economic analysis for different levels of decision making

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Economic analysis for different levels of decision making Henk Hogeveen

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I was invited to give a keynote presentation for the German languaged Epidemiology meeting which was held last week in Zurich, Switzerland. My presentation gave an overview of the decision problem in animal health and gives some examples of economic analyses that have been made at different levels of decision making. Specific items were: dry cow therapy, Q fever and BSE

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Page 1: Economic analysis for different levels of decision making

Economic analysis for different levels of decision making

Henk Hogeveen

Page 2: Economic analysis for different levels of decision making

Who am I

Born on a dairy farm (1966)

Animal science at Wageningen University

●Epidemiology (simulation model of management regarding cystic ovaries)

●Economics (long term effects of herd health management programs)

PhD at Fac. Veterinary Medicine (AI to diagnose mastitis)

Professor in Animal health managementIn between Wageningen University and Faculty of Vet. Med. (since 2001)

@henkhogeveen

animal-health-management.blogspot.com

Page 3: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 4: Economic analysis for different levels of decision making

Economic effects of animal disease

Output

MilkMeatEggsDraft power…….

After: McInerney, 1996

Human benefit (utility)

Input

LandLabourCapital

Page 5: Economic analysis for different levels of decision making

The field: Economic effects of animal disease

Output

MilkMeatEggsDraft power…….

Disease

1. Lower efficiency

2. Lower suitability for consumption

3. Lower human well-being

After: McInerney, 1996

Human benefit (utility)

Input

LandLabourCapital

1.

2. 3.

Most economic work

Page 6: Economic analysis for different levels of decision making

Types of animal diseases

Production diseases

●On-farm optimization

●Externalities

●E.g., mastitis, lameness, APP

Endemic contagious diseases

●On-farm control decision

● Interaction between farms

●E.g., BVD, Aujeszky’s disease

Notifiable contagious diseases

●Regional control decisions (eradication)

●Surveillance

●E.g., FMD, AI, rabies, BSE

Page 7: Economic analysis for different levels of decision making

The management problem

Consequences animal health

Epidemiological consequences

Veterinary knowledge of diseases

Page 8: Economic analysis for different levels of decision making

The management problem

Consequences animal welfare

Consequences human health

Consequences animal health

Epidemiological consequences

Knowledge about externalities

Page 9: Economic analysis for different levels of decision making

The management problem

Consequences animal welfare

Consequences human health

Costs of intervention

Consequences animal health

Epidemiological consequences

Page 10: Economic analysis for different levels of decision making

Decisons become increasingly complex

Decision maker

ObjectivesAvailable resources

Consequences animal welfare

Consequences human health

Costs of intervention

Consequences animal health

Epidemiological consequences

Page 11: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 12: Economic analysis for different levels of decision making

Levels of decision making

Individual animals

● Treatment

● Culling

● Interaction

Groups of animals (herd/farm)

● Prevention

● Eradication

Sector

● Control

● Eradication

Region

● Control

● Eradication

Page 13: Economic analysis for different levels of decision making

Levels of decision making

Individual animals

● Treatment

● Culling

● Interaction

Groups of animals (herd/farm)

● Prevention

● Eradication

Sector

● Control

● Eradication

Region

● Control

● Eradication

Production diseases& Endemic contagious diseases

Type of disease

Contagious nofiable diseases

Page 14: Economic analysis for different levels of decision making

Levels of decision making

Individual animals

● Treatment

● Culling

● Interaction

Groups of animals (herd/farm)

● Prevention

● Eradication

Sector

● Control

● Eradication

Region

● Control

● Eradication

Farmer, supported by advisor

Farmer’s organisationProcessors

Government

Decision maker

Page 15: Economic analysis for different levels of decision making

Basic approach

Normative modelling

●Relate costs of interventionwith animal health andepidemiological consequences

●Cost-benefit analysis (alternative: cost effective or cost utility analysis)

●Assuming profit maximising behaviour of farmers

●Basis for on-farm decision support tools

Empirical modelling

●Use data to compare farms/animals/groups of animals with and without intervention

●Experiments or existing datasets (accountancy data)

Page 16: Economic analysis for different levels of decision making

Challenges Handle multiple objectives

Handle multiple objectives

●Internal (farmer)

●External (societal, chain)

●On-farm decision support models

●Capturing complexity

●Useful for farm-specific modelling

Page 17: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 18: Economic analysis for different levels of decision making

Dry cow therapy

Individual cow decision

Two modes of action:

