Economic Evaluation of Foot and Mouth Disease. Final Report. Department of Agriculture, Food and Rural Development

Economic Evaluation of Foot and Mouth Disease Final Report Department of Agriculture, Food and Rural Development International Economic Consultants March 2002

ECONOMIC EVALUATION OF FOOT AND MOUTH DISEASE FINAL REPORT Department of Agriculture, Food and Rural Development International Economic Consultants March 2002 Copyright. No part of this document may be used or reproduced without s expressed permission in writing.

Contents Page Executive Summary 1 1 Introduction and Background 11 2 Review of Restrictions Introduced 12 First Stage of Restrictions 12 Second Stage of Restrictions 14 3 Economic Effects 16 Agricultural Sector 16 Tourism Sector 19 Exchequer Costs 20 Review of International Research on Economic Impacts of FMD 21 Conclusion 25 4 Estimated Economic Impact on Agricultural Sector 26 Introduction 26 Impact on Agricultural Sector 26 Pig Sector 33 Sheep Sector 39 Beef Sector 45 Second-round Effects 52 Conclusions 53 5 Estimated Economic Impact on Tourism Sector 54 Introduction 54 Visitor Numbers 56 Duration of Stay of Visitors 62 Expenditure per Visitor and Total Revenues 70 Impact of FMD on Domestic Tourism 72 Regional Impacts of FMD 73 February 2002 i

Contents Page Quantifying the Costs of FMD to the Tourism Industry 76 6 Exchequer Costs 84 Introduction 84 Costs of Imposing the Restrictions, Culling and Compensation 84 Impact on Tax Receipts 85 7 Impact of FMD in the Absence of Control Measures 89 Agriculture Sector 89 Tourism Sector and Other Sectors 102 Conclusions 103 8 Summary and Conclusions 105 Annex 1 Additional Agriculture Data 113 Annex 2 Additional Tourism Data - Visitor Numbers 118 Annex 3 Deriving Expenditure Per Visitor Data 121 Annex 4 Regional Distribution of Overseas Visitors 124 February 2002 ii

Tables Page Table 2.1: Summary of Initial Restrictions Introduced in Ireland Arsing from FMD in the UK 13 Table 2.2: Summary of Developments in Phase II 15 Table 3.1: UK Beef Balance Sheet 2000-2001 ( 000 tonnes) 17 Table 3.2: UK Sheep Meat Balance Sheet 2000-2001 ( 000 tonnes) 18 Table 3.3: Economic Effects for the Agricultural Sector 19 Table 3.4: Economic Effects for the Tourism Sector and Other Sectors 20 Table 3.5: Other Negative Effects 21 Table 4.1: Agriculture as a Percentage of GDP, 1999-2001 - million 26 Table 4.2: Contribution to GDP of Primary Agriculture and Food Sector in 1999 - million and as % of GDP 27 Table 4.3: Employment Trends in Agricultural and Food Sector from 1995 to 2000 Numbers in Employment (000s) 28 Table 4.4: Employment Trends in Agricultural and Food Sector from 1995 to 2000 % of Total Employment 28 Table 4.5: Primary Agricultural Output from 1999 to 2001 - million and as % of Total Agriculture Output 29 Table 4.6: Trends in the Value of Livestock Sector 30 Table 4.7: Trends in Prices and Volumes 2001 to 2000 31 Table 4.8: Selected Exports by Market 1999 32 Table 4.9: Selected Dairy Exports by Market 1999 33 Table 4.10: Slaughtering of Pigs 1999-2001 - Units (000s) 34 Table 4.11: Slaughtering of Pigs 1999-2001 By Carcass Weight (000 tonnes) 34 Table 4.12: Percentage Change in the Value of Pig Meat Exports per Market for 2001 35 Table 4.13: Change in the Value of Pig Meat Exports per Market for 2001 in (000s) 36 Table 4.14: Percentage Change in the Value of Live Pig Exports per Market for 2001 37 Table 4.15: Change in the Value of Live Pig Exports per Market for 2001 in (000s) 38 Table 4.16: Year-on-Year Changes in the Price of Pigs 39 Table 4.17: Slaughtering of Sheep 1999-2001 - Units (000s) 40 Table 4.18: Slaughtering of Sheep 1999-2001 By Carcass Weight (000 tonnes) 40 Table 4.19: Percentage Change in the Value of Sheep Meat Exports per Market for 2001 41 Table 4.20: Change in the Value of Sheep Meat Exports per Market for 2001 (000s) 42 Table 4.21: Percentage Change in the Value of Live Sheep Exports per Market for 2001 43 Table 4.22: Change in the Value of Live Sheep Exports per Market for 2001 (000s) 44 Table 4.23: Year-on-Year Changes in the Price of Sheep - 2001/2000 45 Table 4.24: Slaughtering of Cattle 1999-2001 - Units (000s) 46 Table 4.25: Slaughtering of Cattle 1999-2001 By Carcass Weight (000 tonnes) 47 Table 4.26: Percentage Change in the Value of Beef Exports per Market for 2001 47 Table 4.27: Change in the Value of Beef Exports per Market for 2001 (Euros - 000s) 48 Table 4.28: Percentage Change in the Value of Live Cattle Exports per Market for 2001 49 February 2002 iii

