Purposes of Indemnity

Purposes of indemnity include the following:

• • Encourage the early participation of livestock owners in disease control strategies.¹

• • Meet legal requirements for FMV.

• • Garner full animal owner compliance and agreement.

• • Speed the disease control program response.

• • Contribute to the beginning of the recovery process.

• • Deal with potential moral hazard issues to encourage appropriate disease control and reporting behavior of animal owners.

• • Treat those affected through no fault of their own in a fair and equitable manner.

Indemnity in the United States

The process of indemnity is not a simple, consistent process, as it can vary by situation and by disease. A simplified explanation is that when the government orders the destruction of animals in response to a disease of concern, the value of the animals is determined and the animals are depopulated (or vice versa) and then the owner is paid indemnity. The more realistic explanation involves more steps and possible complications (Figure 1).

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Flowchart of steps and possible complications in the indemnity process.

Citation: Journal of the American Veterinary Medical Association 236, 7; 10.2460/javma.236.7.742

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The legal framework for federal indemnity stems from the AHPA, which was passed by Congress as law. The AHPA covers the control and eradication of pests and diseases of livestock. The AHPA empowers the US government (ie, the Secretary of Agriculture) “…to promulgate such regulations, and issue such orders, as the Secretary of Agriculture determines necessary to carry out…” the Act.² To prevent disease introduction or dissemination in the United States, the USDA has the authority to quarantine animals within states or within portions of states and to prevent importation of, hold, seize, treat, apply other remedial measures to, depopulate (including preventive slaughter), or otherwise dispose of any animal, article, facility, or means of conveyance.² The USDA is given authority to pay FMV, as determined by the Secretary of Agriculture, for farm-raised animals required to be depopulated under the AHPA, including exposed but otherwise healthy animals with the purpose of preventing disease spread. The FMV is defined as the price at which property would change hands between a willing buyer and a willing seller when both parties have reasonable knowledge of relevant facts. The authority to pay indemnity lies with the Secretary of Agriculture (from here on referred to as the Secretary).

Regulations issued under the AHPA have the force and effect of law and are compiled in the Code of Federal Regulations (9 CFR parts 1 to 199 contain federal regulations promulgated by the Secretary that relate to animals and animal products; FADs are covered mainly in part 53). Regulations contain the legal procedures that are required to claim or pay indemnity. New regulations can be and often are developed and promulgated during disease outbreaks to address emergency conditions. Uniform Methods and Rules and Veterinary Services memorandums provide internal procedures and operational guidelines for Veterinary Services activities that may include indemnity.³ The Uniform Methods and Rules documents, although they do not hold the force or effect of law, provide guidance for interpretation and application of regulations and are tied to 9 CFR. Likewise, Veterinary Services memorandums provide supplemental materials, guidance, and policies (again, not the force or effect of law) for 9 CFR provisions applied by Veterinary Services staff. For example, the current Veterinary Services memorandum No. 534.1 outlines the compensation process for Veterinary Services programs, including that final approval authority of appraisals and indemnity payments is vested in USDA regional directors.³ This Veterinary Services memorandum also outlines guidance for private appraisers that may be hired. Individual state regulations may apply and can vary when a state is paying part of the indemnity. However, if there is a conflict between the state and federal regulations, generally the federal regulations will prevail because of federal preemption under the US Constitution.⁴

On order of the Secretary, the AHPA requires the USDA to pay 100% of the FMV for animals, articles, facilities, and means of conveyance that are destroyed. The payment is reduced from 100% of FMV by any compensation from a state or other source (eg, payments from insurance or various producer groups). Regulations assume that FMV will be determined by an appraiser.⁵ There are multiple sections within 9 CFR detailing the appraisal and indemnity process; however, this process may differ for FADs versus endemic (ie, program) diseases. Animals with FADs are usually not marketed or sent for control-slaughter. Instead animals are usually killed on site with the aim of decreasing disease spread. Part 53 of 9 CFR specifies that for highly pathogenic avian influenza or exotic Newcastle disease, up to 100% of the appraised value can be paid by the USDA.⁶ The supposition is that for a highly contagious FAD that appears to be a major threat to US animal agriculture, indemnities of 100% will be paid. It is important to mention, however, that the Secretary is only required to pay the FMV of animals taken and most FAD-infected or -exposed animals are a liability and not an asset. Therefore, the Secretary may not be legally required to pay any indemnity for FAD-infected or -exposed animals. Although payment of indemnity in such situations is at the discretion of the Secretary, indemnity is often paid to gain cooperation of animal owners.

