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Economic Impact of the 2001 Foot and Mouth Disease Outbreak in Scotland

1. EXECUTIVE SUMMARY

In 2001 the UK experienced the worst outbreak of Foot and Mouth Disease (FMD) in recorded history. Scotland did not escape. The outbreak was principally contained in the Dumfries and Galloway and Borders regions. Some 187 farms were confirmed as being infected with Foot and Mouth disease, 1048 farms were affected by the 3km sheep and pig cull and in 28 farms animals were slaughtered on suspicion. In all, 735,000 animals were slaughtered in Scotland, with the greatest impact falling on the sheep population where 643,900 were culled. However, the disease had indirect consequences that were felt over a much wider area and it is this impact which this report attempts to quantify.

An explicit modelling approach has been employed, using a specially adapted version of the Fraser of Allander Institute's Computable General Equilibrium model, AMOS ¹. The adaptation gives particular emphasis to agriculture and tourism. Variants of the AMOS model have been successfully used in the past to analyse the effects of Regional Selective Assistance, Foreign Direct Investment and the policies of Scottish Enterprise.

Information required to identify the direct, regionally-disaggregated, impacts of the outbreak of Foot and Mouth Disease (FMD) in Scotland is taken from existing studies and official reports. The total impact on the Scottish economy - incorporating multiplier, labour market displacement and competitiveness effects - are then modelled. This modelling procedure produces national and regionally disaggregated results on a wide range of economic variables. The focus of this report is the employment and GDP information for the period 2001-2006; that is, for the five years after the FMD outbreak.

There are two main areas of activity which were adversely affected by the FMD outbreak. These were agriculture itself (and directly linked activities) and tourism expenditure. The direct agriculture impacts are generated by the cull of trading and breeding animals, the ban on exports of most meat products and the movement restrictions imposed to limit the spread of the disease. Government compensation, however, was paid to owners of culled animals. Tourist activity was reduced through the restricted access to the countryside imposed during the outbreak and the image of the country was adversely affected for foreign tourists. However, in assessing the impacts of changed tourist expenditure, it is important to take into account any accompanying change in household consumption expenditure in Scotland. That is to say, in so far as reduced Scottish tourism and daytrip activity in Scotland leads to increased household consumption on other goods and services, this should be accounted for in the analysis.

The overall total impact of the FMD outbreak in the initial year was to reduce Scottish GDP by between 13.6 million and 29.8 million. This is between 0.02% and 0.05% of Scottish GDP (measured at 1999 prices).

Table 1.1 gives the total regionally disaggregated impacts in 2001/2002 of the direct agricultural changes. The area definitions are given below and a map is attached in Annex A:

• The urban region is the Area Tourist Boards of Angus and the City of Dundee, Argyll, the Isles, Loch Lomond, Stirling and the Trossachs, Ayrshire and Arran, Edinburgh and the Lothians, Greater Glasgow and Clyde Valley.

• The infected rural region comprises Dumfries and Galloway and the Scottish Borders.

• The uninfected rural is Aberdeen and Grampian, Highlands of Scotland, Kingdom of Fife, Perthshire, Shetland, Orkney and Western Isles.

Table 1.1: Scottish GDP changes as a result of Agriculture shock (£, millions)

Perhaps the most important finding from the direct agricultural shocks is the relatively small value for the change in Scottish total GDP. The negative net impact on the Scottish economy as a whole of all the first year effects is 33.5 million (measured at 1999 prices). This represents 0.05% of Scottish GDP. Similarly the effects on employment are extremely small when measured in proportionate terms. The negative GDP impacts are clearly skewed towards the rural infected regions. Apart from benefiting from government intervention via compensation payments for trading animals, all the other elements associated with the impact of FMD on agriculture generate a negative GDP change in the rural infected regions. The restocking of farms after the cull of breeding animals generates a positive stimulus to the uninfected regions. Also the direct impact of the cull on restricting the animals coming to the market has a positive impact in uninfected areas. This is not enough to offset the negative impacts, primarily from the export ban, for the urban area but a small increase in activity is registered in the rural uninfected area.

Table 1.2 presents the comparable spatially disaggregated GDP changes associated with the central estimate of changes in tourism expenditure. In this case there is a very small reported increase in GDP equal to 0.03%. However, this primarily comprises a relatively large reduction in GDP in the uninfected rural area which is set against a relatively large increase in GDP in urban areas. The biggest negative overall impacts come from the fall of Scottish Tourism in Scotland: the largest positive impacts come from the stimulus to other household expenditure that accompanies the fall in Scottish Tourism in Scotland and Daytrip expenditures.

Table 1.2: Scottish GDP changes as a result of Tourism shock (£, millions)

Whilst the aggregate GDP impacts of the tourist expenditure changes are positive, the employment impacts are slightly negative, with total Scottish employment falling by 343. This represents a 0.02% fall in employment. The contrary movements in GDP and employment imply a shifting of labour towards higher value added activities, caused by the demand and labour market adjustment processes associated with the changed aggregate patterns of expenditure across different sectors.

We have run the model forward 5 years to 2006. Most of the direct effects of the FMD outbreak are in 2001 and whilst we still detect some changes in the Scottish economy in 2006 as a result of the FMD outbreak they are very small.

The report also summarises work on the social and environmental impacts of the FMD outbreak. With a few exceptions, existing work on the social impacts is based upon anecdotal, rather than scientific, evidence. However, two general findings emerge:

• The social impacts were far greater within the areas directly affected by FMD, with effects outside the infected regions generally limited.

• Some of the social impacts arising from the outbreak seem likely to be felt for considerably longer than the duration of the outbreak itself.

The work on the environmental impacts of FMD is much more science based. It suggests that for Scotland:

• General awareness of the potential environmental effects arising from the outbreak and control strategies was high and, as a consequence, all potential effects were/are monitored closely.

• The confinement of the outbreak to only two local authority areas in Scotland - Dumfries and Galloway, and the Borders - meant that the environmental effects were far less severe than they would have been if the disease had spread more widely.

• All evidence to date suggests that environmental effects have been negligible although some longer run impacts cannot be ruled out.

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