Culling Compensation and Beyond

Moving from Bird Flu Compensation to Institutionalized and Sustainable Funding

of Epizootics Prevention and Control

G. Schreiber, ECSSD, World Bank8 May 2008

Key Issues (1)• HPAI Projects currently envisage only compensation

for poultry culled due to HPAI outbreaks

• Undisbursed HPAI project funds for compensation are likely to be be canceled at project closing

• Funding at present is exclusively from government budgets and external donors/projects

• What institutional and funding arrangements will be in place after project closing?

Key Issues (2)• Culling and compensation are equally important for

various other animal diseases, and not only for poultry

• Culling and compensation is only one element in an effective animal disease prevention and control strategy

• Culling and compensation is more costly than effective prevention

• Backyard poultry represents potentially much genetic value – which culling may eliminate

Objectives

• Institutionalizing a sustainable financing facility for epizootics prevention and control, including for culling compensation

• Preparing for an expansion of coverage to other diseases and animals

• Involving animal owners in a public-private partnership in its funding and administration

Four Key QuestionsShould the facility finance only compensation for culled

animals (and possibly for animals demonstrably killed by specified epizootic diseases) – or should it also finance preventive and control activities?

Should the funding be provided exclusively from the Government budget – or should it also come from mandatory contributions from animal owners?

Should the facility by managed by the Ministry of Agriculture – or should it be operated by a special institution established for this purpose?

Should this facility cover only HPAI and poultry – or should it also cover other zoonoses and other animals?

Proven Arrangement

• Autonomous Animal Disease Control Caisse (or Epizootics Control Fund) :– Legally and operationally autonomous body of

public law– Managed in private-public partnership, with

definitive involvement of animal owners in decision-making

– Mandatory membership of all owners of specified domestic animals

– Compulsory cost-sharing by animal owners– Governmental contribution during start-up phase

and in the event of inadequate financial reserves

Second-Best Alternative

• Government-run Epizootics Control Fund:– Administered by a governmental agency– Funded partially by budgetary allocations and partly

by compulsory fees from animal owners– Funds are kept outside Government budget– Mandatory coverage

• Main drawback:– No involvement of livestock owners in decision-

making – on fees, on compensation levels

Other Approaches?

• Compensation provided through ad-hoc allocation of government budget funds or from earmarked emergency funds

• Main drawbacks:– Arrangements usually not in place in advance to

respond rapidly– Risk of large unforeseen claims on budget

resources– Risk of lengthy delays in appropriation and

disbursement– Risk of not compensating at all or only a limited

number of animal owners

Private Sector Solutions?• Commercial Insurance:

– Rarely attracts any but the large commercial producers– Unattractive to insurers due to high risk and unpredictability of

large-scale outbreaks

• Mutual Insurance:– High unpredictability of timing and scope of outbreaks– High premium cost to subscribers

• Key weakness:– No element of compulsion to ensure compliance with essential

public-good requirements of registration, reporting and culling– Could be addressed through legal requirement to obtain

insurance, but very difficult to enforce

Legal Basis (1)• Veterinary Law must establish basic parameters

regarding epizootics control measures, including the right to compensation

• Legal basis for establishment and operation of an autonomous Epizootics Control Caisse or Fund can be provided within the Veterinary Law or through a specific legal instrument– types of animals– types of diseases– types and range of financial support for different epizootic

prevention and control measures (e.g., diagnostic testing, culling compensation, vaccination, carcass disposal, stall disinfection, etc.)

Legal Basis (2)

• Administrative and operational details are addressed in the Charter/Statutes and an Operational Manual

(A sample decree/law to establish a Caisse and a sample Charter are available on request)

Governance Structure (1)• Supervisory Board

a majority of livestock owners plus representatives of the public and private veterinary services and other relevant public institutions

• Key responsibilities:– approval/amendment of Charter – approval of annual budget and business plan– determination of fees and compensation levels

(within parameters established by law)– oversight over investment of capital reserves

Governance Structure (2)

• Management Staff, a small unit to manage: – registry of animal owners and animals– database of fees due/fees paid, payments

authorized/made– financial investments of accumulated funds– claims and payments – preparation of budget and business plan,

periodic operational and financial reports, etc.

