Agroterrorism Risks in the MidAtlantic Region: Economic Implications

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Agro-terrorism Risks in the Mid-Atlantic Region
Economic Implications

• Richard N. Boisvert, David Kay, and Calum Turvey
• Applied Economics and Management
• Cornell University
• Presented at Marketing Policy Conference,
  Bio-terrorism and Natural Disasters Market and
  Policy Responses, Washington, DC, March 22-23,
  2007
• Organizers Food and Agricultural Marketing
  Policy Section (FAMPS) NC-1016

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Outline of Presentation

• The Food System A Target for Terrorism?
• Overview of Agriculture and the Food System in
  the Mid-Atlantic Region
• Economic Effects of Livestock Supply Disruption
  from Terrorists or Natural Disease Outbreak
• Some Final Thoughts and Policy Conclusions

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Reasons to be Prepared

• The greater metropolitan region has been
  described as a target rich environment
• Large urban centers
• Major distribution infrastructure (regional,
  national, and international importance)
• Large food system
• Regions food system supports 46 million
  residents
• Lynch pin in food distribution
• Region is home to many food company headquarters

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Economics and Fear

• Basic Principles of Static Model
• Fear of attack shifts and twists supply curve
• Shift due to increased marginal costs of
  diligence
• Twist due to hysteresial effect of ambiguity and
  uncertainty (more inelastic)
• Uncertainty over safe food shifts and twists
  demand curve (shifts back and becomes more
  inelastic)
• Combined effect leads to social welfare loss
• Intelligent terrorist will target food system to
  optimize economic losses

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Snapshot of the Food SystemMid-Atlantic Region
and the U. S.

• The regions food system is large and
  decentralized, and it helps to serve 16 of the
  Nations population
• About 1,300 firms in food manuf., wholesale,
  dist.
• 117.5 billion in sales (18 of U.S.)
• 269 thousand employees (12 of U.S.)
• 9.3 billion payroll (12 of U.S.)
• Food retail food service add another 119,000
  firms
• 117.7 billion in sales (15 of U.S.)
• 1.7 million employees (13 of U.S.)
• 18.5 billion payroll (15 of U.S.)
• Production agriculture (70,000 to 100,000 farms)
  contributes 9.5 billion in sales

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Snapshot of AgricultureMid-Atlantic Region and
the U.S.

• U.S. agricultural sales totaled 200.6 billion in
  2002
• Crops 95.1 billion
• Livestock 105.5 billion
• Agricultural sales in Mid-Atlantic Region (DE,
  MD, NJ, NY, PA) totaled 9.5 billion,
  accounting for
• 5 of total U.S. farm sales
• 4 of U.S. crop sales
• 6 of U.S. livestock sales

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Mid-Atlantic Farm Sales(2002 Census of
Agriculture)
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Mid-Atlantic Livestock Agriculture(2002 Census
of Agriculture)
Two relatively important sectors represent
attractive targets for terrorist activity and
risk of natural disease outbreaks
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Defining the Nature of Output Disruptions

• Use Computable General Equilibrium Model (Global
  Trade Analysis Project (GTAP) Hertel, Purdue
  University)
• Assume pathogenic attack on livestock sector of
  varying degrees of intensity
• e.g. widespread outbreak of foot and mouth
  disease
• Combined effects of
• 5 Shock to output in O-Animal Sector
• 10 Shock to output in Livestock Sector
• 10 Shock to output of Raw milk Sector
• Ban on Livestock imports into FMD free Regions
• Decompose the effects of the shocks on individual
  sectors
• Isolate the effect of selected boycott on U.S.
  animal exports
• Preliminary Results Probably underestimates true
  effects

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Economic Sectors for the GTAP Model
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Regions for the GTAP Model
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Welfare Effects from Shocks to Livestock
Production(Eq. Variation Mil. 1997 US)
But, if no import ban from U.S., Canadas welfare
would increase
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Welfare Effects from Shocks to Livestock
Production(Eq. Variation Mil. 1997 US)
Decomposition the of the total ? welfare due
to the individual shocks
Last column includes effects of import ban and
the interaction of the shocks
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Changes in Livestock Output by Region due to
the Combined Shock
? slightly higher than direct shock due to
interaction ? in some other regions also quite
high
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Decomposition of Changes in Livestock Output
from Individual Sector Shocks
Large ?s are, of course, due to direct shocks
Large indirect ?s changes expected
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Changes in Livestock Prices by Region due to
the Combined Shock
Large ?s in price expected in Livestock and
Raw milk Somewhat lower ?s in O-Animal and
Dairy unexpected
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Decomposition of Changes in Livestock Prices
from Individual Sector Shocks
Large ?s, again, are due to the direct shocks
Large indirect ?s changes are also as expected
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Changes in Crop Output by Region due to the
Combined Shock
This large change probably due to our not
restricting primary factor mobility (particularly
land) between crop and livestock sectors
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Changes in Crop Prices by Region due to the
Combined Shock
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Changes in Livestock Imports Exports by
Region due to the Combined Shock
Imports from U.S. Banned
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Changes in Livestock Imports Exports by
Region due to the Combined Shock
A bit of a digression When there is no ban on
imports from the U.S.
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Changes in Crop Imports and Exports by Region
due to the Combined Shock
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Conclusions

• Terrorism to the food sector represents an
  unknown probability
• Economic impacts cannot be viewed in isolation of
  factor markets, product markets and trade
• Small shocks such as cutting off East Coast
  livestock, Dairy or Poultry can have huge ripple
  effects throughout the economy
• Mitigation is required ex ante to reduce these
  economic losses

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Thank You
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Conclusions

• BUT..
• Terrorism is simply a component of a broader
  threat to the food distribution system
• Economists must use scientists and scientific
  judgment to uncover the inputs to any economic
  model

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Armington