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Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait

Ahmed Hafi, Tony Arthur, Michael Symes and Nicola Millist

Research by the Australian Bureau of Agriculturaland Resource Economics and Sciences

Report to client to National Biosecurity CommitteeOctober 2013


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This publication (and any material sourced from it) should be attributed as: Hafi, A, Arthur, T, Symes, M and Millist, N, 2013, Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait, ABARES Report to client prepared for the National Biosecurity Committee, Canberra, October. CC BY 3.0.

Cataloguing dataHafi, A, Arthur, T, Symes, M and Millist, N, 2013, Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait, ABARES Report to client prepared for the National Biosecurity Committee, Canberra, October.

ABARES project: 43431

ISBN No: 978-1-74323-183-8

InternetBenefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait is available at: daff.gov.au/abares/publications.

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)Postal address GPO Box 1563 Canberra ACT 2601Switchboard +61 2 6272 2010|Facsimile +61 2 6272 2001Email [email protected] daff.gov.au/abares

Inquiries regarding the licence and any use of this document should be sent to: [email protected].

The Australian Government acting through the Department of Agriculture, ABARES, has exercised due care and skill in the preparation and compilation of the information and data in this publication. Notwithstanding, the Department of Agriculture, ABARES, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law.

AcknowledgementsThe authors acknowledge the contributions of Philippe Frost of the Australian Chief Plant Protection Office, and comments and advice provided by Darryl Barbour and Sarah Hilton of the Australian Chief Plant Protection Office, Barbara Waterhouse and James Walker of the Northern Australia Quarantine Strategy, Andrew Tomkins of the Torres Strait Fruit Fly Strategy review panel and Lisa Elliston of ABARES.

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ForewordIn July 2010 the National Biosecurity Committee endorsed an initiative to apply the National Framework for Biosecurity Benefit Cost Analysis (BCA) to all BCAs that evaluate future biosecurity investments. This initiative aims to ensure national consistency and transparency in BCAs to improve the efficiency and timeliness of management decisions on biosecurity investments. Under this initiative a national core capacity for biosecurity BCAs has been created within ABARES.

The role of ABARES, under the core capacity, is to undertake BCAs on alternative options to manage selected potential or existing pest and disease incursions. ABARES consults with relevant experts and stakeholders and then communicates the results and policy implications to various decision-making entities. These entities include consultative committees, the National Management Group and the National Biosecurity Committee.

Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait is the sixth in a series of BCAs prepared under the national core capacity.

The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is designed to prevent the entry of 6 exotic fruit fly species to the Australian mainland. It was established following the incursion of exotic papaya fruit fly in 1995 around Cairns that cost $34 million (equivalent to around $55 million in 2012-13 dollars) to eradicate and resulted in bans on imports of Australian horticultural products by overseas countries.

The absence of exotic fruit fly incursions into mainland far north Queensland since 1995 suggests that the Strategy has been successful and avoided the cost of expensive eradication programs and significant economic costs should eradication fail and the incursion spread to the rest of Australia.

A key component of the Strategy is a nationally cost shared response program to eradicate the seasonal exotic fruit fly populations from the Torres Strait islands. However, this border protection program is currently fully funded by the government, compared to industry sharing of some of the costs of eradicating post border fruit fly outbreaks.

This report presents a benefit-cost analysis of the response component of the Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait, including a business case for the horticultural industries to invest in it. It provides information that would help convince the industry to participate in the cost sharing arrangements, which would result in the better alignment of the funding base of the response activities of the Strategy with that of other nationally cost shared detection and eradication initiatives.

Paul MorrisExecutive DirectorOctober 2013


ContentsForeword................................................................................................................................................................ 2

Summary................................................................................................................................................................. 1

1 Introduction............................................................................................................................................... 8

2 The threat of exotic fruit flies..........................................................................................................10

3 Surveillance for exotic fruit flies....................................................................................................15

4 Methodology........................................................................................................................................... 23

An illustrative economic framework...........................................................................................23Specification of the scenarios..........................................................................................................25Modelling the spread of the incursion.........................................................................................26Estimation of economic impacts....................................................................................................29

5 Results....................................................................................................................................................... 34

6 Conclusions............................................................................................................................................. 45

Appendix A: Gross value of production by states..............................................................................46

Appendix B: Estimating the benefits of the Torres Strait Fruit Fly Strategy.........................47

Incorporating uncertainty................................................................................................................47Estimating producer and consumer losses...............................................................................50

References........................................................................................................................................................... 52

TablesTable 1 Potential losses without and with eradication (present values over 100 years). .4

Table 2 Benefits of eradication without the Strategy (present values over 100 years)......5

Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years). 6

Table 4 Benefits to industry of cost sharing (present values over 100 years)........................7

Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategy....................................................................................................................................................................... 10

Table 6 Host crop - exotic fruit fly mapping.........................................................................................11

Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit flies.............................................................................................................................................................. 12

Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait Fruit Fly Strategy 2002-03 to 2011-12.......................................................................................17

Table 9 Cost of the response component of the Torres Strait Fruit Fly Strategy................19

Table 10 Jurisdictions' share of the total cost.....................................................................................20

Table 11 A 4 by 4 Markov probability transition matrix................................................................27


Table 12 The number of additional sprays of insecticides per hectare by state and territory.................................................................................................................................................... 31

Table 13 Cost of on-farm sprays and disinfestation of produce.................................................32

Table 14 Production volumes affected by state of incursion.......................................................33

Table 15 Producer losses in the event of an incursion without the Strategy (present values over 100 years).......................................................................................................................35

Table 16 Consumer losses in the event of an incursion without the Strategy (present values over 100 years).......................................................................................................................36

Table 17 Economic losses in the event of an incursion without the Strategy (present values over 100 years).......................................................................................................................37

Table 18 Benefits of eradication in the event of an incursion without the Strategy (present value over 100 years)......................................................................................................38

Table 19 Benefits of eradication in the event of an incursion with the Strategy (present value over 100 years)......................................................................................................................... 38

Table 20 Benefit - cost analysis of the Torres Strait Fruit Fly Strategy (present values over 100 years)..................................................................................................................................... 40

Table 21 Benefits to industry of cost sharing (present values over 100 years)..................41

Table 22 Sensitivity of the benefits to change in incursion probability and the budget (present values over 100 years)....................................................................................................44

Table 23 Gross value of production of fruit crops that are potential hosts to exotic fruit flies.............................................................................................................................................................. 46

Table 24 A 4 by 4 Markov probability transition matrix................................................................47

FiguresFigure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special

Quarantine Zone and movement restrictions for biosecurity risk material including fruit fly hosts...........................................................................................................................................18

Figure 2 Transition probabilities used to model the spread without eradication..............28

Figure 3 The impact of eradication on transition probabilities..................................................49

Figure 4 Basic supply and demand model for exotic fruit fly susceptible crop product..50

BoxesBox 1 Target species of the Torres Strait Fruit Fly Strategy.........................................................16

Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy.........18

Box 3 Northern Australia Quarantine Strategy (NAQS)..................................................................21

Box 4 Queensland government activities targeting exotic fruit flies in Torres Strait.......22

Box 5 An illustrative economic framework to estimate the benefits of the Torres Strait Fruit Fly Strategy..................................................................................................................................24


SummaryThe Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is designed to prevent the entry of exotic fruit flies to the Australian mainland. It was established following the 1995 papaya fruit fly incursion around Cairns that cost $34 million (equivalent to around $55 million in 2012-13 dollars) to eradicate and reduced horticultural income due to a ban on imports of Australian horticultural products by overseas countries. According to Cantrell et al. (2002), the incursion lasting 5 years has cost the horticultural industries approximately $100 million. The absence of exotic fruit fly incursions into mainland far north Queensland since then suggests that the Strategy has been successful and avoided the cost of expensive eradication programs, short term losses from reduced market access, and long term productivity losses to horticultural industries should eradication fail and the incursion spread to the rest of Australia. The avoided potential economic cost represents the benefit to horticultural industries of the early detection and rapid response program implemented under the Strategy. The Beale review of Australia’s quarantine and biosecurity arrangements lauded the Strategy as – an initiative with a small investment ($200,000) each year that has prevented expensive response actions ($35 million). However, unlike the arrangements for post-border fruit fly outbreaks, the current arrangements for this key border prevention measure only shares the cost between Australian governments with no contribution being made by the horticultural industry.

In recognition of the significant benefits to horticultural industries, the Primary Industries Standing Committee (PISC) in 2012 announced a review of the Strategy, focussing particularly on the development of a business case for the participation of the horticultural industry in the long term cost sharing arrangements.

ABARES was asked by the secretariat of the National Biosecurity Committee to conduct a benefit-cost analysis with the focus on developing a business case for the horticultural industries to invest in maintaining the Strategy.

The overall benefit-cost analysis is positive with robust benefit-cost ratios. This report shows there are significant benefits for the horticultural industry in its participation in the cost sharing arrangements for the Strategy, resulting in better alignment of the funding base of the Strategy with that of other nationally cost shared detection and eradication initiatives.

The threat of exotic fruit fliesGiven the presence of multiple species of exotic fruit flies in neighbouring countries immediately to the north, Australia faces a risk of these flies entering northern parts of the country. A potential incursion of exotic fruit flies is recognised by the National Fruit Fly Strategy as one of the six key risks facing current fruit fly management arrangements (Plant Health Australia, 2010).

Compared to the Queensland and Mediterranean fruit flies, other exotic fruit fly species can potentially cause more damage because some species attack fruits at an earlier stage of development (unripe fruits) and can survive in a wide range of climatic conditions. Given the wide range of species of fruit fly exotic to Australia, there are very few fruit crops that would not be susceptible to infestation by at least one exotic species. For example, despite its name, papaya fruit fly attacks most edible fresh fruits, both tropical and temperate, with the exception of pineapples, and most vegetables other than root vegetables, leafy vegetables, peas and chokos (ABARE, 1995).

The gross value of Australian horticultural products that would be susceptible to infestation by exotic fruit fly species targeted by the Strategy is estimated at $2.1 billion in 2011-12 which is 54

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percent of the total gross value of all horticultural products produced in that year. If an exotic fruit fly incursion in mainland far north Queensland spreads to the entire state, then approximately half of the gross value product of all Australian host horticultural products, around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of the value of tomatoes, mandarins, avocados, mangoes, eggplants, passionfruits and chillies are expected to come under threat. In Queensland, the most threatened commodities in terms of gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million), mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados ($53 million).

Economic losses to affected industries can arise from lost profits due to additional costs being incurred from insecticide sprays on-farm to avoid the potential reduction in marketable yields of fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the area of incursion due to export bans imposed on the affected areas and the cost of regulations implemented during an incursion could also be significant. To some extent these sales losses can be mitigated by appropriate disinfestation of products. However, development of effective treatments and subsequent negotiations to have them accepted for either domestic or international trade may be time consuming, resulting in ongoing loss of market access until the negotiations are successful. The cost of complying with these treatment protocols represents the ongoing additional cost of disinfestation of produce destined to export market, though this cost could be significantly less than the value of sales that could have been potentially lost if the export bans were maintained (ABARE 1995).

The Torres Strait Fruit Fly StrategyThe Torres Strait Fruit Fly Strategy targets six exotic fruit fly species that have established populations in South East Asian countries and Papua New Guinea. Australia is most concerned with populations of 3 species in Papua New Guinea, namely Bactrocera papayae (papaya fruit fly), B. cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the Australian mainland via the Torres Strait islands. Papaya and New Guinea fruit flies and to a lesser extent melon flies have been found in some Torres Strait islands in most years over the last decade. The flies disperse to the islands through wind-assisted natural dispersal, especially during the annual monsoon season, when northerly winds assist dispersal from Papua New Guinea. However, the surveillance and eradication activities implemented under the Strategy have prevented the flies from establishing permanent populations in the Torres Strait islands, which would otherwise have increased the likelihood of these species entering the Australian mainland.

The Strategy has two components:

1) The Australian Government Department of Agriculture funded and implemented trap based monitoring program for early detection of target flies, carried out under the Northern Australia Quarantine Strategy (NAQS); and

2) A nationally cost shared response program to eradicate the flies from the affected islands by supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis, while the male annihilation blocking (lure and kill) is implemented directly by QDAFF.

The current arrangements for the second (response) component of the Strategy are to share the on-going cost between Australian governments, with no contribution from industry. As these arrangements came into being prior to the establishment of the Emergency Plant Pest Response Deed (EPPRD), they do not include industry contributions. While cost sharing arrangements

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with industry contributions are in place for the management of post-border exotic fruit fly outbreaks, efforts need to be made to convince the industry of the significant benefits it receives from the response element (second component) of the Torres Strait Fruit Fly Strategy and the justification, therefore, in it contributing to the costs of the program. Currently, the importance of sharing the cost of a mainland eradication campaign is more easily understood by stakeholders than that of an eradication program to prevent the pest from entering the mainland, as is carried out in the response component of the Strategy. The government fully funding the response element of the Strategy, as happens now, is inconsistent with the principle of the EPPRD and this deed process would provide a mechanism for industry input.

For example, the 1995 papaya fruit fly incursion on mainland far north Queensland was eradicated with funds raised using similar cost sharing arrangements even before the deed became operational (PHA 2011 and Abdalla et al. 2012).

The benefit cost- analysisThe business case developed in this study for the participation of horticultural industries in the cost sharing arrangements for the response component of the Strategy is based on the estimated long term benefits of the Strategy to horticultural industries and their sensitivity to key parameters. A group of 25 host crops are included in this study.

The benefit from the Torres Strait Fruit Fly Strategy is equal to the difference in the costs without and with the Strategy. Without the Strategy, it is assumed that any incursion is detected late on mainland Australia with an established population in mainland far north Queensland. It is further assumed that an eradication program is undertaken with some uncertainty surrounding its success.

The economic costs of the without Strategy scenario equals the sum of:

1) the cost of the eradication program;

2) the cost of development of product disinfestations;

3) the cost of implementing necessary regulations; and

4) depending on the probability of eradication, the expected losses arising from the spread of exotic fruit flies to the rest of Queensland, other eastern states and the Northern Territory.

The uncertainty surrounding the success of the eradication program is handled by estimating losses at 5, 10, 25, 50, 75 and 95 per cent probability of eradication.

The expected losses include short-term, short to medium term and long term losses. The short term losses arise from lost sales due to reduced access to both domestic and overseas markets. In the short to medium term, there needs to be investment in research and development for appropriate product disinfestation processes. The long-term losses include on-going costs of additional insecticide sprays to avoid yield losses, on-going additional marketing costs from complying with export protocols to regain access to markets. The short term losses are difficult to predict and therefore the one-off disinfestation development cost and long term revenue losses arising from additional production and marketing costs only are estimated. Following ABARE (1995), three different long-term economic impacts of exotic fruit flies are considered.

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1) Cost of additional disinfestation of produce from the affected area destined to overseas markets assuming that government would be able to develop necessary export protocols with countries importing Australian horticultural products;

2) Cost of additional insecticide sprays for exotic fruit flies for fruit and vegetable growers in the affected area; and

3) Cost of disinfestation of fresh fruits and vegetables moving out of affected areas to the rest of Australia.

The above industry impacts result in higher costs of production and marketing for producers in the affected areas resulting in lower production and higher average market prices for horticultural products across Australia. Higher prices are due to affected horticultural producers transferring some of the increase in cost of production to consumers, depending on the relative responses by producers and consumers to changes in prices. Economic impacts on producers and consumers are estimated in terms of reductions in economic welfare to these groups.

