4. Benefits
4.1.1 Cost-benefit analysis ( CBA) offers a framework within which information may be assembled on the economic gains and losses associated with a course of action (in this case the implementation of EU Regulations and the attempt to combat disease control and ensure public health).
4.1.2 In the case of sheep EID and individual recording of sheep and goats in Scotland, it is unfortunate that some information on costs and benefits remains incomplete. This is mainly due to the absence of an individual animal database that could be interrogated to provide detailed animal movement patterns. None the less costs and benefits have been derived from known sources, including evidence gathered from the Scottish electronic research pilot and from Industry stakeholders.
Benefits
4.2.1 The potential benefits of EID and individual recording falls into three main categories; disease control, consumer confidence; and flock management. This is in addition to the benefit of the Scottish Government and Industry in complying with EU regulations and therefore avoiding disallowance and infraction procedures as mentioned earlier.
Disease Control
4.2.2 The outbreak of FMD in 2001 was the principle driver towards the introduction of the EU Regulation. In this context the benefits of EID and individual recording depends not only to its contribution to reduction the duration of the outbreak but also on the frequency and intensity of outbreaks.
4.2.3 In the absence of any formal epidemiological modelling of EID's efficacy at reducing the duration of an FMD outbreak it is not possible to state categorically the impact on FMD costs. However for illustrative purposes it is possible to consider how EID and individual recording could impact on the costs. In the 2007 FMD outbreak it is estimated that the costs to the Scottish Industry was around £36.5 million if which nearly three quarters was attributed to withholding costs arising from the movement ban. If EID and individual recording were highly effective (and therefore fully implemented) it is possible that, in the extreme, all of these costs might be avoided through reducing the duration of the outbreak and facilitating earlier relaxation of movement restrictions. Equally, a proportion of the market losses arising from the export ban might be avoided, although some losses cannot be avoided since the legal minimum period of an export ban would still be observed.
4.2.4 It can therefore be assumed that up to around £30 million of costs might be avoided of a disease outbreak of the 2007 magnitude if a fully effective EID system was in place. However if such an outbreak occurs only once every 10 years then expected annual benefit is only £3 million. If EID is less than effective then the gains would be smaller.
Consumer Confidence
4.3.1 Livestock traceability systems originally arose in response to consumer concerns over BSE in the cattle sector. However, for the sheep sector, given the absence of any high profile food safety risk, it is not clear exactly why consumer confidence would be expected to be affected by the introduction of individual traceability for sheep. Moreover, whilst it is true that evidence on consumer preferences suggests that systems of quality assurance and origin labelling do have some value, individual traceability per se does not feature in this. That is, consumers are generally either unaware of or uninterested in the mechanics of how quality assurance and origin labelling operate and are unlikely to pay a price premium for individual traceability if they perceive no advantage from it.
4.3.2 An alternative view of this is that requirements for individual traceability might become a requirement for continued access to export markets. Indeed, notwithstanding uncertainty over the status of such moves under the WTO, countries such as Australia and New Zealand are pushing individual traceability partly as a response to expectations that the EU and other trading partners may adopt such a stance. However, given the relatively low volumes of Scottish sheep exported beyond the EU, the relevance of the market access argument is rather limited.
Flock management
4.4.1 In principle, EID offers the technical potential to improve flock management by linking ewes to lambs and permitting the collation of information on, for example, daily liveweight gains and final carcass weight and grade. Such a management system could deliver productivity improvements, provided that additional investments were also made to on-farm information systems and at abattoirs for passing information back along the supply chain - therefore linked to Food Chain Information ( FCI).
4.4.2 For example, enterprise costing reported by Quality Meat Scotland ( QMS) for the top, middle and third of sheep flocks suggest that differences in both technical and marketing performance generate a difference in gross margin per ewe of around £12 between the top and average performers and £25 between the top and bottom performers. Simplistically, this implies that better flock management and marketing could add £37m to the aggregate gross margin of the sector, although a more sophisticated analysis of the distribution of current performance and variation in management constraints lowers this to perhaps £20m (Pareto Consulting - CBA of Scottish Electronic Research Pilot 2009).