Tables Page Table 4.29: Change in the Value of Live Cattle Exports per Market for 2001 (000s) 50 Table 4.30: Year-on-Year Changes in the Price of Total Cattle- 2001/2000 51 Table 4.31: Summary of Main Impacts of FMD on the Agriculture Sectors in Ireland 53 Table 5.1: Overseas Visitors to Ireland by Route of Travel (000s) 57 Table 5.2: Overseas Visitors to Ireland by Route of Travel - Percentage Change from 2000 to 2001 58 Table 5.3: Overseas Visitors to Ireland by Area of Residence (000s) 59 Table 5.4: Overseas Visitors to Ireland by Area of Residence - Percentage Change from 2000 to 2001 60 Table 5.5: Overseas Visitors to Ireland by Reason for Journey (000s) 61 Table 5.6: Overseas Visitors to Ireland by Reason for Journey - Percentage Change from 2000 to 2001 61 Table 5.7: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Average Length of Stay by Route of Travel (Nights) 63 Table 5.8: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Percentage Change in Average Length of Stay by Route of Travel (%) 64 Table 5.9: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Average Length of Stay by Area of Residence (Nights) 65 Table 5.10: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Percentage Change in Average Length of Stay by Area of Residence (%) 66 Table 5.11: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Average Length of Stay by Reason for Journey (Nights) 66 Table 5.12: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Percentage Change in Average Length of Stay by Reason for Journey (%) 67 Table 5.13: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Number of Bednights Classified by Type of Accommodation Used 68 Table 5.14: Overseas Visitors to Ireland by Non-Residents (More Than One Day) - Percentage Change in Number of Bed-nights Classified by Type of Accommodation Used (%) 69 Table 5.15: Expenditure per Tourist by Place of Residence 1996-2000 ( ) 70 Table 5.16: Estimated Earnings from all Visitors to Ireland - Million 71 Table 5.17: Estimated Earnings from all Visitors to Ireland - Percentage Change from Previous Year (%) 72 Table 5.18: Domestic Tourism Data - January to August - 1997 to 2001 73 Table 5.19: Percentage Change in Overseas Visitor Numbers Between 2000 and 2001 for January to August Period by Region 74 Table 5.20: Hotel Occupancy Rates - 1999 to 2001 75 Table 5.21: Hotel Room Occupancy Rates by Region (%) 75 Table 5.22: Initial Indicative Estimated Losses in Overseas Tourism Revenues Due to FMD 77 Table 5.23: Estimated Average Annual Growth Rates in the Number of Overseas Visitors to Ireland between 1996 and 2000 by Market 78 Table 5.24: Estimated Decrease in Overseas Visitors to Ireland in First Half of 2001 by Market (000s) 79 February 2002 iv

Tables Page Table 5.25: Estimated Total Decrease in Revenues from Reduced Overseas Visitor Numbers in the first half of 2001 by Market 80 Table 5.26: Estimated Change in Domestic Tourist Trips Between 2000 and 2001 January to August Period 81 Table 5.27: Estimate Change in Domestic Tourist Trips Between 2000 and 2001 Assuming Growth in the Domestic Tourist Market January to August Period 81 Table 5.28: Estimate Change in Domestic Tourist Trip Revenues Between 2000 and 2001 Assuming Growth in the Domestic Tourist Market January to August Period 82 Table 5.29: Summary of Main Impacts of FMD on the Tourism Industry and Other Sectors in Ireland 83 Table 6.1: Exchequer Costs of FMD 84 Table 6.2: Year-on-Year Percentage Change in Tax Receipts - 2000 to 2001 86 Table 6.3: Cumulative Year-on-Year Change in Tax Receipts - 2000 to 2001 87 Table 6.4: Summary of Total Economy Costs of FMD 88 Table 7.1: The Effects of a Full-Scale Outbreak of FMD in Ireland 89 Table 7.2: Potential Agriculture Products Liable to EU Export Ban 90 Table 7.3: Distribution of Irish Agriculture Exports - and % 91 Table 7.4: Estimated Short Run Impact of FMD Related Export Ban Value of Resulting Exports Reduction 94 Table 7.5: Estimated Short Run Impact of FMD Related Export Ban Value of Resulting Exports Reduction as a proportion of GDP 95 Table 7.6: Estimated Short Run Impact of FMD Related Export Ban Assuming Alternative Use of Agriculture Resources 96 Table 7.7: Estimated Employment Impact of Export Bans of Different Durations on Different Sectors Job Losses 97 Table 7.8: Estimated Employment Impact of Export Bans of Different Durations on Different Sectors Job Losses Assuming Labour Hoarding 98 Table 7.9: Proportion of Livestock Slaughtered in UK in 2001 99 Table 7.10: Livestock Numbers - December 2000 ( 000) 99 Table 7.11: Overall Costs of Culling and Disposal 100 Table 7.12: Value of Slaughtered Stock 100 Table 7.13: Other Effects of a Full-Scale Outbreak of FMD in Ireland 102 Table 8.1: Summary of Main Impacts of FMD on the Agriculture Sectors in Ireland 106 Table 8.2: Summary of Main Impacts of FMD on the Tourism Industry and Other Sectors in Ireland 108 Table 8.3: Exchequer Costs of FMD 108 Table 8.4: Summary of Total Economy Costs of FMD 110 Table A1.1: Year-on-Year Changes in the Price of Prime Cattle- 2001/2000 114 Table A1.2: Monthly Changes in Prime Cattle Prices 114 Table A1.3: Year-on-Year Changes in the Price of Cows for Slaughter - 2001/2000 115 Table A1.4: Monthly Changes in Cow Slaughter Prices 115 Table A1.5: Year-on-Year Changes in the Price of Store Cattle- 2001/2000 116 February 2002 v