The USDA is authorized to cooperate with states, subdivisions of states, farmers' organizations, and individuals to control and eradicate FADs; however, this cooperation is not required (Figure 1). For example, when a state or individual animal owner cannot (or will not) cooperatively control or eradicate the disease of interest, the Secretary can pursue declaring an extraordinary emergency.⁷ For an extraordinary emergency to be declared, the USDA must do the following: find that the disease or pest exists in the United States and threatens the livestock or poultry industry of the United States; find that the affected state is unable or unwilling to take adequate measures to prevent dissemination of the disease or pest; and consult with the governor or other appropriate official of the state and publish the decision and the reasons for the decision in the Federal Register within 10 business days.² If the Secretary declares an extraordinary emergency, animals may be taken without the consent of the owner or state. Again, indemnity paid for these animals must only meet FMV requirements. Currently, indemnity payment by the USDA is approved by the animal owner (but owner approval is not required prior to depopulation), the USDA area veterinarian in charge, and the USDA regional director. The chief veterinary officer or others within the USDA may also be involved, and the Secretary can change indemnity amounts at their discretion. Should the above individuals fail to reach an agreed-upon indemnity, the appeal process in the United States is through the federal court system.

Complexities of Indemnity

The potential for confusion with the indemnity process is high given the many regulations, rules, guidelines, and people involved. Indemnity is further complicated because the process may change from situation to situation. Simply put, the FAD indemnity process is complicated because eradicating FADs is complex. Previous FAD events have been extensive (large numbers of animals depopulated and substantial regional economic impact). Indemnity payments received helped animal agricultural industries recover from FAD eradication campaigns. The process and steps required for payment of indemnity were not and are still not well understood by animal owners, veterinarians, or many in the government (both state and federal). This lack of understanding is in part the result of the complexity of the process involving appraisal, FMV, what can be and what is not covered by indemnity, and the influence that indemnity itself can have on FAD outbreak response.

Appraisal—Appraisal is the act of estimating the monetary value of real property, personal property, or intangible property from analysis of facts about the property, usually performed as a service by someone recognized as an expert or certified by an organization or government agency. The 3 methods for determining the value of an asset are the sales comparison, cost, and income approaches.⁸

• • The sales comparison approach requires market prices of comparable property. Because market prices of comparable property may be uncommon or nonexistent for some US animal and food industries, this may not always be a viable approach. Historically, the United States has used nondiseased animals for sales comparison values.

• • The cost approach uses the cost of raising the animal to its current age (ie, age at the time of depopulation) to determine the appraised value. Such costs should include a reasonable cost for invested equity, plus a reasonable cost for labor and management. These additions will generally allow the sales comparison and cost approaches to provide comparable indemnity values.

• • The income approach is based on the future net revenue stream (revenue minus lifetime production costs) that the animal would generate.

Ott and Bergmeier⁸ have recently highlighted the differences in opinion that can exist regarding how such appraisal approaches should be used to calculate indemnity payments. For example, in a 2002 lowpathogenic avian influenza outbreak in Virginia and a 2004 highly pathogenic avian influenza outbreak in Canada, industry as well as a private consultant in the Canada outbreak disagreed with the final indemnity payments decided on by the respective governments. In both outbreaks, an income approach was used by the government. The details of cost calculation and what is and is not included in each cost category are important. The consultant in the Canada outbreak contended that fixed costs (ie, costs that do not vary over time) should be allowed (covered by indemnity) because government-ordered depopulation causes a life cycle interruption with no willing seller and that fixed capital costs are not relevant to a short-term production cycle. In the US situation, the breeder poultry companies valued their birds at capitalization cost (ie, the amount invested in the bird at the beginning of egg laying) minus bird depreciation (the decrease in value that begins to occur once egg laying begins and as the birds age), with the value of lost egg production being a separate loss, whereas the government combined these values.