Governance Structure (3)

• Oversight Ministry – typically Ministry of Agriculture– approval of Charter/Statutes and any

amendments– appointment of public sector representatives

on Supervisory Board– ensures that Agency operates in accordance

to laws and charter– right to require changes in operational

decisions if essential for effective control of epizootics and/or safeguarding public health

Membership & Registry• Mandatory for all owners of animals specified by law

• Including smallholders and backyard poultry owners – they must be registered even if no fee payment is required from some of them

• Registration once per year, with number and type of animals

• Commercial poultry operators register average monthly number of birds

• Smallholders & backyard owners register only as units

• Local administrations can facilitate registration

Proceed Gradually• Begin with simple structure and arrangements

for poultry and HPAI (Board mandate for HPAI operations currently extends only to HPAI)

• Keep initial schedule of fees and compensation rates simple

• Introduce refinements once system is well established, experience has been acquired, and poultry owners have gained confidence

• Expand to additional animals and epizootics later, focusing on country-specific priorities

Fees• Fees are set annually by type of animal and may be

adjusted to maintain reserves and/or to avoid accumulating excess funds

• Fees should be established in close consultation with animal owner representatives to ensure acceptability (for poultry about 0.5% of market value would be appropriate)

• Fees for smallholders may be a fixed annual minimum or may be waived entirely, to minimize administrative cost and burden

• Fees collected are used only to fund eligible activities for the same type of animal; no cross-financing from cattle to poultry, etc.

Purposes of Compensation

• Encourage early reporting of disease outbreaks and compliance with reporting and culling requirements

• Reimbursement for legitimate private property destroyed by the State for the public good

• Cannot replace separate measures for equity, asset transfers to poor

Indicators of Success• Disease control is improved

• Those entitled are compensated adequately and rapidly

• Disease spread is reduced

• Measures and requirements are known and understood by all

• Full compliance with reporting and culling

• Livelihoods distress is reduced

Indicators of Lack of Success

• Low compliance with reporting and culling

• Disease spreads out of control

• Some entitled owners are not paid

• Compensation arrangements add to inequality

• Procedures, rights and requirements are poorly understood

• Inconsistency in application across zones and/or farm types and sizes

Effective Schemes

• Compensate the appropriate beneficiaries an appropriate amount

• Shortest possible intervals between reporting, culling and payment

• Effective communication and high public awareness

• Adequate financial, institutional and human resources

Preparedness is Key• Much harder to set up after disease outbreaks

• Legislation, Contingency Plans, Operating Guidelines must be in place and clear to all

• Culling and compensation must be part of a broader disease control strategy

• Prior agreement among stakeholders on whom, when, how and how much to compensate

• Full transparency

• Resources for implementation that are immediately available for response

• Effective communication and training are essential

Beneficiaries

• Owners of culled animals are compensated

• Other losers from the disease outbreak are typically not compensated

• Complications:– Contract farmers are not compensated for labor or

other inputs to flock culled– Ensuring actual decision-makers/poultry owners

are involved (i.e., farm women)– Lack of information on smallholder flocks

Losses to Compensate

• Only direct losses are compensated, in whole or in part:– Animals destroyed– Animals demonstrably killed by the epizootic

in question may also be eligible

• Some follow-up control and prevention measures are covered to prevent recurrence:– Stall disinfection– Carcass disposal– Infected materials disposal (e.g., bedding,

dung, waste, feed)

Losses Not Compensated

• Consequential losses on farm are typically not compensated: downtime, impact of movement controls, price declines — very difficult to estimate and to implement, and very costly

• Indirect losses off farm are never compensated, since they are not relevant for compliance

• If ownership records differ from culling records, compensation is paid for the lower of the two numbers

Culling• Culling should be limited to the immediate outbreak

area and its surroundings

• Owners, community representatives and veterinary officials must be present

• Record keeping must be on-the-spot, accurate and public

• Compensation must be directly and visibly linked to culling

• Prevent influx of healthy birds for culling from outside and selling off of diseased birds: important to control movement

Compensation Rates• Should be set for all relevant animal categories in

advance, as simple as possible: e.g. broiler, layer, chick, duck, native chicken

• High-value special cases (e.g., breeding bulls and rams, race and show horses) are an issue; best dealt with through additional private insurance

• Compensation rates should be between 75% and 100% of farmgate value (established once per year, or linked to representative market price 2-3 months before outbreak)