Tables Page Table A1.6: Monthly Changes in Store Cattle Prices 116 Table A1.7: Trends in Purchase for Destruction Scheme - 2001 117 Table A2.1: Overseas Visitor Numbers (000s) - 2001 118 Table A2.2: Overseas Visitor Numbers (000s) - 2000 119 Table A2.3: Overseas Visitor Numbers - Percentage Change from 2000 to 2001 119 Table A2.4: North American Data 120 Table A3.1: Tourism Numbers by Area of Residence - 1996-2000 (000s) 121 Table A3.2: Tourism Revenues by Area of Residence - 1996-2000 ( m) 122 Table A3.3: Expenditure per Tourist by Place of Residence 1996-2000 ( ) 123 Table A4.1: Regional Distribution of Overseas Visitors (%) 124 Table A4.2: Regional Distribution of Overseas Visitors (000s) 125 February 2002 vi

Section 0 Executive Summary Executive Summary Introduction The outbreak of Foot and Mouth Disease (FMD) in the early part of 2001 led to the introduction by the Irish Government of a range of measures that had consequences for economic activity. A number of sectors were affected, but primarily the agriculture and tourism sectors. This study has undertaken a detailed economic evaluation of the effects of the FMD outbreak, and in particular: - Estimates the economic impacts of FMD and the control measures introduced on the main sectors affected and on the Exchequer; and - Provides an estimate of the likely economic impacts on these sectors if the control measures had not been taken. In examining the economic impact of FMD on the Irish economy, this study has focused on three main areas; - Agriculture sector; - Tourism sector; - Exchequer costs. Agriculture Sector There are a range of different effects on the agricultural sector arising from the restrictions introduced as a consequence of the FMD outbreak and the precautionary measures undertaken. The main restrictions during the first phase of the scare included the closure of marts and the ban on the movement of all susceptible animals except those destined for slaughtering, or being moved for welfare reasons. This led to an increase in farm costs, as animals that were due for sale were kept on farm for longer than anticipated. Arising from the outbreak in Louth, a key effect was the ban on exports from the country as a whole to markets outside the EU. This primarily affected the pig and dairy sectors as the beef sector was already excluded from these markets. These bans had the potential to reduce export values and lead to a reduction in farm incomes and related economic activity. These bans were introduced in March and for some countries still remain. A third effect arose from a ban on exports to the EU from Louth, which began in March. This clearly had a devastating effect on the incomes of farms in the affected areas. The effect on the economy as a whole is less clear as it depends on whether this supply could be met from other areas of the country. To the extent that other regions met the shortfall then the overall effect on national income would be reduced. February 2002 1

Section 0 Executive Summary Finally, the loss of stock due to the culling of animals in Louth represents a loss to the sector and to the economy. It is estimated that the culling within the Cooley Peninsula accounted for 48,744 sheep, 166 goats, 1,123 cattle, 2,908 pigs, and 280 deer. Outside the Peninsula there were 3,826 sheep and 207 cattle culled. It will take time to replace the lost stock and this represents an economic loss. There is also the cost to the Exchequer of the scheme that was put in place to compensate farms for the loss of stock. Arising from the impact of FMD internationally, the FMD outbreak also provided some benefits to the agriculture sector in Ireland. These arose from the impact on output and prices due to FMD in the UK and to a lesser extent in the Netherlands and France. The outbreak of FMD in the UK led to a large fall in UK livestock output. This provided an opportunity to exporting countries as UK imports of beef and pigs increased. In so far as Irish exporters filled this gap, this led to an increase in exports and incomes and represents an indirect benefit to the Irish economy from FMD. There was also a widespread ban on UK exports to the EU (including imports of sheep and cattle from Northern Ireland to Ireland) and to third country markets. This also provided an opportunity for Irish exporters (apart from beef) to fill the gap caused by the UK exports ban. In summary then, the following represent the main economic effects of FMD on the agriculture sector: - Costs due to the restriction on livestock movements; - Income loss for pig and dairy sectors due to export ban to some non-eu markets; - Loss of income due to export ban on animals and products from Louth; - The costs of the stock lost due to culling; - Higher export volumes to the UK; - Higher export volumes to the EU; - Higher prices for livestock. Livestock Sectors Overall, the available data suggest that the livestock sectors had a good year in 2001 with strong growth in the pig and sheep sectors, offset somewhat by the BSE-related difficulties in the beef sector. On the basis of our overall analysis, it appears that the FMD outbreak did not have a significant impact on overall incomes in the main livestock sectors that were most exposed. Detailed disaggregated analyses are also undertaken for the pig, sheep, and cattle sectors. February 2002 2

Section 0 Executive Summary The analysis of the pig sector in Ireland suggests that it benefited marginally from the FMD outbreak. Total pig exports for the first three quarters of the year were higher by 12 million. It is clear that not all of the higher export values are due to FMD effects, however, but it may be reasonable to assume that about 75 % of the increase can be attributed to FMD consequences. This is equivalent to about 9 million for the first three quarters of the year. For the sheep sector, total exports in value terms increased primarily due to higher prices and to a lesser extent higher exports to the UK. These factors combined led to an increase in export values of around 47.5 million for the first three quarters of the year. If it is assumed that 50 % of these gains are attributable to FMD, then this implies an increase to the sheep sector of 23.7 million. The analysis in this report suggests that the beef sector suffered another difficult year in 2001. Exports to the EU and non-eu countries fell due to the on-going effects of BSE. However the FMD situation in the UK provided a minor boost to the sector. Exports to the UK increased by 50 million and prices were also firmer than expected due to the reduction in UK supply. In addition, higher UK exports reduced the Exchequer cost of the Purchase for Destruction Scheme (PFD). As with the pig and sheep sectors, it could be argued that the beef sector indirectly benefited from the FMD outbreak in the UK. It is estimated these benefits are in the region of 30 million for the Irish economy. Overall Impact on Agriculture Sector It is extremely difficult to isolate the effects of FMD on the agriculture sector. There are a number of effects that need to be considered including: - A ban on exports to non-eu countries; - Higher exports to the UK; and, - Higher prices due to lower UK output. On balance, it is felt that Irish agriculture benefited marginally due to the FMD-related reduction in UK output. It is estimated that export values were higher by about 63 million. These higher values would also have second round effects for other sectors. These second round effects are estimated to add a further 44 million to the overall benefit estimates of the FMD outbreak to the agriculture sector. Thus, the best indicative estimate is that there were agriculture-related benefits from FMD of around 107 million. These are summarised in Table A. In addition, there are some further costs due to the closure of Marts and the restrictions on animal movements. These costs, which are difficult to quantify, would tend to reduce these estimated benefits. February 2002 3