Ideally, all 3 methods of valuation could be used and the results compared. In the examples above, the cost and income approaches resulted in the same calculated indemnity as applied by Ott and Bergmeier,⁸ but others applying these methods have gotten divergent results. The income approach is perhaps the most economically correct when it incorporates both future loss of income and costs forgone. However, the very presence of an FAD will influence prices received and costs incurred. So, nuances in the valuation approach can markedly alter the results. The sales comparison approach may be needed and used for smaller producers and for owners for whom there are higher individual animal values (when sales comparisons of such animals actually exist).

FMV—Another reason for variations in indemnity payments is the multiple opinions and interpretations of what constitutes FMV. The AHPA states, “Compensation shall be based on the FMV, as determined by the Secretary…,” or in other words, the Secretary has discretion in defining FMV.² Fair market value has been legally defined (as interpreted by the courts) as a “…general concept long known to the law with ascertainable outer boundaries and not unlimited in its scope… It is generally defined as ‘the price at which property would change hands in transaction between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and both being reasonably informed as to all relevant facts.’”⁹ Fair market value also has been defined as the estimated monetary worth of an animal at the time of its taking.⁵ However, given the legal definition, the FMV could be zero or close to zero for an animal with an FAD because there is unlikely to be any willing buyer. Offering zero indemnity payments will not provide incentives for owners to cooperate with reporting and depopulation. Hence, the Secretary is more likely to follow a definition other than a strictly legal one and for valuation purposes has traditionally assumed that the animals are free of the disease in question.⁵

Some indemnity programs (in Canada, for example) use current market prices at the time of removal of the animals.¹⁰ However, indemnity payments may fluctuate widely in this case because animal and animal product market prices can fluctuate widely over the course of an FAD outbreak (eg, as a result of public concern over food safety, supply shortages, or supply excesses). Governments have calculated FMV for indemnity payments by use of previous average market prices over a period prior to an outbreak or some proportion of market prices with set upper and lower limits.^6,11

Important differences also exist between industries with regard to the ability of the market value of animals to capture current and future (discounted) profits. For example, in some industries, no markets exist as a reference to determine FMV of animals (such as for commercial egg-laying hens in the middle of egg laying where the birds are not normally sold). In contrast, for an industry with individual animal-based markets where animals are regularly traded at all ages and stages of production, such as the beef cow-calf or dairy industry, a market does exist to reflect market value at any time or stage. Many policies include tables describing a calculation of value on the basis of age or stage of production. In the British Columbia avian influenza regulations, different formulas are used to determine values for birds of various ages, taking into account variables such as replacement costs for younger birds and salvage value for older birds.¹¹

Indemnity payments (or FMV) may also have to conform to preset maximums and can vary depending on species type as well as disease. For example, the Compensation for Destroyed Animals Regulations in Canada lists the maximum amounts of compensation for each animal depopulated or otherwise taken by the government. Compensation values are listed by species and some also by disease. These maximum amounts also include transportation, destruction, and disposal costs and account for whether the animal was registered.¹⁰ In the United States, preset compensation figures could help decrease conflict over indemnity payments if industry is involved in setting such figures⁵ but could also adversely affect program delivery if not regularly updated.

Additionally, FMV, no matter how it is determined, can be far from the actual prices a producer could have received through their normal market channels. For example, contracts in the swine industry often allow a producer to realize a price that is higher than market price. If such a producer is required to depopulate, even when their herd or flock is not infected, they will suffer a substantial loss if FMV is equal to historic market price.

Economic costs not covered by indemnity—The loss of animals and their products represent only 1 financial impact of depopulation. Other aspects associated with depopulation may also have substantial financial impacts and may or may not be covered by indemnity (Appendix). As an example, in the United States with regard to low-pathogenic avian influenza, chapter 1 part 56 of 9 CFR explains what is and what is not covered by indemnity payments, but it does not provide specifics about actual dollar values or how they are calculated. Currently, costs covered by federal or state governments include depopulation (including the FMV of the animal), disposal and decontamination processes, some activities involved with enhanced surveillance, and vaccinations, if used. What has not been covered historically is labor (other than for that of USDA officials or contractors), costs to animal owners from the loss of experienced personnel (eg, from personnel going elsewhere to work), loss of customers and markets, and the business downtime (ie, nonoperational period) that a farm or industry must face during and after an FAD outbreak. Downtime costs are incurred because farms with infectious agents on their premises must remain out of production once depopulated. Costs associated with downtime are not inconsequential and can be as much as 70% to 80% of the total costs associated with disease outbreaks and eradication efforts.^12,13

Proportions of costs shouldered by government and industry are unclear for most outbreaks. Losses are incurred by local and extended business communities associated with the involved animal industries. Similarly, unemployment that results from an FAD outbreak decreases the economic viability of a community (and economic returns to a variety of local and related industries as well as local, state, and federal governments through lost taxes).

