July 25, 2022
Serious flaws in Australia's approach to compensation for FMD-related stock losses, says analyst
Major flaws exist in the AusVetPlan's approach to compensation for stock losses associated with any outbreak of foot and mouth disease in Australia, independent analyst Simon Quilty told an industry gathering on the Gold Coast in mid-July.
Speaking during the Rural Marketing Agents (RMA Network) annual conference, Quilty painted an alarming picture about the financial impact on livestock producers of an FMD incursion from Indonesia. He exposed what he sees as serious flaws in the size of the available compensation package for stock liquidated in the disease response and the methodology used to compensate producers for lost stock.
The current AusVetPlan document sets out circumstances that would unfold in the event of an FMD outbreak. All animals would be slaughtered on premises where an infection had been detected and any animals in ‘suspected' herds would be observed closely for 14 days.
There were effectively three parts to the Australian government's compensation process, Quilty said.
The first was animals lost immediately in the eradication process. The second was response costs including decontamination (i.e. a shed where infected animals had been found, being burned down). The third was compensation for those producers who had been forced to destock, who then had to go into the market re-stock.
Effectively, the government would pay the difference if the cost of the new stock was higher than at the time of destocking.
Compensation is determined by the states and territories, but under the Australian Emergency Animal Disease Response Agreement, the state and federal governments would share 80% of response costs, with the industry paying the remaining 20%.
Quilty firstly set out a series of major concerns about how the compensation process would unfold.
In a herd or flock where the disease was found, under the agreement, the value of animals would be determined by the prices at the two most recent sales that had taken place at the closest saleyards to the affected property.
"But under an FMD crisis, the impact is a rolling problem. In a week's time, the livestock sales continue, but the market is shut off and prices plummet," Quilty explained. "In a herd that contracts FMD a week later, their compensation is determined by the local saleyards prices that week.
"If in three weeks' time the market has crashed 50%, the same happens again – it's a rolling compensation. Effectively, producers are going to wear the cost of market closures, so you do not want to be the last to contract FMD in your herd – you'd better be the first, because only the first will get pre-FMD prices for compensation. At the other end, the last guy whose suffers a herd infection gets the worst prices ever."
Quilty added: "It's wrong. It should not be that way, and represents policy poorly written. In my opinion, compensation should be based on a set time period prior to any FMD outbreak – not some ‘rolling average' of prices once the disease strikes.
Quilty urged RMA members in attendance to take the messages home to their local politicians, and seek to "get it set right".
"It's a major flaw in the AusVetPlan. And who's going to suffer? Livestock producers and others along the red meat supply chain," he remarked.
- Beef Central