Section 0 Executive Summary However, these benefits relate only to the period up to end- September 2001. As the supply of livestock in the UK is unlikely to reach pre-fmd levels for some time, the benefits to the agricultural sector in Ireland are likely to extend beyond this period while costsrelated to the closure of some third-country markets will also extend beyond September. Table A: Summary of Main Impacts of FMD on the Agriculture Sectors in Ireland Estimated Losses/Gains Million Pig 9 Sheep 24 Beef 30 First Round Total 63 Second Round Impacts 44 Total Gains 107 Source: analysis Tourism Sector FMD also had important consequences for the tourism sector. Firstly, a number of sporting, business, and cultural events were cancelled, and businesses and heritage centres closed, in response to the restrictions imposed and this led to a reduction in the number of overseas visitors. Furthermore, Government campaigns in Ireland and the UK initially discouraged people from travelling between the two countries. This had a direct effect on the sector. Transport companies and hotels/guesthouses were adversely affected, in addition to indirect effects on pubs and restaurants and key elements of the services sectors. Secondly, overseas tourist numbers were reduced by the negative publicity surrounding the outbreak of FMD in the United Kingdom. The widespread negative publicity associated with the culling led to the perception that the UK countryside was off limits and this perception also damaged the Irish market. Even in the absence of the actual restrictions on activities, it is reasonable to assume that Ireland s tourist interests would have suffered. In general terms, the economic effects of FMD for the tourism sector include the following: - Direct income loss due to the decline in overseas visitors; February 2002 4

Section 0 Executive Summary - Indirect income loss due to the decline in overseas visitors; - Income effects arising from changes in domestic tourism patterns; - Other domestic effects. Tourism Sector Performance Overseas visitor numbers were 2.4 % lower in the first quarter of 2001 than in the first quarter of 2000, and were 6.8 % lower in the second quarter of 2001 than in the second quarter of 2000. Furthermore, the decline in overseas visitor numbers is most marked for those travelling cross-channel by sea. The data also shows that the proportionate decrease in visitor numbers is considerably greater for those resident in Great Britain. This suggests that the FMD effects and restrictions in both the UK and Ireland reduced the number of visitors to Ireland. The average length of stay by non-resident overseas visitors to Ireland showed year-on-year percentage changes of 4.3% and 1.4% in the first and second quarters of 2001 respectively. The data also shows that there is considerable variation in the average length of visits depending on the area of origin of visitors, with those travelling from Great Britain spending the least time on average. Furthermore, the average length of stay by visitors from Great Britain fell by 11 % between the first quarters of 2000 and 2001, and by 5.5 % between the second quarters of 2000 and 2001. An analysis of domestic tourism trips and revenues for the period from January to August suggests that for the first three-quarters of 2001 over 2000, there was an increase in total trips of 11.8 %, and an increase in domestic revenues of 16.3 %. These numbers suggest that FMD may have given a boost to domestic tourism as more people decided to holiday at home. Another important consideration involves assessing the regional impacts of FMD. Indicators suggest that there is considerable regional variation, and that in general rural areas seem to be doing worse. Impact of FMD on Tourism Sector The analysis in this report indicates that overall overseas tourism revenues showed a year-on-year increase in the first half of 2001, despite the fact that visitor numbers fell during the period. It is plausible to assume that in the absence of FMD, these revenues would have increased further. To calculate these lost revenues, our analysis considers the number of overseas and domestic tourists that would have holidayed in Ireland in 2001 had FMD not occurred, and compares this to the actual levels. Table B presents a summary of estimated tourism industry losses due to FMD. February 2002 5

Section 0 Executive Summary Table B: Summary of Main Impacts of FMD on the Tourism Industry and Other Sectors in Ireland Estimated Tourism (Losses)/Gains Million Overseas visitor market (97) Domestic tourist market 9 Other Sectors (25) First round Total (113) Second round tourism impacts (97) Total (210) Source: analysis Overall the total loss to the tourism sector as a result of FMD is estimated to be in the region of 210 million, with a heavy concentration in the rural economy. This relates to the loss for the six months to the end of September 2001. It is likely that the negative impact of FMD for the tourism sector extended beyond this period. Exchequer Costs Finally, a range of costs to the Exchequer arising from FMD was also assessed. These include the actual costs of introducing the various restrictions. Officials from the Department of Agriculture, Food, and Rural Development, and other Departments and Members of the Gardaí and the Army were involved in these operations. These include the ring fencing of the border, controls at ports and airports. The actual cost of imposing the various restrictions is the first cost to be considered. Officials from a number of Government Departments and agencies undertook a comprehensive operation at the air and seaports. This led to direct costs in terms of overtime payments and also to costs due to the work forgone during the operations. Costs were also incurred during the culling of animals in the Cooley Peninsula. Furthermore, in response to the FMD outbreak, the State introduced a compensation scheme that was fully funded by the Irish Exchequer. The latest estimates from the Department of Agriculture, Food and Rural Development suggest that expenditure by the Department in February 2002 6

