual profit of pig enterprises following an FMD incursion is 387 per cent. However, farmers are assumed to stop production when it is no longer profitable.

Farm gate value of biosecurityTable 5 presents estimates of farm enterprise gross margins with and without biosecurity activities. The contribution of biosecurity activities to annual farm enterprise profits (the farm gate value of biosecurity) is calculated as the difference between enterprise gross margins with and without biosecurity activities.

Biosecurity activities to reduce the risk of an FMD outbreak make a significant contribution to the profitability of livestock enterprises. Annual profits of beef, dairy and sheep enterprises would be 8 per cent to 12 per cent lower in the absence of an effective biosecurity system, and 15 per cent lower for pig enterprises. This reflects the size of the export market losses avoided (and the narrow gross margins for pig production before an incursion). For pasture-based livestock industries, dairy farmers receive the highest benefits, followed by sheep and beef farmers. In dollar terms, the impacts range from $10 a hectare for beef farmers to $125 a hectare for dairy farmers.

In the absence of an effective biosecurity system, annual profits of cropping enterprises would be around 7 per cent lower because of the higher risk of a Karnal bunt incursion. This could result in lower revenues from the closure of sensitive export markets. In dollar terms, annual profits of wheat enterprises are expected to be $34 a hectare lower.

Without biosecurity activities that reduce the risk of citrus greening, HPAI, Mexican feather grass and RIFA, annual profits of affected crop and livestock enterprises are estimated to be 1 per cent to 5 per cent lower. For citrus greening, annual enterprise profits are estimated to be 5 per cent or $237 a hectare lower. For HPAI, annual profits are estimated to be almost $4 000 a property lower for chicken producers and more than $6 600 a property lower for egg producers.

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The value of Australia’s biosecurity system at the farm gate

ABARES


Table 5 Farm gate value of biosecurity at the enterprise level (dollars a hectare)a

Performance measure FMDd MFGe KBf CGg HPAIh RIFAi

Units Beef Dairy Sheep Pigs Beef Sheep Wheat Triticale Citrus Chicken Egg Beef Crops Citrus

Losses caused by pest, disease or weed

Market access loss $ 58 800 141 928 0 0 109 38 294 0 0 0 0 0

On-farm losses and expenditure $ 4 10 31 81 30 33 7 7 1 245 25 287 43 316 17 24 17

Total losses $ 62 810 172 1 009

30 33 116 45 1 539 25 287 43 316 17 24 17

Enterprise gross margin before and after an incursion

Gross margin before an incursion (1) $ 119 1 329 230 261 94 230 513 180 4 509 136 289 308 369 119 346 4 509

Gross margin after an incursion (2) $ 58 520 58 –748j 64 197 397 134 2 970 111 002 265 053 102 322 4 492

Expected enterprise gross margin

With biosecurityb $ 119 1 321 228 259 89 224 512 179 4 494 136 038 307 940 118 344 4 507

Without biosecurityc $ 109 1 197 202 218 85 220 478 166 4 257 132 148 301 276 113 338 4 503

Contribution of biosecurity to annual farm enterprise profits ($)

$ 10 125 26 40 4 5 34 13 237 3 890 6 664 5 6 4

Contribution of biosecurity to annual farm enterprise profits (%)

% 8 9 12 15 4 2 7 7 5 3 2 4 2 1

a For all enterprises except chicken, eggs and pigs, gross margins are estimated in $ a hectare. For chicken and egg enterprises, gross margins are estimated in $ a farm. For pig enterprises, gross margins are estimated in $ a sow. b Equal to the weighted average of the results from (1) and (2), using the probability of no incursion with biosecurity activities and the probability of an incursion with biosecurity activities as weights, respectively (given in Table 4). c Equal to the weighted average of the results from (1) and (2), using the probability of no incursion without biosecurity activities and the probability of incursion without biosecurity activities as weights, respectively (given in Table 4). d Foot-and-mouth disease. e Mexican feather grass. f Karnal bunt. g Citrus greening. h Highly pathogenic avian influenza. i Red imported fire ants. j assumed to be zero in estimating the expected gross margin.


Value of biosecurity for multiproduct farmsAustralian broadacre farms are typically mixed enterprises and undertake a combination of cropping and livestock activities. This means that farm profits may be affected by several pests and diseases, but broadacre farmers can change their enterprise mix in response to changes in relative gross margins to mitigate the impact of a pest, disease or weed at the farm level.

Broadacre farms may be affected by foot-and-mouth disease (FMD), Mexican feather grass and Karnal bunt. Table 6 and Table 7 present estimates of the contribution of Australia’s biosecurity system to the whole-farm gross margins of average broadacre farms by reducing the risk of an incursion of these biosecurity threats. In the absence of Australia’s current biosecurity system, whole-farm gross margins would be 5 per cent to 13 per cent lower. When expressed in dollar terms, the reduction in whole-farm gross margin is equivalent to the reduction in farm profit. This means that the profits of these average broadacre farms would be $12 000 to $17 500 less a year.

Differences in the estimated annual profits attributable to biosecurity activities reflect the relative importance of affected agricultural activities across broadacre farm types. In particular:

the greater the share of beef and sheep activities, the greater the increase in profits from a lower risk of an FMD incursion

the greater the share of beef activities, the greater the increase in profits from a lower risk of a Mexican feather grass incursion (the reduction in stocking density in the case of a Mexican feather grass incursion is larger for beef cattle than for sheep)

the benefits from a lower risk of a Karnal bunt incursion increase with the area allocated to wheat.

Mixed sheep and beef farms benefit most from the lower risk of an incursion of the biosecurity threats, largely reflecting avoided losses from both FMD and Mexican feather grass.

Table 6 Contribution of biosecurity activities to broadacre farm profitsa, dollars a year

Farm type Foot-and-mouth disease

Mexican feather grass

Karnal bunt Total

Mainly crops 3 693 920 7 640 12 254

Crops and livestock 7 898 1 946 2 779 12 626

Mainly sheep 9 533 1 822 388 11 744

Mainly beef 7 994 4 886 47 12 927

Sheep and beef 13 172 4 254 108 17 533

a Expressed in dollar terms, the reduction in whole farm gross margin is equivalent to the reduction in farm profit. Broadacre farm types were constructed using data collected from the annual ABARES Australian Agricultural and Grazing Industries Survey.

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Table 7 Contribution of biosecurity activities to whole-farm broadacre gross margins (%)

Farm type Foot-and-mouth disease

Mexican feather grass

Karnal bunt Total three threats

Mainly crops 2 0 3 5

Crops and livestock 6 1 2 9

Mainly sheep 10 2 0 13

Mainly beef 8 5 0 13

Sheep and beef 10 3 0 13

Note: Broadacre farm types were constructed using data collected from the annual ABARES Australian Agricultural and Grazing Industries Survey.

In the long-term, it can be expected that the farm-level benefits of biosecurity activities will be capitalised into land values. This could be significant because, as shown by the results in Table 6 and Table 7, profits generated by broadacre farming activities are higher than they would have been in the absence of Australia’s current biosecurity system.

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6 ConclusionFreedom from many of the world’s major biosecurity threats is a source of competitive advantage for Australia’s agricultural industries. On-farm costs would be higher if pests, weeds and diseases (such as citrus greening or highly pathogenic avian influenza) present in other parts of the world established and spread throughout Australia, because of production losses and expenditure on control measures and damage mitigation. Even if the production impacts of a pest or disease could be mitigated at relatively low cost—as would be the case with Karnal bunt and, to a lesser extent, foot-and-mouth disease (FMD)—losses arising from trade bans and lower farm-gate prices could be significant and make some farming activities unprofitable.