Potential losses from exotic fruit fly incursionIn the event of an incursion, the potential losses to producers and consumers from an exotic fruit fly incursion in mainland far north Queensland spreading to the rest of Australia are estimated at $2.1 billion and $1.2 billion, respectively (Table 1). If an eradication program is implemented, these losses could be reduced provided a higher probability of eradication is achieved. The expected producer and consumer losses can be reduced to $269 million and $174 million, respectively, if there is a 95 per cent chance of achieving eradication. The total economic losses incurred until the flies are eradicated decrease from $2.7 billion with a 5 per cent probability of being eradicated to $443 million with a 95 per cent probability of being eradicated.

Table 1 Potential losses without and with eradication (present values over 100 years)Without

eradicationWith eradication

Probability of eradication

5% 10% 25% 50% 75% 95%

$m $m $m $m $m $m $m

Producer2080.4 1699.5 1651.5 1492.9 1167.8 734.3 269.0

Consumer1185.3 976.7 949.7 860.7 678.3 435.1 174.0

Total3265.7 2676.2 2601.2 2353.5 1846.1 1169.3 442.9

The losses estimated for three commodities (oranges, tomatoes, and bananas) account for half of the total with the losses estimated for melons, mandarins and pumpkins accounting for an additional 25 per cent. The remaining 19 host crop commodities account for the remaining 25 per cent of the losses. Producers lose more than consumers as the additional cost of complying with export protocols reduces profits further on export sales and the asset fixity, particularly in perennial horticultural crop farms, reduces flexibility in supply adjustment in response to cost increases.

Benefits of eradicationIn the event of a mainland incursion, the potential losses from an exotic fruit fly incursion in far north Queensland spreading to the rest of Australia can be avoided if the incursion is eradicated while it is still confined to far north Queensland as demonstrated during the 1995 papaya fruit

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fly eradication campaign. For each target probability of eradication, the losses avoided by eradication equals the losses without eradication (column 2, Table 1) less the losses estimated for that eradication probability (columns 3—8, Table 1). The avoided losses or the benefits of the eradication campaign increase with the probability of eradication as shown in Table 2. The estimated benefits of eradication increase from $590 million to $2.8 billion as the probability of eradication increases from 5 per cent to 95 per cent. The estimated cost of eradication also increases (from $51 million to $90 million) as the probability of eradication increases. The benefit of the eradication program considered more than exceeds the cost, and the benefit-cost ratio exceeds 12:1.

Table 2 Benefits of eradication without the Strategy (present values over 100 years)Performance measure Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Producer benefits 380.8 428.9 587.5 912.6 1346.1 1811.4

Consumer benefits 208.6 235.6 324.6 507.0 750.2 1011.3

Economic benefits 589.5 664.5 912.1 1419.6 2096.3 2822.7

Disinfest R&D cost saved 0.5 1.0 2.5 5.0 7.5 9.5Cost of eradication 51.1 52.5 56.8 65.7 77.6 90.4Net present value 538.8 613.0 857.8 1358.8 2026.2 2741.8Benefit cost ratio 12 13 16 22 27 31

Benefits of the Torres Strait Fruit Fly StrategyIn the event of an incursion, the likely losses with the eradication program, presented in columns 3—8 in Table 1, plus the cost of the eradication campaign plus the cost of developing product disinfestation processes could have been avoided if the exotic fruit flies had been prevented from entering mainland Australia. For example, if the hypothetical on-going outbreak considered can be eradicated with a 95 per cent probability, a cost of $543 million ($443 million expected losses plus the $90 million eradication cost plus the $10 million cost of developing disinfestation processes) could have been avoided if the exotic fruit flies were prevented from entering the mainland.

However, currently there is no exotic fruit fly incursion in Australia and there is uncertainty surrounding a mainland incursion as well as uncertainty surrounding the probability of eradication if an incursion is to eventuate. Therefore, the expected avoided losses or benefits from the prevention of an uncertain incursion could be significantly lower.

The Torres Strait Fruit Fly Strategy is assumed in this study to reduce the annual probability of incursion of exotic fruit flies to the Australian mainland from 20 per cent to 5 per cent. The expected producer and consumer benefits of the strategy and savings for government in eradication costs, estimated after taking into account the reduction in the incursion probability, are given in Table 3.

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Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years)Performance

measureProbability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Producers 731.8 720.6 678.3 569.8 386.3 150.4

Consumers 420.3 414.0 390.8 330.7 228.7 97.3

Government 20.8 21.7 24.7 31.1 40.1 50.2Total 1172.9 1156.3 1093.7 931.6 655.2 297.9

Cost of strategy 3.5 3.5 3.7 4.0 4.4 4.7

Net present value 1169.4 1152.8 1090.0 927.5 650.8 293.2Benefit cost ratio 339 329 296 232 149 63

The expected benefit from the strategy increases from $298 million to $1173 million as the probability of eradication decreases. That is, the smaller the likelihood of being able to eradicate an incursion, the higher will be the benefits of preventing the incursion. Expected producer benefits increase from $150 million to $732 million while expected consumer benefits increase from $97 million to $420 million. Producers are expected to gain more than consumers, mirroring the relative magnitudes of the losses to each group that are avoided.

The response component of the Strategy costs an estimated $200,000 a year to implement and the present value of the stream of expected investment over 100 years is estimated to decrease from $4.7 million to $3.5 million as the probability of eradication decreases from 95 per cent to 5 per cent. This is because, the larger the likelihood of the incursion spreading further afield (as eradication fails) the smaller the likelihood of the Strategy being continued. The net present value (NPV) increases from $293 million to $1169 million and benefit-cost ratio (BCR) from 63:1 to 339:1 as the probability of eradication decreases from 95 per cent to 5 per cent. The smaller the probability of eradication the larger the NPV and BCR of the response component of the strategy. At a 5 per cent probability of eradication, the response component of the Torres Strait Fruit Fly Strategy returns a BCR of 339:1 compared to 63:1 for a 95 per cent probability of eradication (Table 3). This shows that the investment in the Strategy is more attractive when there is large uncertainty that an incursion detected late can be eradicated.

Business case for industry participation in cost sharing arrangements

Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry shares one fifth of the total cost in the event of an incursion. Early detection and prevention of exotic fruit fly entry could save the industry funds that would otherwise be spent eradicating an incursion resulting from late detection. Taking these savings also into account the total benefits to industry increase from $161 million to $736 million as the probability of eradication decreases (Table 4).

Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy, seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities carried out under this component are very similar to those undertaken during an eradication of

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a post-border outbreak of fruit flies and therefore industry contributions towards their costs are not inconsistent under the current arrangements.

Under the EPPRD cost sharing arrangements, papaya fruit fly is treated as a Category 2 pest and the industry shares 20 per cent of the cost of eradication (Access Economics 2010). The melon and New Guinea fruit flies have not been categorised yet and therefore the industry shares of their eradication costs have not been determined. Assuming a potential industry share of 20 per cent of the response cost under the Strategy regardless of the exotic fruit fly species, it would cost just under one million over 20 years ($40,000 per year of a $200,000 budget) compared to benefits ranging from $161 to $736 million depending on the probability of eradication (Table 4). For the industry, a small investment in the strategy, thus, yields a benefit cost ratio of at least 169:1. The returns on investment increase as the probability of eradication decreases.

Table 4 Benefits to industry of cost sharing (present values over 100 years)Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Avoided losses 731.8 720.6 678.3 569.8 386.3 150.4

Saved eradication cost 4.2 4.3 4.9 6.2 8.0 10.0

Benefits 736.0 724.9 683.2 576.0 394.4 160.5

Cost 0.7 0.7 0.7 0.8 0.9 0.9

Net present value 735.3 724.2 682.5 575.2 393.5 159.5

Benefit cost ratio 1063 1030 925 716 448 169

As the industry receives over 50 per cent of the benefits but in this example shares only 20 per cent of the costs, its investment in the Strategy yields producers greater returns compared to the returns to all groups from the total investment – for example - a benefit-cost ratio of 63:1 compared to 169:1 at 95 per cent probability of eradication (Table 3 and Table 4). Therefore, there are clear and significant benefits to industry of its participation in the cost sharing arrangements for the Torres Strait Fruit Fly Strategy. This would result in better alignment of the funding base of the strategy with that of other nationally cost shared detection and eradication initiatives.

Sensitivity analysisThe analysis is replicated with incursion probabilities of 10 per cent (lower bound) and 50 per cent (upper bound) around the most likely value of 20 per cent chosen. For each of the three incursion probabilities, the net present values and benefit-cost ratios are also estimated for an annual response cost of $400,000.

As expected, without the Strategy, the higher the probability of incursion the greater the benefits of having the Strategy to producers, consumers and the governments. The net present values and the benefit- cost ratios for the two budgets considered, also increase as the probability of incursion without the strategy increases. The doubling of the annual response budget to $400,000 halves the benefit-cost ratios, but they still remain positive.

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As discussed under the business case for the horticultural industry, for a given overall investment, the industry contribution to this investment yields producers greater returns compared to the returns to all groups from the total investment. Therefore, when the annual response budget is doubled, the industry would still receive higher returns on its potential 20 per cent share of the annual budget.

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1 Introduction Compared to Queensland fruit fly, exotic fruit fly species such as papaya fruit fly attack a greater number of crops and could therefore cause a greater damage to Australian horticultural industries (ABARE, 1995). The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy)was established following the 1995 papaya fruit fly incursion in far north Queensland that cost Australian governments and horticultural industries $34 million (in 1995 dollars) to eradicate over 5 years and reduced horticultural incomes resulting from the ban on imports of Australian horticultural products by overseas countries. According to Cantrell et al. (2002), the incursion has cost the horticultural industries approximately $100 million over the 5 year period.

The National Fruit Fly Strategy (NFFS) recognises a potential incursion of exotic fruit flies as one of the six key risks facing current fruit fly management arrangements (Plant Health Australia, 2010). Under the Torres Strait Fruit Fly Strategy, seasonal incursions of exotic fruit flies in the Torres Strait islands are detected and the incursion is promptly eradicated before the flies enter the mainland.

The early detection and response to incursions delivered under the Torres Strait Fruit Fly Strategy is complemented by related initiatives under the NFFS and Queensland government activities targeting exotic fruit flies. For example, specific initiatives to further strengthen the Torres Strait Fruit Fly Strategy are contained in one of the fifteen projects identified under the NFFS implementation action plan. These projects are designed to deliver improved market access, emergency response arrangements against fruit fly incursions and minimise the impact of fruit files on horticultural industries (Plant Health Australia, 2010).

The lack of an incursion of exotic fruit flies in mainland Australia since 1995 suggests that the Torres Strait Fruit Fly Strategy has been successful to date. According to NFFS, the Strategy since its establishment has detected over 2800 exotic fruit flies belonging to three species in regular seasonal incursions in the Torres Strait islands. These incursions have been promptly eradicated thus preventing the establishment of residual permanent populations (Plant Health Australia, 2010).

According to some expert opinion, without the Strategy, a mainland incursion could be expected within 12-18 months and therefore the Strategy has apparently prevented the recurrence of such incursions. When expressed as a likelihood of incursion in any given year, considering the lack of an incursion since 1995, the strategy could be seen as greatly reducing that likelihood. Consequently, the likelihood of recurrence of a localised incursion in far north Queensland similar to the one that occurred in the Cairns area, is reduced and the costs of an expensive eradication campaign and the economic impact of the incursion potentially spreading into an Australia wide incursion are avoided. These avoided economic costs, including the lost sales in the short-term, represent the benefit from a successful detection and eradication program implemented under the Torres Strait Fruit Fly Strategy. However, there is little information available on the magnitude of the avoided losses or the benefits that can be directly attributed to the Strategy. Specifically, the information on the benefits to different horticultural industries is useful in identifying the key beneficiaries of the Strategy so that they could be convinced to contribute to the cost sharing arrangements in line with the principles of the Emergency Plant Pest Response Deed (EPPRD). The broader participation of beneficiaries in these arrangements is expected to better secure ongoing funding for the maintenance of the Torres Strait Fruit Fly Strategy. In this context, it is timely, that the Primary Industries Standing Committee (PISC)

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announced in 2012 a review of the Strategy to particularly examine the longer term funding arrangements and make recommendations on options for cost sharing with beneficiary industries.

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2 The threat of exotic fruit fliesExotic fruit fly speciesThere are a number of exotic fruit fly species, including papaya fruit fly that cause significant damage to fruit and vegetable crops in South East Asia and the Pacific. For example, papaya fruit fly has established populations in Thailand, Malaysia, Singapore, Borneo, Indonesia, Sulawesi, Christmas Island and Papua New Guinea (Drew and Hancock, 1994). The exotic fruit fly populations in the neighbouring countries to the north of Australia present a real risk of these flies entering the northern parts of the country. A significant pathway for their entry from Papua New Guinea exists in the Torres Strait region. The Torres Strait Fruit Fly Strategy lists 6 lure-responding exotic fruit fly species that have established populations in Papua New Guinea and South East Asian countries (Table 5). The Strategy particularly targets three of these species (papaya fruit fly, melon fly and New Guinea fruit fly) that have established and unmanaged populations in the Western Province of Papua New Guinea. The Strategy also refers to three additional species of non lure-responding fruit flies that are known to be present in neighbouring New Guinea and Timor Leste.

Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategya

Species Common name Nearest known location Likely host cropsB. carambolae Carambola fruit fly Sumbawa, Indonesia Most fruit cropsB. papayae Papaya fruit fly PNG (Western Province) Most fruit cropsB. philippinensis Philippine fruit fly Philippines Most fruit cropsB. cucurbitae Melon fly PNG (Daru, Western Province) All cucurbitsB. tau Java, Indonesia All cucurbitsB. trivialis New Guinea fruit fly PNG (Western Province) Most fruit crops

Note: a. There are about 80 other species of fruit flies currently found in Australia, many being native species. However only six of them have any significant impact on horticulture (Drew, Hooper and Bateman, 1982) with the species that cause most of the damage to horticultural industries being Queensland fruit fly in the eastern states and the Mediterranean fruit fly in Western Australia.Source: Technical Advisory Panel for exotic fruit flies (2013)

Host crops of exotic fruit fliesThe range of Australian crops that would be affected by the three target flies is not accurately known; however, the crops targeted by these flies in other countries, particularly in South East Asian countries, could help in the identification of their potential Australian hosts. ABARES obtained the assistance of the Australian Chief Plant Protection Office (ACPPO) of the Department of Agriculture in identifying the host crops. ACPPO has consulted a number of sources including Allwood et al. (1999), Hamacek et al. (1997), Drew et al. (1994), Crop Protection Compendium of the Centre for Agricultural Bioscience International (CABI), Pacific Fruit Fly Web of the Secretariat of the Pacific Community (SPC), various Industry Biosecurity Plans and Plant Health Australia in identifying the host crops. ACPPO has identified a total of 68 crops; however, only 25 major crops are included in this study as production data were not available for the remaining minor but emerging cropping industries. The crops selected are listed in Table 6 along with the information for each crop on which exotic fruit fly species would choose it as a host. Each crop is affected by at least one target fly species with 9 crops affected by two species and just two (mango and guava) affected by all three species. Of the 25 host crops, papaya fruit fly affects 20 crops, melon fly 15 crops and the New Guinea fly 4 crops. The list includes 15 fruit and 10 vegetable crops (Table 6).