Section 0 Executive Summary relation to FMD amounted to 44 million. This includes payments amounting to 10 million in relation to compensation, 16 million in relation to general expenses, and staff costs (overtime, travel and subsistence) of 18 million. These estimates exclude the cost of work forgone during the FMD scare by Departmental officials. In response to the crisis facing the tourism sector, there was an additional allocation made to the budget for promoting Irish tourism. This amounted to a cost of 13 million in the year 2001. We understand that savings elsewhere in the tourism budget in part funded this. Nevertheless, the full amount is accounted as a FMD related Exchequer expenditure. The Gardaí estimate that overtime amounted to 50 million. FMD also affected the Exchequer s tax take, particularly in the case of excise duties where the disruption in cross-border trade may have been a factor. However, these tax trends are also influenced by wider economic trends and it is not possible to isolate specific FMD effects. On balance, it would seem that FMD contributed to an already slowing economy and adversely affected excise duty receipts. While we do not put an exact figure on this Exchequer cost, it is likely to be significant. Overall it is estimated that exchequer costs amounted to 107 million. Overall Costs of FMD to Irish Economy A summary of the total impact/costs of the FMD outbreak and the restrictions imposed in Ireland is presented in Table C. Overall, costs are estimated at 210 million, or approximately 0.2 % of GDP. Table C: Summary of Total Economy Costs of FMD Estimated Gains and (Losses) Million Agriculture 107 Tourism and other Sectors (210) Exchequer Costs (107) Total (210) Total as % of GDP 0.2% Source: analysis February 2002 7

Section 0 Executive Summary Impact of FMD in the Absence of Control Measures The second element of this Study involves estimating the likely economic impacts on the main sectors of the Irish economy if control measures had not been introduced. This requires specification of the counterfactual of a widespread outbreak of FMD in Ireland. Agriculture Sector A widespread outbreak would have a significant effect on the agricultural sector. These effects include: - A ban on all exports of susceptible products to the EU and to non-eu countries; - A comprehensive programme of culling and disposal of animals; - A loss of stock and damage to Ireland s reputation as a food producer. Indicative estimates suggest that in a best-case scenario of a worldwide 3 month export ban, the reduction in exports would be equal to 0.9 billion. If, however, non-eu markets imposed a longer 6 month ban, the overall cost would amount to 1.2 billion. If we assume however that redundant resources would be employed in other sectors of the economy, then in the best-case scenario the estimates suggest a decrease of 0.6 % of GDP (or 0.6 billion). In the worst-case scenario, specifically a one-year ban in UK and other EU markets, and a two- year ban in non-eu markets, the total loss is estimated at 3.2 % of GDP (or 3.3 billion). Second round effects are estimated to add a further 0.4 billion (best case scenario) to 2.3 billion (worst case scenario) to these initial first round estimates. Hence, overall GDP would be reduced by 0.96 % ( 1 billion) and 5.4 % ( 5.6 billion) respectively. These costs are outlined in Table D. February 2002 8

Section 0 Executive Summary Table D: Summary of Costs of FMD to Agriculture Sector in the Event of a Widespread Outbreak Estimated Losses - Billion Best Case Scenario Worst Case Scenario Export ban losses 0.9 4.97 Export ban losses assuming alternative use of resources 0.6 3.3 Second round effects 0.4 2.3 Total costs 1 5.6 Total costs - % of GDP 0.96% 5.4% Source: analysis It should also be noted that the costs estimated in this study assume there is no intervention. This assumption could be challenged but for the purposes of this exercise this is a reasonable assumption. According to the estimates presented in this report, total job losses in the agriculture sector would range between a best-case scenario of 550 job losses to the worst-case scenario of 12,200. The majority of job losses are estimated to be in the meat sector. In terms of estimating the costs of culling and disposal of a widespread in Ireland, it is assumed that the same proportion of the Irish stock as in the UK is destroyed as result of the outbreak. This implies that 336,000 Cattle, 395,000 sheep and 38,000 pigs would be destroyed in the event of a widespread outbreak. The cost of culling and disposal of these animals is estimated at 13.1 million. Furthermore, the value of the slaughtered animals is estimated at 263.7 million. A number of potential longer-term effects were also considered. Firstly, Ireland has a reputation as a producer of good quality food. A widespread outbreak could damage Ireland s reputation in export markets even after the export bans have been removed. This could damage future prospects in a number of markets that generate significant export earnings. This effect is hard to quantify but is an important consideration. Secondly, the lost stock would affect the sectors for a number of years as stocks are replenished. Evidence from the UK suggests that it would be 2003/2004 before stocks levels start to return to previous February 2002 9