Australia’s biosecurity system makes an important contribution to the competitiveness and resilience of agricultural industries by managing the risks posed by exotic pests, weeds and diseases. Given the importance of biosecurity activities for farms, the lack of analysis of farm-level benefits of biosecurity activities has been a key knowledge gap. This work provides an insight into the farm-level benefits of biosecurity by examining the on-farm costs and export market losses that biosecurity activities prevent. The analysis demonstrates that farm profits are higher as a result of biosecurity activities that reduce the risk of six potentially significant biosecurity threats to agriculture. In dollar terms, the profits of typical broadacre farms are $12 000 to $17 500 a year higher than they would be in the absence of an effective biosecurity system.

The analysis uses case studies and does not account for other benefits from biosecurity activities. Australia’s biosecurity system protects Australian agriculture from a large number of pests, diseases and weeds not included in this analysis. Moreover, the analysis does not account for the economy-wide benefits of biosecurity activities; costs and losses incurred by farmers can flow on to affect processors and regional and national economies. These and other limitations, and the opportunities they present for further research, are outlined in more detail in Appendix G.

Finally, the analysis does not account for the non-market benefits that Australia’s biosecurity system provides to the environment, communities and the broader economy by reducing risks to Australia’s natural environment. These factors should also be considered to estimate the total value of Australia’s biosecurity system. Even without considering these additional benefits, this report demonstrates the significant contribution that biosecurity activities make to the profitability of Australian farms.

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Appendix A: Foot-and-mouth diseaseFoot-and-mouth disease (FMD) is caused by a virus that affects cloven-hoofed animals including cattle, pigs and sheep. It has high morbidity in affected herds, but mortality levels are generally low except in young animals. The disease results in reduced fertility, reduced weight gain and decreased milk production.

FMD can directly affect beef and sheep activities on broadacre farms and specialist dairy and pig farms. The impact of FMD on the financial performance of a broadacre farm increases with the share of revenue derived from livestock activities. Accordingly, broadacre farms that mainly undertake livestock activities can be affected more than mixed crop and livestock farms or mainly crop farms.

Damage and mitigationAt a farm level, FMD has a direct impact on livestock production and indirect impacts through additional costs and lost export sales. The direct impact of FMD on production results from its impact on reproduction, mortality and growth of affected animals in different production systems (Table A1). Farmers incur additional costs because of extra veterinary services, and lost revenues are a result of lower prices for livestock at the farm gate.

Table A1 The direct impact of foot-and-mouth disease on livestock production

Species and production system Impact

Beef cattle weaners Reduced fertility, increased calf mortality and need to replace breeding stock more frequently

Beef cattle fattening Some mortality and slower growth resulting in lower weight gain

Sheep Reduced fertility, weight gain and wool cut

Dairy cattle Reduced fertility and milk yield and increased calf mortality

Intensive pigs Increased mortality, reduced fertility, increased abortion and reduced weight gain

Source: Rushton and Knight-Jones (2010)

Vaccination provides immunity against FMD for about six months. The frequency of vaccination differs across FMD-endemic countries:

in South America, cattle under two years are vaccinated twice a year, while older animals are vaccinated only once a year

in India, all cattle are vaccinated twice a year

in China, cattle and sheep are vaccinated twice a year and pigs once a year.

Farmers would choose a vaccination strategy after weighing the cost of vaccination against the expected benefits. Depending on the vaccination strategy adopted, the morbidity of the herd can decrease, which minimises the expected losses from recurrent infection.

The analytical frameworkFarm-level impacts were estimated in two steps:

1) estimate the impact on several livestock production systems using activity budgets prepared by the NSW Department of Primary Industries (NSW DPI 2013)

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2) estimate the impacts on different broadacre farms by incorporating the impact on individual production systems.

The partial budgeting technique is used to estimate the impact at activity level. Changes in land use between cropping and livestock activities arising from FMD are estimated with a whole-farm land allocation model. The analytical framework employed allows for mitigation of impacts at a whole-farm level by control measures applied at activity level and reallocation of land away from livestock activities affected by FMD to cropping activities. The different livestock production systems are shown in Table A2.

Table A2 Livestock production systems

Host livestock species Production system

Beef cattle North coast weaners on improved pasture (100 cows on 173 hectares)

North coast weaners on unimproved pasture (100 cows on 254 hectares)

Grass-fed steers produced for Japanese markets (100 cows on 492 hectares)

Beef produced for EU markets (100 cows on 295 hectares)

Sheep Merino ewes and rams (1 000 ewes on 254 hectares)

Dorper ewes and rams (1 000 ewes on 272 hectares)

First-cross ewes and terminal meat rams (1 000 ewes on 267 hectares)

Merino ewes and terminal meat rams (1 000 ewes on 247 hectares)

Pigs Bacon production (average) in north-west slopes of New South Wales (100 sows and 6 boars)

Bacon production (good) in north-west slopes of New South Wales (100 sows and 6 boars)

Dairy cattle Specialist dairy production system (225 cows on 257 hectares)

Source: NSW DPI (2013)

AssumptionsIn preparing activity budgets for the scenario without FMD, ABARES largely retained the assumptions contained in the activity budgets prepared by NSW DPI (2013). These assumptions included herd composition and the biological parameters on fertility, mortality and productivity levels (weight at turn-off, milk yield and wool cut). The herd composition in the activity budget was derived from a simple, steady state herd equilibrium model and calibrated to the herd composition contained in NSW DPI (2013) activity budgets. The inclusion of a herd equilibrium model in the activity budgets enabled ABARES to estimate changes in herd composition resulting from FMD-induced changes in fertility and mortality so it could readily estimate flow-on financial impacts.

Assumptions on FMD-induced changes in the rate of morbidity, fertility, mortality and productivity are based on information about the experience of FMD-endemic countries, as reported in Rushton and Knight-Jones (2010) and Senturk and Yalcin (2005). The assumptions made on the biological parameters are presented in Table A3 and Table A4.

The assumed vaccination strategies are: twice a year for calves, heifers and steers; once a year for cows in dairy and beef systems; and once a year for all animals in pig and sheep systems. Following Buetre et al. (2013), the cost of vaccine is assumed to be $4.12 a dose. The vaccination strategies are assumed to provide full protection against FMD, resulting in zero morbidity and no effect on fertility, mortality or productivity.

Farm gate prices for all livestock products are assumed to be 30 per cent less when FMD is endemic because of loss of access to FMD-free export markets. This assumption is based on a

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United States International Trade Commission (USITC 2008) assessment that estimates the difference between FMD-free and FMD-endemic markets to be between 10 per cent and 50 per cent.

The probability of at least one FMD outbreak occurring with Australia’s current biosecurity system in place is estimated using a Poisson distribution, while assuming an expected frequency of once in 100 years. This frequency is assumed to increase to 1 in 5 in estimating the corresponding probability without biosecurity.

Table A3 Biological parameters used for cattle and sheep production systems for the simulation of impacts of foot-and-mouth disease

Livestock production system

Rate of conception a

(%)

Adult mortality

(%)

Young mortality

(%)

Morbidity (%)

Change in productivity

(%)

North coast weaners 80 (90) 5 (2) 10 (2) 50 (0) –25

Beef cattle for Japanese and European markets

82 (92) 5 (2) 10 (2) 50 (0) –25

Merino ewes and rams 79 (89) 6 (4) 12 (2) 40 (0) –10

Dorper ewes rams 111 (121) 6 (4) 12 (2) 40 (0) –10

First-cross ewes and terminal meat rams

111 (121) 6 (4) 12 (2) 40 (0) –10

Merino ewes and terminal meat rams

83 (93) 6 (4) 12 (2) 40 (0) –10

Dairy cattle 89 (99) 5 (2) 10 (2) 40 (0) –30 (milk)

–25 (weight loss)

a Percentage of live births per year out of the number of female breeding animals conceived.Note: Parameter values without foot-and-mouth disease are in parentheses.Source: ABARES estimates

Table A4 Biological parameters used for pig production systems for the simulation of impacts of foot-and-mouth disease

Parameter Unit Average bacon production

Good bacon production

Litters per year number/year 1.9 (2.1) 2.1 (2.3)

Average litter size born alive piglets/litter 9 (10) 10 (11)

Mortality—adult pigs % 16 (14) 16 (14)

Mortality—sows % 5 (3) 5 (3)

Piglet mortality

Pre-weaning % 22 (12) 20 (10)

Post-weaning % 13 (3) 12 (2)

Morbidity % 60 (0) 60 (0)

Weight loss % 10 (0) 10 (0)

Note: Parameter values without foot-and-mouth disease are in parentheses.Source: ABARES estimates

22


For each broadacre farming system, land use by different crops and livestock activities and the associated gross receipts without FMD are assumed to be at average levels as estimated using 2011–12 ABARES Australian Agricultural and Grazing Industries survey data.

