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© Imperial College London
Complexity, uncertainty and risk: Agriculture
John Mumford Centre for Environmental Policy, Imperial College London 22 January 2007
© Imperial College London
Overview
n Agriculture is an extensive industry n 2.6 billion people
n Risks relate to production and price n Weather, pests, markets n Long-term and short-term factors n Natural events and human interventions
n Continuous risks n Pest induced losses
n Single event risks n Quarantine failure
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Scale of introduced pests
n US losses estimated at $137 billion/yr n 50,000 species since Columbus
n Major new pests continue to arrive n Particularly pests of the natural environment
n Response to risk can be expensive n ISPM15 costs around $2 bn/yr
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Asian longhorned beetle
n Pallets and wood packaging from China since 1996 n Potential N American losses over $100 bn/year
– Wide impacts: Amenity trees, timber, tourism, maple syrup
n $75mn eradication in US completed in 2005 n Now followed by Emerald ash borer
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Pallets and packaging
n Wooden pallets - Asian longhorn beetle – Heat treated at $1 for each pallet; certification – Only 2-3% were treated previously – Approximately 2 billion new pallets/yr for international
routes – Reliable monitoring and enforcement?
US – 005 HT
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Emerald ash borer is current news in the US! (Sep 2006) Chicago Tribune 16 Sep 2006 Front page
Trees doomed in bid to stop pest ….chewing up more than 2,800 ash trees around the spot where the emerald ash borer first was found in Illinois. ….nearly double the total number of trees taken out by the Asian longhorned beetle, another imported pest that ravaged the North Side of Chicago in the late 1990s. ….next on Evanston, Wilmette and Winnetka, cutting into the leafy canopy of three other areas where the ravenous ash borer has turned up since June. ….again and again across Illinois, home to more than 130 million ash trees.
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Emerald ash borer, from 2002
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New pest records in Europe
1900 1920 1940 1960 1980 2000
01
23
45
6
Arth
ropo
d sp
ecie
s pe
r dec
ade
First records of new arthropods (left) and plant diseases (right) in Europe by decade. Smith, 1997
1900 1920 1940 1960 1980 2000
year0
12
34
spec
ies
per d
ecad
e
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Inflection due to action?
1900 1920 1940 1960 1980 2000
01
23
45
6
Arth
ropo
d sp
ecie
s pe
r dec
ade
First records of new arthropods (left) and plant diseases (right) in Europe by decade from 1900. Smith, 1997
1900 1920 1940 1960 1980 2000
year0
12
34
spec
ies
per d
ecad
e
? ?
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Quantifying the risk
n Interceptions reflect post-intervention risk n Sample of what gets through control
n ~25,000 interceptions/year in US n Majority in baggage (~6% has something) n Cargo, ~1 interception per $3mn worth n 4% of postal parcels
n 1 in 400 air passengers fined in NZ n How is the catch/effort changing?
n How to measure effort? n How to interpret catch?
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Baggage interceptions > cargo in US
US Border interceptions Q56 pests
0
5000
10000
15000
20000
25000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Inte
rcep
tions
per
yea
r
BaggageCargoMail
250-300 more interceptions/year on both cargo and baggage
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US imports ($mn) fruits/vegetables
US Fruit/Vegetable Imports
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
200001961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
$ M
illio
n
FAOStat
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Variable inspection efficiency
Interceptions at Laredo, TX
0
500
1000
1500
2000
2500
3000
2000 2001 2002 2003 2004 2005
36 inspectors 30, then 27 inspectors
USDA
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Insurance in agriculture
n Risk assessment n Catalogue risk factors and distribution
n Loss assessment n Loss and responsibility post facto
n Moral hazard n Define compliance and enforcement
n Compensatory factors n Allowance for natural variation in risk factors
n Attribution n Free riders, and share of risks amongst stakeholders
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Israel Citrus Marketing Board
n Centralised control for fruit flies n Levy on growers for expected cost n Board insures with private insurer
n Covers any extra cost of additional control n Pays compensation for control failures
n Levy and insurance rates adjusted n Insurance acts as a short-term overdraft n Annual term
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US All-risk farm insurance
n Proposed by Franklin in 1788 n Multiperil (hail, drought, pest risks) since 1930s n Government agency (USDA Risk Management
Agency – www.rma.usda.gov) n Private insurers act as agents for government
backed crop insurance n 1.2 million policies in operation; 10,000+ loss
adjusters n Good actuarial data for risk assessment, annual
review n Well prescribed mitigation practices
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Crop indemnity USDA RMA
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Crop indemnity USDA RMA
Hurricanes
Drought
Hurricanes
Drought
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US All-risk farm insurance
n Loss assessment set against discounted recent average yields (for example, ~90% of past 3 years)
n Loss set against average for region or farm, group risk cover is less uncertain and cheaper
n Compulsory or voluntary, may depend on externalities