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Table 6 Host crop - exotic fruit fly mappingCrop B. papayae B. cucurbitae B. trivialis

(Papaya fruit fly) (Melon fly) (New Guinea fly)

Avocados -

Bananas - -

Beans -

Bitter gourds -

Capsicums - -

Cherries -

Chillies -

Cucumber -

Eggplant - -

Grapefruit - -

Guava

Lemons - -

Limes - -

Lychees -

Mandarins - -

Mangoes

Melons - -

Okra - -

Oranges - -

Passionfruit -

Pawpaw and Papaya -

Peaches -

Pumpkins - -

Rambutan - -

Tomatoes -

Source: ACPPO (2013)

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The gross value product of horticultural hosts potentially susceptible to attack by papaya, melon and New Guinea fruit flies in Australia is estimated at $2.1 billion in 2011-12 which is 54 percent of the total gross value of all horticultural products produced in that year (Table 7). If an exotic fruit fly incursion in mainland far north Queensland spreads to the entire state, then approximately half of the gross value product of all Australian host horticultural products, around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of the value of tomatoes, mandarins, avocadoes, mangoes, eggplants, passionfruits and chillies are expected to come under threat. In Queensland, the most threatened commodities in terms of gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million), mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados ($53 million).

The information on the gross value of exotic fruit fly host fruits in other Australian states is given in Appendix A.

Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit fliesFruit commodity Type Australia Gross value as a per

cent of total gross value of Australian

fruit producea

Queensland Queensland gross value as a percent

of Australian gross value

$m % $m %

Tomatoes Vegetable 418 10.6 230 55

Bananas Fruit 316 8.0 283 90

Oranges Fruit 198 5.0 5 3

Melons Vegetable 188 4.8 54 29

Mandarins Fruit 137 3.5 89 65

Beans Vegetable 130 3.3 94 73

Capsicums Vegetable 113 2.9 83 73

Avocados Fruit 105 2.7 53 51

Mangoes Fruit 100 2.5 55 55

Cherries Fruit 95 2.4 0 0

Peaches Fruit 92 2.3 5 6

Pumpkins Vegetable 71 1.8 26 36

Lemons Fruit 34 0.9 15 43

Cucumber Vegetable 28 0.7 11 38

Limes Fruit 25 0.6 22 89

Pawpaw and Papaya Fruit 18 0.4 16 90

Eggplant Vegetable 13 0.3 9 66

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Passionfruit Fruit 13 0.3 9 70

Lychees Fruit 11 0.3 10 98

Grapefruit Fruit 10 0.2 1 10

Chillies Vegetable 5 0.1 4 79

Bitter gourds Vegetable 2 0.1 0 3

Okra Vegetable 2 0.0 0 0

Guava Fruit 1 0.0 1 47

Rambutan Fruit 1 0.0 1 67

Total 2127 53.8 1076 51

Note: a. Total value of Australian fruit and nut production in 2011-12 is estimated at $3953 millionSource: ABS (2012) and ABARES calculations

Nature of the damage and economic implicationsCompared to the Queensland fruit fly, exotic fruit flies can potentially cause more damage because some attack fruits at an earlier stage of development (unripe fruits) (ABARE, 1995) and can survive in a wide range of climatic conditions.

Papaya fruit fly attacks most edible fresh fruits, both tropical and temperate, with one exception being pineapples. It also attacks most vegetables other than root vegetables (potatoes, sweet potatoes, carrots and onions), leafy vegetables (such as lettuce and cabbages), peas and chokos (ABARE, 1995).

The adult females lay their eggs just under the skin of the host fruit or vegetable. Within two to three days the eggs hatch into larvae which, as they feed, damage the fruit by burrowing into healthy tissues causing decay and premature fruit drop. Considerable damage can occur under the skin before obvious signs of infestation can be seen on the fruit or vegetable. The most obvious signs of infestation are small discoloured patches on the skin which develop from the punctures made by the female fly as she laid her eggs. Secondary infections, either bacterial or fungal, may also follow from the damaged host tissues leading to more markings on the surface of the fruit or vegetable.

Economic losses to affected industries can arise from lost profits due to additional costs being incurred on insecticide sprays on-farm to avoid the potential reduction in marketable yields of fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the area of incursion due to trade restrictions imposed on the affected areas could also be significant. To some extent these sales losses can be mitigated by appropriate disinfestation of products. However, the development of effective treatments and subsequent negotiations to have them accepted for either domestic or international trade may take time; resulting in ongoing loss of market access until the negotiations are successful and agreed protocols take effect. The cost of complying with these protocols represents largely the cost of disinfestation of

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produce destined to export markets and this cost could be significantly less than the value of sales that could have been potentially lost if the export bans were maintained (ABARE 1995).

The rationale for government response to exotic fruit fly threat In general, when faced with pest and disease threats, governments have a role in providing biosecurity in terms of pre-border, border and post-border services that market forces, if left alone, would fail to provide adequately. These services, due to the public good nature of their demand, benefit all users including those who can choose not to pay thus making it unprofitable for a private supplier to provide (Sumner et al. 2005). Government responses to the threat from all species of fruit flies include quarantine restrictions, monitoring and surveillance, eradication and ongoing control (Abdalla et al. 2012). The success of the Torres Strait Fruit Fly Strategy in keeping exotic fruit flies out of the Australian mainland since 1995 has benefitted producers and consumers of fresh fruits and vegetables. It has benefitted producers by lowering the marginal cost of production and marketing and consumers by keeping prices lower compared to the levels they would have increased to had a widespread incursion of exotic fruit flies occurred. The reduction in marginal cost of production and marketing results from the avoidance of on-farm expenditure on additional insecticide sprays and disinfestation of produce destined to exotic fruit fly free domestic and export markets. Following Sumner et al. (2005), the reduction in per unit cost of production and marketing attributed to the Strategy does not depend on the volume of production that is protected by the Strategy. In other words, it doesn’t depend on whether the exotic fruit fly incursion is confined to mainland far north Queensland or it spreads to the rest of Queensland or to other eastern States and the Northern Territory. Assuming each host horticultural industry is perfectly competitive; per unit cost reduction experienced by an individual producer is not affected by the number of other producers who would also experience similar reductions. On the other hand, in most situations, assuming that there are no natural barriers to the spread of exotic fruit flies within Australia, the cost of implementing the Strategy does not increase in proportion to the volume of production protected (Sumner et al. 2005).

The case for cost sharing by industryFollowing Ekboir (1999) and Sumner et al. (2005), when private incentives to provide border services are less apparent, horticultural producers are expected to respond to incentives created by collective actions through industry organisations. This means horticultural industry organisations representing producers would be expected to respond positively to incentives created by institutional arrangements for sharing the costs (with governments) of protecting the industry from potential exotic fruit fly incursions. Cost sharing arrangements with industry contributions are in place for the management of post-border exotic fruit fly outbreaks. Industry needs to be convinced that similar incentives also exist for sharing the cost of border services. Governments and industry sometimes share the cost of post-border fruit fly management as required under EPPRD (Abdalla et al. 2012). Access Economics (2010) states, that EPPRD cost sharing arrangements recognise that the failure to promptly eradicate an outbreak of exotic fruit fly on one property can undermine the pest-free status of an entire region or state, resulting in the exclusion of all growers in the region or state from accessing domestic and international markets.

Papaya fruit fly incursion in 1995The papaya fruit fly outbreak in 1995 around Cairns marked the second incursion of a serious exotic fruit fly pest in the Australian mainland (since the entry of Mediterranean fruit fly to Western Australia in 1895). In 1993, it was detected on five Torres Strait islands and

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subsequently eradicated by the then Queensland Department of Primary Industries (QDPI). It is believed to have been carried into Torres Strait by monsoon winds from Irian Jaya and Papua New Guinea, where it had been first detected in 1992. In 1995, papaya fruit fly established small populations around Cairns, in Mareeba and to a lesser extent around Mossman (Cantrell et al. 2002). Its source is unknown but the fly was speculated to have possibly come from the Torres Strait islands. Immediately after the detection, QDPI declared a 10,000 square kilometre quarantine zone. No fresh host fruits and vegetables were allowed out of the quarantine zone without a permit from QDPI.

In response to this incursion, some overseas countries banned imports of specific Australian horticultural produce. These include imports of Australian mangoes by Japan, bananas by New Zealand and all fruits and vegetables by the Solomon Islands. The export bans affected 5 percent of the value of Australian mango exports and 10 percent of the value of banana exports in 1995. Approximately, one fifth of the value of exports from the quarantine zone was lost in that year (ABARE 1995).

The Plant Health Committee (PHC) of the Standing Committee on Agriculture and Resource Management (SCARM) decided to undertake an eradication campaign costing an estimated $34 million (in 1995 dollars) over a 5 year period. A benefit-cost analysis conducted by ABARE (now ABARES) on the request of then AQIS estimated that if papaya fruit fly was not eradicated it would have cost $74 million (in 1995 dollars) a year in terms of additional production and marketing inputs (ABARE 1995). The campaign was successful in eradicating the pest in four years (Cantrell et al., 2002).

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3 Surveillance for exotic fruit fliesIn addition to the Torres Strait island route, exotic fruit flies can also enter Australia through the increased flow of trade and people from South East Asian countries where these flies have established populations. Other surveillance activities for exotic fruit flies include pre-border, border and post-border measures. Pre-border import risk assessments are used to examine the likelihood that exotic fruit flies would enter, establish and spread through regulated pathways, and the consequences should that occur. If the assessed risks are above the ‘very low’ score, then pre-border treatments may be required or access denied (Abdalla et al. 2012). Quarantine restrictions are in place as part of border measures to reduce the risk of fruit fly infested fruits entering the country and some states. Post-border measures include fruit fly trapping programs implemented in all states and territories to detect exotic fruit flies entering through other pathways. These measures are designed to provide an early detection mechanism in high risk areas and ongoing confidence to importers that Australia remains free from these exotic species. For example, exotic fruit flies belonging to the species Bactrocera philippinensis (Philippine fruit fly) were detected in Darwin in 1997 through the trapping program implemented by the Northern Territory government and were promptly eradicated.

The purpose of this study is to undertake a benefit cost analysis exclusively of the investments in response (eradication) elements of the Torres Strait Fruit Fly Strategy. The analysis does not cover other pathways, nor the costs of monitoring and surveillance in Torres Strait which are borne by the Australian government and delivered under the auspices of the Northern Australia Quarantine Strategy (NAQS); however, the relevant information on these pathways is presented to provide the context.

Target exotic fruit fly speciesOf the six exotic species listed in Table 5, Australia is most concerned about three species that are widely established in the New Guinea landmass, namely B. papayae (papaya fruit fly), B. cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the Australian mainland through the Torres Strait (Box 1). Papaya and New Guinea fruit flies and to a lesser extent melon flies (referred to as target flies in this report) have been found in some Torres Strait islands in most years over the last decade after being blown by monsoonal wind from New Guinea (Table 5). The surveillance and eradication activities conducted under the ongoing Torres Strait Fruit Fly Strategy have resulted in the prevention of the flies from establishing permanent populations in the Torres Strait islands which would have otherwise increased the potential of them entering the Australian mainland.

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Box 1 Target species of the Torres Strait Fruit Fly Strategy

B. papayae (papaya fruit fly)

A major plant pest of horticultural crops in South East Asia with over 190 host plant species belonging to 114 genera and 50 families (Allwood et al. 1999). It has established populations in Thailand, Malaysia, Singapore, Borneo, Indonesia, Papua New Guinea and Christmas Island. In Papua New Guinea, it is found in carambola, cashew, papaya, pomelo, mango and guava (Franco-Dixon and Francis, 2009). It was found in 35 host plant species in Australia during the 1995 papaya fruit fly incursion (Hancock et al. 2000). Papaya fruit fly has been recorded on some Torres Strait islands during the monsoon (‘incursion’) season (usually November – June) in most years since the original incursion there in 1993. Eradication and response measures implemented under the Torres Strait Fruit Fly Strategy have prevented the establishment of permanent populations.

B. trivialis (New Guinea fruit fly)

New Guinea fruit fly is found regularly in Papua New Guinea and Indonesia. It is also found occasionally in small numbers in some Torres Strait islands during the incursion season after being blown in by wind from the southern parts of New Guinea. New Guinea fruit flies found in the Torres Strait islands are detected and eradicated by trapping and response activities, respectively carried out under the Strategy. It attacks a range of fruits belonging to 11 genera and ten families. It is regularly found in guava and plants belonging to genus Syzygium (Franco-Dixon and Francis, 2009).

B. cucurbitae (melon fly)

Melon fly is native to tropical Asia. It is found in Asia and Hawaii in over 125 species of both cucurbit and non-cucurbit hosts. Non-cucurbit hosts found in Asia and Hawaii include beans and papaya. In South East Asia, it has been found in 42 host species belonging to 26 genera and 12 families (Allwood et al. 1999). It has established populations in Papua New Guinea (and the broader New Guinea landmass) affecting 95 per cent of bitter gourd fruits produced in the country (Franco-Dixon and Francis, 2009).

The Torres Strait Fruit Fly StrategyThe Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait was established in 1996 as a result of a decision made by SCARM following the papaya fruit fly incursion around Cairns. The Strategy aims at reducing the likelihood of exotic fruit fly incursions in far north Queensland through continuous monitoring and eradication of seasonal fruit fly incursions in the Torres Strait islands. The implementation of the strategy is overseen by a Technical Advisory Panel (TAP).

The Torres Strait Fruit Fly Strategy has two components:

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1) Australian Government Department of Agriculture funded and implemented trap based monitoring program for early detection of target fruit flies, carried out under NAQS; and

2) A nationally cost shared response program to eradicate the flies from the affected islands by supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis, while the male annihilation blocking (lure and kill) is implemented directly by QDAFF.

During the 10 years to 2011-12, the Torres Strait Fruit Fly Strategy has detected around 500 exotic fruit flies belonging to the three target species. Papaya fruit fly is the most frequently detected species (75 per cent) with the New Guinea fruit fly being detected in 24 percent of all target detections (Table 8). Under the response component of the Strategy, additional traps are installed around the locations of initial detections to delimit the incursion and eradication activities are carried out by broad scale application of bait spray and installation of male annihilation blocks where pre-determined trigger points set in the Strategy are met or exceeded. Over the 10 years to 2011-12, a total of 156 response traps have been installed (Table 8).

Application of bait spray and male annihilation blocking have been undertaken in every year over the last 10 year period with the number of islands being subject to these treatments varying depending on the extent of the incursion. Four islands that lie closest to Papua New Guinea are pro-actively blocked and bait-sprayed annually, irrespective of the number of detections. The Torres Strait Protected Zone and Special Quarantine Zone are shown in Figure 1 and more details on the working of the Torres Strait Fruit Fly Strategy is presented in Box 2.

Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait Fruit Fly Strategy 2002-03 to 2011-12.

