European Union - Different options for replacing the current EU rules for co-financing of animal emergency measures

In this report the results of the investigation regarding the different options for replacing the current EU rules for co-financing of emergency measures are described. Five different policy options are evaluated and the economic impact, likelihood, timescale, magnitude of direct and consequential/indirect costs and monetization of impacts are assessed. Special emphasis is given on the feasibility of an EU harmonized framework for a Cost and Responsibility Sharing Schemes (CRSS).

In the envisaged CRSS the deficiencies of the current system should be avoided, or at least reduced. This holds particularly for issues such as limited incentives for prevention, distortions in favour of high risk areas, partial compensation in case of an outbreak (only direct losses), and complex community co-financing rules and the budget risk for the community.

• Recommendation 1: Harmonising EU reimbursement rate. Council Decision 2009/470/EC allows for co-financing 50% of the costs of compulsory and pre-emptive slaughter and related operational expenditure; however, for FMD a co-financing of 60% is allowed. Harmonising the EU co-financing to one default level will ensure a more consistent and coherent compensation scheme.
• Recommendation 2: Risk based EU compensation. A more comprehensive step is to reward and/or penalize the preventive measures taken by the MS’s by deviating from the default reimbursement rate. Such ap-proach has usually a positive effect on claim statistics, as it stimulates to be more eager in preventing out-breaks that would lead to the loss of bonus. The CRSS program is relative easy to implement because of its simplicity. Moreover, it is also straight for-ward to monitor the class status of each MS by the EU. We suggest starting at the present percentage cov-ered by the EU (50% compensation): MS’s with a low incidence of disease outbreaks will gradually move up and the MS’s with a higher incidence will move down. If in case of a small outbreak there will not be a reduction in reimbursement class, there will be an incentive for MS's to timely report an outbreak. In order to obtain support by MS’s for this revision the range of the reimbursement rates should be limited (approximately 10% points). More extreme values will decrease the demands on the Veterinary fund on the long run (affecting the potential additional preventive measures taken) but will lack a wide-range support in all MS’s.In summary, it is recommended that EU compensation to the MS for epidemic livestock diseases should be-come more risk based. This could be envisaged by introducing one or more incentive based modalities (i.e, bonus and malus elements, and/or reduction in reimbursement rate for large claims).
• Recommendation 3: Share of responsibility and costs between public and private sector. First, a credible arrangement for sharing responsibility between government and relevant stakeholders has to be established before decisions on cost sharing can be properly debated and defined. Sharing responsibility should be tar-geted such that the total risk is reduced by increasing the biosecurity and minimizing the effect of a possible outbreak. The envisaged PPP is a tool to provide incentives for farmers and thus stimulates behavioural changes for risk factors involved. The PPP should impose standards towards for example the maximum number of animal contacts with other farms, farm hygiene practices, the proper usage of hygiene barriers in place, reservation of e.g. 5% free places to cover temporary animal surpluses, and implementation of quality assurance schemes.
• Recommendation 4: MS’s flexibility in expanding coverage by including part of the consequential/indirect losses. The substantial benefits of introducing coverage of these losses adjacent to the CRSS are as follows: 1) the uptake of a PPP by farmers could be improved by connecting the PPP with a coverage of (part of) the consequential/indirect losses and 2)it would facilitate the implementation of preventive measures since it opens the possibility of pre-mium differentiation based on the implementation of such measures.