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![Page 1: Global Animal Health Initiative: The way forward Washington, 9 October 2007 OIE economic studies part III: Supporting insurance of disease losses by Civic.](https://reader035.fdocuments.in/reader035/viewer/2022070305/55153c17550346c77d8b5d61/html5/thumbnails/1.jpg)
Global Animal Health Initiative: The way forwardWashington, 9 October 2007
OIE economic studies part III: Supporting insurance of disease losses
by
Civic Consulting
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2Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Question: Is market-based insurance part of the solution for covering epidemic disease losses?
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3Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Methodology
• Global survey of insurers / associations
• Interviews with insurers, reinsurers and brokers
• In-depth case studies of regions with existing insurance products for livestock related risks (EU, US, CIS, China, India, some other countries)
• Review of available literature
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4Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Study focus
• Overview of epidemic livestock disease insurance products available in some markets, determination of barriers preventing development in others
• Analysis of preconditions for market-based insurance products
• Options for supporting development of market-based insurance products
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5Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Insurance sector in developing and in transition countries /1
Insurance sector in emerging markets remains limited in comparison to industrialized countries:
• In 2005, industrialized countries accounted for 88% of global premium, and emerging markets for 12%
• Average per capita non-life premiums were $3,287 in industrialized countries compared to $77 in emerging markets, accounting for 3.82% and 1.42% of GDP respectively
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6Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Insurance sector in developing and in transition countries /2
But growth rates of premium income have been stronger in emerging markets:
• Most developing countries have liberalised domestic insurance markets, which were dominated by state owned insurance companies
• International insurance groups have increased their involvement, by joint venture or acquisition of local, state-owned or private companies
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7Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Agricultural insurance /1
Rural markets remain unattractive to insurers due to significant difficulties for insurance companies to penetrate into rural areas:• Small farm size• Low insurance awareness • Low economic capacity • Poor rural distribution networks • High rural transaction costs
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8Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Strong desire by governments and insurers to improve access to risk management and insurance for farmers:
• Increase of microinsurance, but less rapidly than microfinance
• The focus of agricultural insurance in developing countries has been on crop insurance
• Innovative product development, such as weather index products, has been introduced in a few countries to overcome limitations of traditional crop insurance products
Agricultural insurance /2
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9Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Agricultural insurance /3
Penetration for livestock insurance products is very low:
• Products marketed in developing countries are individual animal accidental mortality policies
• Sometime they include limited disease coverage, targeted at high value breeding stock.
• Such individual-animal policies have often been linked to credit for livestock, or linked to government programmes for the introduction of improved breeding stock
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10Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Summary - insurance sector
Current involvement of insurance sector in agricultural areas, particularly with livestock producers, is very limited
Epidemic cover is even more limited, and restricted to a few developed countries
Limited existing distribution channels to livestock producers
The few insurers specialized in agriculture would generally require significant capacity building to become involved in epidemic insurance programme design and implementation
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11Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Reinsurance sector in developing and in transition countries /1
Reinsurance (the insurance of insurance companies) needed to access additional capital, allow efficient transfer of risk, and expansion of risk acceptance capacity:• Reinsurance particularly important for products with
catastrophic exposure (e.g. drought, flood or epidemic disease)
• Financial capacity of national insurance markets is limited in
many developing countries reinsurers play an important role
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12Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Reinsurance for agriculture is dominated by a few of the major reinsurance companies operating internationally. Reinsurers have found it difficult to meet the demands of insurers in developing countries:
1. High need for technical assistance (start-up phase). Costs of assistance high in relation to expected transaction size
2. Often poor underwriting results, particularly in crop insurance (limited attractiveness)
3. Underwriting and loss assessment is difficult for individual-farmer policies, and there is often a lack of long term, reliable statistics needed for risk assessment and pricing
Reinsurance sector /2
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13Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Pre-conditions for epidemic livestock disease insurance in developing
countries
At least one insurance company in the country must be willing and able to take a commercial interest in establishing and distributing an epidemic disease product
Possibility to set up a pool of insurers
Likely, such an initiative would only follow a government plan to strengthen disease management and direct compensation, linked to external technical assistance, and to the support of interested reinsurers
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14Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Other pre-conditions /1
• Insurable client base of farmers in commercial livestock sector
• Effective national epidemic disease strategy and infrastructure including veterinary services
• Government compensation system for direct losses, backed by access to adequate national or international funding
• Linkage to government compensation programme for declaring outbreak, defining slaughter and quarantine zones
• Definition of covered / excluded diseases, diagnostic capacity
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15Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Other pre-conditions /2
• Geographically zoned client and livestock database
• Distribution channel(s) to reach farmers
• Technical assistance (design phase, ongoing support)
• Access to data and modelling of each covered disease, to permit estimation of maximum probable losses, establishment of appropriate financial limits, and setting of premiums
• Access to reinsurance
• Adequate legal and regulatory framework
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16Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Challenges faced in supporting the development of market-based
insurance products /1A main challenge for developing epidemic livestock disease insurance is the need for a well-planned government disease prevention and control programme.• Effectiveness of veterinary services influences risk of infection
and size of losses. Capacity of veterinary service is crucial: OIE PVS instrument could be valuable in assessing it
• In terms of loss assessment, it may be possible to follow government slaughter decisions, which for the insurer means a need for confidence in the independence and integrity of the services responsible for government slaughter decisions.