Current eradication strategies often are followed to protect the national disease status so as to assure trade, regardless of whether the affected animal owners engage in that trade. Economists suggest that consumers ultimately are the major beneficiaries of improved efficiencies of production,¹⁴ and that would include many FAD eradication programs. These benefits accrue to consumers primarily because effective disease control and prevention programs shift the supply curve of an industry outward, allowing for increased consumption at potentially lower prices.¹⁴ Also, the economic viability of rural economies relies in part on value of animals and animal products; thus, the amount of indemnity paid has important implications for rural economies. The United Kingdom discovered that the damage to tourism and other aspects of the rural economy were more costly than the foot-and-mouth disease eradication campaign of 2001.¹⁵ One recent report¹⁶ suggested that an outbreak of foot-and-mouth disease in the United States would result in between $2.7 and $4.1 billion in economic losses, mostly as a result of trade losses and other disease-related costs to capital and management. Ironically, domestic consumers may also benefit from lower prices during a foot-and-mouth disease embargo because export embargoes may increase domestic meat supply.¹⁶ Thus, the question of who is financially responsible and who benefits includes the question of whether FAD control and eradication is a public good or a private good or a public or private responsibility. Funding of indemnity programs likely requires a balance to be found between public and private sources.

Moral hazard—The payment of indemnity may alter how people respond to FAD outbreaks in ways that undermine efforts to control the disease. Often termed the moral hazard of indemnity programs, the concept posits that there are risks that the anticipation of receiving indemnity payments will affect the behavior of animal owners. For example, there is a risk that the promise of compensation (ie, coverage against loss through indemnity) might increase the risk-taking behavior of the indemnified. Models have been used to illustrate how biosecurity measures and reporting actions may be affected by the indemnity program in the United States.^17–20 When the payment is not high enough, animal owners may be enticed to not report suspected disease and may sell, or attempt to sell, the animal in the market, possibly spreading the disease. This is especially possible if the animal is not visibly sick and would likely pass antemortem and postmortem inspection. The converse happens when indemnity payments are too high (eg, higher than an animal owner would obtain in the open market). In this circumstance, animal owners may be enticed to seek infection or report suspected (or fictitious) exposure of their animals with the intention of obtaining indemnity. Similarly, if market prices have declined because of the FAD outbreak, receiving indemnity payments may provide more revenue. An uninfected herd or flock (or a herd or flock that does not get depopulated on order of the government) would not receive indemnity payment yet may suffer as much or more economically because of lost revenues that occur as a result of stop movement orders, trade restrictions, lower market prices, and decreased domestic demand for their product. Given this situation, the owner of an uninfected herd or flock that is not depopulated cannot ask for indemnity, whereas the owner of the depopulated herd or flock can.

Similarly, moral hazard may influence efforts to prevent or respond to FADs. Indeed, if an animal owner is no worse off by practicing poor FAD biosecurity during an FAD outbreak because of indemnity payments, then indemnity payments (or their promise) can cause undesirable behavior. Fortunately, this does not normally occur because FAD biosecurity practices are similar to commonly applied biosecurity practices for diseases with no indemnity payments and because indemnity payments typically cover only a fraction of an owner's costs. The general rule for indemnity payments has been that animal owners be compensated at an amount high enough to encourage voluntary participation, but not so high that it is financially beneficial to discover that the animals they own have an FAD. A balance needs to be struck that results in animal owner buy-in (ie, compensation is high enough that reporting is encouraged) but where use of indemnity compensation is seen as a last resort. Indemnity payments should not provide more economic benefit for having an infected herd or flock than an uninfected herd or flock.²¹