●Cure of existing (chronic) intramammary infections

●Prevention of new infections during dry period

Often herd decision (blanket dry cow therapy)

Debate on selective vs blanket dry cow therapy

Page 19: Economic analysis for different levels of decision making

Stochastic model (Huijps et al., 2007)

Cow as basic unit

Dynamic around dry period

Results summarized for whole herd

Accounting for differences between pathogens

Dutch circumstances

Page 20: Economic analysis for different levels of decision making
Page 21: Economic analysis for different levels of decision making

Selective dry cow treatment cheapest

  Blanket Selective No

IMIdo (%) 15 (7.7, 23.1) 15 (7.7, 23.1) 15 (7.7, 23.1)

Treatment (%) 100 35 (23, 46) 0

IMI at calving 7.5 (3.1, 12.3) 12.3 (6.2, 20) 19.3 (12.3, 27.7)

Clinical mastitis (%) 1.8 (0, 4.6) 3.2 (0, 7.7) 5.1 (1.5, 10.8)

Treatment costs (€/cow) 10.1 (10.1, 10.1) 3.5 (2.3, 4.7) 0

Production losses (€/cow) 1.3 (0.5, 2.2) 2.1 (1.0, 3.4) 3.3 (2.0, 4.7)

Clinical mastitis (€/cow) 4.2 (0, 14.6) 8.1 (0, 22.9) 14.7 (2.0, 38.5)

Total costs (€/cow) 15.6 (10.6, 26.6) 13.7 (4.9, 29.4) 18.0 (4.1, 42.6)

Page 22: Economic analysis for different levels of decision making

New discussion onantibiotic resistance

Resistance of mastitis pathogens

●Self-interest

●No increase seen (Hogan, IDF-factsheet)

Antibiotic resistance in humans

●Externality

●Dairy cattle has very minor contribution (Oliver et al., 2011)

Decision of government

In the Netherlands (self) regulation

●Maximum amount of antibiotics to be used (< 50 %)

Page 23: Economic analysis for different levels of decision making

Optimizing: linear programming (Maas, 2014, MSc thesis)

Farm level

Cows with high SCC are treated

●Primiparous > 150.000 cells/ml

●Multiparous > 250.000 cells/ml

Other cows selective

Categorized at SCC level

Optimization to minimize total costs of treatment and mastitis around dry period

Based on: Maas, 2014, MSc thesis, in

preparation

Page 24: Economic analysis for different levels of decision making

We’re also interested in amount of AB

Page 25: Economic analysis for different levels of decision making

Constraining antibiotic use has economic effects

100%

95%90%85%80%75%70%65%60%55%50%45%40%35%30%25%20%15%10% €39

€41

€43

€45

€47

€49

€51

€53

Average farmLow BTSCC farmHigh BTSCC farm

Percentage allowed antibiotics (%)

Costs

per

lo w

SC

C c

ow

Page 26: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 27: Economic analysis for different levels of decision making

Q fever outbreak

In 2005 Coxiella burnetii diagnosed in the Netherlands as cause of abortion problems on a dairy goat farm

In 2007 the first Q fever outbreak in humans was diagnosed

Since then thousands of people got infected, which reached a climax in 2009

Year and week of notification

Page 28: Economic analysis for different levels of decision making

Source: www.eurosurveillance.org

Page 29: Economic analysis for different levels of decision making

Roest et al., 2011

Page 30: Economic analysis for different levels of decision making

Government involved

Control measures

• Vaccination programme

• Culling of (pregnant) goats from infected farms

• Animal movement restrictions

• Breeding ban

• Bulk milk monitoring -> no good confirmation

• Extra hygiene programmes

Around 62,500 dairy goats were culled significant drop in milk production

Page 31: Economic analysis for different levels of decision making

Economic impact (Gonggrijp et al., 2014)

How large was the negative economic impact for affected farmers?

Were other actors of the industry also negatively affected by the control measures?

Were the relations of the actors and their behaviour in the industry still the same?