Section 0 Executive Summary levels. This implies that export earnings may be below pre-fmd levels for some time. Finally, it could be argued that the reduction in Irish supply would lead to higher prices on international markets. This depends on whether Irish agriculture is considered to be a price-taker or whether it has some market power. On balance, it is felt that some sectors are significant players and that a reduction in Irish supply would lead to higher prices. Once again, though, this is a marginal effect and is not as important as the other medium to longer-term issues examined. Tourism and Other Sectors The tourism sector was severely affected by the FMD restrictions put in place and an examination of the Government s response suggests that the restrictions introduced were exhaustive. It is unlikely that additional measures would have been implemented in the event of a widespread outbreak. However, it is clear that these restrictions would have been in place for a longer period and this would have extended the period during which the tourism sector suffered a loss of business. Thus, it is concluded that a widespread outbreak would also have been damaging for the tourism sector. Also, the longer-lasting restrictions would have affected the non-tourist-related elements of the domestic economy such as sporting events etc. Moreover, the tourism sector would have been affected by the negative publicity surrounding the widespread culling and disposal of animals. This would exacerbate the view that the countryside was a no-go area. It is concluded that a widespread outbreak would have led to further losses for the Tourism sector and other part of the economy. Overall Impact of FMD in the Absence of Control Measures In the event of a widespread outbreak of FMD, overall GDP would be reduced by between 0.96 % ( 1 billion) and 5.4 % ( 5.6 billion) through the impact on the agriculture sector. A widespread outbreak would also have significant negative implications for the tourism sector and for non-tourist-related elements of the domestic economy such as sporting events etc. Acknowledgements Special thanks are due to officials at the Department of Agriculture, Food and Rural Development, and at the Department of Tourism, Sport and Recreation. We also acknowledge with thanks the assistance of staff at the CSO, Bord Failte, the Irish Tourist Industry Confederation, and other industry representatives. The usual disclaimer applies however and this report is the sole responsibility of. February 2002 10

Section 1 Introduction and Background 1 Introduction and Background 1.1 The background to the current study is the outbreak of Foot and Mouth Disease (FMD) in the UK, the Netherlands, France and Ireland in the early part of 2001. This outbreak led to the introduction by the Irish Government of a range of measures that had consequences for economic activity. A number of sectors were affected, but primarily the agriculture and tourism sectors. 1.2 International Economic Consultants have been retained by the Department of Agriculture, Food and Rural Development to undertake an economic evaluation of the effects of the FMD outbreak. The overall objectives of the study are to: Estimate the economic impacts of FMD and the control measures introduced on the main sectors affected and on the Exchequer; and Provide an estimate of the likely economic impacts on these sectors if the control measures had not been taken. 1.3 The Call for Tenders specified the following specific objectives for the proposed study: Identify the range of economic impacts of Foot and Mouth and the various control measures; Assemble the available data on these impacts on the sectors and the Exchequer; Estimate such impacts where cost and benefit information is not available; Provide an estimate of the likely economic impacts on these sectors if the control measures had not been taken. 1.4 The Study is set in two parts. Part One assesses the economic effects of the FMD outbreak and the restrictions that were introduced. Part Two considers the likely economic impacts if the control measures had not been taken. 1.5 Special thanks are due to officials at the Department of Agriculture, Food and Rural Development, and at the Department of Tourism, Sport and Recreation. We also acknowledge with thanks the assistance of staff at the CSO, Bord Failte, the Irish Tourist Industry Confederation, and other industry representatives. 1.6 The usual disclaimer applies however and this Report is the sole responsibility of. February 2002 11

Section 2 Review of Restrictions Introduced 2 Review of Restrictions Introduced 2.1 The Foot and Mouth crisis began with an outbreak in the United Kingdom (UK) on February 21, 2001 and led to the introduction by the Irish Government of a range of restrictions that affected economic activity in Ireland. These restrictions were increased as the crisis deepened and were subsequently relaxed as the immediate fears of a widespread outbreak in Ireland abated. 2.2 In assessing the economic impact of FMD it is important to have regard to the chronology of events and the duration of the various restrictions. The timing and duration of these will have a significant bearing on the overall estimates of the impacts. 2.3 In this section we briefly review these restrictions. In subsequent sections the potential economic effects are identified. First Stage of Restrictions 2.4 It is useful to consider the restrictions in two Stages. Stage One of the response to FMD refers to the restrictions that were introduced prior to the outbreak in Louth in March. Stage Two refers to the additional measures taken after the outbreak was confirmed. These include a limited culling of animals and a limited export ban. 2.5 The first set of restrictions was introduced in the third week of February when the first FMD cases were confirmed in the UK. These first measures led to a restriction and enforcement of the ban on imports from the UK of cattle, sheep, pigs, goats and deer and on a range of products from such animals. On February 26 a nationwide ban on sales at livestock marts was enforced and controls on the importation of used farm machinery from the UK were introduced. These restrictions primarily had an impact on the agricultural sector. 2.6 Further restrictions were announced which impacted upon other sectors of the economy. Various sporting and cultural events in Ireland were cancelled and visitors from affected areas in the UK were discouraged from travelling to Ireland. The IRFU cancelled the Wales v Ireland rugby match at the beginning of March and all horseracing and greyhound events were cancelled. In addition, a request was made by the Government that various sporting, cultural and other activities be cancelled/postponed. This request was met positively throughout the country and had a significant impact on sporting and cultural events. February 2002 12

Section 2 Review of Restrictions Introduced 2.7 While detailed information on the number of events cancelled is not available, it is our understanding that a large number of events were either cancelled or postponed through this initial period. In addition, a number of business events and conferences were also adversely affected. This had a significant effect on activity across a range of business and service sectors. 2.8 As the concerns grew about the potential impact in Ireland, further restrictions were introduced at the end of February. The Department of Agriculture, Food and Rural Development introduced a permit system which only allowed animals, other than those going for direct slaughter, to move in exceptional circumstances e.g. welfare reasons. A control zone was also established in north Louth and movements of animals within this area were prohibited. Moreover, this area was placed under veterinary supervision. 2.9 A summary of the principal restrictions is set out in Table 2.1. Table 2.1: Summary of Initial Restrictions Introduced in Ireland Arsing from FMD in the UK Feb 21 Feb 23 Feb 26 Feb 27 Feb 28 Mar 7 Ban on imports from the United Kingdom including Northern Ireland of cattle, sheep, pigs, goats and deer and on a range of animal products from such animals. Ban was imposed on livestock marts in border counties and on hunting. Temporary nationwide ban on sales at livestock marts and controls on the importation of used farm machinery from Great Britain. The IRFU cancelled the Wales v Ireland rugby. Requests made that all horseracing, including point-to-point events, and all greyhound events be cancelled. Ban introduced on movement of all susceptible animals within the country other than those going direct for slaughter. Requests that various sporting, cultural and other activities be cancelled/postponed. A control zone was established in north Louth. Movement of animals into, out of, and inside this area was prohibited and the area placed under veterinary supervision. Movement permit system put in place allowing animals to move only in exceptional circumstances e.g. welfare reasons. Source: Department of Agriculture, Food and Rural Development February 2002 13