ResultsFor each type of livestock, the analysis includes activity budgets for several different production systems.

The cost of FMD is estimated with and without vaccination. The vaccination strategy adopted on farm is assumed to provide full protection against the virus and to ensure zero morbidity. Therefore, the cost of FMD in the vaccination scenario is equal to the cost of vaccines and foregone revenue caused by the loss of price premium.

Estimated losses and returns from vaccination vary across production systems (Table A5, Table A6 and Table A7). Even with a less intensive vaccination strategy for sheep, in which younger animals are vaccinated only once a year compared with twice a year for beef and dairy cattle, the cost of vaccines is significantly higher than the losses with no vaccination. This suggests that sheep farmers may have an incentive to take the risk of an outbreak. As a result, estimated gross margins were lower with vaccination compared with those without vaccination. In beef, dairy and pig production systems, estimated gross margins with vaccination exceeded the gross margins without vaccination.

Table A5 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a hectare—beef and dairy production systems

Performance measure North coast weaners

(improved pasture)

North coast weaners

(unimproved pasture)

Grass-fed steers for

Japan

Beef cattle for EU

(improved pasture)

Dairy

Gross margin without foot-and-mouth disease (A)

124 63 112 179 1 329

With foot-and-mouth disease and no vaccination

Market access losses 71 29 46 85 800

Direct damage 68 29 50 85 236

Subtotal (B) 139 58 96 170 1 036

Gross margin (A–B) –14 5 16 8 293

With foot-and-mouth disease and vaccination


Cost of vaccination 6 4 2 4 10

Subtotal (C) 77 33 48 89 810

Gross margin (A–C) 47 30 64 90 520

Risk analysis

Expected gross margin with biosecurity

124 63 111 178 1 321

Expected gross margin without biosecurity

112 58 104 164 1 197

Value of biosecurity 12 5 7 14 125

Source: ABARES estimates

23


Table A6 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a hectare—sheep production systems

Performance measure Merino ewes

and rams

Dorper ewes and

rams

First-cross ewes and terminal

meat rams

Merino ewes and terminal rams

Gross margin without FMD (A) 245 210 226 238

With foot-and-mouth disease and no vaccination

Market access losses 140 112 156 155

Direct damage 19 21 25 22

Subtotal (B) 159 134 181 177

Gross margin (A–B) 86 77 45 61



Cost of vaccination 29 32 33 31

Subtotal (C) 169 144 188 185

Gross margin (A–C) 76 66 38 53

Risk analysis with eradication

Expected gross margin with biosecurity 243 209 224 236

Expected gross margin without biosecurity 217 187 195 208

Value of biosecurity 26 22 29 28


Table A7 Farm-level losses from foot-and-mouth disease and gross margins with and without vaccination, dollars a sow—pig production systems

Performance measure Average bacon production Good bacon production

Gross margin without foot-and-mouth disease (A)

138 385

With foot-and-mouth disease and no private control

Market access losses 827 1 028

Direct damage 358 451

Subtotal (B) 1 185 1 479

Gross margin (A–B) –1 047 –1 095


Market access losses 827 1 028

Cost of vaccination 74 89

Subtotal (C) 901 1 117

Gross margin (A-C) –764 –732

Risk analysis with eradication

Expected gross margin with biosecurity 129 374

Expected gross margin without biosecurity 10 202

Value of biosecurity –139 –172


24


Table A8 presents the gross margin losses avoided—that is, the value that the biosecurity system provides to broadacre farms by protecting them from FMD. The variation in estimated value of biosecurity across farms reflects differences in the size of FMD-susceptible activities: the greater the share of beef and sheep, the greater the value of Australia’s biosecurity system in excluding FMD. Additionally, vaccination prevents production losses and the cost of vaccination increases with the number of animals a hectare or stocking density. Stocking density for sheep activity is higher than for beef. Consequently, the higher vaccination cost a hectare is avoided because of Australia’s biosecurity system.

If FMD becomes endemic, farmers are likely to reallocate land away from beef and sheep to crops (Table A9).

Table A8 Value of biosecurity in preventing foot-and-mouth disease at whole-farm level

Activity Value of biosecurity Value of biosecurity as percentage of FCOSa

Value of biosecurity per hectare of land

used for sheep and beef

Farm type $/farm % $/ha

Mainly crops 3 693 2 13.6

Crops and livestock 7 898 6 11.6

Mainly sheep 9 533 10 11.8

Mainly beef 7 994 8 4.4

Sheep and beef 13 172 10 8.9

a Farm cash operating surplus.Source: ABARES estimates

Table A9 Percentage change in land use at farm level after a foot-and-mouth disease incursion

Activity Mainly crops Crops and livestock

Mainly sheep Mainly beef Sheep and beef

Sheep –1.2 –0.9 –0.4 –0.6 –0.6

Beef –1.3 –0.5 0.6 –0.1 0.1

Wheat 0.2 0.8 1.7 1.5 1.2

Barley 0.3 0.9 1.5 3.4 1.3

Grain sorghum

0.2 0.6 3.8 6.9 1.6

Legumes 0.2 1.0 1.4 2.7 0.6

Oilseeds 0.2 0.4 0.5 0.9 0.4

Other crops 0.2 1.5 2.5 2.7 5.3


25


Appendix B: Mexican feather grassMexican feather grass is native to Argentina, Chile and the US states of New Mexico and Texas. It is a perennial tussock grass. It resembles serrated tussock grass (Nassella trichotoma), which is established in Australia. In Argentina, Mexican feather grass has been classified as a pest in grazing land because it is an unpalatable grass that can become the dominant grass species under heavy grazing. Much of southern Australia is believed to provide suitable habitat for the weed, with an estimated 169 million hectares considered to be at risk (Biosecurity Queensland 2008).

Damage and mitigationMexican feather grass is a low-protein, high-fibre grass with little grazing value. If it replaced other grass species, it could significantly reduce carrying capacity and result in reduced beef, sheep meat and wool production. The seed awns of the Nassella species could contaminate wool.

Mexican feather grass is similar to its close relative serrated tussock grass in ecology and growth habits. The serrated tussock grass weed is estimated to cost grazing industries in New South Wales $40 million annually (Jones & Vere 1998). The on-farm production losses caused by serrated tussock grass indicate the damage potential of Mexican feather grass. Heavy infestation of serrated tussock is estimated to reduce carrying capacity by up to 90 per cent, while moderate infestation is estimated to reduce carrying capacity by 40 per cent (Vere & Campbell 1979). Because livestock prefer more nutritious species, serrated tussock grass faces less competition from other species. Consequently, unimpeded growth in density can result in a light or moderate infestation quickly becoming a heavy one.

Control of serrated tussock grass involves replacing unimproved pasture with improved pasture, regular maintenance with fertilisers, removal of tussock grass by chipping and use of herbicide until the desired pasture species become dominant. On arable land, control cost increases with density of the infestation up to moderate density and then remains constant as the density increases further. Control cost can be higher on non-arable land. Eradicating serrated tussock from a farm is estimated to take between 11 and 22 years. Establishing improved pasture is the only option for paddocks heavily infested with tussock grass. Light infestations (up to 1 000 plants a hectare) can be removed by chipping and spot-spraying with herbicides.

