An outbreak of foot and mouth disease (FMD) can distort livestock markets. In this paper we have simulated welfare effects due to the risk of a hypothetical FMD outbreak and trade distortions associated with the disease. The analysis was carried out with stochastic dynamic partial-equilibrium models characterizing the Finnish pig and cattle sectors. The models maximise the aggregate welfare of consumers, producers and taxpayers arising from the domestic and two export markets, imported goods and direct costs caused by disease eradication measures. The duration of trade distortions and the probability of occurrence of disease are stochastic and unknown beforehand. The results suggest that if a disease outbreak with trade distortions occurs, the losses are likely to be primarily by excess supply of pigmeat, butter and cheese. Consumers can occasionally benefit if a disease outbreak with a trade ban results in the saturation of the domestic markets and falling prices. Although there are limited opportunities to adjust production rapidly, the meat sector is able to reduce losses through premature slaughter and reduced insemination of animals whereas in the dairy sector the largest potential seems to be in adjusting the processing quantities of milk products.


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