4.4.3 However, the existence and persistence of variation in performance across farms is not new and has been the target of repeated efforts to raise management standards. When the Forward Strategy for Scottish Agriculture was launched in 2001, it was estimated that around only 10% of all farms were engaged in some form of benchmarking. Since then, various efforts have been made to extend the uptake, such as the provision of on-line information, the formation of monitor farms and the availability of funding under Land Management Contracts. Yet, taking the latter as an example, only around 13.5% of farms with sheep also enrolled in the benchmarking option (Pareto Consulting - CBA of Scottish Electronic Research Pilot 2009). Whilst this may not be truly representative of the sector, it does reveal that even when funding is available for relatively simple benchmarking activities, uptake by the industry remains low. This suggests that the likely usage of EID for flock management will be extremely limited and hence any performance gains attributable to it minimal.
Benefit of options identified in the paper
Identification
4.5.1 Pursuing option 1 for sheep identification could result in infraction procedures and disallowance. The possible fines associated to these procedures to the Scottish Government and industry significantly outweigh the costs associated with implementation and therefore this option would provide no real benefits. The benefit of option 2 is that it provides for a one system fits all and therefore makes it the simplest of systems to introduce. However as previously stated this is the most expensive option.
4.5.2 Option 3 and 4 both offer significant savings to industry because of the possibility of the use of a slaughter tag. Option 4 however, introduces the issue of dealing with mixed batches, which would appear to make the option impossible to operate whilst option 3 would only be useful to those who move animals direct from the holding of births to an abattoir. Option 5 provides the benefit of allowing all animals intended for slaughter to be identified by a single means of identification, would cater for mixed batches and the problem of recording 'batch within a batch' and allows for slaughter animals to be upgraded to full identity status if they reach 12 months of age. The downside to this option is that animals moving direct to slaughter from the holding of birth (and therefore not causing any mixed batch problems) would require an electronic tag that is significantly more expensive that a plastic tag.
4.5.3 The benefits of option one with regards to goats is that it allows for current system to remain in place with only the addition if the extra information required in movement documents and holding registers. Option two for goats would provide a benefit of operating only one system, rather than allowing a two tier system (breeding animals and those intended for slaughter under 12 months).
Critical Control Points
4.6.1 Option one provides significant benefits' over option two by allowing the use of third parties to read and record individual animal identities. This means that all farmers who move animals through a CCP (primarily expected to be markets and abattoirs) will not have to buy electronic reading equipment and spend time and labour costs associated with using the equipment. There are no easily recognised benefits associated with option two. If farmers wish to read and record individual animals at their premises then they can do so as they wish, irrespective of the use of CCP's.
Central Database
4.7.1 As mentioned previously a central database that records the individual identity of animals is not a requirement under the European Regulation and therefore the creation on such a database could be seen as over implementation of the Regulation. However, if such a database does exist it does open up the options of removing farm records and movement documents if the required information is held centrally. This would lead to a paperless system with less on farm recording burdens for famers and industry bodies whilst looking to provide quicker and accurate data to the competent authority.
4.7.2 As such it would appear sensible that a central database should be a desired outcome for the Scottish Government and Industry, although perhaps be addressed in the long term with phased in approach being adopted. In the immediate future the derogations available could be made to those who wish to voluntary adopt the requirements - focussing on either only the derogation associated with movement document or on movement documents and the holding register.
Goats
4.8 The costs associated with option 1 and 2 are very similar (see section 5.14 - 5.17) although option one is slightly cheaper and maintains the current identification system for goats. Given that most, if not all, goats will be recorded on an individual basis then the Scottish Government see no reason to change the current rules on identification and therefore believes the slaughter derogation (option 1) should continue to be an option for goat keepers.