Highly pathogenic avian influenza (HPAI) under current conditions poses a major risk to human and animal health. Efforts to contain the disease are therefore in national and global interest. As the most widely practiced control methods for poultry involve culling birds that are infected or in regions immediately around infected animals, the most common practice to ensure the cooperation of owners of birds is to compensate them for the culling of their animals to achieve this public goal. Early identification of HPAI and the imme­diate culling of diseased or suspected animals are critical elements of reducing the risk of the disease spreading. The international com­munity and national governments have responded to this challenge by establishing funding mechanisms to enable compensation to as­sist in this strategy.

Payment of compensation to farmers whose animals are being culled enhances producer cooperation through better motivation to comply with the disease reporting and culling requirements of dis­ease control packages. It reduces the time lag between an outbreak and containment actions, and hence diminishes the overall cost of control. To the extent that it reduces the virus load, it also reduces the risk of the virus mutating to becoming transmissible from hu­man to human. Enhancing early reporting and complete culling of diseased or suspected birds is thus the first objective of compensa­tion schemes. A second objective can be to reimburse losses of pri­vate citizens who have complied with a disease control process for the public good. This is compatible with the first objective.

While the imperative of disease containment drives compensa­tion schemes, the reality of the severe impact of culling on very poor people cannot be ignored. However, a compensation scheme cannot cover all livelihoods losses caused by livestock disease control and it cannot replace social safety nets. This requires other measures, out­side the scope of this paper.

The report seeks to provide guidelines on good practice for payment of compensation as part of HPAI stamping-out strate­gies. It is meant for national and international managers and proj­ect staff involved in containing HPAI. It responds to a request of the Senior Officials Meeting on Avian and Human Influenza held in Vienna, June 6–7, 2006, and the result of the work of a multidisciplinary team from the World Bank, FAO, and IFPRI. The report is based on review of the well-established literature of compen­sation practices in the developed world, staff interviews, experi­ence, and newly emerging gray literature (project documents, mission reports, and so forth) on compensation in the developing world, and specific field visits to Egypt, Indonesia, and Vietnam.

Preparedness Is Key

An effective and efficient compensation scheme will compensate the appropriate beneficiaries for the ap­propriate losses and at an appropriate level, with only a short interval between culling and payment of the compensation. This will only be possible if a number of elements are already in place before an outbreak. There needs to be appropriate legislation for the control of animal disease in force that spells out clearly the rights and responsibilities of govern­ment, livestock sector and marketing personnel, and farmers in animal disease control. There needs to be widespread awareness of the dangers of the disease and how to mitigate them. Funds have to be readily available and the procedures and sequenc­ing of actions to be followed for compensation need to be agreed in advance. Preparations for the imple­mentation of expedient and transparent payment schemes need to be in place.

Procedures and sequencing of compensation require knowing who to compensate, when, how much, and how, and all the stakeholders have to be aware of and have faith in the system. Widespread knowledge in advance of what the stakes are (in­cluding poultry holdings) and identification of the stakeholders are key elements in improving the gov­ernance of the use of compensation resources, which is especially difficult in emergency situations.

Because preparedness is essential to using cull­ing and compensation effectively and efficiently for disease control, countries need to make a host of arrangements without necessarily having national precedents to guide the way. The present document tries to illustrate key lessons from countries such as Thailand and Vietnam (and others) that have learned by doing and incorporated many of the les­sons in revised strategies. Even with guidelines from elsewhere, national avian influenza committees will still need to negotiate specific arrangements with national stakeholders in a way that fits local condi­tions, and this takes time and effort.

Countries faced with outbreaks before they have their contingency plans in place will need to adopt the most basic measures. Even so, the same issues of who to compensate, when, for what, how, and how much still apply. However, the need to move quick­ly for disease control will force many of the normal oversight tasks to a later date and is likely to make governance issues even more difficult.

Finally, it will be difficult to de-link compensation practices from both changing needs for effective dis­ease control and the issue of equitable production systems change as the disease becomes endemic. This aspect is also introduced briefly in the conclud­ing chapter.

Identification of Beneficiaries

As a general rule, the beneficiaries of compensa­tion are the owners of the animals. Other supply chain participants, such as feed suppliers and mar­ket operators, may also incur losses when livestock production and sales are disrupted by disease, but they have not normally benefited from compensa­tion schemes. The type of production system significantly shapes feasible identification procedures. Large, highly biosecure poultry farms (the so-called sector 1 and 2 under FAO/OIE nomenclature) have generally good inventory records and culling is well controlled. Farmer documents are then a basis for compensation.