The analytical frameworkFarm-level impacts are estimated in three steps:

1) estimate growth in Mexican feather grass density on farm over a 20-year planning horizon, with and without control

2) estimate present value of impacts for both with- and without-control scenarios for several livestock production systems

3) estimate annualised value of impacts and incorporate into whole-farm models representing different broadacre farming systems.

Assumptions used in estimating damageUncontrolled growth in Mexican feather grass density over time was estimated using a logistic growth function with the initial density set at 1 per cent and an instantaneous growth rate selected to yield 25 per cent density five years after infestation. Two eradication scenarios are

26


simulated based on the time of detection: detection at 5 per cent density (early) and detection at 25 per cent density (late). In each eradication scenario, it is assumed that control efforts are applied to reduce density progressively over 10 years.

The maximum loss possible when Mexican feather grass completely dominates the paddock was assumed to be 90 per cent of the gross margin of an unaffected paddock. The values of direct production losses over time with and without control are estimated by scaling this maximum value by the respective densities of infestation.

Vere and Campbell (1984) estimated that removal of serrated tussock grass from moderate- to high-density infestations in arable land would cost $112 a hectare. Chipping and spot-spraying were estimated to cost $7 per hectare (Vere & Campbell 1984). In this study, it is assumed that over the density range of 0 per cent to 25 per cent removal cost would increase linearly to $125 per hectare and then remain constant for all higher densities. After the paddock was cleared, an ongoing cost of $10 per hectare was assumed for continued surveillance and removal of any detected feather grass.

Grass-fed beef production for the Japanese and European markets is assumed to be not affected by Mexican feather grass because the condition of the highly improved pasture is well maintained. However, all four sheep production systems and the three other beef production systems are assumed to be vulnerable because of the extensive nature of production.

The probability of at least one incursion of Mexican feather grass per year with Australia’s current biosecurity system is estimated using a Poisson distribution, assuming an expected incursion frequency of 0.2 (a one in five year event). This frequency is assumed to increase to 0.5 without biosecurity efforts. Mexican feather grass is assumed to have higher expected infestation frequencies than other pests, diseases and weeds because it has previously been found in Australia.

ResultsWithout control, all beef and sheep production systems are estimated to lose 80 per cent of their gross margins. Gross margin losses could be reduced to 50 per cent in beef production systems and around 30 per cent in sheep production systems if the weed is eradicated following late detection. If the weed can be detected early, losses can be reduced further to 25 per cent for beef production systems and to between 13 per cent and 15 per cent for sheep production systems (Table B1).

In broadacre farms, the greater the representation of beef and sheep then the greater the reduction in gross margins. The reduction in stocking density caused by Mexican feather grass affects beef cattle more than sheep. Consequently, mainly beef and beef and sheep farms suffer higher losses from the weed than mainly sheep farms (Table B2). If the weed becomes endemic, farmers are likely to reallocate land away from beef and sheep to crops (Table B3).

27


Table B1 Impact of Mexican feather grass, farm financial performance and value of biosecurity, dollars a hectare

Performance measure

NCW a improved

pasture

NCW a unimproved

pasture

Merino ewes and

rams

Dorper ewes

and rams

First-cross ewes and terminal

meat rams

Merino ewes and terminal

rams

Gross margin without Mexican feather grass

124 63 245 210 226 238

With Mexican feather grass and no private control

Market access losses

0 0 0 0 0 0

Direct damage 100 51 196 169 181 191

Subtotal 100 51 196 169 181 191

Gross margin 24 12 49 41 45 47

Late detection and eradication


0 0 0 0 0 0

Direct damage 63 58 74 71 72 73

Subtotal 63 58 74 71 72 73

Gross margin 61 5 171 139 154 165

Early detection and eradication


0 0 0 0 0 0

Direct damage 31 29 33 32 33 33

Subtotal 31 29 33 32 33 33

Gross margin 93 34 212 178 193 205

Risk analysis b


119 58 240 205 221 233


115 54 235 200 216 228

Value of biosecurity

4 4 5 5 5 5

a North coast weaners. b Uses gross margin estimated for early detection and eradication scenario.Source: ABARES estimates

28


Table B2 Value of biosecurity in preventing Mexican feather grass at whole-farm level

Activity Value of biosecurity Value of biosecurity as percentage of FCOS a

Value of biosecurity per hectare of land used for

sheep and beef

Farm type $/farm % $/ha

Mainly crops 920 0.4 3.4

Crops and livestock 1 946 1.3 2.9

Mainly sheep 1 822 2.0 2.3

Mainly beef 4 886 4.8 2.7

Sheep and beef 4 254 3.2 2.9


Table B3 Percentage change in land use at the farm level with Mexican feather grass incursion

Activity Mainly crops

Crops and livestock

Mainly sheep Mainly beef Sheep and beef

Sheep –0.1 0.0 0.0 0.4 0.3

Beef –0.9 –0.8 –0.8 0.0 –0.4

Wheat 0.1 0.3 0.4 1.0 0.5

Barley 0.1 0.3 0.4 2.1 0.6

Grain sorghum

0.1 0.2 0.9 4.3 0.7

Legumes 0.1 0.3 0.3 1.7 0.3

Oilseeds 0.1 0.1 0.1 0.6 0.2

Other crops 0.1 0.5 0.6 1.7 2.4


29


Appendix C: Citrus greeningCitrus greening or huanglongbing (HLB) is the most devastating biosecurity threat to citrus production worldwide. The vector transporting the disease is an insect called Asian citrus psyllid. No cure for this disease exists but it can be controlled. Citrus greening is present in Papua New Guinea and other Pacific countries. The disease is endemic in Brazil and the US state of Florida. It took just five years to spread across all citrus production areas in Florida after its detection in 2005 (Roka 2011).

Damage and mitigationCitrus greening reduces the productivity of mature trees and kills young trees before they become productive (Chung & Brlansky 2005). The profits from citrus orchards and commercial citrus production decline dramatically within a few years of citrus greening becoming established.

The spread of the bacterium through the orchard depends on the abundance of the vector. International literature on citrus greening control suggests two strategies: spraying against the vector combined with removal of the infected trees and nutrient supplementation, which is a relatively new practice. The standard approach involves controlling vector populations, early detection of infected trees by frequent (at least four times a year) inspection of individual trees and immediate removal of any infected trees (Yates et al. 2008).

Removal of infested trees is standard in controlling a bacterial disease. However, a citrus grower would compare the benefits of slowing the spread of the infestation across the orchard with forgone future revenue from the trees that were removed; these trees would have continued producing fruit albeit at a reduced rate. Future revenue from a tree depends on the age of the tree at detection and how close it is to age of replacement. Data from Brazil suggest that mature trees can continue to produce a sizable crop for at least three years after detection of citrus greening (Bassanezi & Bassanezi 2008). However, the disease prevents younger trees from becoming productive and reaching maturity.

The control strategy based on nutrient supplementation was developed by Maury Boyd, a citrus grower in Southwest Florida. The nutrient deficiency caused by citrus greening is treated with foliar sprays containing nutritional elements and supplements to activate the tree’s immune system. This followed Mr Boyd’s observation that the disease attacks the innermost layer of bark or phloem of the trees and that trees showed symptoms of deficiencies in macro and micronutrients. The strategy does not involve removal of trees. Since 2005 Mr Boyd has maintained production equal to or above average production levels despite the infection rate in his orchard increasing to 100 per cent (Roka 2011). Scientific research to validate this practice is ongoing, but many other citrus growers in Florida are reportedly adopting this practice (Roka 2011).

Analytical frameworkThe farm level-impacts without control are estimated in five steps:

1) estimate the proportion of trees infected on farm each year over a 20-year planning horizon

2) estimate the proportion of the tree canopy affected by the bacterium over time since first infection.