• For very young animals (especially poultry in commercial hatcheries) a “replacement” value could be used, e.g. one-day chicks

Record Keeping and Transparency

• Accurate record keeping (animal ownership, culling, payment claims, payments made) is crucial to avoid abuse and to maintain public trust

• Owners or their designated representatives must be present at culling and sign records

• Multiple copies of farm- and village-level culling records and separate submission channels to allow verification and prevent falsification

• Community involvement in supervising culling and compensation

Organizing Payment• Pre-existing data base of eligible livestock owners is

key to rapid response and proper governance

• Everyone affected by a culling order must be compensated; selective compensation promotes non-compliance

• Large scale commercial operators have bank accounts that simplify administration of payments

• Payment in cash of smallholders as soon as possible after culling (or even at the time of culling)

Governance• Major concern for most governments and their

partners, can delay response

• Transparency - community participation

• Problem is worst where advance preparation is least

• Where outbreaks occur in an unprepared institutional environment, ex post audits substitute for ex ante institutions and procedures, but not fully

Capital Requirements:An Example (1)

• Facility should be able and prepared to compensate for the culling of up to 5% of the national poultry flock

• In Moldova, this would amount to roughly 650,000 birds

• Compensation at 75% of farmgate value would require about US$3 million

• Funding a facility of this size will take some time, even with a substantial initial capitalization provided by the Government and with Project funds provided for this purpose, because annual fees for poultry owners must not be set at prohibitively high levels

Capital Requirements:An Example (2)

Indicative Financing Scenario for an ADCC in Moldova (poultry only) (in US$)

2008 2009 2010 2011 2012 Capital resources 510,000 1,980,000 2,370,000 2,760,000 3,000,000 IDA paid in 120,000 1,200,000 1,200,000 1,200,000 1,200,000 GOM contribution paid in 150,000 300,000 450,000 600,000 600,000 Animal Owners (paid in) 240,000 480,000 720,000 960,000 1,200,000 Recurrent revenue (interest income) 0 99,000 118,500 138,000 150,000 Operating costss 111,680 86,680 86,680 86,680 86,680 Implied recurrent net surplus -111,680 12,320 31,820 51,320 63,320 Actual size of ADCC 398,320 1,992,320 2,401,820 2,811,320 3,063,320 Target Size of ADCC 3,000,000 Note 1: Farmer contributions can be lowered as interest income accrues, no payment obligations arise, and capital is built up.

Note 2: Potential IDA Project funding is SDR 750,000 (=US$1.2 million as of end-March 2008)

Capital Requirements:An Example (3)

Indicative Financing Scenario with Assumed Annual Payments to Poultry Owners (in US$)

2008 2009 2010 2011 2011 2013 2014 2015 Capitalization

IDA paid in 120,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 GOM contribution paid in 150,000 300,000 450,000 600,000 600,000 600,000 600,000 600,000 Animal Owners (paid in) 240,000 480,000 720,000 960,000 1,200,000 1,440,000 1,680,000 1,920,000 Operating costs 111,680 86,680 86,680 86,680 86,680 86,680 86,680 86,680 Assumed payment obligations 0 750,000 750,000 750,000 750,000 750,000 750,000 750,000

Capital resources after expenditures 398,320 1,143,320 1,533,320 1,923,320 2,163,320 2,403,320 2,643,320 2,883,320

Recurrent revenue (interest income) 0 19,916 57,166 76,666 96,166 108,166 120,166 132,166

Implied recurrent net surplus -111,680 -66,764 -29,514 -10,014 9,486 21,486 33,486 45,486 Actual size of ADCC 286,640 1,163,236 1,590,486 1,999,986 2,259,486 2,511,486 2,763,486 3,015,486

Capital Requirements:An Example (4)

Poultry Owner Fees Per Year

MDL

As % of bird value

Geese (adult) 1.16 0.47 Goslings 0.39 0.52 Hens, cocks (18 weeks or older) 0.39 0.52 Young chickens (2-18 weeks) 0.19 0.39 Chicks (2 weeks and younger) 0.10 0.46

www.worldbank.org/avianflu

Gerardo Bravo GarciaAvian Flu Series, 2006

Oil & Gold Leaf on CanvasCourtesy of the World Bank Art Program