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17Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Challenges /2
Each country has different circumstances concerning:• Capacity of veterinary services
• Structure and degree of commercialisation, as well as organization and disease status of the livestock sectors
• Rural insurance, capacity of insurers
Each country would require tailored adaptation of epidemic
disease insurance solutions, although this could be eased within
a framework for international standardization in product
design, backed by technical assistance, and reinsurance
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18Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Challenges /3
Financial management of the consequences of disease outbreak, with infrequent but potentially severe claims, require major risk transfer by domestic insurance sectors
• International reinsurers would need to play important role, would be more interested in a programme aimed at developing such cover in many countries (economies of scale, risk spread)
• Layers of commercial reinsurance, and possibly high-level government-backed catastrophe cover could be foreseen
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19Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Conclusions: A global scheme to support the
development of market-based insurance products? /1
No “universal” scheme can be foreseen which would be suitable for application in all countries
There is a wide diversity between countries in the pre-conditions existing for an epidemic product
There is limited experience, in comparison to other classes of insurance, of epidemic scheme design and of best practices to act as examples for international transfer of know-how
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20Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Conclusions /2
In spite of the negative outlook for “a scheme” for market-based epidemic insurance, high degrees of synergy between the needs of the insurance market in the strengthening of VS, and other measures, e.g. a database for identification of livestock herds/owners
Market-based insurance needs to be integrally linked to a government compensation system for livestock diseases. It cannot replace such a system (need of linkage for loss assessment, problem of moral hazard)
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21Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Strategies to encourage epidemic insurance /1
Strategies which could directly encourage market-based epidemic insurance include:
Premium subsidy
Public sector reinsurance
Promotion of public – private partnerships
Technical assistance
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22Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Strategies to encourage epidemic insurance /2
Strategies which could indirectly encourage market-based epidemic insurance include:
Development of government and international veterinary services capability; use of benchmarking and independent evaluation of VS
Establishment of improved information systems
Client and livestock database
Classification of livestock sectors and disease risks
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23Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Answer: Market-based insurance can be part of the solution for covering epidemic disease
losses, if - the veterinary system is working,
- a government compensation system is in place, and
- the livestock and insurance sectors are ready.
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Global Animal Health Initiative: The way forwardWashington, 9 October 2007
OIE economic studies part II: A global fund for emergency response in
developing countries
by
Civic Consulting*
*with support of Agra CEAS Consulting and from the Institute of Risk and Insurance of Hamburg University
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25Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Question: Is there a need for a global fund for emergency response in developing countries? If
so, how should it operate?
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26Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Methodology
• Desk research, literature review and construction of a detailed literature database
• Interviews with key institutions and experts
• Case studies of selected national compensation schemes for epidemic livestock diseases in four countries (The Netherlands, Australia, Vietnam, Nigeria)
• Case studies on operational principles of five global funds (GFFATM, UN CERF, WFP WCF, FAO SFERA; OIE WAHWF)
• Economic analysis based on incentive theory
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27Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Study focus
• The study explores the need for and possible operational rules of a Global Emergency Response Fund for Animal Epizootics and Zoonoses (GERFAE) that would provide developing and transition countries with immediate funding to cover the cost of control measures and livestock owners’ compensation costs
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28Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The current global financing framework – Progress /1
The global framework for the financing of costs and losses of epidemic livestock diseases has significantly improved during the last decade, partly as a consequence of the Avian Influenza crises and other large scale outbreaks of animal diseases
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29Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The current global financing framework – Progress /2
Significant progress during the last decade:• more global coordination of donors and recipient
countries,
• increasing number of multi-lateral financial initiatives and mechanisms, created mainly during the last few years
partly a response to the threat of AI and other zoonoses, but also the consequence of increased awareness for the need to have effective and efficient global mechanisms to address specific global problems or emergencies.