Year Number of detections Response activity levelsPapaya fruit fly

Melon fly New Guinea fruit fly

No. of response

traps installed

No. of islands bait

sprayed

No. of islands where male annihilation

blocking undertaken

2002-03 100 0 32 42 7 82003-04 54 1 17 35 11 72004-05 53 0 4 8 8 82005-06 21 2 2 32 8 42006-07 49 0 40 9 6 52007-08 10 0 1 4 4 42008-09 5 0 0 3 3 42009-10 42 1 6 20 7 42010-11 0 0 3 3 4 42011-12 39 1 17 37 6 4

Source: Torres Strait Fruit Fly Strategy review 2013 – background paper

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Figure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special Quarantine Zone and movement restrictions for biosecurity risk material including fruit fly hosts

Source:Torres Strait Fruit Fly Strategy review 2013, Background paper

Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy

Both detection and response elements of the Strategy rely on traps installed for exotic fruit fly detection. Paton traps are used for monitoring as they can withstand high rainfall or wind over a long period between collections; whereas Steiner traps that provide flies easy access while protecting the trapped flies from water and predators are used as response traps placed with the aim of delimiting the incursion. A commercially prepared lure dispenser comprising a cotton wick impregnated with a mixture of attractant and insecticide mounted within a plastic dispenser is used to lure the flies. A dosage of 4 ml of lure and 1 ml of insecticide (Maldison 50) is used per trap. Methyl eugenol is used to lure B. carambolae, B. papayae and B. philippinensis whereas cuelure is used to lure B. curcurbitae, B. tau and B.trivialis. Monitoring traps are cleared each fortnight during the wet season (January to June) and each month during the dry season. Traps are cleared more frequently in the wet season due to the high number of flies trapped and to facilitate more rapid notification and response to exotic fruit fly detections. Torres Strait-based NAQS staff, supervised by NAQS entomologists, are responsible for trap maintenance and clearances.

Cairns-based NAQS entomologists identify, count and record all trapped flies (including non-target species) and advise the Technical Advisory Panel (TAP) on the appropriate time to change from fortnightly to monthly trapping. After each clearance, the TAP is provided with a summary of trap catch data, which specifically lists the number of target fruit fly species recorded (if any) and the islands on which they have been trapped. The reports are also provided to the Queensland General Manager of the Australian Government Department of Agriculture, NAQS and other stakeholders. NAQS entomologists also advise on any response action required if exotic fruit fly detections reach thresholds set in the Strategy.

The Torres Strait islands differ in terms of the risk of entry and establishment of exotic fruit flies

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depending on the distance from Papua New Guinea (Figure 1) and other infested islands, movements of people between islands, the direction and strength of the prevailing wind and availability of suitable host fruit trees. These differences in risk are reflected in the detection thresholds for further action set for each of the islands.

For each island and collection period, the actual number of target exotic fruit flies caught in monitoring traps is compared with two thresholds (low and high) set for that island by the TAP. Additional (response) traps are installed and protein bait-spraying is commenced on islands where the first (low) threshold is exceeded and a combination of protein bait-spraying and male annihilation is carried out if the second (high) threshold is exceeded. Response trapping and protein bait-spraying are managed by NAQS entomologists while male annihilation activities are managed by the Queensland manager (Plant Biosecurity) of the Australian Government Department of Agriculture. NaturalureTM fruit fly bait concentrate at the rate of 7.5 litres per hectare is used as the protein bait while Caneite blocks impregnated with a mixture of Methyl Eugenol lure and ultra low volume (ULV) malathion concentrate is used for male annihilation. Response activities continue for 12 weeks after the last target fly is detected to allow for the completion of two life cycles. Response traps are decommissioned once male annihilation blocks are set in place, but reinstalled for a further 12 weeks to increase monitoring sensitivity upon removal of the male annihilation blocks.

To monitor for the non-lure responding exotic fruit flies mentioned in the Strategy, NAQS monitoring activities also include rearing fruit fly larvae through to adult flies from apparently stung potential host fruits collected from Torres Strait island gardens. The officers of the Australian Government Department of Agriculture undertake surveillance of gardens on the islands, targeting fruiting plants belonging to the Solanaceae (chillies, capsicum, tomatoes and eggplants) and the Cucurbitaceae (pumpkins, melons and squash) families. Island residents are encouraged through public awareness activities to look for exotic fruit flies and collect and handover suspected fruits for further inspection and rearing.

Cost of the response component of the Torres Strait Fruit Fly StrategyA set of defined response activities is funded under the cost sharing arrangements subject to an annual cap. In recent years, total cost shared expenditure either reached or exceeded the $200,000 annual cap ($202,081 in 2009-10 and $190,341 in 2011-12) (Table 9). PISC recently decided to raise the cap to $400,000 per year to cover over the cap expenses during high fruit fly activity seasons and increased need to use helicopters. While agreeing to raise the funding cap to $400,000 for 2012-13, PISC requested a review of the Strategy be done to examine the longer term funding arrangements, particularly to see how the cost shared response elements of the strategy align with the provisions within the EPPRD and what options there are for cost sharing with the beneficiary horticultural industries.

Table 9 Cost of the response component of the Torres Strait Fruit Fly StrategyNominal ($) In 2012 ($)

2009-10 202,081 214,327

2010-11 190,341 195,810

2011-12 137,624 137,624

Source: Torres Strait Fruit Fly Strategy Review (2013)

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Current cost sharing arrangementsInformation on how the response cost of the Torres Strait Fruit Fly Strategy is shared between jurisdictions is given in Table 10. The current cost sharing arrangements between Australian governments were developed with the creation of the Torres Strait Fruit Fly Strategy in 1996 by SCARM, the predecessor of PISC. As these arrangements came into being prior to the establishment of the EPPRD, they do not include industry contributions. However, governments and industry now take joint actions in response to incursions of exotic fruit fly species. Particularly, the EPPRD sets out the cost-sharing arrangements and manages the funding of the responses to incursions of exotic fruit flies. In fact, the 1995 papaya fruit fly incursion was eradicated using similar cost sharing arrangements before the deed became operational (PHA 2011 and Abdalla et al., 2012). The three exotic fruit fly species considered in this study pose significant threats to horticultural industries and native vegetation in wet tropics. Accordingly, if they are to be classified as Category 2 pests under the deed, 80 per cent of the funding for response actions would be sourced from governments with the remainder coming from industry contributions (Abdalla et al., 2012).

Table 10 Jurisdictions' share of the total costJurisdiction Percentage share of the total costAustralian Government 50.0Queensland 15.4New South Wales 10.2Victoria 12.6South Australia 6.3Western Australia 3.7Tasmania 1.3Northern Territory 0.5Total 100

Source: Torres Strait Fruit Fly Strategy Review (2013)

Other initiatives complementing the Torres Strait Fruit Fly StrategyThe border services provided under the Torres Strait Fruit Fly Strategy are complemented by other government initiatives. They include related activities carried out under NFFS, Queensland government’s activities targeting exotic fruit flies; and the broader surveillance activities carried out under NAQS, in addition to its role in implementing the monitoring component of the Torres Strait Fruit Fly Strategy. Additionally, restrictions on the movement of high risk plant materials southwards through Torres Strait to the mainland and southwards within Cape York Peninsula, implemented by NAQS and QDAFF, respectively, reduce the risk of new exotic fruit fly populations becoming established in far north Queensland.

The NFFS Action Plan and the Torres Strait Fruit Fly StrategyThe 2008 National Fruit Fly Strategy (NFFS) identified six risks facing current fruit fly management arrangements including the risk of exotic fruit fly incursion. Based on this assessment, it identified a number of strategies to minimise the overall risk faced by horticultural industries. The identified strategies reflected the need for an integrated national approach that clearly defines the roles and responsibilities for industry, government and other stakeholders. The NFFS implementation action plan released in April 2010 comprises a package of 15 integrated projects designed to deliver improved market access, emergency response arrangements against fruit fly incursions and minimise the impact of fruit flies on horticultural industries in a cost-effective manner (Plant Health Australia, 2010). The maintenance of the Torres Strait Fruit Fly Strategy is identified as one of the projects (Project Number 6) which is seen as an integral part of the NFFS Action plan in delivering its intended outcomes. In

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continuing to support the Torres Strait Fruit Fly Strategy, the plan proposes to undertake a number of initiatives to enhance it. They include:

1) a review of the current area of operation including high risk entry points;

2) a comprehensive benefit-cost analysis of the Strategy;

3) alignment of the strategy delivery and funding with other detection and eradication programs; and

4) securing on-going funding through a cost sharing arrangement.

While the Project 6 of the plan is specifically on the Torres Strait Fruit Fly Strategy, specific initiatives for exotic fruit flies are identified in at least three other projects. These include developing species specific data sets for high risk exotic fruit fly species (Project 1), conducting risk analysis for exotic fruit flies (Project 2), preparing the industry and government to quickly respond to an exotic fruit fly incursion (Project 2) and developing a national diagnostic network for effective and rapid diagnosis of exotic fruit flies (Project 3). Because of the integrated nature of the projects in the plan, the specific efforts directed to managing the risk from exotic fruit flies could also benefit from various other fruit fly management initiatives listed under 5 other projects. They are:

1) Mapping Australia’s fruit fly status (Project 4)

2) Integrated national fruit fly surveillance system (Project 5)

3) National fruit fly information portal (Project 7)

4) National standards for fruit fly management systems (Project 9); and

5) National approach to establishing different forms of pest free areas for regaining market access (Project 11).

Other government activitiesNAQS lists 18 exotic fruit fly species as target species including the 6 lure-responding species (Table 5) listed under Torres Strait Fruit Fly Strategy. The NAQS activities complementing the efforts of the Torres Strait Fruit Fly Strategy are described in Box 3. Relevant Queensland government activities, other than those performed in the implementation of the Torres Strait Fruit Fly Strategy, are described in Box 4.

Box 3 Northern Australia Quarantine Strategy (NAQS)

The Northern Australia Quarantine Strategy undertakes border and post-border surveillance activities for plant and animal pests, diseases and weeds along Australia’s northern margin stretching from Broome to Cairns, and including the Torres Strait islands.

NAQS lists 12 more exotic fruit fly species as target species in addition to the 6 species listed under the Torres Strait Fruit Fly Strategy (Table 5). Additional species listed under NAQS include the guava fruit fly (Bactrocera correcta) found in Thailand, Indian fruit fly (Bactrocera caryeae), oriental fruit fly (Bactrocera dorsalis) found in Vietnam, Tongan fruit fly (Bactrocera facialis), Sri Lankan fruit fly (Bactrocera kandiensis), Malaysian fruit fly (Bactrocera latifrons), Cook Islands fruit fly (Bactrocera melanotus), Chinese fruit fly (Bactrocera minax), bezzi fruit fly (Bactrocera occipitalis) found in Sabah Malaysia, Fijian fruit fly(Bactrocera passiflorae), Japanese citrus fruit fly (Bactrocera tsuneonis), breadfruit fly (Bactrocera umbrosa) found in Papua New Guinea and Indonesia and peach fruit fly (Bactrocera zonata)found in

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Thailand. The list also includes three non-lure responding fruit fly species namely, Bactrocera atrisetosa, Bactrocera decipiens and Bactrocer latifrons. The flies belonging to these species are monitored by rearing from host fruits. The breadfruit fly is occasionally recorded in Torres strait traps.

In addition to its border and post-border activities, NAQS also contributes to pre-border activities of the Australian Government Department of Agriculture under the auspices of its Regional Animal Biosecurity (RABP) and International Plant Health Programs (IPHP). NAQS scientists participate in collaborative surveys and quarantine capacity building projects in Indonesia, East Timor, the Solomon Islands and Papua New Guinea.

Box 4 Queensland government activities targeting exotic fruit flies in Torres Strait

Queensland government undertakes a number of activities aimed at reducing the biosecurity risk in the Torres Strait islands and mainland far north Queensland. They include targeted surveillance and response activities in Cape York Peninsula, collaboration with NAQS on its Torres Strait activities, public awareness activities, running the Coen Inspection and Information Centre (CIIC) and biosecurity capacity building activities in Papua New Guinea. The Queensland Plant Protection Regulation 2002 has established the Far Northern Queensland Pest Quarantine Area (FNQPQA) which covers the Torres Strait islands and Cape York Peninsula north of CIIC. This regulation provides for the prevention of the spread of the targeted plant and animal pests and diseases within and beyond this quarantine area. The CIIC provides key supporting services in the form of monitoring the area for emerging biosecurity threats including exotic fruit fly incursions.

Additionally, the Queensland Plant Protection Act of 1989 lists 22 exotic fruit fly species. The list includes species covered under NAQS and the Torres Strait Fruit Fly Strategy.

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4 MethodologyExotic fruit flies have been the subject of three economic studies since the 1995 papaya fruit fly incursion namely ABARE (1995), Kompas and Che (2009) and Franco-Dixon and Francis (2009)). ABARE (1995) estimated the average annual economic impact of papaya fruit fly to Australia at $74 million (in 1995 dollars), while Franco-Dixon and Francis (2009) estimated the impact on the Queensland banana industry over a 10 year period to be $449 million (in 2009 dollars)

However, none of these studies provided impact estimates by different horticultural industries. While ABARE (1995) provides estimates of the aggregate impact covering 15 papaya fruit fly host crops in all states, Franco-Dixon and Francis (2009) provides an impact estimate just for the banana industry in Queensland. Kompas and Che (2009) estimated that it is profitable to increase Australia’s annual exotic fruit fly surveillance expenditure from the 2009 level of $1.4 million to $2.0 million (in 2009 dollars). However, their study didn’t estimate the benefits to the Australian horticulture industry from the proposed additional surveillance investment and how this investment should be sourced. Their study also didn’t go to the extent of disaggregating the overall benefits by different parts of the national exotic fruit fly surveillance program such as the Torres Strait Fruit Fly Strategy and separate investments by different jurisdictions.

The current study builds on these earlier works by covering additional aspects to address the specific objectives set out for study. The objectives of the study are to:

1) Estimate the long term expected benefits to each key horticultural industry of the Torres Strait Fruit Fly Strategy;

2) Estimate the sensitivity of the benefit measures (net present value and benefits cost ratio) of the Strategy to changes in key parameters such as the likelihood of an exotic fruit fly incursion in the mainland and annual budget; and

3) Develop a business case for the horticultural industries to invest in maintaining the Torres Strait Fruit Fly Strategy by participating in the current cost sharing arrangements.

An illustrative economic frameworkGiven the objectives outlined above, the general approach involves estimating for each key industry the expected losses from exotic fruit fly incursion without and with the Torres Strait Fruit Fly Strategy and then the expected benefits of the strategy in terms of avoided losses, over a given planning horizon. The present value of expected benefits (avoided losses) summed over all industries is then compared with the present value of the expected cost of implementing the Strategy.

The Strategy aims at reducing the likelihood of exotic fruit fly incursions in mainland far north Queensland through continuous monitoring and eradication of seasonal fruit fly incursions in the Torres Strait islands. The reduction in the likelihood of a mainland incursion in any given time period works through the uncertain pest spread process over time to produce three distinct effects:

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1) the probability that the mainland far north Queensland remains in the exotic fruit fly free state, at any given point in time, is increased;

2) the probability that an outbreak similar to the 1995 papaya fruit fly outbreak recurs, at any given point in time, is decreased; and

3) the probability of a widespread outbreak across all eastern states and the Northern Territory, at any given point in time, is decreased.

The uncertainty surrounding a localised incursion spreading further afield arises because of the biological process involved in exotic fruit fly population dynamics is subject to uncertain climatic and biotic conditions. Consequently, the impact on the spread of exotic fruit flies of border surveillance and post border eradication measures could also be uncertain.

An illustrative economic framework to estimate the benefits of the Torres Strait Fruit Fly Strategy is presented in Box 5. For simplicity, this framework abstracts from most of the uncertainties discussed above and assumes for merely illustrative purposes that there is a probability of one incursion without the Strategy and a probability of zero incursions with the Strategy, over the planning horizon chosen. The illustrative framework also assumes that without the Strategy the incursion would be eradicated with a 100 per cent probability of success. For simplicity, undiscounted costs and benefits are used in this illustration. The losses avoided by the Torres Strait Fruit Fly Strategy (benefits from the Strategy) equal the cost of eradication of the incursion plus the losses incurred until the incursion was fully eradicated. These benefits are compared with the ongoing costs of implementing the Strategy.