Section 2 Review of Restrictions Introduced Second Stage of Restrictions 2.10 On March 22, 2001 the Minister for Agriculture, Food and Rural Development confirmed an outbreak of FMD in the sheep flock at Proleek near Jenkinstown, Co Louth. This led to the introduction of a range of additional measures including further restrictions on livestock movements, a programme of culling in the affected area, and a limited suspension of some exports of animal products. 2.11 A key element of this phase involved a cull of animals in the area. On March 26th, the slaughter of all sheep and wildlife within a 3 km radius of the outbreaks in Meigh, Co. Armagh and Proleek, Co. Louth commenced. A few days later a compulsory cull of all sheep in the Cooley region was announced. In addition, a strategic cull of some cattle in the region was undertaken as a precautionary measure. 2.12 The outbreak also led to a limited export ban. The EU Commission imposed a ban on all exports of non-treated meat and dairy products, and as a result of the actions already taken this was confined to Co. Louth. A number of non-eu countries however introduced a wider ban on all susceptible exports from the county as a whole. This latter measure hit the dairy and pig sectors where there are significant exports to non-eu markets. The important beef sector was unaffected by this ban as it was already excluded from these markets due to the BSE scare. 2.13 By April a number of the restrictions started to be eased. It was announced that the postponed St Patrick's Day festivities were to take place on the 18th to 21st May. It was also decided that greyhound racing would resume on a limited basis with effect from the 19th April with show jumping due to resume on a limited basis with effect from 28th April. 2.14 By April 19th the trade restrictions, which applied to Co. Louth, were removed with the exception of the restrictions in place within a 10km zone around Proleek and in the Cooley peninsula. At the beginning of May, the Minister announced the opening of marts with effect from 1st June as assembly centres for farm-to-farm cattle movement and as assembly centres for export. By end-may a number of non-eu markets were re-opened. 2.15 A summary of these principal restrictions is set out in Table 2.2. February 2002 14

Section 2 Review of Restrictions Introduced Table 2.2: Summary of Developments in Phase II Mar 22 Mar 23 (Single outbreak involving two sheep confirmed in Co Louth.) EU Commission agrees to limit trade ban to exports of non-treated meat and dairy products from Co Louth. Limited Export Ban to non-eu countries. Accelerated strategic cull within 1 km and 3km zones of confirmed Co. Louth case. Mar 26 Commencement of the slaughter of all sheep within, and between, 3 km radius zones centred on sites of outbreaks and Meigh, Co. Armagh and Proleek, Co. Louth. April 1 April 11 April 19 April 30 May 1 End-May June 18 Compulsory cull of all sheep in Cooley region together with some cattle announced. St Patrick s Day festivities to take place on the 18th to 21st May Greyhound racing to resume on a limited basis with effect from the 19th April on basis of Expert Group agreed protocol. Show jumping to resume on a limited basis with effect from 28th April. Trade restrictions applying to Co. Louth are removed with the exception of the restrictions in place within 10km zone around Proleek and in Cooley peninsula. All FMD trade restrictions lifted from Ireland. Further easing of FMD restrictions announced including the use of marts with effect from 1 June as assembly centres for farm to farm cattle movement and as assembly centres for export; the reduction interval between inward and outward movement in a herd from 20 days to 7 days and the controlled resumption of sheep shearing from 28 May. Re-opening of certain third country markets. Marts re-opened. Source: Department of Agriculture, Food and Rural Development February 2002 15

Section 3 Economic Effects 3 Economic Effects 3.1 In this section the economic impacts of these various restrictions are identified, and a review of international research on the economic impacts of FMD is provided. This provides the background to estimating these impacts in subsequent chapters. Agricultural Sector 3.2 There are a range of different effects on the agricultural sector arising from the restrictions introduced as a consequence of the FMD outbreak and the precautionary measures undertaken. The main restrictions during the first phase of the scare included the closure of marts and the ban on the movement of all susceptible animals except those destined for slaughtering, or being moved for welfare reasons. This led to an increase in farm costs, as animals that were due for sale were kept on farm for longer than anticipated. 3.3 Arising from the outbreak in Louth, the second key effect was the ban on exports from the country as a whole to markets outside the EU. As discussed, this primarily affected the pig and dairy sectors as the beef sector was already excluded from these markets. These bans reduced export values and led to a reduction in farm income and related economic activity. These bans were introduced in March and for some countries still remain and as we will show had a detrimental effect on a number of sectors. 3.4 The third effect arose from a ban on exports to the EU from Louth, which began in March. This clearly had a devastating effect on the incomes of farms in the affected areas. The effect on the economy as a whole is less clear as it depends on whether this supply could be met from other areas of the country. If other regions met the shortfall then it could be argued that there is no overall effect on national income. This issue will be explored in the next chapter. 3.5 Finally, the loss of stock due to the culling of animals in Louth represents a clear loss to the sector and to the economy. It is estimated that the culling within the Cooley Peninsula accounted for 48,744 sheep, 166 goats, 1,123 cattle, 2,908 pigs, and 280 deer. Outside the Peninsula there were 3,826 sheep and 207 cattle culled. It will take time to replace the lost stock and this represents an economic loss. There is also the cost to the Exchequer of the scheme that was put in place to compensate farms for the loss of stock. February 2002 16