30


3) for each year in the planning horizon, estimate the overall orchard-level severity of the disease by mapping the incremental proportions (blocks) of trees infected in each of the past years with the corresponding cumulative growth in the proportion of the canopy affected

4) estimate citrus greening–affected yield level as a proportion of maximum yield of unaffected trees (relative yield)

5) estimate impact on gross margins.

Given that potential impacts of citrus greening depend on the age of trees, the study estimates impacts for four groups of trees based on their current age: zero- to two-year-old trees, three- to five-year-old trees, six- to 10-year-old trees and trees greater than 10 years old. For each age group, following Bassanezi and Bassanezi (2008), the proportion of trees infected in a given year is estimated using a Gompetz logistic growth equation:

PT t=e(−ln(PT 0)∗e

(−rt ))

where: PTt is the proportion of trees infected in year t, PT0 is the initial proportion of trees infected (when t=0) and r is the instantaneous growth rate of the proportion of trees affected.

The proportion of the canopy of the infected tree affected over time since the tree was infected is estimated using this logistic growth curve:

PCt=PC0/ [PC 0+ (1−PC0 )∗e−¿ ]where: PCt is the proportion of tree canopy affected in year t, PC0 is the initial proportion of the canopy affected (when t=0) and g is the instantaneous growth rate of the proportion of the canopy affected.

The total disease severity in year t, 0≤S t≤1, is then estimated as:

St=St−1+(PT t−PT t−1 )∗PC t and relative yield, 0≤RY t≤1, as RY t=e−k St

where: k is an empirically estimated coefficient.

Assumptions used in estimating damageAssumptions used to model orchard-level spread of the disease are taken from Bassanezi and Bassanezi (2008) and presented in Table C1.

Table C1 Biological parameters used in estimating spread, disease severity and relative yield of trees affected by citrus greening

Category Age of trees

Parameter 0–2 years 3–5 years 6–10 years > 10 years

PT0 0.003 0.003 0.003 0.003

r 1.300 0.650 0.325 0.244

PC0 0.20 0.10 0.05 0.03

g 3.68 1.84 0.92 0.69

k 1.8 1.8 1.8 1.8

PT0 is the initial proportion of trees infected. r is the instantaneous growth rate of the proportion of trees affected. PC0

is the initial proportion of the canopy affected. g is the instantaneous growth rate of the proportion of the canopy affected. k is an empirically estimated coefficient.

31


Source: Bassanezi and Bassanezi (2008)

Cost of establishment, variable costs and yield data are based on activity budgets prepared for newly established Washington navel orange trees by NSW DPI (2013). Citrus trees start producing fruit after two years, with yield a hectare increasing from 2 to 35 tonnes over the next eight years and then remaining constant. One hectare of Washington naval orange trees is assumed to have 300 trees and a price of $350 a tonne is assumed. For different age groups, the gross margins a hectare of unaffected trees over the next 20 years are presented in Figure C1.

Figure C1 Gross margin of Washington navel orange orchard unaffected by citrus greening

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

$ /h

a

Year

0-2 year

3-5 year

6-10 year

>10 year

With the standard control approach, in each year, the newly infected trees are immediately removed from the orchard. The removal of trees, combined with spraying against the vector, is assumed to halve the growth rate in the proportion of trees infected over time. Based on information available for Florida (Roka 2011), the standard approach is assumed to cost $750 a hectare a year.

With the nutrient supplementation approach, infected trees are kept in the orchard. The proportion of trees infected increases in the same way as in the uncontrolled spread scenario. However, despite growth in the stock of inoculums in the orchard, the productivity of trees is assumed to remain unaffected. Based on information available for Florida, an additional cost of $1 000 a hectare a year is assumed for nutrient supplementation (Roka 2011).

The impact of closure of the export market on the Australian domestic price of citrus products is estimated using a simple aggregate partial equilibrium model. In 2010–11 Australia exported one-quarter of its citrus production, and it is assumed that half these exports are destined for markets sensitive to citrus greening. Assuming a supply elasticity of 0.85 and a demand elasticity of –2, the loss of export sales is estimated to reduce the domestic price by 9 per cent. It is assumed that the price reduction is fully transmitted to the farm gate.

The probability of at least one event of citrus greening a year with Australia’s current biosecurity system in place is estimated using a Poisson distribution, assuming an expected

32


incursion frequency of 0.01 (incursions are considered to occur less frequently than once in 100 years). This frequency is assumed to increase to 0.2 without the biosecurity system.

ResultsCitrus trees start producing fruit from year 2 onwards. However, a hectare of zero- to two-year-old trees will take, on average, six more years to deliver positive gross margins and another four years to deliver maximum gross margins. A hectare of three- to five-year-old trees will take on average three more years to deliver positive gross margins and another four years until the gross margin reaches the maximum (Figure C1). A hectare of six to 10-year-old trees will take, on average, three more years to deliver maximum gross margin.

The differences in the cash flow patterns of unaffected trees belonging to different age groups show why orchards with younger trees are more vulnerable to citrus greening than those with mature trees. The reduction in productivity is much greater in orchards with younger trees than those with older trees:

citrus greening kills the zero- to two-year-old trees before they become productive and the cash flow of these orchards can never become positive

the cash flow of orchards with three- to five-year-old trees starts declining just two years after becoming positive

the cash flow of orchards with older trees declines after initially being positive (Figure C2).

Figure C2 Gross margin of Washington navel orange orchard affected by citrus greening

-6500

-4500

-2500

-500

1500

3500

5500

1 3 5 7 9 11 13 15 17 19$ /h

a

Year

0-2 year

3-5 year

6-10 year

>10 year

For each age group, Table C2 shows the annualised value of the present value of gross margins over a 20-year planning horizon for four scenarios: before a citrus greening incursion; after a citrus greening incursion with no private control; after a citrus greening incursion with the standard control approach; and after a citrus greening incursion with nutrient supplementation. This table also presents the annualised value of direct losses (control expenditures and production losses) and market access losses for all four scenarios.

The annualised gross margin for the before citrus greening scenario, calculated over the next 20 years, increases with the age of the trees. The annualised value of the losses per hectare of three- to five-year-old trees is higher than that for zero- to two-year-old trees. This is because before

33


citrus greening, three- to five-year-old trees achieve higher productivity levels much earlier than zero- to two-year-old trees (Figure C1).

For orchards with three- to five-year-old trees, nutrient supplementation is clearly the best control method. However, for orchards with older trees there is not much difference in the gross margins between the without control scenario and any of the control scenarios. For orchards with trees more than six years old, the annualised gross margin in the without control scenario is higher than the standard control approach but lower than the nutrient supplementation approach. In this analysis, the nutrient supplementation approach is estimated to be the best control method for orchards with trees older than six years. However, in calculating the farm gate value of biosecurity, the study uses the expected gross margins estimated for the standard approach, as the overall efficacy of the nutrient supplementation approach is still being investigated.

Table C2 Impact of citrus greening on farm financial performance and value of biosecurity, dollars a hectare

Performance measure

Age of trees

0–2 years 3–5 years 6–10 years > 10 years

Before citrus greening 1 303 2 748 4 300 4 509

After citrus greening and no private control


Direct damage 1 303 2 613 1 954 1 170

Subtotal 1 303 2 625 2 165 1 471

Gross margin 0 123 2 134 3 038

Standard control approach


Direct damage 1 303 3 103 2 281 1 245

Subtotal 1 303 3 103 2 463 1 539

Gross margin 0 –355 1 837 2 970

Nutrient supplementation


Direct damage 1 070 1 070 1 070 1 070

Subtotal 1 178 1 297 1 425 1 443

Gross margin 125 1 451 2 874 3 066

Risk analysis with control a

Expected gross margin with biosecurity 1 290 2 717 4 275 4 494


1 090 2 240 3 897 4 257


Risk analysis without control

Expected gross margin with biosecurity 1 290 2 722 4 278 4 494


1 090 2 318 3 945 4 268


a Uses gross margin estimated for the standard control approach.Source: ABARES estimates

34


35


Appendix D: Highly pathogenic avian influenzaHighly pathogenic avian influenza (HPAI) can have potentially devastating economic impacts. However, it is the potential risk of a mutated strain of the virus causing a human influenza pandemic which is of most concern. An outbreak of HPAI can cause significant economic impacts if the country is a large exporter of poultry products and a destination for overseas tourists. HPAI has not been detected in Australia. However, Australia has had outbreaks of avian influenza, a significantly less virulent strain than HPAI, that have all been successfully eradicated.