Box 5 An illustrative economic framework to estimate the benefits of the Torres Strait Fruit Fly Strategy

Consider a hypothetical incursion of exotic fruit flies in mainland far north Queensland without the Torres Strait Fruit Fly Strategy. Assuming a probability of one incursion over a planning horizon of T years, the economic losses and eradication costs of the incursion are represented in the top and middle segments of the diagram. The time path of economic losses from the uncontrolled spread is given by the full length of abc. If the incursion is detected td years after the mainland entry and eradicated in te-td years later, the time path of losses with eradication can then be given by abte and the time path of the cost of eradication by etep . The eradication program is assumed to continue additional tep-te years to ensure that no more flies are left. Avoided losses from eradication, P, is given by the difference between the areas under the curves abc and abte . The losses given by the area under abte , denoted Q, could have been avoided if the flies were prevented from entering the mainland.

Now consider with the Torres Strait Fruit Fly Strategy, the incursion is detected within the Torres Strait and promptly eradicated thereby preventing the flies from entering the mainland. For simplicity, the Strategy is assumed to be fully effective in this illustration so that the probability of a mainland incursion over the planning horizon, with the Strategy, is zero. The industry losses until the incursion in the Torres Strait is eradicated are actually zero. Assume that under the Torres Strait Fruit Fly Strategy, an annual investment of 0g is made over the same planning horizon.

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a

b

c

e

T

T

T

te td

tep td

Economic losses

Eradication cost

Surveillance cost

Time

P

Q

E

S g h

0

Let the avoided losses from surveillance (area under the abte ) be Q, the cost of eradication (area under etep) be E and the cost of surveillance (area under 0ghT) be S.

Then the net benefits of the strategy = losses with eradication + cost of eradication – cost of surveillance (Q + E – S).

The analytical approach includes modelling the pest spread process and economic impacts under the ‘with’ and ‘without Strategy’ scenarios with each scenario simulated with and without an eradication program. For each scenario (with or without eradication), the analysis will be implemented for each key industry by considering the process of an initial localised incursion in mainland far north Queensland spreading further afield to cover the cropping areas in the rest of Queensland and other jurisdictions.

Specification of the scenariosAs in the case of any other biosecurity surveillance measures, the benefit from the Torres Strait Fruit Fly Strategy is assumed to be equal to the difference in the costs (management plus any consequences) between late and early detections. This study considers that the Torres Strait Fruit Fly Strategy helps achieve early detection.

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Without Strategy scenarioImmediately prior to 1995, papaya fruit fly was believed to have entered from the Torres Strait islands to mainland far North Queensland and subsequently established small populations. The flies weren’t detected until they reached Cairns. Based on this experience, the ‘without strategy’ scenario in this study assumes a localised incursion in mainland far north Queensland similar to the 1995 incursion, which is technically assessed to be eradicable. The delayed detection time of the localised incursion corresponds to what Kompas and Che (2009) termed the point of natural detection on the spread time path of an invasive species with no investment in surveillance. This scenario also assumes that an eradication program similar to the 1995 papaya fruit fly eradication program is implemented but there is uncertainty surrounding the success of eradication.

With Strategy scenarioEarly detection is achieved by the Torres Strait Fruit Fly Strategy at an annual implementation cost of around $200,000 with negligible consequences in the Torres Strait islands and significantly reduced likelihood of flies entering the mainland (exotic fruit flies have not been detected in mainland far north Queensland since the establishment of the Strategy). This early detection scenario is referred to in this paper as the ‘with Strategy’ scenario.

Even though the Torres Strait Fruit Fly Strategy has prevented an exotic fruit fly incursion since 1995, there remains a small residual risk and therefore the likelihood of an exotic fruit fly entry to the mainland with the Strategy is not zero. In the unlikely event of an exotic fruit fly entry to the mainland under this scenario, it is assumed that the flies will be eventually detected in a localised incursion and an eradication program similar to that assumed for the ‘without Strategy’ scenario is carried out, while maintaining that the Strategy has significantly reduced the likelihood of an exotic fruit fly entry.

Modelling the spread of the incursionThe spread of the incursion is represented in 4 discrete incursion states:

1) No incursion in mainland far north Queensland (exotic fruit fly populations in Torres Strait islands are detected early and successfully eradicated);

2) Localised incursion in mainland far north Queensland, following the entry of exotic fruit flies;

3) Localised incursion in mainland far north Queensland continued due to a failed eradication campaign; and

4) Incursion spreads to the rest of Queensland, the other three eastern states (NSW, Vic and SA) and the Northern Territory.

Following Hinchy and Fisher (1991), Hafi, Reynolds and Oliver (1993), ABARE (1995), and Franco-Dixon and Francis (2009), the uncertainty surrounding the spread from one incursion state to another overtime is modelled using a Markov probability transition process. Specifically, the uncertainty surrounding a localised incursion in far north Queensland spreading to the rest of Queensland and then to other jurisdictions (NSW, Vic, SA and the Northern Territory) is handled by the use of a 4 by 4 Markov probability transition matrix (Table 11).

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Table 11 A 4 by 4 Markov probability transition matrixInfestation state at time t

No infestation

Initial localised

incursion

Localised incursion

arising from failed

eradication

Spread to other eastern States

and NT

Infestation state at time t+1 (En) (Ei) (El) (Ee)No infestation (En) Pnn Pin Pln Pen

Initial localised infestation (Ei) Pni Pii Pli Pei

Localised infestation arising from failed eradication

(El) Pnl Pil Pll Pel

Spread to other eastern States and Northern Territory

(Ee) Pne Pie Ple Pee

Two Markov transition probability matrices are specified: one for the ‘without Strategy’ and the other for the ‘with Strategy’ scenario. The first of the incursion states listed above is ‘no incursion in mainland Queensland’ resulting from the early detection of the flies in the Torres Strait islands followed by successful eradication before they reach mainland far north Queensland. Even though the Strategy has been successful in achieving this since the 1995 papaya fruit fly incursion, there remains a residual risk and therefore the probability of the flies reaching far north Queensland and causing a localised incursion is not zero. The probability transition matrix used for the ‘with Strategy’ scenario incorporates the role of the Torres Strait Fruit Fly Strategy in the form of a higher probability of maintaining the exotic fruit fly free state. The exotic fruit fly free state observed since the 1995 papaya fruit fly incursion is evidence in that the Strategy seems to have decreased the probability of a mainland incursion.

For each scenario, separate transition probability matrices are produced to represent spread process with different eradication efforts. In each of these matrices, the impact on the spread process of the eradication efforts is explicitly incorporated. These matrices are used to produce time evolutions of the probabilities of being in different incursion states. In deriving these time evolutions, the time step chosen should be equal to the number of years the eradication program is expected to run and the transition probabilities estimated per this time step should be used. The 1995 papaya fruit fly eradication campaign lasted 5 years and as such a 5 year time step is chosen. The time evolutions of probabilities of being in different incursion states over a planning horizon of 20 time steps (100 years) are used in estimating economic impacts.

Investment in maintaining the Torres Strait Fruit Fly Strategy, by securing industry contributions, could be expected to maintain the exotic fruit fly free state so that the industry could continue to benefit from the Strategy. Such benefits can be estimated by linking an economic model to spread estimated through the Markov chain models. Appendix B provides the details of the spread model and how spread estimates are used in the economic model.

Transition probabilities usedThe simple aggregate spread model used in the study relies on information for each state of the incursion, the probability of transition from that state in the current time period to all 4 states in

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the next time period. The probability of transition from the 'no incursion' state to 'initial localised incursion' state (probability of incursion) without the Strategy should reflect the current likelihood of exotic fruit fly entry if the Strategy were to be removed. ABARE (1995), relying on expert opinion assumed, without any intervention, each year, there was a 5 per cent probability of exotic fruit fly entry around that time (before the establishment of the Torres Strait Fruit Fly Strategy). The likelihood of entry to mainland far north Queensland around that time reflects the geographical distribution and density of papaya fruit fly populations in Papua New Guinea around the same time. Experts believe that papaya fruit fly in Papua New Guinea has spread further afield, and the populations have grown in density since then, resulting in a significantly greater likelihood of entry to mainland far north Queensland if the Strategy were to be removed now. The emerging consensus of expert opinions on a higher incursion probability in recent years have been incorporated in the assumptions made in two benefit-cost analyses on papaya fruit fly conducted in 2009. Franco-Dixon and Francis (2009) assumed an annual incursion probability of 50 per cent while Kompas and Che (2009) assumed it to be normally distributed with a mean of 20 per cent and standard deviation of 10 per cent.

Following Kompas and Che (2009), this study assumes an annual incursion probability of 20 per cent as the most likely value of this uncertain parameter. The sensitivity of the results to uncertainty surrounding this parameter is measured by replicating the analysis with annual incursion probabilities of 10 per cent (lower bound) and 50 per cent (upper bound).

The lack of another exotic fruit fly incursion since 1995 indicates the incursion probability with the Strategy could be significantly lower than without the Strategy, however the uncertainty surrounding its value remains unresolved. The analysis presented in this report assumes that the Strategy has reduced the annual probability to 5 per cent.

The transition probabilities corresponding to the 5 year time step used to model the uncontrolled spread are presented in Figure 2.

Figure 2 Transition probabilities used to model the spread without eradication

Without Strategy 𝑝𝑛ሺ𝑡ሻ 𝑝𝑖ሺ𝑡ሻ 𝑝𝑙ሺ𝑡ሻ 𝑝𝑒ሺ𝑡ሻ𝑝𝑛ሺ𝑡+ 1ሻ 0.33 0.00 0.00 0.00𝑝𝑖ሺ𝑡+1ሻ 0.67 0.03 0.00 0.00𝑝𝑙ሺ𝑡+1ሻ 0.00 0.00 0.00 0.00𝑝𝑒ሺ𝑡+ 1ሻ 0.00 0.97 0.00 1.00

With Strategy 𝑝𝑛ሺ𝑡ሻ 𝑝𝑖ሺ𝑡ሻ 𝑝𝑙ሺ𝑡ሻ 𝑝𝑒ሺ𝑡ሻ𝑝𝑛ሺ𝑡+ 1ሻ 0.77 0.00 0.00 0.00𝑝𝑖ሺ𝑡+1ሻ 0.23 0.03 0.00 0.00𝑝𝑙ሺ𝑡+1ሻ 0.00 0.00 0.00 0.00𝑝𝑒ሺ𝑡+ 1ሻ 0.00 0.97 0.00 1.00

Note: Notations used: p = probability of transmission, t = current period, t+1 = next period, n = no incursion, i =initial localised incursion, l= localised incursion arising from a failed eradication campaign, e = incursion spread to the rest of Queensland, other eastern states and the Northern Territory.Data source: ABARE (1995)

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Impact of eradication on transition probabilitiesJust like the Torres Strait Fruit Fly Strategy reducing the probability of transition from the no incursion to the initial localised incursion state, an eradication campaign could result in changes to the transition probabilities in the second and third columns of the matrices shown in Table 11 and Figure 2. A successful eradication of the initial localised incursion is achieved through:

1) an increase in the probability of transition from the initial localised incursion state to the no incursion state, Pin (Table 11)

2) a reduction in the probability of transition from the initial localised incursion state to the localised incursion state arising from failed eradication, Pil; and

3) a reduction in the probability of transition from the initial localised incursion state to the widespread incursion state, Pie.

However, changes in these transition probabilities arising from the impact on the spread process of a given eradication effort are uncertain. Following ABARE (1995), these uncertainties are accounted for by developing 6 more transition matrices for each scenario to represent 5, 10, 25, 50, 75 and 95 per cent probability of eradication within a five year time step. The 6 matrices used for the ‘Without Strategy’ scenario are presented in Figure 3 in Appendix B. Similar assumptions are also made to consider the uncertainty surrounding the success of eradication with the Strategy.

Estimation of economic impactsThe economic losses include short-term, short to medium term and long term losses. The short term losses arise from lost sales due to reduced access to both domestic and overseas markets. In the short to medium term, there needs to be investment in research and development for appropriate product disinfestation processes. The long-term losses include on-going costs of additional insecticide sprays to avoid yield losses and on-going additional marketing costs from complying with export protocols to regain access to markets. The short term losses are difficult to predict and as such the one-off disinfestations development cost and long term revenue losses arising from the additional costs of production and marketing being incurred only are estimated. However, the long term losses in terms of transaction costs involved in the registration of suitable chemicals for on-farm sprays and product disinfestation were not considered in this study. Following ABARE (1995), for each incursion state and horticultural industry, three different economic impacts of exotic fruit flies are considered.

1) the cost of additional disinfestation of produce from the affected area destined to overseas markets assuming that the government would be able to develop necessary export protocols with countries importing Australian horticultural products;

2) the cost of additional insecticide sprays for exotic fruit flies for fruit and vegetable growers in the affected area; and

3) the cost of disinfestation of fresh fruits and vegetables moving out of affected areas to the rest of Australia.

The above industry impacts result in higher costs of production for producers in the affected areas resulting in lower production and higher average market prices for horticultural products across Australia. Affected horticultural producers are expected to transfer some of the increase

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in costs of production to consumers by way of higher prices depending on the relative responses by producers and consumers to changes in prices (supply and demand elasticities, respectively).

For each incursion state, economic impacts on producers and consumers at a national level are estimated in terms of reductions in economic welfare to these groups, using economic surplus measures. A multi commodity partial equilibrium model representing the markets for horticultural products is developed. For each incursion state and industry, the model estimates the changes in the market equilibrium price and quantity occurring at a national level resulting from the estimated increase in the costs of production in the affected areas. For each incursion state and industry, the increase in costs of production in the affected area is simulated in the model by shifting that area’s supply curve to the left. The changes in producer and consumer surpluses at a national level are estimated using the changes in equilibrium quantity and price estimated at a national level, along with other industry specific information.

For each industry and the target probability of eradication, the uncertainty surrounding the spread of exotic fruit fly across 4 incursion states over time is incorporated as follows (details are in Appendix A).

1) For the ‘without Strategy’ and ‘with Strategy’ scenarios, the time evolution of the probability of each of the incursion states is derived using equation 1 in Appendix B.

2) For each scenario, time period (5 year time step) and state of incursion, the expected producer and consumer losses from an exotic fruit fly outbreak with eradication is then estimated by multiplying the respective economic surplus losses (as estimated assuming that state would occur with certainty) by the probability of the incursion being in that state.

3) For each scenario and time period, the overall expected producer loss is then estimated as the sum of expected producer losses for all four states.

4) For each scenario and time period, the overall expected consumer loss is then estimated as the sum of expected consumer losses for all four states.

For each scenario, industry and target probability of eradication, the stream of producer and consumer losses estimated over a planning horizon spanning 20 time periods (100 years) is then discounted and summed over time to estimate the present value of expected losses to these groups. The expected benefit from the Strategy to producers and consumers of each industry is the difference in losses between the without and with Strategy scenarios.

The total benefit to all groups and industries plus the present value of the saved eradication cost is then compared with the present value of the cost of implementing the Torres Strait Fruit Fly Strategy over the planning horizon.

The splitting of the estimated overall economic impact between producers and consumers of horticultural products is a key improvement over the methodology employed in ABARE (1995), Kompas and Che (2009) and Franco-Dixon and Francis (2009).

