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GTAP Resource #1475

"Benefits and Costs of Compliance of Sanitary Regulations in Livestock Markets: the Case of Rift Valley Fever in Ethiopians"
by Nin-Pratt, Alejandro, Pascal Bonnet, Mohammad Jabbar, Simeon Ehui and Cees de Haan


Until 1998, several million sheep and goats were exported every year to Saudi Arabia from ports in Somalia, during a four-month period correlating with the Haj activities in Mecca. Pastoral populations in Ethiopia’s southeastern lowlands depend heavily on livestock exports to Somalia for their livelihoods, most of which are re-exported to Saudi Arabia and other Gulf States. The trade has proceeded for many years, until an outbreak of Rift Valley fever (RVF) in the region of the Horn of Africa prompted a ban by Saudi Arabian authorities on February 10, 1998. RVF is a viral insect-borne disease of livestock and human beings. As a list A disease among the OIE classification of contagious diseases, RVF is a major stake for the establishment of non-tariff barriers. Countries importing livestock products generally impose a ban to exporters with a risk of carrying the RVF agent to prevent from animal disease spread and infections in humans.

Exports resumed after six months but two years later, Gulf countries, following an unprecedented outbreak of RVF in Saudi Arabia and Yemen that killed over 100 people, imposed a new ban on imports of livestock from the Horn of Africa. Although some of the importers in the Arabian Peninsula partially lifted the ban in 2001, the ban is still in place.
What are the implications of the ban for the Ethiopian economy? Previous reports and studies on this matter agree that the ban had a devastating effect on Ethiopian’s Somali Region. However, there are no studies that quantify the economic cost of the ban or that evaluate alternatives to develop an animal health program that would allow a regular export flow between the Somali region and the Gulf countries. This study is a first attempt in that direction.

The main objectives of the study are the following:
1) To measure the costs of the ban for the Somali region of Ethiopia
2) To evaluate how the costs of the ban are distributed among different economic agents: households, pastoralists and other producers, transporters, and traders
3) To evaluate possible investment strategies for actions the government might pursue (prevention, containment, zonal restrictions or other interventions) to regain access to the Gulf market and reduce the probability of any future bans

Methodology and data
A regional Social Accounting Matrix that captures the main economic relationships of the Somali region of Ethiopia is developed using information from reports and studies conducted in the region; information from the Regional Office of Population of the Somali Regional State (SNRS); the Central Statistical Authority of Ethiopia (CSA) and data from a survey conducted in Somali as part of this study. The SAM is linked to the CGE model developed by Lögfren, Harris and Robinson (2001) which includes household consumption of non-marketed commodities, transaction costs for commodities that enter the market, and separation between producing activities and commodities that permits any activity to produce multiple commodities and any commodity to be produced by multiple activities.
A reduction of live animal exports from the region is simulated in two stages, where in the first stage we assume that factors of production are fixed for each activity in order to capture the short-run effects of the ban. In the second stage we complete the total reduction of livestock exports equivalent to the application of a 16-month ban, allowing for factor mobility.

Finally, the study evaluates the advantage of a program of animal certification using cost-benefit analysis. The expected benefits of the treatment are the avoided costs of future bans imposed on Somali exports because of disease outbreaks (estimated using the CGE simulations). The costs are those generated by the implementation of the certification program. We use a Poisson distribution and a Monte Carlo approach to simulate the occurrence of outbreaks over 20 years and to obtain a distribution of future income (avoided costs) resulting from our treatment.

The 16-month ban results in a total loss of value added of $195 million or almost the total value added produced by the region in a normal year.

Evaluating the effects of the ban at the microeconomic level we find that in the short-run, the ban causes a sharp reduction of livestock prices directly affecting poor pastoralists and sedentary farmer households. Middle and better-off households deal successfully with the negative effects of the ban by substituting away non-basic imported goods, now more expensive as a consequence of the deterioration of the region’s terms of trade, for staple goods (grain and milk).

In the medium-run, producers react reallocating resources between activities, reducing supply of livestock and transport services and further increasing supply of milk and grain. This results in partial recovery of livestock and transport prices and in a reduction of grain and milk prices, negatively impacting sedentary farmers and agro-pastoralists that were less affected by the ban in the short-run.

From the benefit-cost analysis of a certification program for the region, we conclude that the implementation of an animal health program in the Somali region is feasible and would benefit producers.

Different alternatives (export tax, sales tax and increased transaction costs) to charge producers for the equivalent amount of the cost of the program are analyzed to evaluate how increased costs resulting from the program affect competitiveness, welfare and income of Somali producers. Increasing taxes on livestock sales offers the best prospect as the way to implement the health certification plan in the Somali region. This option has the less negative impact on exports, and welfare; it also has the higher benefit for the poor given that it implies a transfer from middle and better-off producers to poor producers. The sales tax policy would benefit pastoralists and traders and will affect sedentary farmers and agro-pastoralists negatively although the total amount of the expected losses is small.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: Nin-Pratt, A. (4/30/2004)
Updated: Nin-Pratt, A. (4/30/2004)
Visits: 7,765
No keywords have been specified.

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