Damage and mitigationThe disease has a flock mortality rate exceeding 50 per cent. The highly infectious nature of HPAI virus requires severe control measures that involve immediate destocking, including healthy birds, and decontamination before restocking. Direct impacts on chicken and egg farms include lost production and costs of decontamination and disinfestation. Impacts of HPAI, which are often amplified because of the risk of causing a human influenza pandemic, could also include decreased demand from both domestic and export markets. The 2004 HPAI outbreak in Cambodia resulted in a 63 per cent decline in chicken meat price during the first two months before increasing to 30 per cent above the pre-outbreak level. Egg prices declined by 40 per cent during the same period before rising to the pre-outbreak level.

Vaccination of birds is carried out in some countries, including China, as a preventative measure.

The analytical frameworkThe analysis in this study was conducted using representative farm models. Temporary destocking of poultry followed by restocking is introduced to simulate the expected reduction in production and revenue after the initial outbreak of HPAI and the additional costs involved in returning the farm to normal operations. There is a possibility of the highly infectious disease spreading to some of the breeding farms despite a higher level of hygiene practiced in these premises. The impact on production farms of disease spreading to breeding farms is considered by allowing for a longer period before restocking, thereby allowing for expected delays in securing day-old chicks.

As seen in Cambodia in 2004, the price is assumed to decrease by 63 per cent as the outbreak sets in and remain at that level for two months before increasing to 30 per cent above the pre-outbreak level. The price is assumed to remain at the higher level for the next five months until adequate new supplies come to the market two months after restocking. The effect of these changes in monthly prices on the annual average price was found to be negligible. Therefore, the annual average price is left unchanged in this analysis.

36


AssumptionsThe information used in the chicken meat farm model was provided by the Australian Chicken Growers Council, while the layer farm model presented in Hafi, Reynolds and Oliver (1994) is used after increasing unit prices and costs to reflect inflation between 1993 and 2013.

A model chicken meat farm grows day-old chicks over eight weeks to a marketable weight, and a model layer farm grows pullets as layers over 88 weeks and supplies eggs to the market. On average, a chicken meat farm with a floor area of 5 500 m2 grows 5.4 batches of day-old chicks (83 000 birds a batch) and a layer farm grows three batches of pullets (10 000 birds a batch) a year. More details of the broiler and layer farms are given in Table D1.

Table D1 Model broiler and layer farms unaffected by highly pathogenic avian influenza

Broiler Layer

Grows a total of 450 000 birds in 5.4 batches of day-old chicks per year with bird mortality rate of 5.85 per cent.

Grows a total of 30 000 birds in three batches a year with monthly mortality rate of 0.64 per cent.

Eight weeks growing duration. Pullets of 18 weeks of age are housed and replaced when they are 106 weeks old.

Grower receives a fee per bird picked for processing. Annual egg production rate of 246 eggs a hen.


The model parameters are changed to incorporate an expected reduction in production after the initial outbreak of HPAI and costs involved in returning the farm to normal operations (Table D2). As explained in the previous paragraph, the annual average price is left unchanged in this analysis.

Table D2 Assumed changes to the broiler and layer farms caused by highly pathogenic avian influenza incursion

Broiler Layer

Flock is destroyed in May and the farm remains destocked for five months until September.

Flock is destroyed in May.

Farm is ready for restocking in August. However, restocking is delayed until September because part of the breeder stock was also affected by HPAI.

Farm is ready for restocking in September. However, it restocking is delayed until October because part of the breeder stock was also affected by HPAI.

Operations resume with a new batch of placements in September.

The first of three new batches of pullets are placed in October.


The probability of at least one event of HPAI per year, with Australia’s current biosecurity system in place, is estimated using a Poisson distribution, while assuming an expected incursion frequency of 0.01 (incursions are considered to occur less frequently than once in 100 years). This frequency is assumed to increase to 0.2 in estimating the corresponding probability without the current biosecurity system.

ResultsDuring an outbreak of HPAI, forgone revenue from contract fees and sales of eggs is estimated to be the major source of reduced farm cash income in a chicken meat and egg farm, respectively. Even though destocking eliminates some cash costs during the first five months after the outbreak, cash costs such as interest payments and overheads still account for nearly half the

37


total cash cost of the farm. The farm cash income of a chicken meat and egg farm with the disease is expected to decrease by 19 per cent and 14 per cent, respectively (Table D3).

Table D3 Impact of highly pathogenic avian influenza on farm financial performance and value of biosecurity, dollars a farm a year

Performance measure Chicken meat Eggs

Without highly pathogenic avian influenza 136 289 308 369

With highly pathogenic avian influenza

Market access losses 0 0

Direct damage 25 287 43 316

Subtotal 25 287 43 316

Gross margin 111 002 265 053

Risk analysis

Expected gross margin with biosecurity 136 038 307 940

Expected gross margin without biosecurity 132 148 301 276



38


Appendix E: Karnal buntKarnal bunt has a limited distribution in Asia and North America. It usually occurs in the northern part of India and has also been detected in Pakistan (Punjab and the North West Frontier Province), Afghanistan, Iraq, Iran and Nepal. Karnal bunt was first detected in the United States in early 1996 in a seed sample in Arizona and was subsequently detected in California, New Mexico and Texas, where it remains but is confined to a restricted area. Karnal bunt spread to northwest Mexico in 1970.

In Australia, the climate of the southern wheat belt (Western Australia to central New South Wales) is conducive for the development of Karnal bunt.

Damage and mitigationKarnal bunt can severely degrade the quality of grain, thereby reducing the marketability of wheat. Wheat containing more than 3 per cent bunted seeds is considered unfit for human consumption and is expected to be downgraded to feed wheat. All infected wheat could be downgraded, not just the stocks that are heavily infested. On average, a third of wheat produced in Mexico is downgraded. The yield losses from the fungal infection of the wheat plant generally average less than 1 per cent in infested areas of India, Pakistan and Mexico.

The analytical frameworkThe farm-level impacts are estimated in two steps.

1) Estimate the reduction in gross margins for a range of wheat and triticale production systems using activity budgets prepared by the NSW DPI (2013).

2) Estimate the reduction in whole-farm gross margins for different broadacre farming systems by incorporating the reduction in activity gross margins.

AssumptionsWittwer, McKirdy and Wilson (2005) estimated the potential yield loss for Australia at 0.1 per cent and total control costs to be $9 million. The proportion of exports to Karnal bunt–sensitive markets are assumed to be 45 per cent and the assumed fungicide cost of $7.12 per hectare is derived from Wittwer, McKirdy and Wilson (2005). The impact of export market closure on the domestic price of wheat is estimated using a simple aggregate partial equilibrium model assuming a supply elasticity of 0.85 and a demand elasticity of –1.75. This demand shock is estimated to reduce the average price for wheat on the domestic market by 12 per cent.

The probability of at least one event of Karnal bunt occurring with Australia’s current biosecurity system in place is estimated using a Poisson distribution, assuming an expected incursion frequency of 0.01 (incursions are considered to occur less frequently than once in 100 years). Karnal bunt could enter Australia through imported fertiliser, bulk grain, straw products, agricultural machinery, or passengers travelling from Karnal bunt–endemic countries. The probability of at least one Karnal bunt event occurring from all pathways, without Australia’s current biosecurity system in place, is assumed to be 30 per cent, consistent with an annual expected incursion frequency of 1 in 2 (an event is expected to occur once every two years).