Indemnity programs can also affect the number of infected animals identified. Although scrapie is not an FAD, a review of the US scrapie eradication program illustrated that incentives created by indemnity payments affected the number of infected animals that were identified.²² As indemnity payments went up, farmers identified and brought forward more infected animals. Kuchler and Hamm²² suggest that effective indemnity programs will reduce disease incidence. If the indemnity payments relative to market prices are increasing or remaining constant through time, and the number of infected animals reported decreases, then the conclusion is that the number of infected animals has decreased or become more difficult to identify. Kuchler and Hamm²² also stated, “When it is not immediately obvious to farmers or private sector buyers which animals carry or transmit diseases, a government indemnity program's success is not assured.” The United Kingdom government addressed this dilemma during the bovine spongiform encephalopathy epidemic by paying greater indemnities for animals relinquished for euthanasia that proved not to be affected by bovine spongiform encephalopathy than for animals where postmortem findings were positive for bovine spongiform encephalopathy. Hence, they addressed the reluctance of farmers to report or relinquish cows that had clinical signs compatible with bovine spongiform encephalopathy for fear of losing a good cow affected with an unrelated disease.

Adaptation and flexibility in indemnity programs—Flexibility in programs can help with new and emerging situations. There has been an expansion of what is covered under indemnity programs offered by the USDA over the last few decades. For example, according to a report published in 1985 on the avian influenza eradication program of 1983 to 1984, there were no indemnity program payments paid to the owners of the turkey flocks that were depopulated from avian influenza in the 1970s.²³ These avian influenza outbreak costs (including flock depopulation) were covered by animal owners, with possible assistance from the turkey industry and the involved state. These low-pathogenic avian influenza outbreaks were perceived as industry problems, and no federal assistance, other than diagnostic laboratory support, was provided. The expansion to cover all H5 and H7 low-pathogenic avian influenza outbreaks under federal indemnity programs has occurred in part because of a recognition that certain types of low-pathogenic avian influenza can mutate to become highly pathogenic avian influenza (which is an FAD). Thus, rapid control of low-pathogenic avian influenza events is now seen as an important part of preventing highly pathogenic avian influenza. Policy changes like this point to the importance of legal and administrative flexibility in designing future FAD responses including indemnity.

Additionally, nontraditional species or animals other than those found in traditional production agriculture can impact indemnity programs. For example, feral swine can have an important influence on pseudorabies virus control and eradication. Although pseudorabies virus is absent in the US commercial swine industry and considered by some as an FAD, pseudorabies virus can be endemic in feral swine populations and pose a threat to the commercial swine industry. Feral swine kept for hunting purposes at game farms have a market value much higher than that of their domestic cousins. In such a circumstance in Michigan, the owner of a game farm had economic reasons not to accept the indemnity value offered by the USDA (the market equivalent of commercial hogs) because they could receive a much higher price for the feral swine in game market channels. In Michigan, state law requires that animals be indemnified at the value reflected for their intended use. Thus, Michigan made up the difference between the indemnity value paid by the USDA and the game value. Matching the value that an owner would receive through normal market channels provides incentive for animal owner compliance with depopulation, or at least to be financially indifferent with complying, because they receive the same price for their animals in either market. Other local variation can be imagined in a variety of species for different FADs (eg, fancy poultry species kept for ornamental or other use, with implications for highly pathogenic avian influenza or exotic Newcastle disease outbreaks).

Similarly, flexibility for the USDA to reflect on the differences, and consequently pay higher prices, for animals normally marketed under contracts is important. These animals would receive a premium above traditional spot or historic market values, and recognition by the USDA of this and adjustment to indemnity payments is critical for garnering producer support. As an example, with > 50% of US hogs marketed under some type of contract arrangement, these differences for US swine producers are substantial.