Objective:

Study the impact of Q fever control measures on the Dutch dairy goat industry with the use of a quantified value chain analysis

Page 32: Economic analysis for different levels of decision making

Value chain analysis

Mapping the value chain

Governance in the value chain

Upgrading in the value chain

Distribution of value in the value chain

Page 33: Economic analysis for different levels of decision making

Value chain analysis

Information on the structure, the trade flows and all the relations between the involved actors of a livestock sector

Often qualitative and descriptive

In this value chain analysis focus on quantification

Page 34: Economic analysis for different levels of decision making

Preliminary map of the value chain

Page 35: Economic analysis for different levels of decision making

Final map of the value chain

Page 36: Economic analysis for different levels of decision making

The distribution of goat milk and milk equivalents 2009

Page 37: Economic analysis for different levels of decision making

Goat farmers Milk collectors Prim. dairy processors

Second. dairy processors

(Feed) suppliers Meat processing Retail Total0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

20092010

Eur

o (€

) x 1

0⁶

Gross margins of the Dutch dairy goat industry in 2009 - 2010

Page 38: Economic analysis for different levels of decision making

Gross margin results

Decrease of gross margins in 2010 of the total industry of -12% and -23% for farmers compared to 2009

Enormous difference in decrease between affected farmers (-53%) and non-affected farmers (-12%)

Primary dairy processors, meat processing and retail not negatively affected

Page 39: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 40: Economic analysis for different levels of decision making

BSE

1986 first described 1996 -> link with Creutzveldt Jacobs Disease (vCJD) Since August 1989 measures against BSE in the

Netherlands●Since 1990 feed ban (no animal protein)●Since 2000 dead cattle older than 30 m tested●Since 2001 slaughtered cattle older than 30 m

tested●Disposal of BSE risk materials●Culling of cohort of detected animal

Incidence of BSE is decreasing

Page 41: Economic analysis for different levels of decision making

Are preventive measures cost-effective?(Benedictus et al., 2009)

Simulation modelling

●Static

●Stochastic

●Simulation

Monte carlo model

●1 iteration = 1 year

●Baseline: no intervention

●Alternative: one or more interventions

Page 42: Economic analysis for different levels of decision making

Model

3 types of BSE

●Clinically affected

●Test detectable

●Non detectable (3 for every detectable)

Per BSE type of BSE load (from different organs) of the food supply was calculated

Based on Infectious doses, risk of vCJD

Prevented case of vCJD -> life years saved (most likely 51)

Comparison: do nothing vs intervention

Page 44: Economic analysis for different levels of decision making

Results - retrospective

Year 2002 2005

Number of BSE cases (total, at slaughter) 24, 12 3, 2

BSE load of the food supply Mean 5th – 95th Mean 5th – 95th.

Baseline scenario 34,857 30,213-39,602 5,502 3,592-7,620

SRM removal 2,330 2,020-2,648 368 240-509

Post-mortem testing (PMT) 7,455 4,846-10,306 939 198-2,091

PMT and cohort culling 7,059 4,505-9,865 939 197-2088

SRM removal and PMT 498 324-689 63 13-140

SRM removal and PMT and cohort culling 472 301-659 63 13-139

Food risk (life years lost) Mean 5th – 95tb Mean 5th – 95th pct.

Baseline scenario 16.98 8.66-26.70 2.69 1.25-4.61

SRM removal 1.14 0.58-1.79 0.18 0.08-0.31

Post-mortem testing (PMT) 3.63 1.67-6.27 0.46 0.08-1.11

PMT and cohort culling 3.44 1.56-5.94 0.46 0.08-1.11

SRM removal and PMT 0.24 0.11-0.42 0.03 0.005-0.07

SRM removal and PMT and cohort culling 0.23 0.10-0.40 0.03 0.005-0.07

Page 45: Economic analysis for different levels of decision making

Costs (mln €)

Year2002 2003 2004 2005

SRM removal19.22 18.27 19.29 19.82

Post-mortem testing38.16 29.56 26.57 21.12

Cohort culling6.97 4.80 3.41 2.43

Total costs64.34 52.64 49.27 43.37

Page 46: Economic analysis for different levels of decision making

Cost-effectiveness

Page 47: Economic analysis for different levels of decision making

Cost-effectiveness 2002-2005

Page 48: Economic analysis for different levels of decision making

Outline

Decision making on animal health

●The decision problem

●The levels of decision making

Some examples of analyses

●Dry cow therapy

●Q fever outbreak

●Slaughterhouse measures to reduce the BSE load

Final words

Page 49: Economic analysis for different levels of decision making

Take home message

Animal health management decisions are taken daily

Economics are useful/necessary to support decisions

A first step are “cost of disease” studies

●General interest

●Supporting stakeholders (negotiations)

●Start for “economics of intervention” studiesCost-effectivity, cost-utility and cost-benefit

Choose appropriate method for level of decision making

More importantly: choose appriate approach in model:animal vs farm vs sector vs society

Combine economic modelling knowledge with domain knowledge

Page 50: Economic analysis for different levels of decision making

Thank you for your attention