Economic data usedThe economic analysis conducted in this study focuses on 25 host fruit and vegetable crops. The location and the size of the localised incursion are the same as assumed in ABARE (1995). Other information taken from ABARE (1995) include the share of exports and production coming from the localised incursion area in mainland far north Queensland, data on the number of additional insecticide sprays per hectare, the cost per spray per hectare and the cost of disinfestation per tonne of produce. These unit costs are adjusted upward to reflect the inflation between 1995-96

32


and 2012-13. The number of additional sprays and the unit costs of sprays and disinfestation assumed are given in Table 12 and Table 13, respectively.

Table 12 The number of additional sprays of insecticides per hectare by state and territoryCrop NSW QLD VIC SA TAS NT

Avocados 12 12 10 10 10 12

Bananas 6 6 10 10 10 6

Beans 12 12 10 10 10 12

Capsicums 6 6 10 10 10 6

Cherries 12 12 10 10 10 12

Grapefruit 10 6 10 10 10 6

Guava 12 12 10 10 10 12

Lemons 10 6 10 10 10 6

Limes 10 6 10 10 10 6

Lychees 6 6 10 10 10 6

Mandarins 10 6 10 10 10 6

Mangoes 6 6 10 10 10 6

Melons 6 6 10 10 10 6

Oranges 10 6 10 10 10 6

Passionfruit 12 12 10 10 10 12

Pawpaw and Papaya 12 12 10 10 10 12

Peaches 10 6 10 10 10 6

Pumpkins 6 6 10 10 6 6

Rambutan 6 6 10 10 10 6

Tomatoes 10 6 10 10 10 6

Eggplant 6 6 10 10 10 6

Bitter gourds 12 12 10 10 10 12

Chillies 6 6 10 10 10 6

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Cucumber 12 12 10 10 10 12

Okra 6 6 10 10 10 6

Source: ABARE (1995)

Table 13 Cost of on-farm sprays and disinfestation of produceCrop Cost of disinfestation

for domestic marketsCost of disinfestation

for export marketsCost of on-farm

sprays $/tonne $/tonne $/spray/hectare

Avocados 144 141 72

Bananas 124 141 72

Beans 144 141 72

Capsicums 144 141 72

Cherries 144 141 72

Grapefruit 144 141 72

Guava 144 141 72

Lemons 144 141 72

Limes 144 141 72

Lychees 144 141 72

Mandarins 144 141 72

Mangoes 144 141 72

Melons 157 141 42

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Oranges 144 141 72

Passionfruit 144 141 72

Pawpaw and Papaya 144 141 72

Peaches 144 141 72

Pumpkins 157 141 42

Rambutan 144 141 72

Tomatoes 144 141 42

Eggplant 144 141 72

Bitter gourds 144 141 72

Chillies 144 141 72

Cucumber 144 141 72

Okra 144 141 72

Source: ABARES calculations to update ABARE(1995) to reflect money inflation between 1995 and 2012.

To estimate the one-off disinfestation research and development costs, first, 13 host crops are selected after examining the recent export data to see whether any of their products are currently exported. The information on the host crop – exotic fruit fly species mapping given in Table 6 is then used to find out how many target species attack each of these crops. It was found that 7 crops are affected by 1 species, 5 crops by 2 species and 1 crop by 3 species and; a total of 20 crop- species combinations to be considered. According to ACPPO, the research and development would cost $200,000 to $500,000 per crop per species, resulting in the one-off research and development costs falling between $4 million to $10 million. The upper bound value of $10 million is used in this study as there may be a need for developing a different protocol in some cases resulting in a second one-off cost.

The spread of the localised incursion to cover the rest of Queensland, other eastern States and the Northern Territory is linked to respective volumes of production being progressively affected. The corresponding volumes of exports affected are calculated by dividing the aggregate exports between the localised and widespread incursion states based on state level export data. The production data for the localised and widespread incursion states and the price of produce and aggregate exports with no incursion state being maintained are given in Table 14. These data are used along with the information on the increase in production and marketing costs and spread rates (both with and without the Torres Strait Fruit Fly Strategy) in estimating the expected benefits of the Strategy.

Table 14 Production volumes affected by state of incursionCrop No

incursionLocalised incursion (Ei and El)

Incursion spreads to the rest of

Queensland other eastern states and

Northern Territory

Price of produce with no incursion

Exports with no incursion

(‘000 t/y) (‘000 t/y) (‘000 t/y) ($/t) (‘000 t/y)

Avocados 0 0 1,957 2,899 2.49

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Bananas 0 0 0 1,559 0.00

Beans 0 0 1,140 3,939 1.14

Capsicums 0 0 332 2,231 0.34

Cherries 0 0 9 9,032 1.21

Grapefruit 0 0 12 1,069 0.38

Guava 0 0 0 2,180 0.00

Lemons 0 1 81 1,389 0.43

Limes 0 0 0 4,562 0.00

Lychees 0 0 0 6,770 0.00

Mandarins 0 198 1,797 1,404 32.58

Mangoes 0 674 2,636 2,726 3.51

Melons 0 0 0 889 0.00

Oranges 0 18 1,605 680 120.66

Passionfruit 0 0 0 4,925 0.00

Pawpaw and Papaya 0 0 0 2,709 0.00

Peaches 0 0 69 1,525 1.52

Pumpkins 0 0 419 693 0.58

Rambutan 0 0 0 8,530 0.00

Tomatoes 0 11 1,322 1,386 1.49

Eggplant 0 0 0 1,855 0.00

Bitter gourds 0 0 0 5,133 0.00

Chillies 0 0 0 2,401 0.00

Cucumber 0 0 0 2,359 0.00

Okra 0 0 0 7,968 0.00

The data on production, exports and prices of horticultural products are sourced from the Australian Bureau of Statistics (ABS) and ABARES data. Following ABARE (1995) and for simplicity, a supply elasticity of 1.5 and a demand elasticity of -2 are used for all 25 commodities. A discount rate of 7 per cent is used as advised by the Office of Best Practice Regulation (OBPR) of the Department of Finance.

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5 ResultsThe process of estimating the benefits of the Torres Strait Fruit Fly Strategy is implemented in five steps:

1) Estimation of the potential economic losses from a localised incursion spreading uncontrolled to the rest of Australia, without and with the Strategy scenario.

2) Estimation of the potential economic losses with an eradication campaign similar to that implemented in 1995 to eradicate the localised incursion. This is done both with and without the Strategy scenarios. Given the uncertainty surrounding the success of eradication, these losses are estimated at 6 different target probabilities of eradication as discussed in Chapter 4.

3) Undertaking a benefit-cost analysis similar to that contained in ABARE (1995) of the eradication program to ascertain that the eradication campaign considered is economically profitable.

4) Estimating the likely economic cost with eradication (the sum of the loss estimated in step 2 and the cost of eradication campaign). This is done for both with and without Strategy scenarios.

5) Estimating the benefits of the Strategy to be compared with the cost of implementation.

Potential losses from exotic fruit fly incursion

As exotic fruit flies spread further afield from an initial incursion in mainland far north Queensland, the use of insecticides on affected farms and treatment of produce marketed are expected to increase as farmers and marketers try to mitigate the negative impacts. This results in higher production and marketing costs, lower aggregate production and higher market prices at the margin for horticultural products. Horticultural producers are expected to transfer some of the increase in costs of production to consumers by way of higher prices, depending on the relative responses by producers and consumers to changes in prices. Producers are expected to lose as they cut back production and the increase in market price is not large enough to fully offset the increase in costs of production. Consumers also lose as they pay a higher price and consume less.

The estimates of the potential producer and consumer losses from an uncontrolled spread without the Torres Strait Fruit Fly Strategy are given in the second column of tables 15 and 16, respectively. These losses could be less if an eradication campaign is undertaken to eradicate the localised incursion with the expected losses decreasing as the probability of eradication increases. Producer and consumer losses estimated, with the localised incursion being eradicated at 6 different success rates, are given in columns 3 — 8 of Table 15 and Table 16, respectively. Similar information on economic loss which is the sum of producer and consumer losses is given in Table 17.

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Table 15 Producer losses in the event of an incursion without the Strategy (present values over 100 years)Affected industry Without


Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m) ($m)

Oranges 553.4 438.9 425.4 381.1 290.2 169.0 38.9

Tomatoes 293.5 233.0 225.9 202.4 154.3 90.2 21.3

Bananas 267.6 257.4 253.2 239.1 210.4 171.9 130.7

Melons 200.8 159.3 154.4 138.3 105.3 61.3 14.1

Mandarins 169.9 135.1 131.0 117.4 89.6 52.6 12.8

Pumpkins 99.4 78.8 76.4 68.4 52.1 30.3 7.0

Peaches 87.7 69.5 67.4 60.4 46.0 26.8 6.2

Mangoes 80.4 66.9 65.1 59.1 46.9 30.7 13.3

Beans 68.7 54.5 52.8 47.3 36.0 21.0 4.8

Avacados 63.0 50.0 48.4 43.4 33.0 19.2 4.4

Capsicums 54.5 43.2 41.9 37.5 28.6 16.6 3.8

Cherries 47.8 37.9 36.8 32.9 25.1 14.6 3.4

Lemons 28.4 22.6 21.9 19.6 14.9 8.7 2.1

Cucumber 14.4 11.4 11.1 9.9 7.6 4.4 1.0

Pawpaw and Papaya 9.9 8.5 8.3 7.6 6.2 4.4 2.4

Grapefruit 9.5 7.5 7.3 6.5 5.0 2.9 0.7

Eggplant 8.3 6.6 6.4 5.7 4.3 2.5 0.6

Limes 7.7 6.1 6.0 5.3 4.1 2.4 0.6

Passionfruit 5.7 4.5 4.4 3.9 3.0 1.7 0.4

Lychees 4.4 3.5 3.4 3.1 2.3 1.4 0.3

Chillies 2.7 2.2 2.1 1.9 1.4 0.8 0.2

Guava 1.1 0.9 0.9 0.8 0.6 0.3 0.1

Bitter gourds 0.7 0.6 0.6 0.5 0.4 0.2 0.1

Rambuttan 0.5 0.4 0.4 0.3 0.3 0.2 0.0

Okra 0.5 0.4 0.4 0.3 0.3 0.2 0.0

Total 2080.41699.

5 1651.5 1492.9 1167.8 734.3 269.0

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Table 16 Consumer losses in the event of an incursion without the Strategy (present values over 100 years)Affected industry Without



5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m) ($m)

Oranges 148.2 117.5 113.9 102.0 77.7 45.2 10.4

Tomatoes 217.1 172.4 167.1 149.7 114.2 66.7 15.8

Bananas 200.7 193.1 190.0 179.4 157.8 129.0 98.1

Melons 150.7 119.5 115.8 103.7 79.0 46.0 10.6

Mandarins 55.8 44.4 43.0 38.6 29.5 17.3 4.2

Pumpkins 73.4 58.2 56.4 50.5 38.5 22.4 5.1

Peaches 62.1 49.3 47.8 42.8 32.6 19.0 4.4

Mangoes 49.9 41.4 40.3 36.6 29.0 18.9 8.1

Beans 48.2 38.2 37.1 33.2 25.3 14.7 3.4

Avacados 40.2 31.9 30.9 27.7 21.1 12.3 2.8

Capsicums 40.1 31.8 30.8 27.6 21.0 12.2 2.8

Cherries 30.3 24.1 23.3 20.9 15.9 9.3 2.1

Lemons 20.4 16.2 15.7 14.1 10.7 6.3 1.5

Cucumber 10.9 8.6 8.3 7.5 5.7 3.3 0.8


Grapefruit 6.3 5.0 4.8 4.3 3.3 1.9 0.4

Eggplant 6.2 4.9 4.7 4.2 3.2 1.9 0.4

Limes 5.8 4.6 4.5 4.0 3.0 1.8 0.4

Passionfruit 4.3 3.4 3.3 3.0 2.3 1.3 0.3

Lychees 3.3 2.6 2.6 2.3 1.8 1.0 0.2

Chillies 2.1 1.7 1.6 1.4 1.1 0.6 0.2

Guava 0.7 0.6 0.6 0.5 0.4 0.2 0.1

Bitte gourd 0.6 0.5 0.5 0.4 0.3 0.2 0.0

Rambuttan 0.4 0.3 0.3 0.3 0.2 0.1 0.0

Okra 0.4 0.3 0.3 0.3 0.2 0.1 0.0

Total 1185.3 976.7 949.7 860.7 678.3 435.1 174.0

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Table 17 Economic losses in the event of an incursion without the Strategy (present values over 100 years)

Without eradication

With eradication


5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m) ($m)

Oranges 701.6 556.4 539.3 483.1 367.9 214.2 49.3

Tomatoes 510.5 405.4 393.0 352.2 268.5 156.9 37.1

Bananas 468.3 450.6 443.1 418.5 368.2 300.9 228.7

Melons 351.5 278.7 270.2 242.0 184.3 107.3 24.6

Mandarins 225.7 179.5 174.0 156.0 119.1 69.9 17.0

Pumpkins 172.7 137.0 132.8 118.9 90.6 52.7 12.1

Peaches 149.8 118.8 115.2 103.1 78.5 45.7 10.5

Mangoes 130.3 108.3 105.4 95.7 76.0 49.6 21.4

Beans 116.9 92.7 89.9 80.5 61.3 35.7 8.2

Avacados 103.2 81.8 79.3 71.1 54.1 31.5 7.2

Capsicums 94.6 75.0 72.7 65.1 49.6 28.9 6.6

Cherries 78.2 62.0 60.1 53.8 41.0 23.9 5.5

Lemons 48.8 38.8 37.6 33.7 25.7 15.0 3.6

Cucumber 25.3 20.0 19.4 17.4 13.3 7.7 1.8


Grapefruit 15.8 12.5 12.1 10.9 8.3 4.8 1.1

Eggplant 14.4 11.4 11.1 9.9 7.6 4.4 1.0

Limes 13.5 10.7 10.4 9.3 7.1 4.2 1.0

Passionfruit 10.0 7.9 7.7 6.9 5.2 3.1 0.7

Lychees 7.8 6.2 6.0 5.4 4.1 2.4 0.5

Chillies 4.8 3.8 3.7 3.3 2.5 1.5 0.3

Guava 1.9 1.5 1.4 1.3 1.0 0.6 0.1

Bitter gourd 1.4 1.1 1.0 0.9 0.7 0.4 0.1

Rambuttan 0.9 0.7 0.7 0.6 0.5 0.3 0.1

Okra 0.9 0.7 0.7 0.6 0.5 0.3 0.1

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Total 3265.7 2676.2 2601.2 2353.5 1846.1 1169.3 442.9

In the event of an uncontrolled incursion, the losses estimated for three commodities (oranges, tomatoes, and bananas) account for half of the total economic losses with the losses estimated for melons, mandarins and pumpkins accounting for an additional 25 per cent (Table 17). The remaining 19 host crop commodities account for the remaining 25 per cent of the losses. For each commodity, producers lose more than consumers as additional costs of complying with export protocols reduce profits further on export sales and the asset fixity, particularly in perennial horticultural crop farms, reduces the flexibility in supply adjustment in response to cost increases.

Benefits of eradication

In the event of an incursion, the potential losses from an exotic fruit fly incursion in mainland far north Queensland spreading to the rest of Australia can be avoided if the incursion is eradicated while it is still confined to far north Queensland as demonstrated during the 1995 papaya fruit fly eradication campaign. For producers and consumers and each target probability of eradication, the total losses avoided by eradication equals the losses without eradication (column 2, last row, Table 15 and Table 16) less the losses estimated for that eradication probability (columns 3—8, last row, Table 15 and Table 16). These avoided losses are presented along with the avoided disinfestation development costs in Table 18. The avoided losses or the benefits of the eradication campaign increase with the probability of eradication as shown in Table 18. The estimated benefit of eradication increases from $590 million to $2.8 billion as the probability of eradication increases from 5 per cent to 95 per cent. The estimated cost of eradication also increases (from $51 million to $90 million) as the probability of eradication increases. The benefit of the eradication program considered more than exceeds the cost, and the benefit-cost ratio (BCR) exceeds 12:1.