Under conditions of contract farming in these systems, ownership of the birds decides the beneficiary. If the contractor is the owner, he/she would be compensated, and takes the responsibility for re­imbursing the integrator. If the integrator owns the bird, he/she will receive the compensation. In a few cases, arrangements have been made to pay the con­tractor for lost income on a wage per day basis, with funds subtracted from the integrator share before payment. The issue of how to incorporate contract growers into compensation process remains a prob­lem that many countries are only now beginning to look into. More attention needs to be addressed to this issue lest it becomes a loophole limiting effec­tive control of the disease.

Identification of the beneficiaries for small en­terprises and back yard systems (the FAO/OIE de­nominated sectors 3 and 4) is more complex, as re­cords are normally not available, and factors such as differential ownership by gender come into play. Sur­veys as part of the preparedness planning (not after the disease emerges), including the identification of ownership patterns, broad awareness of the existence of compensation and payment as an integral part of the stamping-out process, are then key factors to en­sure a broad participation of the sectors 3 and 4.

Type of Losses to Be Compensated

Normally, compensation covers only the so-called direct losses, which include the value of the animals, and sometimes also (in richer countries) the costs re­lated to the disposal of dead animals and cleaning and disinfection. So-called farm-level consequen­tial losses, due to business interruption, movement control, and price effects are not compensated, al­though in many developed countries private insur­ance schemes exist for such losses. Dead animals before culling are often not compensated, however there may be a rationale to do so at least partially where either dead animals have market value (and thus there is the danger they will be sold) or disease control teams cannot respond within 72 hours of dis­ease reporting by the farm in question. In all cases the accurate computation of losses is greatly aided by having adequate farm-level records of poultry holdings, and it will be important to promote such a database prior to disease outbreak. Finally, the lion’s share of actual economic losses to the countries in question may be indirect: lost feed sales, diminished tourism, absenteeism at work, and so forth. These losses are never covered by public compensation schemes. In principle, they could be insurable under private sector contracts outside the livestock sector if risks are well known, but they rarely are.

Setting Compensation Rates

Compensation rates are variously set on the basis of (a) market value; (b) budget availability; and (c) production costs. Setting the cost on the basis of market value, wherever possible, is the preferred policy, as basing the cost on budget availability of­ten leads to underpayment, and hence poor compli­ance with the culling operation, and production cost would favor inefficiencies, and is more complex to establish. Experience that emerges from the review in establishing compensation rates based on market values shows:

•  Compensation rates as a percentage of a refer­ence market price should be set before the dis­ease emerges, as part of an overall preparedness plan, using average pre-outbreak market prices at the farm gate, computed with due regard for seasonality and the transport costs from the local community relative to the reference market. For special category birds (rare breeds, indigenous poultry, fighting cocks, grandparent stock, other bird types), where market prices are not readily available, consultation with the stakeholders is required to set realistic levels.

•  Uniformity of rates across the country and for different classes of birds improves the implemen­tation efficiency of the program, and should be pursued in situations with good control. How­ever, in situations of poor movement control, differentiation by type of bird (layer, broiler) and age/weight of the group might be needed to ft compensation as close as possible with prevailing market prices. An interesting intermediate solu­tion might be to pay not on the basis of numbers but on the basis of the total weight of the flock.

•  Compensation rates should be no less than 50 percent of the reference market value of suspect­ed birds at the farm gate, and no more than 100 percent. The rationale for the preferred range of 75–90 percent of the reference price and multiple considerations for being closer to one or the other limit are discussed in the report. Rates should be considerably lower for diseased birds and even less, but positive, for dead birds, to provide posi­tive incentives for early and complete reporting. Careful attention needs to be paid to bird move­ments during compensation to ensure that an incentive is not being created for the influx of healthy birds to disease zones or diseased birds to disease-free zones.

•  In dealing with small farmers in developing countries, compensation should be paid within 24 hours of culling by cash (or possibly voucher where handling cash presents a security threat and credible local formal financial institutions such as rural post offices are available); any delay is likely to have a significant effect on reporting.

Establishing Awareness

Experience from on-going campaigns highlights the absolute necessity of communication on dis­ease control and compensation, which when done properly may run from 10 percent to 20 percent of the total package cost. The package should contain components of consultation with the beneficiaries, advocacy, and information, using multiple media and channels. The specific messages on compen­sation should explain to affected farmers the need for mandatory culling in cases of suspicion of avi­an influenza as a necessary measure to protect the health of the entire human population. They should contain the principles, procedures and grid of com­pensation levels, precise information on the exact amounts, and payment procedures. Messages and media should be prepared ahead of time with inputs from both technicians and communication special­ists. They should also be consistent over time, since frequent policy and message changes undermine the credibility of the campaign. Private sector opera­tors, such as para-veterinarians, can play a critical role in awareness raising and overall support to the campaign, and their input on retainer fees should be more encouraged than is currently the case.

