Title: Tracking and testing of U.S. and Canadian cattle herds for BSE : a risk management dilemma
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Title: Tracking and testing of U.S. and Canadian cattle herds for BSE : a risk management dilemma
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Language: English
Creator: Cox, Louis Anthony
Publisher: Institute of Food and Agricultural Sciences
Place of Publication: Gainesville, Fla.
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i -ional Agricultural Trade and Policy Center

Louis Anthony Cox, Jr., John J. VanSickle, Douglas A. Popken, & Ranajit Sahu

JRTC 05-01 February 2005




Institute of Food and Agricultural Sciences




The International Agricultural Trade and Policy Center (IATPC) was established in 1990
in the Institute of Food and Agriculture Sciences (IFAS) at the University of Florida
(UF). The mission of the Center is to conduct a multi-disciplinary research, education and
outreach program with a major focus on issues that influence competitiveness of specialty
crop agriculture in support of consumers, industry, resource owners and policy makers.
The Center facilitates collaborative research, education and outreach programs across
colleges of the university, with other universities and with state, national and
international organizations. The Center's objectives are to:

* Serve as the University-wide focal point for research on international trade,
domestic and foreign legal and policy issues influencing specialty crop agriculture.
* Support initiatives that enable a better understanding of state, U.S. and international
policy issues impacting the competitiveness of specialty crops locally, nationally,
and internationally.
* Serve as a nation-wide resource for research on public policy issues concerning
specialty crops.
* Disseminate research results to, and interact with, policymakers; research, business,
industry, and resource groups; and state, federal, and international agencies to
facilitate the policy debate on specialty crop issues.

S L J A publication of the
American Agricultural

The magazine of food, farm, and resource issues

Economics Association

Tracking and Testing Of US and Canadian

Cattle Herds for BSE: A Risk Management


Louis Anthony Cox, Jr., John J. VanSickle, Douglas A. Popken, and Ranajit Sahu

The United States has historically imported a substantial
number of cattle from Canada. Given the discovery of a
BSE-infected animal in Canada and another in the United
States with Canadian heritage raises the question as to
whether the United States should track and test imported
animals. One alternative for the near term is to identify,
permanently mark, and track Canadian cattle in the
United States. We will use economic analysis to quantify
and compare risk management and economic conse-
quences of such an alternative in an effort to help policy
analysts and decision makers decide how best to assess and
manage uncertain risks of BSE in the United States from
imported cattle.

Canada has tested thousands of cattle per year for Bovine
Spongiform Encephalopathy (BSE)-3,377 animals in
2002-but has found only one cow with BSE. In the
province of Alberta where the infected animal was found,
"the brains of 2,769 targeted cattle were tested from Octo-
ber 1996 to March 31, 2004. One cow, condemned at
slaughter (did not enter the human food chain), was con-
firmed positive for BSE in May 2003.... Brain tissue sam-
ples from the remaining 2768 cattle had no evidence of
BSE" (Government of Alberta, 2004). The Canadian cat-
tle tested included animals that exhibited neurological
signs and/or emaciation as well as postmortem samples
submitted to provincial diagnostic laboratories. If, based
on European experience, targeted animals are about 60
times more likely to have BSE than nontargeted animals
(Doherr et al., 2001), then the prevalence rate of BSE
among nontargeted cattle would be about six per million
cattle ((1/2,768) (1/60)).

In December 2003, a second dairy cow from Alberta,
imported into the United States to the state of Washing-
ton, was also diagnosed with BSE. The United States
Department of Agriculture's APHIS Veterinary Services
(VS) issued an "Explanatory Note" in February 2004, fol-
lowing an investigation by the USDA and the Canadian
Food Inspection Agency (CFIA). The note concluded that
the previous risk analysis of Canadian cattle and beef
products imported into the United States remained
unchanged by the new case and that the risks remained
low. They noted that both of the BSE cases of Canadian
origin occurred in cattle born before the implementation
of the feed ban on the use of animal neurological matter in
livestock feed, which is alleged to be the main way the dis-
ease spreads (USDA, 2004).
The detection of two BSE cases from Alberta in less
than eight months raises the question: What is the current
prevalence of BSE in Canadian cattle? From a risk man-
agement perspective, the key question is what actions, if
any, should be taken given the uncertainty about the true
prevalence of BSE in Canadian cattle. This decision prob-
lem is made more challenging by high economic stakes
and by scientific uncertainties regarding BSE sources, res-
ervoirs, and dynamics. Additionally, false positives might
be economically damaging-the USDA's reports of
unconfirmed BSE cases that turned out to be false had
market impacts.
Scientific unknowns make predictive modeling highly
uncertain, creating a dilemma for both health and eco-
nomic risk management. Experience since 2003 has shown
that the presence of confirmed BSE cases dramatically
reduces US beef exports, even when the infected animals
originated outside the United States. If the true prevalence
of BSE in Canadian cattle shipped to the United States