The impact of the Strategy in reducing the likelihood of an incursion is reflected in the reduced avoided losses (benefits) of eradication and the cost of eradication, while maintaining the benefits of eradication more than exceeds the costs (Table 19). With the Strategy in place, an eradication program is expected to yield greater benefit cost ratios at eradication probabilities higher than 25 per cent, as the cost of eradication starts to decrease faster than the decrease in benefits.

Table 18 Benefits of eradication in the event of an incursion without the Strategy (present value over 100 years)Performance measure Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Producer benefits 380.8 428.9 587.5 912.6 1346.1 1811.4

Consumer benefits 208.6 235.6 324.6 507.0 750.2 1011.3

Economic benefits 589.5 664.5 912.1 1419.6 2096.3 2822.7

Saved disinfestation R&D cost

0.5 1.0 2.5 5.0 7.5 9.5

Cost of eradication 51.1 52.5 56.8 65.7 77.6 90.4

Net present value 538.8 613.0 857.8 1358.8 2026.2 2741.8

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Benefit-cost ratio 12 13 16 22 27 31

Table 19 Benefits of eradication in the event of an incursion with the Strategy (present value over 100 years)Performance measure Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Producer benefits 228.5 265.3 381.7 598.2 848.3 1077.7Consumer benefits 125.4 146.2 211.9 334.2 475.5 605.1Economic benefits 354.0 411.5 593.6 932.4 1323.8 1682.8Saved disinfestation R&D cost 0.5 1.0 2.5 5.0 7.5 9.5Cost of eradication 30.4 30.8 32.1 34.6 37.5 40.2Net present value 324.1 381.7 563.9 902.7 1293.8 1652.1Benefit-cost ratio 11 12 18 26 34 41

Benefits of the Torres Strait Fruit Fly Strategy

In the event of an incursion, the losses with eradication estimated for the without Strategy scenario plus the cost of eradication plus the disinfestation development cost could have been avoided if the exotic fruit flies were prevented from entering mainland Australia. The potential avoided producer and consumer surplus losses estimated at 6 different probabilities of eradication are given in columns 3 — 8 of Table 15 and Table 16. The economic surplus losses with eradication decrease from $2,676 million with 5 per cent probability of being eradicated to $443 million with 95 per cent probability of being eradicated (the last row of Table 17). For example, if the probability of eradication is 95 per cent, a potential cost of $543 million ($443 million surplus losses plus the $90 million eradication cost plus $10 million disinfestation development cost) could have been avoided if the exotic fruit flies were prevented from entering the mainland.

Presently, there have been no exotic fruit fly incursions in the Australian mainland and the seasonal exotic fruit fly detections in the Torres Strait islands are successfully treated and any residual incursion eradicated. Despite the success of the Torres Strait Fruit Fly Strategy in preventing the entry of exotic fruit flies since 1995, there is still a likelihood of an incursion in mainland far north Queensland.

The benefits of the strategy equal the difference in the potential costs of an incursion (the losses plus the cost of eradication) between the without and with Strategy scenarios. For the ‘without Strategy’ scenario, different losses including the potential producer and consumer losses with eradication, estimated at different target probabilities of eradication, are reproduced in the first 5 rows of Table 20. Similar information for the ‘with Strategy’ scenario is presented in the next 5 rows of Table 20. The benefit of the strategy is the difference in likely losses between without and with the Strategy.

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Table 20 Benefit - cost analysis of the Torres Strait Fruit Fly Strategy (present values over 100 years)Performance measure


5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

In the event of an incursion without the Strategy

Producer losses 1699.54 1651.5 1492.85 1167.79 734.25 268.95Consumer losses 976.68 949.72 860.69 678.33 435.07 173.97Disinfest. R&D cost 9.5 9.0 7.5 5.0 2.5 0.5Cost of eradication 51.1 52.5 56.8 65.7 77.6 90.4Total 2736.9 2662.7 2417.9 1916.9 1249.5 533.8In the event of an incursion with the Strategy

Producer losses 967.7 930.9 814.55 598.03 347.92 118.52Consumer losses 556.41 535.68 469.94 347.62 206.33 76.72Disinfest. R&D cost 9.5 9.0 7.5 5.0 2.5 0.5Cost of eradication 30.4 30.8 32.1 34.6 37.5 40.2Total 1564.0 1506.4 1324.1 985.3 594.3 235.9Benefits of Strategy

Producers 731.8 720.6 678.3 569.8 386.3 150.4Consumers 420.3 414.0 390.8 330.7 228.7 97.3Governments 20.8 21.7 24.7 31.1 40.1 50.2Total 1172.9 1156.3 1093.7 931.6 655.2 297.9

Cost of Strategy 3.5 3.5 3.7 4.0 4.4 4.7Net present value 1169.4 1152.8 1090.0 927.5 650.8 293.2Benefit-cost ratio 339 329 296 232 149 63

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The expected benefit from the Torres Strait Fruit Fly Strategy increases from $298 million to $1173 million as the probability of success of eradication of a localised incursion decreases. That is, the smaller the likelihood of being able to eradicate an incursion, the higher will be the benefits of preventing the incursion. Expected producer benefits increase from $150 million to $732 million while expected consumer benefits increase from $97 million to $420 million. Producers gain more than consumers, mirroring the relative magnitudes of the losses to each group that are avoided.

The response component of the Strategy costs an estimated $200,000 a year to implement and the present value of the stream expected investment over 100 years is estimated to decrease from $4.7 million to $3.5 million as the probability of eradication decreases from 95 per cent to 5 per cent. The investment in the response component of the Strategy returns a benefit cost ratio of at least 63:1 if the localised incursion is eradicated with 95 per cent probability of success.

The smaller the probability of eradication the larger the net present value (NPV) and the benefit-cost ratio of the response component of the Strategy. This is in contrast to investing in the eradication of an incursion in mainland far north Queensland after being detected late. In this case, the NPV and BCR decrease with the probability of eradication (Table 18). At a 5 per cent probability of eradication, the response component of the Strategy generates a BCR of 339:1 compared to 11:1 for eradication. This shows that the investment in the Strategy is more attractive when there is large uncertainty that an incursion detected late can be eradicated. Even when there is greater certainty of eradication being successful – for example with a 95 per cent probability of eradication - a risk averse decision maker is expected to consider the Strategy more favourably as there is still a likelihood that eradication could fail. Another aspect to consider is that an investment of $55 million for eradication, every time there is an incursion, could have high opportunity cost given the tight budgetary positions of Australian governments which have to contribute to over half of the program cost (depending on the exotic fruit fly species) under the Deed.

Business case for industry participation in cost sharing arrangements

Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry shares one fifth of the total cost in the event of an incursion. Early detection and prevention of exotic fruit fly entry could save the industry funds that would otherwise be spent eradicating an incursion resulting from late detection. Taking these savings also into account the total benefits to industry increase from $161 million to $736 million as the probability of success of eradication decreases (Table 21).

Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy, seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities carried out under this component are very similar to those undertaken during an eradication of a post-border outbreak of fruit flies and therefore industry contributions towards their costs are not inconsistent under the current arrangements.

Under the EPPRD cost sharing arrangements, papaya fruit fly is treated as a Category 2 pest and the industry shares 20 per cent of the cost of eradication (Access Economics 2010). The melon and New Guinea fruit flies have not been categorised yet and therefore the industry shares of their eradication costs have not been determined. Assuming a potential industry share of 20 per cent of the response cost under the Strategy regardless of the exotic fruit fly species, it would cost just under one million over 100 years ($40,000 per year of a $200,000 budget adjusted by the probability of being in the uninvaded state) compared to benefits ranging from $161 to $736 million depending on the probability of eradication (Table 21). For the industry, a small

45


investment in the Strategy, thus, yields a benefit cost ratio of at least 169:1. The returns on investment increase as the probability of eradication decreases.

Table 21 Benefits to industry of cost sharing (present values over 100 years)Probability of eradication of a localised incursion

5% 10% 25% 50% 75% 95%

($m) ($m) ($m) ($m) ($m) ($m)

Avoided producer losses731.8

720.6678.3 569.8 386.3 150.4

Saved eradication cost4.2

4.34.9 6.2 8.0 10.0

Benefits736.0

724.9683.2 576.0 394.4 160.5

Cost0.7

0.70.7 0.8 0.9 0.9

Net present value735.3

724.2682.5 575.2 393.5 159.5

Benefit cost ratio1063

1030925 716 448 169

When looked at from the perspective of the horticultural industry, the strategy yields greater benefit cost ratios (to the industry) than to overall society – for example 169:1 compared to 63:1 at 95 per cent probability of eradication (Table 20 and Table 21). Therefore, there are significant benefits for industry in its participation in the cost sharing arrangements for the Torres Strait Fruit Fly Strategy. This would result in better alignment of the funding base of the Strategy with that of other nationally cost shared detection and eradication initiatives.

Sensitivity analysisThe benefit-cost analyses presented above use the most likely or plausible estimates for different parameters. The results could change, if a different set of values are selected. The key parameters and assumptions that could change the results include:

1) probabilities of incursion (assumed 20 and 5 per cent per year, respectively for the without and with Strategy scenarios)

2) annual response cost of the Torres Strait Fruit Fly Strategy (assumed $200,000 per year)

3) discount rate (assumed 7 per cent)

4) imports of horticultural produce (assumed to be zero)

The probability of incursion without the Strategy should reflect the current likelihood of exotic fruit fly entry if the Strategy were to be removed. ABARE (1995), relying on expert opinion assumed, without any intervention, there was a 5 per cent probability of exotic fruit fly entry around that time (before the establishment of the Torres Strait Fruit Fly Strategy). The likelihood of entry to far north Queensland around that time reflects the geographical distribution and densities of papaya fruit fly populations in Papua New Guinea around the same time. Experts believe that papaya fruit fly in Papua New Guinea has spread further afield, and the populations have grown in density since then, resulting in a significantly greater likelihood of entry to far north Queensland, if the Strategy were to be removed now. The emerging consensus of expert opinions on a higher incursion probability in recent years have been incorporated in the assumptions made in two benefit-cost analyses on papaya fruit fly conducted in 2009. Franco-Dixon and Francis (2009) assumed an annual incursion probability of 50 per cent while

46


Kompas and Che (2009) assumed it to be normally distributed with the mean of 20 per cent and standard deviation of 10 per cent. The lack of another exotic fruit fly incursion since 1995 indicates the incursion probability with the Strategy could be significantly lower than without the Strategy, however, the uncertainty surrounding its value remains unresolved.

Based on estimates provided in Torres Strait Fruit Fly Strategy Review (2013), total cost shared response expenditures in recent years have reached the $200,000 annual cap. Meanwhile, the PISC has raised the cap from $200,000 to $400,000 for the financial year 2012-13 to cover higher expenses due to high numbers of exotic fruit flies trapped and the increased need to use helicopters.

The time value of money, captured through the discount rate used, could change with the changing economic environment. Fresh fruits and vegetables consumed locally are largely produced in Australia; however, imports under existing trading arrangements cannot be ruled out especially when the prices in the domestic market rise above import parity with the incursion spreading.

The results of the benefit-cost analyses presented above could be sensitive to changes to any of the four key assumptions. However, based on the results obtained with the most likely values for all four assumptions, the sensitivity of the results to changes to the first two assumptions are only measured in this study, as they are considered to be the two parameters critical in providing more clarity on the business case for the Strategy and the policy decisions being considered for sustaining it into the future.

To measure how sensitive the results are to changes in the incursion probability without the Strategy, the analysis is replicated with incursion probabilities of 10 per cent (lower bound) and 50 per cent (upper bound) around the most likely value of 20 per cent assumed. For each of the three incursion probabilities, the net present values and benefit-cost ratios are also estimated for an annual response cost of $400,000. The results of the sensitivity analysis are presented in Table 22.

As expected, the higher the probability of incursion without the Strategy the greater the benefits to producers, consumers and the governments. The net present values and the benefit-cost ratios for the two budgets considered also follow in the same direction as the probability of incursion without the Strategy increases. As expected, the doubling of the annual response budget to $400,000 halves the benefit-cost ratios.

As discussed under the business case for the horticultural industry, for a given investment, the strategy yields greater benefit cost ratios to the industry than to the overall society. Therefore, when the annual response budget is doubled, the industry would still receive higher returns on its 20 per cent share of the budget, even if the incursion probability were to be an unlikely10 per cent.

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Table 22 Sensitivity of the benefits to change in incursion probability and the budget (present values over 100 years)Incursion probability without the Strategy


5% 10% 25% 50% 75% 95%

Producer benefits ($ m)

10% 396.9 388.9 360.7 293.9 191.7 71.9

20% 731.8 720.6 678.3 569.8 386.3 150.4

50% 955.9 944.1 898.0 770.7 538.1 215.9

Consumer benefits ($ m)

10% 228.0 223.6 207.9 170.7 113.6 46.5

20% 420.3 414.0 390.8 330.7 228.7 97.3

50% 548.7 542.2 517.1 447.2 318.4 139.5

Saved eradication costs ($ m)

10% 11.7 12.1 13.5 16.4 20.2 24.1

20% 20.8 21.7 24.7 31.1 40.1 50.2

50% 25.9 27.2 31.5 41.0 55.0 71.7

Total benefits ($ m)

10% 636.6 624.7 582.0 481.0 325.4 142.520% 1,172.9 1,156.3 1,093.7 931.6 655.2 297.950% 1,530.5 1,513.5 1,446.6 1,258.9 911.6 427.1

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NPV with an annual response budget of $200,000 ($ m)

10% 633.7 621.7 578.8 477.3 321.3 137.820% 1,169.4 1,152.8 1,090.0 927.5 650.8 293.250% 1,528.4 1,511.3 1,444.1 1,255.9 907.8 422.5

BCR with an annual response budget of $200,000 (ratio)

10% 220 211 183 133 78 3020% 339 329 296 232 149 6350% 730 696 596 425 246 93

NPV with a n annual response budget of $400,000 ($ m)

10% 630.8 618.7 575.7 473.7 317.1 133.220% 1,165.9 1,149.3 1,086.3 923.5 646.4 288.450% 1,526.3 1,509.2 1,441.7 1,253.0 904.1 417.9

BCR with an annual response budget of $400,000 (ratio)

10% 110 105 91 66 39 1520% 169 164 148 116 74 3150% 365 348 298 213 123 47

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6 ConclusionsBefore the establishment of the Torres Strait Fruit Fly Strategy, there was significant risk to horticultural industries from an entry of exotic fruit flies to mainland far north Queensland through the Torres Strait which is considered the highest risk pathway for exotic fruit flies to Australia. The industry faced large economic consequences due to a larger range of host crops and a rapid spread of exotic fruit flies to the rest of Australia if the initial incursion was not eradicated. These two factors and the 1995 papaya fruit fly incursion costing the governments and industry $35 million (equivalent to $55 million in 2012-13 dollars) to eradicate indicated that such an initiative would have potential benefits.

