The impact of 2007 outbreak of avian flu in the state of Manipur has been reported. The loss due to the disease has been found to be 14 per cent of the total value of livestock outputs in the entire state. More than 3 lakh birds were culled and 24 tonnes of poultry feed was destroyed post-flu. It has been found that the more affected were the producers and the input industry than traders and retailers. In dealing with such eventualities, compensation should be adequate and timely so as to ensure better compliance for effective control and stamping out of the disease. The study has suggested that the compensation rates may be fixed as per the prevailing economic condition of less-developed states like in the North-Eastern region, taking into consideration flock size, family size of farmers, proportion of income from poultry to total family income, level of nutritional security achieved from family poultry and border status of the state.