4th Quarter 2004 CHOICES 51

1999-2005 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the American
Agricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

_ Tr,

Figure 1. Decision tree for BSE testing policy.

were known to be as high as six per
million head, then continued preven-
tion of cattle imports from Canada
might be expected. On the other
hand, if the prevalence of BSE in
Canadian cattle were known to be
much smaller or zero, then the
advantages of trade could be gained
by allowing unrestricted imports.
Given the high economic stakes and
uncertainties, it has been difficult to
decide or objectively evaluate what
policies would best promote US and
international interests. Options range
from the status quo (preserving cur-
rent import restrictions and testing
programs) to tightening or loosening
import policies. Another alternative
involves gathering more information

52 CHOICES 4th Quarter 2004

before deciding. This might be done
by tracking and testing Canadian cat-
tle as they enter and live in the
United States and then using this
information in support of decisions
on import restrictions. Discovery of
which of these (or other) options is
most desirable requires comparing
their associated chances of gains and

Formulating the Risk
Management Decision Problem
Figure 1 outlines the decision alter-
natives to be compared in a sequen-
tial manner. An initial (Stage 1)
decision whether to track Canadian
cattle in the US ("Track CD
imports") or not to track them ("Do

not track CD imports") is followed
by arrival of additional information
from ongoing sampling and BSE
testing programs in the US and Can-
ada. If the Stage 1 decision was
"Track CD imports," then in the next
year, any of the following informative
events may be observed:
* no new BSE cases are detected;
* BSE cases) of Canadian origin
are detected in the United States;
* BSE cases) of US origin are
detected in the United States; or
* BSE cases) of Canadian origin
are detected in Canada.
If the Stage 1 decision is "Don't track
CD imports," then the four possible
observations for the next period are


A -o0 No BSE
0 BSE in US
from US
from CD

aggregated to only the following
* no new BSE cases are detected;
* new BSE cases) are detected in
Canada; or
* new BSE cases) are detected in
the United States.
A Stage 1 decision to track imports
increases the chances that the origin
of a new case can be determined.
After the Stage 1 decision, and
given updated information about any
new BSE cases, a subsequent (Stage
2) decision will be made about
whether to sell and process healthy-
appearing cattle without first requir-
ing them to be tested for BSE ("No
required test"), versus requiring all
US cattle to be tested for BSE before
being sold or processed ("Test all"),
versus requiring only all Canadian
cattle in the United States to be
tested for BSE before being sold or
processed ("Require testing for CD
cattle only"). The latter option is
available only if the Stage 1 decision
was to track Canadian cattle imports.
Stage 2 decisions will be made condi-
tional on the information available
then. For example, if a new BSE case
of unknown origin is detected in the
United States, then the best Stage 2
decision might be to test all US cattle
at slaughter to reduce export and
domestic losses; if the origin of the
case is known to be Canadian and
the Stage 1 decision was to track
Canadian imports, then the best
Stage 2 decision might be to require
testing for Canadian cattle only.

Estimated Economic
Consequences of Detecting
Additional BSE Cases
Given this decision problem, one
may estimate the economic costs
associated with each terminal node
(i.e., "leaf" node) at the tips of Figure
1. Three types of costs will be consid-

ered: tracking costs, testing costs, and
market costs. Tracking costs are esti-
mated to be $30.7 million and repre-
sent the cost of permanently marking
each live animal coming into the
United States, including labor and
materials. Testing costs represent the
costs of the BSE tests, including kits,
labor, shipping, holding, laboratory
facilities, and expenses. Testing all
cattle in the United States is esti-
mated to total $1.09 billion. Testing
Canadian cattle only would cost
$47.3 million, and testing only those
animals that fail an initial screening
test would cost $2.4 million.
Market costs represent market
losses (or gains) associated with each
second-stage outcome as a function
of all that occurred up to that point.
These costs are dependent on the
source of the BSE animal and the
type of tracking and testing programs
in place when the discovery occurs.
These impacts range from a loss of
$12.2 billion when there is a case of
BSE in the United States from a US
animal to a gain of$1.3 billion when
there is a case of BSE in Canada and
tracking of Canadian cattle in the
United States. The full set of possible
outcomes can be found in Cox et al.

BSE Decision Consequences
The economic consequences of
tracking Canadian cattle imports
depend on the chances as to whether
and where BSE is detected. The
probabilities of the different eco-
nomic consequences, given the
choices of Stage 1 and Stage 2 deci-
sions, are estimates of the probabili-
ties of finding one or more BSE-
positive cattle among each batch of
1,000 tested. The probabilities of the
different outcomes were estimated
from data collected following the dis-
covery of the first BSE animal in

Canada. The full set of probabilities
can be found in Cox et al. (2004).