ResultsDepending on the production system, the gross margin for wheat is estimated to decrease by 18 per cent to 30 per cent (Table E1). Given a very small yield decrease and outlay on additional fungicide use, 91 per cent to 95 per cent of the reduction in gross margin will arise from the

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reduction in price resulting from the loss of export markets. Gross margin for triticale is expected to decrease by between 23 per cent and 28 per cent. About 84 per cent of this decrease is because of the reduction in prices. The value of biosecurity for different wheat production systems is estimated to range from $23 to $50 per hectare.

As expected, the larger the wheat area in a broadacre farm, the larger the reduction in whole-farm gross margins (Table E2). The value of a biosecurity system that reduces the likelihood of Karnal bunt entering and establishing in Australia is around 3 per cent of the average value of land on a farm that concentrates on cropping activities (Table E2). With the presence of Karnal bunt, farmers are likely to allocate less land for wheat and more for other activities including beef and sheep (Table E3).

Table E1 Impact of Karnal bunt on farm financial performance and value of biosecurity, dollars per hectare

Performance measureLong fallow

wheatShort fallow

wheatTriticale short

fallow wheat

South-east New South Wales

Before a Karnal bunt incursion 451 257 151

After a Karnal bunt incursion

Market access loss 96 72 36

Direct damage 7 7 7

Subtotal 103 79 43

Gross margin 348 178 108

Risk analysis

Expected gross margin with biosecurity 450 256 151

Expected gross margin without biosecurity 419 233 138

Value of biosecurity 30 23 13

Central east New South Wales

Before a Karnal bunt incursion 925 419 208

After a Karnal bunt incursion

Market access loss 165 102 41

Direct damage 7 7 7

Subtotal 172 109 48

Gross margin 753 310 160

Risk analysis

Expected gross margin with biosecurity 923 418 208

Expected gross margin without biosecurity 873 386 193

Value of biosecurity 50 32 14


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Table E2 Value of biosecurity in preventing Karnal bunt at whole-farm level

Farm type Value of biosecurity Value of biosecurity as percentage of FCOS a

$/farm %

Mainly crops 7 640 3.2

Crops and livestock 2 779 1.9

Mainly sheep 388 0.4

Mainly beef 47 0.0

Sheep and beef 108 0.1


Table E3 Percentage change in land use at the farm level because of a Karnal bunt incursion

ActivityMainly crops Crops and

livestockMainly sheep Mainly beef Sheep and

beef

Sheep 0.4 0.2 0.1 0.0 0.0

Beef 0.7 0.4 0.1 0.0 0.0

Wheat –0.4 –0.8 –1.2 –1.5 –1.1

Barley 0.4 0.2 0.1 0.0 0.0

Grain sorghum

0.3 0.2 0.2 0.0 0.0

Legumes 0.4 0.3 0.1 0.0 0.0

Oilseeds 0.3 0.1 0.0 0.0 0.0

Other crops 0.3 0.4 0.1 0.0 0.0


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Appendix F: Red imported fire antsIntroductionRed imported fire ant (RIFA) colonies were discovered in Brisbane in early 2001. The National Red Imported Fire Ant Eradication Program was established soon after with cost sharing from Commonwealth, state and territory governments. While the ants have been contained within South East Queensland, they have not been eradicated yet. More recently, RIFA colonies have been discovered in Yarwun, Queensland and near Botany Bay, New South Wales and eradication campaigns are underway. If these eradication campaigns fail, it is likely that fire ants will spread from infested urban areas to rural areas, threatening a range of agricultural activities.

Damage and mitigationPotential costs include yield losses, the cost of treatment, the cost of repairing and replacement of damaged equipment, the cost of veterinary services, and yield losses arising from impeded harvesting (both mechanical and manual).

The losses can be mitigated if RIFA is treated cost-effectively. According to Biosecurity Queensland, costs of liquid chemicals, bait toxicants and bait chemicals used for treatment of fire ants are estimated to be $90 a hectare (Hafi et al. 2014). This estimate represents the cost of removing all fire ant nests from the paddock so that the losses can be completely averted. However, rather than a full eradication, farmers are expected to undertake treatment at a lower intensity while incurring some losses. This is because there is a trade-off between losses and treatment expenditures (losses at the margin decline at a diminishing rate as more treatment inputs are used).

The analytical frameworkThe farm-level impacts are estimated in two steps.

1) Estimate the cost-minimising levels of treatment expenditure and losses following the loss–expenditure (L–E) frontier approach of McInerney, Howe and Schepers (1992) for a range of agricultural activities included in different farming systems. For each activity, the reduction in activity gross margins equals the sum of cost-minimising losses and treatment expenditure.

2) Estimate the reduction in whole-farm gross margin for different broadacre farming systems by incorporating the reduction in activity gross margins.

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Figure F1 The loss–expenditure frontier in controlling red imported fire ants

Iso-cost line

L-E frontier

Losses ($/ha)

Expenditure ($/ha)

L*

E*

Source: McInerney, Howe and Schepers (1992)

With limited data available, the L–E frontier, or the schedule of the lowest losses attainable at different levels of treatment expenditure (Figure F1), is approximated using an inverse power function of the form ¿k /E p, where L denotes losses ($/hectare), E expenditure ($/hectare), k the proportionality constant ($/hectare), and p the power term on expenditure. This convex function incorporates diminishing marginal returns to treatment effort and specifies losses to be inversely proportional to treatment expenditure. For each activity, the estimate of the maximum losses available in Hafi et al. (2014) is paired with the full eradication cost of $90 a hectare and the parameters k and p are estimated using information on the asymptotic properties of the above function: as the expenditure goes to zero, losses reach their maximum and as the expenditure approaches the maximum, the losses go to zero. The cost-minimising levels of losses (L*) and expenditure (E*) are then estimated at the point where the slope (derivative) of the estimated function equals minus 1. This point represents the point at which the L–E frontier is tangent to the iso-cost line (Figure F1).

AssumptionsDespite fire ants being present in South East Queensland for more than a decade, no information is available on damage costs because under the ongoing eradication programme, detected nests are destroyed immediately. In a recent benefit–cost analysis on the National Red Imported Fire Ant Eradication Program, ABARES used the data on these costs as reported in various US studies conducted in 1999 (Hafi et al. 2014). Damage to cattle was estimated at $109 a head, sheep at $2.1 a head, pigs at $3.5 a head, poultry at $0.35 a bird, field crops at $57 a hectare and citrus at $251 a hectare.

The probability of at least one infestation of fire ants per year with Australia’s current biosecurity system in place is estimated using a Poisson distribution, assuming an expected incursion frequency of 0. 1 (incursions are considered to occur once in 10 years). The expected incursion frequency is assumed to increase to 1 in estimating the corresponding probability without the biosecurity system. The expected incursion frequencies are compared with FMD, citrus greening and HPAI, because RIFA is already in South East Queensland.

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ResultsThe cost-minimising losses and treatment expenditure are estimated for beef cattle, dairy cattle, sheep, field crops and citrus using the inverse power functions estimated to represent the respective L–E frontiers. Table F1 presents these estimates and the estimates of the parameters of the power functions. With intensive poultry and pig production systems each occupying about one hectare of land, it is assumed that farmers will fully eradicate fire ants because the losses avoided far exceed the cost of treatment estimated at $90 a hectare. For example, at $0.35 a bird, fire ants could cost a chicken farm carrying around 420 000 birds approximately $100 000 and an egg farm carrying 28 250 birds approximately $10 000. Similarly, at $3.50 a head, fire ants could cost a pig farm carrying between 1800 and 2600 animals (sows and piglets) approximately $6 000 to $9 000.