Section 3 Economic Effects 3.6 All these effects are clearly negative. Arising from the impact of FMD internationally, the FMD outbreak also provided some benefits to the agriculture sector in Ireland. These arise from the impact on output and prices due to FMD in the UK and to a lesser extent in the Netherlands and France. 3.7 The outbreak of FMD in the UK led to a large fall in UK livestock output. This provided an opportunity to exporting countries as UK imports of beef and pigs increased. In so far as Irish exporters filled this gap, this led to an increase in exports and incomes and represents an indirect benefit to the Irish economy from FMD. 3.8 There was also a widespread ban on UK exports to the EU (including imports of sheep and cattle from Northern Ireland to Ireland) and to third country markets. This also provided an opportunity for Irish exporters (apart from beef) to fill the gap caused by the UK exports ban. 3.9 Data are available on the extent of this supply gap. Table 3.1 shows estimates of the UK Beef Balance Sheet for 2000 to 2001. This shows an increase in imports to the UK of 32% in 2001, or 65,000 tonnes of beef, for the first three quarters. Table 3.1: UK Beef Balance Sheet 2000-2001 ( 000 tonnes) 2000 2001 1 Production 708 636 Imports 205 270 Exports 0 0 Consumption 958 916 Source: Meat and Livestock Commission 3.10 Comparable data are available for the sheep sector and are set out in Table 3.2. These show that both production and exports fell while, surprisingly, imports also fell. On balance, it shows that the fall in exports in the UK may have provided an opportunity for other exporting countries. 1 Autumn estimates. February 2002 17

Section 3 Economic Effects Table 3.2: UK Sheep Meat Balance Sheet 2000-2001 ( 000 tonnes) 2000 2001 2 Production 359 263 Imports 123 112 Exports 97 22 Consumption 391 353 Source: Meat and Livestock Commission 3.11 Apart from the effect on the volume and flow of trade activity, lower output from the UK also had an effect on livestock prices on international markets. There was a dramatic increase in livestock prices during 2001 partly related to FMD. These higher prices led to higher export values and helped to support farm incomes. Of course, there was a potential negative effect for the economy as domestic consumers faced higher food prices. Nevertheless, given our status as a food exporter, an increase in export prices leads to an improvement in the country s overall terms of trade and this represents an unambiguous gain to the national economy. 3.12 Thus, the outbreak of FMD led to a number of consequences and contrary to expectations not all of these are negative. The main potential effects for the agricultural sector are summarised in Table 3.3. This will be examined in more detail in the next chapter. 2 Autumn estimates. February 2002 18

Section 3 Economic Effects Table 3.3: Economic Effects for the Agricultural Sector 1. Costs due to the restriction on livestock movements 2. Income loss for pig and dairy sectors due to export ban to some non-eu markets 3. Loss of income due to export ban on animals and products from Louth 4. The costs of the stock lost due to culling 6. Higher export volumes to the UK 7. Higher export volumes to the EU 8. Higher prices for livestock Source: Tourism Sector 3.13 The FMD scare also had significant implications for the tourism sector. This arises from two-related effects. 3.14 Firstly, a number of sporting and cultural events were cancelled, and businesses and heritage centres closed, in response to the restrictions imposed and as discussed in the previous section which led to a reduction in the number of overseas visitors. Also, Government campaigns in Ireland and the UK initially discouraged people from travelling behind the two countries. This had a direct effect on the sector. Transport companies and hotels/guesthouses were adversely affected, in addition to indirect effects on pubs and restaurants and key elements of the services sectors. 3.15 Secondly, overseas tourist numbers were reduced by the negative publicity surrounding the outbreak of FMD in the United Kingdom. The widespread negative publicity associated with the culling led to the perception that the UK countryside was off limits and this perception also damaged the Irish market. Even in the absence of the actual restrictions on activities, it is reasonable to assume that Ireland s tourist interests would have suffered. February 2002 19

Section 3 Economic Effects 3.16 These effects are clearly negative. However, a number of the events affected by the restrictions were postponed rather than cancelled. As a consequence, the original cancellations do not necessarily represent a permanent loss to the economy on the assumption that some level of economic activity would be generated for the postponed event. However the evidence suggests that postponed events failed to generate the same level of activity, most notably in relation to the St Patrick s Day parade. 3.17 Apart from overseas tourism, the domestic tourist sector was also affected. In addition, non-tourist-related economic activities were affected due to the restrictions on movements and these would need to be considered. These include, for example, the impact on horseracing and greyhound racing. 3.18 Once again however, there may be offsetting effects. Domestic consumers who reduce their expenditure on an affected activity, such as visits to the countryside or attendance at a racing meeting, may choose to spend their incomes on other consumption that would tend to generate economic activity. Table 3.4: Economic Effects for the Tourism Sector and Other Sectors 1. Direct income loss due to decline in overseas visitors 2. Indirect income loss due to decline in overseas visitors 3. Income effects for domestic tourism 4. Other domestic effects Source: Exchequer Costs 3.19 Finally, there are a number of costs to the Exchequer that need to be assessed. These include the actual costs of introducing the various restrictions. Officials from the Department of Agriculture, Food, and Rural Development, and other Departments and members of the Gardaí and the Army were involved in these operations. These include the ring fencing of the border, controls at ports and airports. February 2002 20