Consequences of Decisions in the
Base Case
Under the baseline assumptions, the
expected net cost to track imports is
$10.3 million per year, while the
expected cost to do not track imports
is $90.0 million per year. Thus, the
expected net economic value of the
information provided by tracking is
$79.7 million per year, reflecting a
much higher probability of large
market losses when imports are not
tracked. Such large results occur
because without tracking, BSE cases
of Canadian origin in the United
States cannot be distinguished from
(and therefore have the same eco-
nomic impact as) BSE cases of US
origin. The least-cost rule then is to
track Canadian cattle imports, then
continue limited sampling in Stage 2
no matter what occurs. In other
words, the benefit from tracking in
this case does not come from avoid-
ing the cost of 100% testing of US
cattle, because this is costly. Rather, it
comes from the assumed reduced loss
of US beef sales if the country of ori-
gin of a BSE case detected in the
United States is Canada and this can
be ascertained and announced.
A sensitivity analysis, where we
varied the probabilities and costs,
indicates that the dominance of this
decision is robust to many variations
in the input data, suggesting that the
model's recommendation to begin
tracking may be well justified despite
remaining uncertainties. The eco-
nomic value of tracking information
comes primarily from limited export
losses and from avoiding the need to
test all US cattle to win back custom-
ers. Although the best second-stage
decisions vary across sensitivity anal-
ysis cases, most results agree that

4th Quarter 2004 CHOICES 53

tracking is the optimal current deci-
sion, even while differing in their
precise (Stage 2 planning) reasons.

Impacts of Possible Win-Back of
Export Markets
The above analysis pessimistically
assumes that the losses of US cattle
and beef export markets following
the discovery of a Canadian-origin
BSE case in December 2003 are per-
sistent and irreversible. If policies in
the United States result in recovery of
some of the lost export markets, then
the economic impacts from tracking
and testing could dwarf those calcu-
lated for the base case. For example,
under an assumption that aggressive
testing would allow the United States
to regain its lost exports (as long as
no confirmed BSE case of US origin
is discovered), the optimal strategy
becomes to immediately start track-
ing all Canadian cattle and, if a con-
firmed BSE case of Canadian origin
is found, to test all Canadian-origin
cattle in the United States prior to
export. In this case, the expected net
economic value of the information
provided by tracking increases to
$771.6 million per year.

Concluding Comments
This analysis suggests that the eco-
nomic value of information provided
by tracking of imports and imple-
mentation of testing programs in the
United States greatly exceeds its costs
for cattle that may be imported in the
future. For "legacy" Canadian cattle
that have already entered the United
States, moving quickly to locate and

start tracking them before any addi-
tional BSE cases are detected appears
to be well justified for almost any
plausible set of input assumptions,
provided that the cost per head is
kept within bounds (up to $35/head,
based on the sensitivity analyses for
the base case). If the costs per head
are too great to justify locating all leg-
acy animals, then location and track-
ing efforts should focus on the oldest
animals-those with the greatest risk
of becoming new BSE cases.
The analysis provided here
focuses on potential economic conse-
quences and risk management
options for possibly mitigating losses
if another BSE case is discovered in
the United States. The possibility
that some BSE cases might pose (cur-
rently unquantified) health risks of
variant Creutzfeldt Jakob Disease
(vCJD) to humans reinforces the
conclusions by increasing the impor-
tance of being able to identify the
origin of any new BSE cases quickly.
That tracking and testing may be
imperfect has sometimes been
advanced as a qualitative argument
for restricting or rejecting them. The
quantitative comparisons in the sen-
sitivity analyses suggest that this rea-
soning is usually not justified:
Measures that help to identify the
origins and prevalence of BSE cases
have high information value for
improving future risk management
decisions and creating additional risk
management options, even if they are
less than perfect.

For Further Information
Cox, Jr., L.A., VanSickle, J.J., Pop-
ken, D.A., & Sahu, R. (2004).
Optimal tracking and testing of
US. and Canadian herds for BSE:
A value-of-information (VOI)
approach. Cox Associates.
Doherr, M.G., Heim, D., Fatzer, R.,
Cohen, C.H., Vandevelde, M., &
Zurbriggen, A. (2001). Targeted
screening of high-risk cattle pop-
ulations for BSE to augment
mandatory reporting of clinical
suspects. Prev Vet Med, 51(1-2),
Government of Alberta. (2004).
Bovine spongiform encephalopathy
surveillance. Available on the
World Wide Web: http://
wwwl .agric.gov.ab.ca/$depart-
afs3781 ?opendocument.
United States Department of Agri-
culture. (2004). Risk analysis:
BSE Risk from importation ofdes-
ignated ruminants and ruminant
products from Canada into the
United States. Washington, DC:
USDA APHIS Veterinary Ser-
vices. Available on the World
Wide Web: http://

Louis Anthony Cox, Jr. and Douglas
A. Popken are with Cox Associates,
Denver, Colorado (lrrp:..' 'tww co.v-
associates.cor). John J VanSickle is
with the International Agricultural
Trade and Policy Center, University
of Florida. Ranajit Sahu is a risk
assessment consultant in Alhambra,

54 CHOICES 4th Quarter 2004

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