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30Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The current global financing framework – Progress /3
Other important developments:• Growing attention for a need to provide financial
resources for prevention of epidemic livestock diseases and improving VS
• Emergency response plans are increasingly prepared and implemented in many potentially affected countries
• Vaccine banks are being established that allow in case of outbreaks to respond rapidly with vaccination
• There is growing awareness for the need to compensate livestock holders in case of disease related culling
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31Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The current global financing framework – Shortcomings
However, there are still significant shortcomings:• Limited support: hardly any global structure for the financing
of animal disease risk management of TADs other than AI
• Fragmentation of donor response: Multilateral facilities do not address challenges of the animal disease risk adequately, namely its cumulative nature (highly volatile funding needs)
• Inefficiencies caused by lack of incentives for prevention
• No consistent policy on cost-sharing with farmers
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32Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The current global financing framework – Challenges
It is a significant challenge to develop an efficient global institutional framework to finance epidemic livestock disease risk, which:Mobilises and allocates financial resources for
epidemic livestock disease prevention and control for diseases other than AI
Creates incentives for prevention at all levels Provides a mechanism to cope with the highly
volatile nature of animal disease risk
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33Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Possible role for a Global Emergency Response Fund for Animal Epizootics
(GERFAE) /1Does not seem likely that it would be possible to improve global financing of animal disease risk management purely through better coordination of bilateral donor community:
• Needs to be a party that is ultimately taking and managing the animal disease risks agreed upon with eligible countries
• Unlikely that any individual donor would be willing to take this responsibility
Need for a new global mechanism for the financing of animal disease risk management
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34Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
This new global mechanism for the financing of animal disease risk management could either be developed
• by extending the mandate of an existing fund/facility, for example developed in the framework of the AI crisis
• or by creating a new instrumentFor the aim of this analysis this question is
not of significance, as focus is on the operational rules
Possible role for GERFAE /2
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35Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Developing emergency response standards and technical assistance to implement them should as a general principle not be performed by GERFAE, but by other appropriate institutions of the global animal health framework
GERFAE would mainly be a financial instrument
Possible role for GERFAE /3
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36Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
The new instrument (or the existing facility with an extended mandate) would make a difference:
• It would focus on all eligible animal diseases• It would focus on providing a financial mechanism for
eligible developing countries. The financial support provided would be conditioned as to create incentives for prevention at all levels
• Its operational rules would take into account best practices to enhance control of eligible animal diseases, including through compensation of livestock holders, while preventing the creation of adverse incentives through overcompensation
Possible role for GERFAE /4
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37Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
GERFAE will ...1. Encourage an effective and rapid emergency response for control
of epidemic livestock diseases in developing and transition countries, including through compensation of´livestock holders
2. Function as a financial instrument, not as an implementing body3. Promote efficient global animal disease risk management4. Focus on diseases that pose a threat to “global public goods”5. Provide incentives for prevention and early reporting6. Safeguard ownership of emergency response by affected countries7. Encourage sharing responsibilities and costs where possible
Seven guiding principles
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38Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Planning and emergency response
Two different approaches are possible:
•Approach A: GERFAE would provide support to eligible countries in case of disease outbreak and provide support for emergency response planning in times without outbreaks
•Approach B: GERFAE would provide financial support to eligible countries in case of disease outbreak of a relevant disease only. Global support for emergency response planning through other sources/mechanisms
Analysis indicates advantage of Approach A
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39Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Eligible diseases, that may trigger support of GERFAE in case of an outbreak, should be determined on basis of the following criteria: The public relevance of a livestock disease
(depending e.g. on contagiousness and potential public health impact)
The need for global coordinated action
The character of a livestock disease as relevant emerging risk
Eligible diseases /1
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40Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Separate windows to support the emergency response regarding
outbreaks of the following diseases (in order of priority):
Category 1: Emerging livestock diseases of high public
relevance with a need for global coordinated action
Category 2: Other priority epidemic livestock disease(s) of high
public relevance with a need for global coordinated action;
Category 3: Under-funded diseases of high public relevance
with need for regional action, where countries in the region lack
resources and capacity and there is clear risk of global impact
Eligible diseases /2
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41Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Eligibility criteria /1
In principle, all emergency response measures that are supported from GERFAE should be co-financed in kind or in cash by the recipient country Co-financing requirements may differ for specific categories of emergency response measures and have to be pre-defined within each country emergency response plan to increase transparency and reduce the administrative burden related to documentation and audit