The study identifies significant potential benefits to horticultural industries in maintaining the Strategy guaranteeing ongoing returns for industry contribution. Given the high benefit-cost ratios, there is also scope for additional investment in strengthening the Strategy if such investment profitably reduces the residual risk.

Even though the 1995 papaya fruit fly incursion was successfully eradicated, it cost $55 million (in 2012-13 dollars) to eradicate and reduced industry incomes due to trade restrictions on some horticultural products. If conditions were more favourable for the papaya fruit flies to spread further afield and/or the initial incursion was found to cover a larger area, it would have been more difficult and costly to eradicate and the losses with eradication could have been much higher. An investment in the Torres Strait Fruit Fly Strategy could avoid these high losses and as a result such investment is more attractive when it is difficult to eradicate the initial incursion.

The study estimated that the expected benefit from the Strategy increases from $298 million to $1173 million as the probability of success of eradication decreases. The corresponding NPV increases from $293 million to $1169 million and BCR from 63:1 to 339:1. At a 5 per cent probability of eradication, the response component of the Torres Strait Fruit Fly Strategy returns a BCR of 339:1 compared to 63:1 for a 95 percent probability of eradication. This shows that the investment in the Strategy is more attractive when there is large uncertainty that an incursion detected late can be eradicated.

Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry shares one fifth of the total cost in the event of an eradication program. Early detection and prevention of exotic fruit fly entry could save the industry funds that would be otherwise spent on eradicating an incursion resulting from late detection.

An investment of $55 million for eradication could have a high opportunity cost given the tight budgetary positions of Australian governments which have to contribute 80 per cent of the program cost under the deed. Under these circumstances, a surveillance and eradication strategy costing much less to implement is preferred.

Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy, seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities carried out under this component are very similar to those undertaken during an eradication of a post-border outbreak of fruit flies. There is a strong business case for industry participation in the cost sharing arrangement and the strategy yields higher benefit cost ratios to the industry than to the overall society. The industry participation would result in the better alignment of the funding base of the Strategy with that of other nationally cost shared detection and eradication initiatives.

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Appendix A: Gross value of production by statesTable 23 Gross value of production of fruit crops that are potential hosts to exotic fruit fliesFruit commodity NSW NT Qld SA Tas Vic WA Australia

$m $m $m $m $m $m $m $m

Tomatoes 44.6 0.1 229.8 50.5 2.7 52.9 37.6 418.1

Bananas 18.8 4.0 283.1 0.0 0.0 0.0 10.1 316.0

Oranges 93.1 0.0 5.3 51.9 0.0 39.3 8.5 198.1

Melons 52.5 44.0 53.9 3.4 0.0 5.5 29.1 188.3

Mandarins 6.6 0.0 89.1 31.0 0.0 5.7 5.0 137.4

Beans 1.3 0.1 94.3 0.3 2.4 24.6 6.5 129.6

Capsicums 3.8 0.0 83.0 10.4 2.3 4.5 9.6 113.5

Avocados 14.9 0.0 53.2 3.7 0.0 3.4 29.9 105.1

Mangoes 0.3 36.9 55.3 0.1 0.0 0.1 7.3 99.9

Cherries 18.8 0.0 0.0 18.2 28.4 27.5 1.8 94.6

Peaches 12.7 0.0 5.4 5.5 0.5 61.4 6.8 92.3

Pumpkins 25.3 2.2 25.8 2.6 0.8 1.9 12.6 71.3

Lemons 5.3 0.0 14.8 5.8 0.0 7.7 0.9 34.4

Cucumber 4.3 0.5 10.8 7.4 0.1 0.1 5.0 28.2

Limes 1.4 0.3 22.1 0.3 0.0 0.1 0.7 24.9

Pawpaw and Papaya 0.3 0.4 15.9 0.0 0.0 0.0 1.1 17.7

Eggplant 1.5 0.0 8.9 1.8 0.0 0.4 0.9 13.5

Passionfruit 3.7 0.0 8.8 0.0 0.0 0.0 0.1 12.6

Lychees 0.2 0.0 10.4 0.0 0.0 0.0 0.0 10.5

Grapefruit 2.9 0.1 1.0 2.2 0.0 0.9 2.7 9.9

Chillies 0.2 0.0 4.1 0.0 0.0 0.4 0.5 5.3

Bitter gourds 0.1 1.6 0.1 0.0 0.0 0.0 0.3 2.0

Okra 0.0 1.9 0.0 0.0 0.0 0.0 0.0 1.9

Guava 0.7 0.0 0.6 0.0 0.0 0.0 0.0 1.3

Rambutan 0.0 0.4 0.8 0.0 0.0 0.0 0.0 1.1Total

313.2 92.5 1076.4 194.9 37.0 236.3 177.1 2127.4

Note: a: Total value of Australian fruit and nut production in 2011-12 is estimated at $3953 millionSource: ABS (2012) and ABARES calculations

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Appendix B: Estimating the benefits of the Torres Strait Fruit Fly StrategyIncorporating uncertaintyBecause of the uncertainty of the scale of an exotic fruit fly incursion in Australia, the potential value of loss (and thus the benefit of border measures to prevent its entry and attempted eradication or containment effort if it enters) could be lower than that estimated under certainty.

The uncertainty arises because of the biological process involved in exotic fruit fly population dynamics is subject to uncertain climatic and biotic conditions resulting in uncertainty surrounding its geographical spread. Consequently, the impact on spread of border surveillance measures and an eradication or containment strategy could also be uncertain. Biological models of insect population dynamics can be helpful in understanding this process and estimating the probabilities associated with transition from one incursion state to another. Such models fall under the general form of Markov chain models.

Four incursion states are assumed in this study. They are: no incursion in the mainland while the flies found in the Torres Strait islands are eradicated from the Torres Strait (En), initial localised incursion in mainland far north Queensland (Ei) , localised incursion in mainland far north Queensland arising from a failed eradication campaign (El) and incursion spreads to the rest of Queensland, other eastern states and the Northern Territory (Ee).The state of no incursion in mainland Australia is included to represent the status quo where under the Torres Strait Fruit Fly Strategy,exotic fruit flies detected in the Torres Strait islands are eradicated, thereby preventing the flies from entering the mainland. Thus the Strategy serves to reduce the likelihood of flies entering the mainland. At any point in time in the future, any of the four states could occur and there is uncertainty surrounding the associated likelihoods.

The probability of any of the four states occurring in time t+1 depends on a set of transition probabilities between time t and t+1 — from one state to another. Given that there are four incursion states, there are 4 x 4 = 16 such transition probabilities as given in Table 24.

Table 24 A 4 by 4 Markov probability transition matrixInfestation state at time t

No infestation

Initial localised

incursion

Localised incursion

arising from failed

eradication

Spread to other eastern States

and NT

Infestation state at time t+1 (En) (Ei) (El) (Ee)No infestation (En) Pnn Pin Pln Pen

Initial localised infestation (Ei) Pnl Pii Pli Pei

Localised infestation arising from failed eradication

(El) Pnl Pil Pll Pel

Other eastern States and NT (Ee) Pne Pie Ple Pee

52


If the probabilities of the states En , Ei , El and Ee at time t are to be denoted pn(t), pi(t), pl(t)and pe(t), respectively, then following Hinchy and Fisher (1991, p.63),

[Pn (t )Pi ( t )Pl ( t )Pe (t )]=[ Pnn P¿ P ln Pen

P¿ Pii Pli Pei

Pnl Pil P¿ Pel

Pne Pie P¿ Pee]t

∗[Pn (0 )P i (0 )P l (0 )Pe (0 )] (1)

Where: Pn ( t )+Pi ( t )+Pl (t )+P e (t )=1 andPn (0 ), Pi (0 ), Pl (0 ) and Pe ( 0 ) are respectively the initial probabilities of the statesEn , Ei , El and Ee.

The initial state of the incursion is considered to be ‘initial localised incursion in the mainland far north Queensland’ and thereforePn (0 ), Pi (0 ) , Pl (0 ) and Pe ( 0 ) are assumed to be 1,0,0, and 0 respectively.

Just like the Torres Strait Fruit Fly Strategy reducing the probability of an initial localised incursion, an eradication campaign could result in changes to the transition probabilities in the second and third columns of the matrices shown in Table 24 and Figure 2. A successful eradication of the initial localised incursion is achieved through:

1) an increase in the probability of transition from the initial localised incursion state to the no incursion state, Pin (Table 24)

2) a reduction in the probability of transition from the initial localised incursion state to the localised incursion state arising from failed eradication, Pil; and

3) a reduction in the probability of transition from the initial localised incursion state to the widespread incursion state, Ple.

However, changes in these transition probabilities as a result of the impact on spread of a given eradication effort are uncertain. Following ABARE (1995), these uncertainties are accounted for by developing 6 more transition matrices to represent 5, 10, 25, 50, 75 and 95 per cent probability of eradication in a given 5 year time step. These 6 matrices are given in Figure 3

53


Figure 3 The impact of eradication on transition probabilities

5% probability of eradication 10% probability of eradication 𝑝𝑛ሺ𝑡ሻ 𝑝𝑖ሺ𝑡ሻ 𝑝𝑙ሺ𝑡ሻ 𝑝𝑒ሺ𝑡ሻ𝑝𝑛ሺ𝑡+1ሻ 0.33 0.05 0.00 0.00𝑝𝑖ሺ𝑡+1ሻ 0.67 0.00 0.00 0.00𝑝𝑙ሺ𝑡+1ሻ 0.00 0.62 0.03 0.00𝑝𝑒ሺ𝑡+1ሻ 0.00 0.33 0.97 1.00

𝑝𝑛ሺ𝑡ሻ 𝑝𝑖ሺ𝑡ሻ 𝑝𝑙ሺ𝑡ሻ 𝑝𝑒ሺ𝑡ሻ𝑝𝑛ሺ𝑡+ 1ሻ 0.33 0.10 0.00 0.00𝑝𝑖ሺ𝑡+1ሻ 0.67 0.00 0.00 0.00𝑝𝑙ሺ𝑡+1ሻ 0.00 0.59 0.03 0.00𝑝𝑒ሺ𝑡+1ሻ 0.00 0.31 0.97 1.00





Data source: ABARESFor without or with the Torres Strait Fruit Fly Strategy and given a target probability of eradication, the uncertainty in the spread of exotic fruit flies over time, is captured in the time evolution of the probabilities of each of the incursion statesPn (t ), Pi ( t ) , Pl ( t ) and Pe ( t ) , where t= 1,2,...., T estimated using equation 1. For each time period t, and the state of incursion, the expected cost of exotic fruit fly outbreak is then estimated by multiplying the cost estimated (assuming that state would occur with certainty) by the estimated probability of the incursion being in that state. For each time period t, the overall expected cost of exotic fruit fly incursion is then estimated as the sum of expected costs estimated for all three states. For without and with strategy, the stream of losses over t= 1,2,...., T is then discounted and summed over to estimate the present value. The estimation process is described as follows.

For each incursion state, this study estimated producer and consumer losses for each of the 25 commodities considered. Let the commodities be indexed as i=1,2,....,N, probability time evolutions without the Torres Strait Fruit Fly Strategy for any given target probability of eradication be denoted as Pn

o ( t ), Pio (t ) , Pl

o ( t ) and Peo ( t ) and similar probability time evolutions

with the Strategy be denoted as Pn' ( t ), Pi

' ( t ) , Pl' ( t ) and Pe

' (t ). Note, the target probability of

eradication is not represented in the notation used for brevity and avoid notational clutter and thus notations can be thought as representing any given target probability of eradication

Denote the losses to producers of commodity i for each of the four states as PLn , PLi PLi andPLe, then the expected benefit of the strategy for producers of commodity i can be given as:

54


PBi ( t )=[ PLn × Pno (t )+PLi × Pi

o ( t )+PLl× Plo (t )+PLe × Pe

o (t ) ] -

[ PLn× Pn' (t )+PLi× Pi

' ( t )+PLl × Pl' ( t )+PLe × P e

' (t ) ]Denote the losses to consumers of commodity i for each of the four states as CLn , CLi, CLl andCLe. Then the expected benefit of the strategy for consumers of commodity i can be given as.

CBi (t )=[ CLn × Pno (t )+CLi × Pi

o (t )+CLl× Plo (t )+CLe × Pe

o (t ) ] -

[CLn× Pn' (t )+CLi× Pi

' ( t )+CLl × Pl' ( t )+CLe × P e

' (t ) ]For each industry i, the present value of producer and consumer benefits of the Strategy can be

estimated as ∑t

T

PBi (t )× d (t ) and ∑t

T

CBi (t )× d (t ) , respectively where d (t )=1/ (1+r )t−1 with r

being the annual discount rate. The total benefits of the strategy to producers and consumers of

all products are given by ∑i

N

∑t

T

PBi (t )× d (t ) and ∑i

N

∑t

T

CBi ( t )× d ( t ) , respectively.

Estimating producer and consumer lossesIn the case of most fresh fruits and vegetables most of what is produced is consumed domestically and exports comprise just a small share of production while imports can be treated as negligible. Producer and consumer losses in the domestic market are estimated using a basic supply and demand model while a much simpler approach is used to estimate producer losses in the export market. Producer losses in the export market are estimated as the tonnage of exports multiplied by the sum of per tonne cost of additional sprays on–farm and per tonne cost of disinfestation to comply with export protocol. Total producer losses are estimated by adding the export market losses estimated in this manner to the producer losses in the domestic market estimated using the basic supply and demand model.

In the basic model, an industry’s supply and demand schedules for a susceptible commodity without exotic fruit fly incursion are represented by S0and D; with an equilibrium price and quantity of P0 and Qo, respectively (Figure 4).

55


Figure 4 Basic supply and demand model for exotic fruit fly susceptible crop product

S0

S1

D

Q0 Q1

P0

P1

a

b

c

d

e

f

g

h

Quantity

Price

Consumer surplus before the exotic fruit fly incursion is represented by the area bounded by Pobg while producer surplus by P0bd. Hence, economic surplus, the sum of consumer and producer surpluses, is represented by gbd.

The additional pesticide sprays needed to avoid the yield losses on-farm and disinfestation of produce destined to exotic fruit fly free domestic markets result in higher cost of production. This can be represented by an upward shift in the supply schedule from S0 to S1. The new equilibrium price and quantity for this commodity is P1 and Q1, respectively. Therefore, higher cost of production results in lower aggregate production and higher market price at the margin. Producers transfer some of the increase in cost of production to consumers by way of higher prices depending on the relative responses by producers and consumers to change in price (supply and demand elasticities, respectively). This can be seen in Figure 4, where the marginal cost of production per unit of produce increases by ca but the producers transfer only fa of that amount in the form of an increase in the equilibrium price. Consumers therefore pay a higher price but reduce consumption in response.

Economic losses for producers and consumers in the domestic market are estimated in terms of reductions in economic welfare to these groups, using economic surplus measures. Consumer surplus declines by the area represented by P1ab P0 while producer surplus declines by the area P0bd less the area P1ae which can be shown to be equivalent to the area P0bch. The total economic surplus loss is given by the area P1abch.

Producer and consumer losses are defined as Po Qo ( K−Z ) (1+0.5 Zη ) and Po Qo Z (1+0.5 Zη ),respectively where η = absolute value of the elasticity of demand, K = vertical shift in the supply curve expressed as a proportion of the initial price and Z= proportionate increase in price estimated as Z=Kε / (ε+η ) with ε defined as the elasticity of supply.

Producer losses for commodity i for each of the four incursion states (PLn , PLi, PLl andPLe ) and associated consumer losses (CLn , CLi, CLl , andCLe) can be estimated in this way.

56


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