Strategies to Address the Limitations of Indemnity in FAD Planning and Response

Short of changing legislation, regulations, Uniform Methods and Rules, and departmental memorandums and notices, pursuing strategies that expedite FAD eradication would decrease indemnity payments and the consequences of indemnity payment deficiencies. Options that help expedite eradication include zoning, compartmentalization (ie, the process used to identify and have trading partners officially recognize livestock and poultry subpopulations with shared management practices related to biosecurity), and strategies to expedite depopulation and cleanup so as to minimize business downtime. Vaccination or controlled marketing may also decrease the consequences of FAD. Controlled marketing refers to the marketing of animals currently infected or previously infected but shown not to be of either a human health risk or a risk of disease spread by direct shipment to slaughter. Changes to international standards (specifically those set by the World Organization for Animal Health [known as the OIE]) that remove trade limitations would be beneficial. Communication and collaboration between stakeholders to include cost sharing and possible policy changes will be necessary to explore and effect these changes.

Zoning—Zoning (also called regionalization) allows disease incidence and disease risk to be characterized by distinct geological, political (eg, state or county), or surveyed regions in which the incidence or risk can be effectively managed. In the United States, to apply for recognition as a zone, information regarding veterinary infrastructure, disease status, extent of disease control and animal movement control programs, degree of separation from adjacent regions, vaccination status, livestock demographics, disease surveillance, diagnostic laboratory capabilities, and emergency response capacity must be provided (as outlined in part 92 of 9 CFR).⁶ In effective zoning, disease in a specific zone does not jeopardize disease status in, and therefore trade with, other zones without disease. During an outbreak, zoning identifies a control zone where active infection and hence depopulation occurs and a surrounding surveillance zone where testing and monitoring detect spread. The more tightly and rapidly the control zone can be defined, the more limited the need for depopulation and thus indemnity payments.

Compartmentalization—Compartmentalization may decrease the size of FAD outbreaks and decrease depopulation numbers and other losses. Where zoning refers to a geographic area, compartmentalization applies to a specific management unit (eg, a farm or supply chain) in which biosecurity within the compartment is shared.²⁴ Compartments may be a company or a production system. A compartment controls biosecurity risks and can be considered as separate from the surrounding territory by effectively managing disease risks (ie, resulting in real decreases in FAD risks). Ideally, compartmentalization also allows a country to avoid loss of exports because some exports may be maintained from recognized compartments not affected by disease. International trade, prices, and other benefits inherent in international trade might therefore be maintained. An added benefit of compartmentalization may be the incentive for companies or product production systems (eg, liquid egg processors) to increase biosecurity and emergency response planning in order to be recognized as a compartment, hence decreasing business interruption and the need for indemnity payments.

Appraisal process—Appraisal capacity is limited. Undoubtedly, more people would need to be trained in the area of animal appraisal to handle a major FAD outbreak in the United States. Finding individuals with both expert knowledge of animal appraisal and no personal financial interest in the outcome of the appraisal value is difficult.⁵ Uncertainty during appraisal decreases the rapidity of response. Time is of the essence in an FAD outbreak and delayed appraisal may allow further FAD spread. A priori agreements between industries and state and federal governments can allow for more rapid action (eg, depopulation) prior to completion of appraisal. Creating these agreements requires mutual trust, good communication, and excellent record keeping. Lack of these elements can cause problems and increase the amount of and need for indemnity payments.

Alternate sources for indemnity funding—Federal funding, even for extraordinary emergencies, is not unlimited. In the United States, federal funding for indemnity can come from several different sources (including Commodity Credit Corporation funds, USDA intradepartmental money, and Congressional appropriations) and it often requires approval from multiple federal departments. If Commodity Credit Corporation and other agency funds are depleted, then the Secretary or others (eg, states, insurance companies, or producer groups) would have to go through Congress to replenish federal funds. Importantly, funding limitations may affect how FAD eradication campaigns are conducted and whether a disease becomes endemic (eg, because of lack of funds to control and eradicate the FAD). This may provide incentive for stakeholders to reevaluate and discuss the indemnity process.

