COMPENSATION SCHEME IN CANADA Dr. Namatie TRAORE Compensation Experience in Western Hemisphere – Closing Workshop, 15-17 July 2008, Panama.

COMPENSATION SCHEME IN CANADA

Dr. Namatie TRAORECompensation Experience in Western Hemisphere –

Closing Workshop, 15-17 July 2008, Panama

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Background

Legislative Framework

Institutional Framework

Factors not included in compensation amounts

CFIA Cost Approach Valuation Model

Some Closing Thoughts

OUTLINE

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BACKGROUND

•Compensation is paid to encourage the early reporting of disease by animal owners and to encourage owner cooperation during control/eradication efforts to prevent or reduce the spread of disease;

•Current compensation regulations derived from: Lessons Learned during the A.I. outbreaks of 2004 and

2005 in British Columbia; an open and transparent consultation process between

industry and government stakeholders;

•and is based on a number of guiding principles: Maximum amounts are set high enough to encourage early

reporting and owner cooperation; Maximum amounts must be based on reliable market

information or a sound economic model; Market value of superior genetics and performance

should be recognized in the establishment of maximum amounts;

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LEGISLATIVE FRAMEWORK

• In Canada, the National Animal Health Program provides the general framework for preventing or controlling animal diseases and thereby for protecting Canadians and the Canadian animal population from diseases that can be transmitted by animals;

•Compensation is administered by the Canadian Food Inspection Agency (CFIA) under the authority of the Health of Animal Act (HAA) as part of the National Animal Health Program;

•Section 55 of the HAA allows the Minister of Agriculture and Agri-Food to make regulations setting out maximum compensation amounts allowable for animal ordered destroyed;

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LEGISLATIVE FRAMEWORK (ctned)• With regards to compensation, the Health of Animal Act

in Canada stipulates:

51. (2)… the amount of compensation shall be (a) the market value, as determined by the Minister, that the animal would have had at the time of its evaluation by the Minister if it had not been required to be destroyed and 55. The Minister may make regulations (a) respecting the method of calculating the market value of animals for which the Minister considers there is no ready market available;

•In paying compensation, the CFIA derives its specific authority from the Compensation for Destroyed Animals Regulations: a schedule that lists animals and the maximum compensation amounts allowable under the HAA;

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Factors not included in the compensation amounts

Under the HAA, the definition of market value, i.e. “the price at which the animal would have changed hand between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts”excludes the following:• cleaning and disinfection;

•Fixed costs incurred during downtime (e.g. debt payments and other contractual payment; wages of key employees, owner living expenses; costs associated with raising or buying replacement pullets);

•Loss of marketable products not ordered destroyed;

•Loss of market share;

•Loss of income due to quarantine measures;

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INSTITUTIONAL FRAMEWORKTwo-phase compensation scheme:• CFIA pays for the bird replacement cost (i.e. market value) under the HAA and,•AAFC pays for losses other than market value using the Canadian Agricultural Income Stabilization (CAIS) program.

•In response and as part of the next generation of agriculture and agri-food policy development process, the AAFC is revising its Business Risk Management Programs to include the following:

• AgriInvest: saving accounts where deposits are matched by Governments;• AgriStability: improved CAIS with a coverage of 85% of operating margin;• AgriRecovery: quick response to disasters and avoidance of ad hoc

programs, e.g. BSE Recovery Program; • AgriInsurance: Expanded insurance program to cover more commodities.

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THE CFIA COST APPROACH VALUATION MODEL

OBJECTIVES

• Estimate the maximum market value for poultry and farmed birds for which no active market exists, i.e. direct compensation is impossible (e.g. egg production chickens);

• Have in readiness for a disease outbreak, a means of establishing market value;

• Allow government to compensate farmers with much greater accuracy, in a much shorter timeframe

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The Model accomplishes the following:•Immediately available in readiness for a disease outbreak;

•Well understood and accepted by industry;

•Economically sound and efficient to use;

•Stands the test of time and geography;

•Easily adapted to different species of poultry and farmed birds;

•Within each species, allow for gender discrimination;

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Model Description

Model is made of 4 templates and is based on the cost approach valuation

Species-Specific Information

Flock Production Cost Information

Bird feed cost

Cost Items Summary Variable costs Fixed costs Maximum value

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Species-Specific Info

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Flock Production Cost

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Bird Feed Cost

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Cost Items Summary

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Compensation Table

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MODEL VALIDATION

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CFIA

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INDUSTRY

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Some Closing thoughts •Compensation models should take into account the ease of access to reliable data;

•They should be simple enough to be understood by industry and to insure its buy-in;

•The process for farmers to access available compensation and financial support should be simple; Canada has a two-phase compensation process and consideration is being given to a single window of service;

•It is important to make a difference between the replacement cost of animals ordered destroyed and losses not related to the market value;

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THANK YOU FOR

YOUR ATTENTION