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42Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Eligibility criteria /2
Recipient countries need to have ...1. Pre-defined and costed country emergency response plan
for relevant diseases and earmarked contingency funds to co-finance measures
2. Country Compensation Mechanism in place to be eligible for support to compensation payments to livestock holders
3. Conducted a PVS evaluation of the Veterinary Services and to develop and implement a country strategy to upgrade Veterinary Service to address relevant deficits identified
4. A country emergency management facility in place that can coordinate measures in case of an outbreak
Need for a threshold related to income level of recipient countries
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43Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Mobilisation of funding /1
• Amongst national donor agencies the desire to contribute to such a fund has to be viewed in the context of a permanent tension between the ‘benefits’ of bilateral support compared to support channelled through multilateral agencies
• Deemed essential that disease control be driven by the powerful incentive of the prospect of increased sales and revenue for farmers and countries (access to markets)
• Issue of accountability - while donors seem to be willing to accept a ‘trust fund’ managed by an intermediary such as the World Bank which ‘signs off’ on the accounts, accountability may be difficult to achieve (compensation payments)
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44Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Mobilisation of funding /2
‘Most likely’ scenario (part I) of total direct disease losses and control costs of an HPAI outbreak, calculated on an annual basis:• US$ 5.3 billion in scenario A (H5N1 infected countries), • US$ 6.1 billion in scenario B (infected and non-infected
at immediate risk countries)• US$ 9.7 billion in scenario C (all OIE developing country
members)• If income eligibility criteria would apply (only LCD
eligible): Under the most likely scenario, estimated direct impact (excluding consequential losses) for the LDCs ranges from US$ 73 million (scenario A) to US$ 258 million (scenario B) and nearly US$ 600 million if all 40 LDCs were to be affected
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45Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Mobilisation of funding /3
Several factors influence the financial need of GERFAE: Income eligibility criterion concerning eligible countriesEligible diseases / measuresCo-financing rate requiredCompensation rates applied and types of costs /losses
coveredAssuming scenario B prevails and on basis of average compensation rates at 75% and a cofinancing rate for eligible countries of 50%, the total required annual budget for GERFAE regarding HPAI would amount to US$ 103 million for the LDCs affected under scenario B, or US$ 2.45 billion on a global level
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46Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Mobilisation of funding /4
Decisions on the eligible countries, diseases and measures, the co-financing rate required; compensation rates applied and types of costs compensated have to be taken early on in the planning process of GERFAE, as this significantly impacts on the budget required
Due to the variability of capital requirements for emergency response measures during a given budgeting period, an elaborated system for managing the risk of the fund has to be developed
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47Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Country Compensation Mechanism /1
Need for a close linkage between CCM and VS:• Emergency response planning of the Country
Compensation Mechanism (CCM) is directly related to planning of the Veterinary Service (VS) regarding culling
• Availability of data on livestock herds/holders crucial• Control measures carried out under the authority of the
VS, timely compensation requires close cooperation• Availability of contingency funds/a relevant government
budget line to (co-)finance measures is equally relevant for both CCM and VS
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48Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Country Compensation Mechanism /2
CCM has to be adapted to a country’s VS infrastructure and livestock production structure:
• No institutional „blueprint“ for CCM
• CCM should draw on existing social, political and industrial institutions in order to increase acceptance and reduce set-up costs
• To avoid collusion, the use of independent financial auditors is recommended
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49Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Country Compensation Mechanism /3
Common operational rules for CCM• Compensation requires registration: Registration of livestock
holders is an important precondition for animal disease risk management and compensation. However, in most countries a complete registration of livestock holders cannot be reached:
Need to differentiate between livestock production sectors. A CCM should define a maximum number of animals for each specie that are compensated in case of culling, if the livestock holder is not individually registered. This splits livestock industry in two sectors: registered commercial producers and unregistered small-scale and backyard producers
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50Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of commercial livestock producers /1
• Evidence from countries with HPAI outbreaks has shown that a compensation rate of 50% of the type specific animal value (based on market value) can be enough, if veterinary restrictions are accompanied by strong control efforts
• A compensation rate of over 100% of market value is not recommended because of the creation of adverse incentives
• Based on these international experiences it is suggested to provide higher compensation rates to commercial livestock producers meeting higher predefined bio-security standards
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51Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of commercial livestock producers /2
• Low, moderate and high bio-security farms should be compensated at rates of 60%, 75% and 90% of the animal value for healthy animals and half of these rates for visibly diseased animals. Dead animals not compensated (exceptions possible)
• Compliance of commercial livestock holders with veterinary restrictions either through an incentive-based approach by also compensating business interruption and other losses directly caused by veterinary restrictions, or through policing
• As soon as this is feasible, the GERFAE Governing Board should require CCMs from eligible countries to share costs and responsibilities with commercial livestock producers