n Government, grower cooperatives, private insurers
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Crop insurance basis
n Actual production history n Farmer sets % of average yield and price
n Group risk plan n Farmer chooses % of county average yield as threshold
n Dollar plan n Farmer insures against a threshold of a preset $ value of
production, not yield directly n Tends to be for high value crops with high price/quality
effects from pests or weather
n Catastrophic coverage n Pays 55% of established price on yield losses in excess of
50%
www.rma.usda.gov
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Short-term yield variance
Pioneer Hi-Bred International Inc, 2004
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Short-term yield variance
USDA Economic Research Service 2006
US Maize Price
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
$/bu
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Quarantine failure
n Poor actuarial data for risk assessment n Exotic pest risks
n Often poorly prescribed mitigation practices n Priority is set against potential range of loss n Pooled response agreements
n Government, and sometimes import bonds
n Generally no compensation due to moral hazard,
n political exceptions (citrus canker, FMD)
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Interstate Pest Control Compact
http://pestcompact.org/
Green=in Compact
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Interstate Pest Control Compact
n 37 parties belong n Fund raises 10% on per state basis and 90% on
ag/forest production basis n Range from RI $2366 to CA $174,469 to cover
$1mn total n Assessments as needed to keep fund around $1mn n State can apply for central funds to support action
in another state n 28 claims since 1969 n Approximately $1mn in total paid out
http://pestcompact.org/
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Bioterrorism criteria
n Pathogen properties n survival; toxic; multi-host; virulent
n Production and dissemination n easy growth; transmissible
n Detection n difficult and non-traceable
n Controls n No chemicals or resistant varieties
n Impact n Psychological; quarantine; yield and control
Schaad et al., 2006
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Risk classes for pests
n Management actions are in classes n Describe risk in classes?
n Frequency of events n Impacts by interest
n A method used in DEFRA Non-native Species Risk Assessment Scheme
n Based on system from ERMA New Zealand
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Description of frequency
Likelihood and Score Description Frequency
Very unlikely
1
This sort of event is theoretically possible, but is never known to have occurred and is
not expected to occur
1 in 10,000 years
Unlikely 2
This sort of event has not occurred anywhere in living memory
1 in 1,000 years
Possible 3
This sort of event has occurred somewhere at least once in recent years, but not locally
1 in 100 years
Likely 4
This sort of event has happened on several occasions elsewhere, or on at least one
occasion locally in recent years
1 in 10 years
Very likely 5
This sort of event happens continually and would be expected to occur Once a year
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Descriptions of impacts
Scale and Score Monetary loss and response
costs Health impact Environment
impact Social impact
Minimal
1 Up to ₤10k /yr
Local, mild, short-term,
reversible effects to individuals
Local, short-term population loss,
no significant ecosystem effect
No social disruption
Minor
2 ₤10k-₤100k
/yr
Mild short-term reversible effects
to identifiable groups, localised
Some ecosystem impact,
reversible changes, localised
Significant concern
expressed at local level
Moderate
3 ₤100k-₤1m /yr
Minor irreversible effects and/or
larger numbers covered by reversible
effects, localised
Measurable long-term damage to populations and ecosystem, but little spread, no
extinction
Temporary changes to
normal activities at local level
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Descriptions of impacts
Scale and Score Monetary loss and response
costs Health impact Environment
impact Social impact
Major
4 ₤1m-₤10m /yr
Significant irreversible
effects locally or reversible effects over large area
Long-term irreversible ecosystem
change, spreading
beyond local area
Some permanent change of activity locally, concern expressed over
wider area
Massive
5 ₤10m +
/yr
Widespread, severe, long-
term, irreversible health effects
Widespread, long-term
population loss or extinction,
affecting several species with
serious ecosystem
effects
Long-term social change,
significant loss of employment,
migration from affected area
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Fisheries insurance EC PRONE Project
n Two parties n Fishing industry and regulator n Shared role and responsibility n Industry is the principal beneficiary
n Two major variables n Accepted fishing effort (industry) n Agreed enforcement effort (regulator)
n Share of premium? n Maybe relate to sensitivity of axis
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Long-term yield collapse
ICES, 2002, 2005
North Sea Cod Landings
0100200300400
197019741978198219861990199419982002
'000
tonn
es
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Premium set against agreed catch and enforcement
020
4060
80100 50
6070
8090
100
0
2000
4000
6000
8000
10000
Premium
EnforcementCatch effort
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What to insure?
n Stock collapse n Single event covers the whole industry n Like quarantine failure or nuclear cleanup n May not be responsive, all or nothing
n Catch per effort n Continuous performance assessment n Affects individuals n Like crop loss, or mileage based car insurance n Allows mitigation and feedback
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