An old virus that could cost the Australian economy $80bn

We’re all very attuned to how one virus can cause economic and social chaos. But it’s not just new coronavirus variants we should be worrying about. One virus, which records date back to the 1500s, has the potential to cause $80bn in damage to the Australian economy. It’s at least as contagious as the COVID-19 omnicrom variant too. So why aren’t we talking about it?

The viral threat to agriculture

Foot and mouth disease (FMD) affects cloven-hoofed animals (cattle, sheep, camels, pigs) and results in raw ulcers. While there is a low mortality rate for FMD in adult animals, it is highly infectious and spreads easily. It can kill young animals. It causes permanent reductions in meat and milk production. It spreads by inhalation, ingestion and direct contact. The virus also lives for extended periods on surfaces like clothing, footwear or even tires. Terrifyingly, studies show that the virus can even be windborne – meaning that the virus can be spread from one property to another, even with animals having no direct contact.

Once FMD infects a herd, typically the most effective method of control is to kill the herd (it is that contagious). There are vaccines for FMD but they aren’t produced in Australia as they contain live strains of FMD. Vaccination is only effective for around 12 months and has to match the risk strain in a region. Once FMD is detected, it's more likely that the decision will be made to cull livestock due to losses in productivity.

The last time FMD was detected in Australia was 1872.

Chances of spread

FMD is currently on our doorstep in Indonesia – which is making many in rural communities understandably nervous.

The Australian Government does have plans in place for any detection of the virus in Australia. Currently the risk of FMD entering Australia in the next five years is about 11.6%. This is an estimate derived by the Centre of Excellence for Biosecurity Risk Analysis (CEBRA) using a framework called Structured Expert Judgement. This requires a group of experts to consider and collate the probability of FMD passing various security points, such as passenger screening, import conditions or feeding bans. 

The challenge is that once it enters, it is likely to be hard to control – and this comes down to feral animals. Pigs in particular.

Why pigs? 

Well, Australia has a population of around 24 million feral pigs and pigs are one of the biggest spreaders of the virus. They excrete 1000-3000x more virus than animals like cows or sheep. It would be almost impossible to manage spread via the pig population. You can see the distribution in the map below.

Studies also have shown that conditions in Australia are optimal (therefore bad news) in terms of the virus being transmitted via wind.

An animal disease with a big economic impact

So far, this might sound like it’s a horrible problem for animals (and farmers). But be warned, there is a significant economic impact from FMD. ABARES estimated that an FMD outbreak across states would have a direct economic impact of around $80bn to the livestock and meat processing sector over a decade, largely due to losses in the export market.

“It would be a disaster. Immediately, 70-80% of people we trade with wouldn’t take our dairy and livestock. People would even be nervous about crops. The only people who will trade with you are those countries who also have it.”  Tom Porter, Fifth generation farmer

Only 30% and 28% of our beef and sheep meat is consumed domestically – the rest is internationally traded, according to Agribusiness Australia. The global export market works in tiers – Australia is a top-tier exporter, which means we’re in demand. The detection of FMD would drop us and restrict who would trade with us. Preventative measures in the form of vaccination are not a solution either – this still drops us in desirability.

This is just one factor of the economic implications. As mentioned in the quote from Tom Porter earlier, concerns also affect other agriculture, such as grains production. On one hand, you have human consumption, on the other, you have crops produced for animal feed. Demand for both would drop if FMD was detected.

It also becomes a matter for consumption supply and demand within Australia – and this translates to a range of industries.

One unexpected industry to pay the price is tourism. You can look at the UK as an example of this. In order to control spread, the UK Government was forced to close major attractions, such as Stonehenge and limit visitors to the majority of the countryside.  It cost the industry billions in tourism spend as well as employment in the sector. Not to mention reputational damage. You can start to imagine what this might mean for regional Australia, which has been hard hit by fires, drought and flooding in recent years and has been desperate for the tourism dollar to support recovery.

So, in short, this is equally a problem that investors should be aware of.

Back to restrictions?

The risk of entry is, at this stage, relatively low but that is no reason for complacency.

The decision by the Australian government to support Indonesia with vaccines and support crew (including veterinarians) is a helpful preventative measure. 

Australians can individually take measures to avoid spread by following biosecurity guidelines when travelling. Be careful ordering food from overseas (FMD was recently detected in Melbourne in pork products imported from China). Don’t bring food in your luggage back home from overseas. Also consider your clothing and footwear if you travel in areas that have had FMD outbreak – the virus can travel on these.

Investing in agriculture

FMD is very much something that investors should be aware of – but equally, it’s worth pointing out that Australian agriculture is considered top-tier export quality and our risk of FMD entering is low. It’s a big industry and one that investors might consider taking a closer look at. Chances are, you already hold some exposure in your investments, either directly or indirectly. 

For those considering direct investment, there are a range of specialist fund managers in this space, such as Rural Funds Management, Centuria, Kilter Rural and Argyle Capital Partners.

You can search for funds here.