Is full compensation causing moral hazard?
Agriculture minister says Taiwan case of industrial collapse is unlikely
By Kang Seung-woo
Close to 2.7 million cattle and pigs have so far been destroyed in an effort to fight a sweeping foot-and-mouth disease (FMD) outbreak.
The highly communicable and fatal disease, the first case being traced back to Andong, North Gyeongsang Province, has spread across the nation except for South Jeolla Province and Jeju Island. The numbers break down to 144,249 cows, 2.57 million pigs, 4,300 goats and 2240 deer killed.
More than 70 percent of the livestock in Gimpo, west of Seoul, has been culled.
The damage in monetary terms is staggering; some estimates suggesting the ultimate cost could reach more than 2 trillion won.
Such a sweeping level of devastation triggers an eerie scenario — Taiwan.
The breakaway island was devastated by FMD with its livestock industry — mainly swine — all but gone, resulting in unintended social engineering that has changed its industrial structure forever.
“We don’t expect the Taiwan case to happen here,” said Yoo Jeong-bok, minister of food, agriculture, forestry and fisheries, to a group of editors during a recent meeting.
Yoo, who has been fighting an uphill battle against FMD, said that the livestock owners are affluent enough to recover from the devastation created by the ongoing outbreak.
“In most cases, the owners of pigs and cattle have been fully compensated for their losses,” Yoo said. “This compensation formula helps the farmers promptly report disease outbreaks and be more willing to have their animals culled.”
He pointed out cattle farmers in Japan and Britain, two countries that suffered from FMD, were not compensated as much as their Korean counterparts.
“About one fifth of livestock farmers were affluent enough to go on overseas trips last year,” the minister said, his rationale being that they wouldn’t give up their livestock businesses. He also agreed on the moral hazard caused by full compensation.
Yoo, a lawmaker of the ruling Grand National Party (GNP) from the FMD-devastated Gimpo constituency, last week announced he would step down as soon as the FMD endemic is brought under control.
But a look at the current situation doesn’t seem to fully support his forecast.
Korea was hit hard by FMD in 2000, 2002 and twice early last year, but the collective cost of the four outbreaks reached 597 billion won.
The result of repeated FMD endemics has seen growing concern over the possible collapse of the domestic livestock industry, as celebrated farming regions have been ruined.
Andong saw 34,500 cows and 108,000 pigs culled, which accounts for 65 percent and 92 percent of each animal’s stock.
North Gyeongsang Province, the largest beef producing area in the country; Gyeonggi Province, the nation’s largest producer of dairy cows and South Chungcheong Province, known for its pork, have been devastated.
The disease has already spread to Hoengseong in Gangwon Province, one of the leading producers of premium beef in the country.
The spreading FMD has turned into an economic catastrophe, as it is forcing the nation to face increasing inflationary pressure in meat prices.
According to the Korea Customs Service (KCS) on Friday, imports of beef and pork jumped this month amid a massive culling of cattle and pigs, while meat prices increased.
It imported 24,513 tons of beef during the first 21 days of this month, up 22.7 percent from the same period a month earlier and pork imports also jumped 31.1 percent to 26,625 tons.
Prices per-kilogram of beef and pork jumped 25.1 percent and 16.7 percent respectively this month compared with the same period a year earlier.
In an effort to rein in inflation, the finance ministry said Tuesday that it will impose a tariff quota to cut import charges on 60,000 tons of pork from the current 25 percent to zero until the end of June.
According to the National Veterinary Research and Quarantine Service, when a suspicion of FMD was reported in Andong on Nov. 23, the authorities took inadequate action because the result of a simple test kit was negative. Five days later the result of a larger-scale test was positive.
“If quarantine officials there had reported the case to headquarters, we may have been able to start the operation about a week earlier,” the government agency said admitting fault.
It added that some farmers’ negligence over a proper quarantine process contributed to the virus spreading.
The government has stressed that things seem to have calmed down thanks to inoculations but this week will be a watershed to prevent the further spread of FMD because the nation is preparing for the Lunar New Year holiday, from Feb. 2 to 4.
During this holiday, a large number of people and cars are expected to move across the country, which the government worries might help spread the disease.
There are growing concerns over the current situation internationally, as the United Nations (UN) has warned of the FMD threat.
The U.N.’s Food and Agriculture Organization (FAO) called on veterinary and border-control authorities in the region to stay vigilant and act to prevent a regional pandemic.
“The current FMD dynamics in eastern Asia, as well as the magnitude of the outbreak in South Korea, are unlike anything that we’ve seen for at least a half century,” said Juan Lubroth, the FAO’s Chief Veterinary Officer. “This makes preparedness and monitoring extremely important right now.”
Oregon, one of Korea’s top agricultural trading partners, also warned of traveling to Korea.
Experts say that in order to prevent animals from being prone to FMD, their living conditions should be improved.
“Current facilities for livestock, which pit a large number of animals, mostly pigs, in a dense pen and the ‘inhumane’ environment can make them easily subject to animal epidemics,” Woo Hee-jong, a veterinary professor at Seoul National University, said in a meeting with religious leaders to discuss the FMD outbreak.
Another professor blamed the swift spread of FMD to the poor breeding of livestock, which weakens animals’ immunity to diseases.
Hong Ha-il, president of the Veterinarian’s Solidarity for Public Health said that factory farms that disregard the welfare of animals are the main reason.
A factory farm is a large-scale industrial operation that houses hundreds or thousands of food animals, such as chickens, cows and pigs, in extremely cramped conditions and treats them as non-sentient economic commodities.