A framework for estimating society's economic welfare following the introduction of an animal disease: The case of Johne's disease

Abstract

Animal diseases are global issues affecting the productivity and financial profitability of affected farms. Johne's disease is distributed on farms worldwide and is an endemic contagious bacterial infection in ruminants caused by Mycobacterium avium subspecies paratuberculosis. In cattle, the clinical disease manifests itself as chronic enteritis resulting in reduced production, weight loss, and eventually death. Johne's disease is prevalent in the UK, including Scotland. Direct costs and losses associated with Johne's disease have been estimated in previous research, confirming an important economic impact of the disease in UK herds. Despite this, the distributional impact of Johne's disease among milk consumers and producers in Scotland has not been estimated. In this paper, we evaluate the change in society's economic welfare, namely to dairy producers (i.e. infected and uninfected herds) and milk consumers in Scotland induced by the introduction of Johne's disease in the national Scottish dairy herd. At the national-level, we conclude that the economic burden falls mainly on producers of infected herds and, to a lesser extent, milk consumers, while producers of uninfected herds benefit from the presence of Johne's. An infected producer's loss per cow is approximately two times larger in magnitude than that of an uninfected producer's gain. Such economic welfare estimates are an important comparison of the relative costs of national herd prevalence and the wider economic welfare implications for both producers and consumers. This is particularly important from a policy, public good, cost sharing, and human health perspective. The economic welfare framework presented in this paper can be applied to other diseases to examine the relative burden of society's economic welfare of alternative livestock disease scenarios. In addition, the sensitivity analysis evaluates uncertainty in economic welfare given limited data and uncertainty in the national herd prevalence, and other input parameters, associated with Johne's disease in Scotland. Therefore, until the prevalence of Johne's is better understood, the full economic cost to Scottish dairy herds remains uncertain but in the meantime the sensitivity analysis evaluates the robustness of economic welfare to such uncertainties.

Fig 1. Demand and supply equilibrium associated with reduced milk production following an outbreak of Johne’s.

In Fig 1, the intersection of supply curves, $S_T^0$, $S_U^0$, and $S_I^0$, and demand curve, $D_T^0$, determine the initial equilibrium market price, P⁰, and quantity supplied by the market, $Q_T^0$, the infected producers, $Q_I^0$, and uninfected producers, $Q_U^0$. A decrease in milk production associated with the introduction of Johne’s shifts the infected producer supply curve backward to $S_I^1$, the equilibrium quantity supplied by infected producers will decrease, from $Q_I^0$ to $Q_I^1$, and the price increases, from P⁰ to P¹. Uninfected producers will increase their supply from, $Q_U^0$ to $Q_U^1$, in response to a price increase (i.e. a movement along their supply curve). Overall, the total market supply, Q_{T =} Q_U + Q_I, will decrease, from $Q_T^0$ to $Q_T^1$, because $\left|Q_I^0-Q_I^1\right|>\left|Q_U^0-Q_U^1\right|$.

Fig 2. Impact of an inelastic and elastic demand curve on equilibrium market price and quantity.

The impact of an inelastic and elastic demand curve on equilibrium market price and quantity associated with a reduction in milk production following an outbreak of Johne’s disease. The inelastic, D_In, and elastic, D_El, demand curve determine the responsiveness of consumers to new equilibrium market price, P¹. A more inelastic demand curve, D_In, (i.e. the demand curve is steeper in shape) reflects a larger loss in economic welfare, represented by shaded area, relative to a relatively more elastic demand curve, D_Eln, represented by area.

Fig 3. Impact of an inelastic and elastic supply curve on equilibrium market price and quantity.

The impact of an inelastic and elastic supply curve on equilibrium market price and quantity associated with a reduction in milk production following an outbreak of Johne’s disease. The inelastic, S_In, and elastic, S_El, supply curves determine the responsiveness of producers to new equilibrium market price, P¹. A more inelastic supply curve, S_In, (i.e. the supply curve is steeper in shape) reflects a larger loss in economic welfare, represented by area, relative to a relatively more elastic supply, S_El, represented by area.

Fig 4. Sensitivity of net economic surplus for Scotland to elasticity of demand and supply.

The sensitivity of aggregated net economic surplus (million £) for Scotland following an outbreak of Johne’s with respect to variation in the elasticity of demand, η, (-0.50 to 0.00), and elasticity of supply, ε, (1.5; 1.6; 1.7; 1.8; 1.9; 2.0).

Fig 5. Sensitivity of net economic surplus to the elasticity of demand by stakeholder group.

The sensitivity of net economic surplus (million £) to elasticity of demand by stakeholder group (i.e. uninfected producers; infected producers; consumers; Scotland) following an outbreak of Johne’s with respect to a constant elasticity of supply, ε, (1.759), and a variation in the elasticity of demand, η, (i.e. -0.45 to 0.00).

Fig 6. Sensitivity of net economic surplus to national herd prevalence by stakeholder group.

The sensitivity of net economic surplus (million £) to national herd prevalence by stakeholder group (i.e. uninfected producers; infected producers; consumers; Scotland) following an outbreak of Johne’s with respect to a constant elasticity of demand, η, (-0.2198), and elasticity of supply, ε, (1.759).

Fig 7. Demand and supply equilibrium associated with binding and non-binding milk quotas.

In Fig 7, the intersection of supply curves, S⁰, demand curve, D, and milk quota, S**, determine the initial equilibrium price, P₀*, and quantity supplied by the market, Q₀*. A decrease in milk production associated with Johne’s disease shifts the supply curve backward to S¹. In panel 1 the milk quota is binding before Johne’s because Q₀*> Q** (quantity associated with milk quota S**), but not binding after Johne’s because Q₁* < Q**, the price increases from P₀* to P_1,* above producer price, PP. In the case of binding milk quotas (panel 2), the equilibrium quantity supplied is restricted to Q** creating a new supply curve (S**), because Q₁* is above the binding milk quota, and fixed price, PP.