Table F1 Cost-minimising levels of losses and treatment expenditure in controlling red imported fire ants

Activity

Estimated parameters of the inverse power function

Cost-minimising level of

k p Losses (L*) Expenditure (E*)

Losses and expenditure

(L*+E*)

$/ha $/ha $/ha $/ha

Beef cattle 65 –0.9 8 9 17

Dairy cattle 181 –1.2 19 32 50

Sheep 15 –0.6 4 7 10

Annual crops 57 –0.9 8 9 17

Citrus 251 –1.2 13 11 24


Fire ants can cause significant losses to agricultural activities (Table F2 and Table F3). The treatment expenditure and the residual losses in revenue are expected to reduce gross margins by around 10 per cent in mainly crops, crops and livestock and mainly sheep farms; by 40 per cent in mainly beef farms; and by 20 per cent in sheep and beef farms.

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Table F2 Impact of red imported fire ants on farm financial performance and value of biosecurity—broadacre farms at whole-farm level ($)

Performance measureMainly

cropsCrops and

livestockMainly sheep

Mainly beef

Sheep and beef

Before red imported fire ants 223 867 115 778 82 307 63 403 110 738

After red imported fire ants


Direct damage 26 632 16 094 7 502 26 923 17 386

Subtotal 26 632 16 094 7 502 26 923 17 386

Gross margin 197 235 99 684 74 805 36 480 93 352

Risk analysis


221 457 114 322 81 628 60 967 109 165


214 069 109 858 79 547 53 499 104 342

Value of biosecurity 7 388 4 464 2 081 7 468 4 823Source: ABARES estimates

Table F3 Impact of red imported fire ants on farm financial performance and value of biosecurity—single activity farms ($)

Performance measure

Dairy Bacon (average

)

Bacon (good)

Chicken meat

Eggs Citrusa

No. of units (animals or ha) 425 2 000 2 400 423 633 28 250 12.5

Before red imported fire ants 341 131

13 755 38 463 127 373 288 195 52 675

After red imported fire ants

Market access losses 0 0 0 0 0 0

Direct damage 12 903 90 90 90 90 300

Subtotal 12 903 90 90 90 90 300

Gross margin 328 228 13 665 38 373 127 283 288 105 52 375

Risk analysis


339 964 13 747 38 455 127 365 288 187 52 650


336 385 13 722 38 430 127 340 288 162 52 563

Value of biosecurity 3 579 25 25 25 25 87a It is assumed that the average farm has 12.5 hectares of citrus production derived from farm production and yield data. Source: ABARES estimates

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Appendix G: Limitations of this analysisThis analysis takes a case study approach that uses available understanding of the entry, establishment and spread of pests, diseases and weeds to measure the value of biosecurity at the farm gate. There is significant scope for further refinement of both the approach and underlying data; this section indentifies seven areas of improvement.

Estimating the total value of Australia’s biosecurity systemIt has been suggested that the farm gate value of biosecurity estimated in this study could be used to estimate the total value of biosecurity. Despite being estimated from the bottom up, there are at least two key issues associated with the reliability of such an estimate as a measure of the total value of biosecurity:

the aggregation bias in such estimates can be significant as the heterogeneity between broadacre farms may not be adequately represented by grouping them into five farming systems

crop damage caused by the pest and additional expenditure on mitigation actions by producers could change market prices.

The total value of biosecurity should be estimated using a market equilibrium analysis. Partial equilibrium models estimate the prices and quantities corresponding to the new market equilibrium with an incursion. These estimates can then be used to measure the aggregate value of biosecurity in the form of changes in consumer and producer economic surpluses. The change in total economic surplus (or welfare) measures the value of biosecurity to the whole community in a manner that captures basic notions of wellbeing (Sinden et al. 2004). This approach also addresses the need to consider the benefit to consumers of cheaper imports without biosecurity arrangements in place.

The activity-level partial budgeting models developed in this study can be used to estimate supply shift parameters for the partial equilibrium models, thereby linking the farm and aggregate level models.

Incorporating uncertaintyIn this analysis, the value of biosecurity is determined by estimating the impact of pest, disease and weed incursions on average farm gross margins. However, farm financial performance is stochastic, as a result of variable seasonal and market conditions. For this reason, it is preferable to estimate the impact of a pest, disease or weed incursion for the entire probability distribution of farm gross margins. For example, the benefits of biosecurity activities that reduce occurrences of low probability pest incursions could be better measured by the impact on the variance and skewness of the distribution of gross margins, as well as the impact on mean (or average) gross margins. Estimates of the impact of a pest, disease or weed incursion on the entire probability distribution of farm gross margins may also provide insights into the behaviour of risk-averse farmers. This is because farmers generally prefer a positively skewed income distribution (more high income chance events), and because biosecurity activities help reduce the negative skewness of income distributions (the frequency of low income events) (Hinchy & Fisher 1990).

Accounting for multi-pest incursionsFor simplicity, the analysis considered the simultaneous impacts of FMD, Karnal bunt and Mexican feather grass only, as these pests have different hosts. Even though FMD and Mexican feather grass both affect livestock production activities, it is only FMD that directly harms the animals. When interactions between multiple pests are present, the combined impact of all pests

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can be greater or less than the sum of impacts of individual pests (Johnson 1990). Multiple pests preying on a single host could result in three outcomes of yield impacts: additive (no interaction), greater than additive (a synergistic interaction) and less than additive (an antagonistic interaction) (Lamp et al. 1985). Information on such interactions would improve future revisions and enhance any estimate of the total value of Australia’s biosecurity system.

Improving and testing parameter estimatesThe values assumed for most parameters are subjective values and tests need to be done to measure the sensitivity of the estimated impacts to alternative values. The key parameters for sensitivity tests include expected number of pest events both with biosecurity and without biosecurity, biological impact parameters, such as percentage yield losses, and economic impact parameters such as cost of mitigation and the loss of price premiums.

The biosecurity threats considered are all exotic pests. Therefore it is important that parameter values selected based on overseas experiences are updated to increase the level of confidence attached to the final estimates.

In the absence of survey data on the use of different inputs by agricultural activity, enterprise budgets prepared as guidelines for farmers are used in partial budgeting exercises. If possible, future revisions should consider collecting data necessary to construct partial budgets from farm surveys.

Accommodating risk aversionFor simplicity, farmers are assumed to be risk neutral and the value of biosecurity is estimated as the insurance or actuarially fair value of the protection provided. However, a risk-averse farmer would be prepared to pay more than the actuarially fair (expected payout) value for biosecurity. Given most farmers appear to be risk averse, the value of biosecurity could have been underestimated in this study. The certainty equivalent approach can be used to estimate the value of biosecurity under risk aversion.

Redefining ‘without biosecurity effort’As part of employing a consistent methodology across a wide range of pests, it was assumed that ‘without biosecurity’ refers to a state in which biosecurity activities are carried out by private landholder activities only. However, this assumption may not be realistic for diseases (such as FMD) with devastating economic consequences. A more realistic assumption for FMD could be that some biosecurity activities are also provided by industry, but to a limited extent and without the high degree of coordination of those provided by governments. It would be useful to explore such services and incorporate their effects on further mitigating the impacts on farm.

Considering multiple control measuresProvided data are available, it is preferable to consider a range of control measures and their mitigation impacts, rather than one or two, and then choose the control measure that minimises the sum of the mitigation expenditure and remaining on-farm losses. For example, for FMD, an alternative to vaccination could be the destruction of animals or destocking, treatment of animals, better hygiene and decontamination of premises.

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ReferencesAkter, S, Kompas, T & Ward, MB 2011, Public perceptions and willingness to pay for environmental biosecurity measures in Queensland, New South Wales and Victoria, the Australian Centre for Biosecurity and Environmental Economics, Australian National University, Canberra, June.

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of Texas: a part of the Texas fire ant initiative 1997–1999’, Fire ant economic research report no. 99–108, Department of Agricultural Economics, Texas A&M University, College Station, Texas.

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Documents

Introduction - Australian Natural Resources Data Librarydata.daff.gov.au/.../FarmGateValueBiosecServices_v1.0.0.docx · Web viewSoon after RIFA colonies were discovered in Brisbane