Payment Systems

To promote early notification of suspected out­breaks, compensation for culled birds must be paid promptly following the birds’ destruction. Critical el­ements from an appropriate payment system follow:

•  Rapid access to adequate funding for immediate deployment as needs arise is essential. Sources typically are government’s own funds from the National Treasury, farmer’s contributions, and those of donor partners. National budgets need contingency funds of at least 3–5 percent of total budget to facilitate a rapid central contribution in the event of an outbreak; alternative contingen­cy planning will be necessary where this is not available.

•  The share of compensation payments in total animal disease control expenditures under out­breaks ranged from 0–45 percent in the cases studied, with a central tendency of about 35 per­cent. Holding large sums as contingency reserves to allow a rapid response engenders a consider­able cost. For compensation planning purposes, the upper range of foreseen culling during a se­vere outbreak should be capped at 10 percent of the national flock. Many outbreaks are controlled with culling of less than 1 percent of the national flock. Once the share of infected and closely asso­ciated birds exceeds 5 percent of the total nation­al flock, vaccination typically starts substituting for culling and compensation. These percent­ages, multiplied by the size of the national flock and again by 75 percent of the average farm-gate poultry price, provides a rough estimate of the range of funds that need to be accessible for compensation payments per se on short notice. Countries that are important poultry exporters and wish to avoid vaccination (such as Thailand under its 2004 outbreak) should plan at the 10 percent (high) limit, countries with little in the way of poultry exports and a large percentage of smallholder poultry producers at 5 percent, and countries with little trade concern, a high degree of biosecurity, and a creditworthy public finance system at 1 percent.

•  The system should be simple enough to be used in difficult field situations and should make use of existing institutions (for example, line minis­tries, veterinary services, financial institutions). It is important to clarify responsibilities in advance, make provincial cross-agency coordination ar­rangements, and establish local contingency funding. If no system is in place when the disease emerges, the focus will need to shift to a greater reliance on ex post independent scrutiny to avoid inordinate delays in paying compensation.

•  Eligibility databases and emergency payment (see above) procedures should be prepared as

part of the emergency part preparedness plans; where lacking, they will both need to be set up when the disease emerges, posing considerable difficulties.

•  The veterinary services (assessing the need and reliability of the culling), the Ministry of Finance (payment), civil authorities (security), and com­munity leadership (transparency) should all be directly involved in the payment process.

•  For sectors 1 and 2, bank transfers are the most adequate instrument; cash payments are the pre­ferred method for those farms of sectors 3 and 4 without banking access. Vouchers are often less credible for immediate motivation of rural house­holds, but may work where they can be integrat­ed with a dense local network of trusted financial institutions, such as rural post offices.

•  To the extent possible, maximum use should be made of local banking entities, producer’s orga­nizations, veterinary services, and nongovern­mental organizations (NGOs). Their fiduciary assessment should be part of the preparedness planning.

The Way Forward

While over time the international public good ar­gument regarding the risk of human-to-human transmission of HPAI might diminish, transmis­sion between animal populations of different countries will continue to be a main reason for in­ternational funding of disease control in develop­ing countries. Moreover, in the likely event of the disease becoming endemic within certain coun­tries, this will have major effect on the poor, and interventions under those conditions therefore deserve international support from an equity per­spective. Stricter disease control requirements will have a major effect on the structure of the industry, with implications still to be clearly identified for the future viability of the sectors 3 and 4. None­theless, compensation is likely to remain neces­sary for many years to come to promote the early eradication of outbreaks and to avoid the spread of transmissible animal diseases.

Under such conditions, compensation will:

•  Become part of modified stamping-out strategies, with probably a lower priority to culling. Clear principles of how stamping-out strategies should evolve, and how compensation fits into such evolving strategies are needed.

•  Have to become more dependent on the coun­tries proven political will to improve the key institutions for animal health, in particular for early alerts and independent disease reporting. The OIE tool for Performance, vision and Strategy (PvS) is a useful instrument to assess govern­ment capabilities. • Be restricted to sectors 3 and 4, and be funded from a mixture of national and international pub­lic funds, the latter in particular for the poorer countries.

• Be funded for the large commercial sectors through private initiatives, probably as a mix between mandatory levies and voluntary insur­ance; in many cases the public sector needs to work with the private sector to find equitable ways to develop these systems.