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52Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of small-scale and backyard holders of livestock /1
Need for a community based compensation approach to increase collective responsibility and communal accountability for animal health:
• The CCM formally should treat groupings of small-scale/ back-yard livestock holders as one entity (production community)
• Compensation rules community-based, i.e. High numbers of visibly diseased and dead animals would
reduce compensation payments to the community as a whole. The individual livestock holder however receives a fixed share of total community compensation, which represents his share in the number of animals culled (independent from disease status)
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53Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of small-scale and backyard holders of livestock /2
• Animal losses due to culling incurred by small-scale and backyard holders of animals that are member of a production community compensated according to the bio-security level of the production community
• Animals from production communities that do not take specific precautions should be compensated at rates of 75% of the type-specific animal value for healthy animals and half of these rates for visibly diseased animals. For production communities adhering to certain verifiable bio-security measures (e.g. fencing of animals) this rate should be increased to 90%
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54Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of small-scale and backyard holders of livestock outside of
production communities /1
Atomised backyard holders of livestock are most problematic from a risk-management point of view: very difficult to reach – both to increase awareness for prevention/bio-security, and for control measures in case of an outbreak
The compensation guidelines should therefore provide clear incentives to form production communities, if the system is assumed to be feasible in the particular country/region
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55Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of small-scale and backyard holders of livestock outside of
production communities /2
• Losses due to culling of animals backyard holders outside of production communities should be compensated at rates of 60% of the animal value for healthy animals and half of this rate for visibly diseased animals (i.e. lower than in production communities)
• An additional incentive for early disclosure could be provided by a first-notification compensation rate of 90% of the animal value for backyard holders (only for first notification in region)
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56Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Compensation of small-scale and backyard holders of livestock outside of
production communities /3
• Caveat: Community based compensation approach needs to be tested thoroughly. Experiences (e.g. in Vietnam) seem to indicate that it is possible to channel compensation payments through existing communities. However, this may not be feasible in some regions or countries
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57Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
GERFAE governance arrangements
To facilitate coordination of emergency planning and response, both activities should be funded by one mechanism under one management structure
• GERFAE should be created through a collaboration of relevant institutions. One institution should manage the day-to-day running and management of GERFAE, possibly in a Trustee function, in close cooperation with expert Technical Agencies
• GERFAE should have a governance structure which includes a Governing Board, an Advisory Panel and a Secretariat
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58Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Payment procedures & monitoring /1
Two levels are relevant:• At the level of the fund itself i.e. the relation
between the fund and recipient governments• At the level of disbursement of compensation
payments to livestock holders through a Country Compensation Mechanism
In both cases, it is essential that a clear audit trail is established
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59Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Payment procedures & monitoring /2
• Governing Board, with guidance from the Advisory Panel and Technical Agencies, must establish audit and monitoring processes, taking into account experiences of the ongoing projects funded through the Global Program for Avian Influenza
• Experience with other supranational compensation mechanisms shows that creating an audit trail for compensation costs is feasible, but can lead to a very high administrative burden
GERFAE needs to delegate as much auditing functions as possible through the use of independent financial auditors, to be contracted when a Country Compensation Mechanism is set up
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60Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Managing the risk of GERFAE /1
GERFAE has to provide funds rapidly to support emergency measures in eligible countries, even before related donor contributions are received:
• Challenge is to find financing strategy that addresses temporary shortcomings and prevent structural deficits in case of a catastrophic animal disease crisis
• Ex-ante contingent agreements should be arranged as opposed to negotiating ad hoc capital provision when capital is needed
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61Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Managing the risk of GERFAE /2
A layered approach to manage the risk of GERFAE:
1. Initial working capital: donor contributions that are sufficient to finance emergency response planning expenses („peace time“) and emergency response measures („outbreak“) under relatively certain scenarios within the given period
2. Contingent grants from donors: when needs are higher 3. Pre-arranged contingent loan agreements: could be
triggered in periods with several or large-scale outbreaks. To be paid back in following periods
4. GERFAE should also target to developing access to the international risk markets to relieve the burden of animal disease risk financing from donor budgets
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62Civic Consulting - OIE Economic studies parts II and IIIGlobal Animal Health Initiative, Washington, 9 October 2007
Answer: Yes, there a need for a global risk-management instrument to finance emergency response in developing countries and provide
incentives for prevention at all levels. To make it work, an interagency collaboration is needed,
best practices in compensation have to be applied and hard choices will be required.