UNEVEN COSTS

Business editor

THE costs of the attempted eradication of Mycoplasma bovis will be borne unevenly, although economists say the full extent of the costs has yet be calculated.

The Government chose to attempt to eradicate the presence of the bacterium, noting the current estimates of eradication costs were smaller than the estimated costs of management.

No country has yet successfully eradicated the disease, but the Government does not want to regret not trying.

Spring testing results, available in December, would give further information on which to assess the probability of success of eradication.

ASB chief economist Nick Tuffley said the estimated costs of attempting to eradicate M. bovis were $886 million over 10 years against an estimated cost of $1.2 billion to manage the disease over the longterm and an estimated $1.3 billion in lost production from doing nothing.

‘‘At this point, the Government believes 37 farms have infected livestock and 197 farms in total will face culling — 142 in the first year.

‘‘But highrisk animal movements have been traced to 3000 farms and 858 are under surveillance.’’

There was the risk the potential costs of eradication would grow if more livestock were added to the cull.

There were about 20,000 dairy and beef farms in total. Much of the estimated cost came in the cost of the response and in compensation, he said.

It was unclear how the cull would be split between dairy and beef cattle.

ASB economists had done some early calculations on how dairy revenue might be affected — under the assumption all the losses were confined to that sector.

Mr Tuffley said it was important to note the impact would be spread across the dairy and beef industries.

The impacts on dairy revenue were not straightforward. The cull was equivalent to 2% to 3% of the national dairy herd, after conservatively assuming 10% of those culled would have been culled anyway.

An assumed 3% loss of dairy production at a milk price of $6.05 per kg/ms implied $356 million of foregone revenue. The value of slaughtered cows would be about $250 million.

New Zealand was a significant dairy producer and a production impact of that magnitude was likely to push up global dairy prices — in the near term at least, he said.

After allowing for a baseline of likely growth in dairy production next season, the overall production impact could be similar to that of New Zealand’s drought experience.

‘‘We estimate every 10c increase in the farmgate milk price would bring in revenue of about $180 million, In other words, a 20% lift in the milk price could very well offset the culling production losses until such time as the global dairy industry responds by boosting output.’’

The beef industry would also bear impacts, Mr Tuffley said. The impact of added livestock slaughter on meat prices needed to be put in the context of 4.2 million cattle being slaughtered every year.

As in a drought, the costs of eradication would be borne unevenly.

The disruption would be huge to individual farms facing culling and the long haul back to the rebuilding their operations.

Those not directly affected were likely to be conservative about their expansion plans.

‘‘The disease will add another layer of costs to farms. In addition, it will restrict the movement of livestock.’’

BNZ senior economist Doug Steel said farmer confidence was low and tomorrow’s business survey would be watched for the latest reading.

Restricted cattle movement, either as a result of enforcement by authorities or by choice, would reduce efficiency across the dairy and beef sectors.

Restricted movement of stock threatened to alter current farm practices, which might mean a reduction in stock rates across the industry.

‘‘This is something to watch for as it will negatively affect future production over and above any cow culling.’’

Animal welfare and grazing costs were likely to lift, he said.

Productivity would be lower than it would be absent the disease.

From a Reserve Bank perspective, it was interesting M. bovis and any related economic risks did not get any mention in the May monetary policy statement.

The Reserve Bank’s financial stability report, out today, would be watched for any assessment of the disease risk, Mr Steel said.