Several methods have been used in outbreaks as well as suggestions made in the literature for alternative sources of indemnity funding and opportunities for cost sharing (ie, a situation in which a number of parties involved in a project share the financial or other burden of the project) for an FAD response.^21,25–28 For example, classical swine fever eradication (United Kingdom, 2000) was funded by direct payments from the government for the animal's value (70%) plus industry funding (30%) paid for by a government loan that was to be repaid by an animal owner levy.²¹ A similar method was used to fund eradication of classical swine fever from the Netherlands in 1997.²¹ Other possibilities include low-cost loans, tax relief, special unemployment payments, and self-insurance to assist with recovery from future foot-and-mouth disease outbreaks.²⁸

Indeed, insurance may be an important aspect of recovery from FAD outbreaks in the future. Survey results of US animal agricultural industries revealed that most industries are interested and have considered insurance options for FADs.²⁶ Insurance does not increase income on average but helps manage risks to income.²⁷ Options to fund self-insurance (ie, where a group of owners agree to share in outbreak costs should any one owner experience an FAD outbreak) may include producer levies, industry group savings accounts, and investment of such funds in financial markets until needed.²⁵ Other methods to manage risk may include share-farming, farming partnerships, borrowing arrangements in which the lender shares in the profit or the loss, forward sale of outputs, and contractual farming arrangements.²⁷ Other models involve government-subsidized insurance schemes such as flood insurance and crop insurance, government guarantees like those of the Federal Deposit Insurance Corporation, and private insurance to cover aspects of FAD costs not covered by indemnity (eg, business interruption or downtime insurance).

Yet, while these strategies may be possible, they may not be allowed under current governmental authority or be attractive enough to be offered by commercial insurance companies. The USDA may have to obtain additional statutory authority to incorporate these ideas (eg, by allowing insurance to supplement indemnity payments or by subsidizing insurance premiums paid by animal owners).⁵ Because it is difficult to quantify FAD risk (likelihood and consequence), industry and government would need to work with private insurance companies to establish mutually acceptable insurance coverage.

Public-private partnerships—Partnerships between all involved in FAD outbreak response and recovery offer another avenue for addressing payment of indemnity. An example of such collaboration exists with the Delmarva Poultry Industry Inc and the state governments of Delaware and Maryland.^29–31 Their Mid-Atlantic Poultry Health Agreement is an example of industry self-insurance by use of an industry-imposed levy forming a group savings account to be accessed during an FAD outbreak. The plan was invoked successfully in a low-pathogenic avian influenza outbreak. The agreement calls for a prompt, effective, and coordinated response to outbreaks of highly contagious poultry diseases, with the guarantee of state resources to continue the response until the federal government is able to intervene.²⁹ The Mid-Atlantic Poultry Health Agreement brings together multiple stakeholders, including state public health, state agriculture, environmental agency, police, poultry industry, and federal government representatives. Such cooperation and planning are crucial to improving outbreak response and recovery, including providing funding and implementing rapid and effective indemnity programs.

Recommendations and Conclusions

Lessons learned from past experiences and analyses provide insight for improving future FAD response and indemnity programs.^32,33 Hopefully, open discussions between stakeholders (eg, industry and government) about issues surrounding indemnity will elicit new research and identify new indemnity strategies to improve the intended benefits of indemnity programs in an FAD response.

To implement effective indemnity programs, government and industry must work together to address logistical, economic, and social issues. This will necessitate more open information sharing in both directions. For example, knowledge (currently held by industry) of location, size of premises, and movement of animals and animal products are needed by both researchers and emergency planners to appropriately parameterize disease spread models to better predict FAD spread and indemnity payments. Similarly, knowledge (currently held by government) of the likely range of government response to particular outbreak situations is needed by industry (both production and insurance) to determine whether appropriate insurance instruments can be constructed. Consensus should also be reached between government and industry on how the indemnity process functions during an FAD event. The USDA should clearly delineate the steps required to receive indemnity and the order in which these steps should be taken. Other pertinent issues involve determination of the following: circumstances under which depopulation can occur before appraisal, documentation that is needed to determine FMV (especially if animals are depopulated prior to appraisal), activities (whose and which ones) that can be indemnified, species and diseases for which indemnity applies, and who will be financially responsible (and at what percentage) for indemnity programs.

Indemnity, as currently practiced, covers a small proportion of the costs incurred from depopulation of premises. Intensive, large-scale food production systems are at risk of destruction and bankruptcy if traditional massive depopulation is pursued in an FAD response. The impacts of business disruption must be better understood to evaluate the cost-effectiveness of current and new approaches to an FAD response and indemnity. All stakeholders need to bear in mind the purposes of indemnity programs in the broadest sense and acknowledge that such programs (including costs and funding of indemnity payments) will have a greater benefit in the end for all affected, if responsibility is shared.