12 November 2014
Article by Katy Orford, National Assembly for Wales Research Service
On 28 January 2014 the Welsh Government launched a consultation on the introduction of a table-valuation system for bovine tuberculosis (bTB) compensation payments similar to the method in force in England. This followed advice from the European Commission who observed that valuations were significantly higher for animals in Wales compared to England and that they did not reflect market cattle prices.
This table-valuation system would have replaced the system of individual on-farm valuations. Following analysis of the consultation feedback and the concerns raised by stakeholders, the Welsh Government announced last month that it would not be introducing such a system in Wales but would continue with the current system with some amendments such as increased scrutiny and capping payments.
This blog post looks at the current bTB compensation formula, the latest bTB compensation statistics for Wales and changes to the system that will be introduced as a result of the recent announcement.
Calculating bTB compensation payments
Compensation costs associated with bTB are the responsibility of the Welsh Government. The method for calculating the amount of compensation payable is outlined in the Tuberculosis (Wales) Order 2010 (the Order). The value of a slaughtered animal is calculated based on a system of individual on-farm valuations according to the formula given in the Article 26 of the Order:
A x B = C
Where A is the animal’s market value;
B is a figure provided in paragraphs 3-6 (Article 26) of the Order and varies according to different circumstances;
C is the value to be paid in compensation.
Trends in bTB compensation payments
Figure 1. bTB compensation paid to farmers in Wales per financial year. *data up to 30 September 2014. Source: Welsh Government Finance System.
Compensation payments to cattle farmers steadily increased between the 1999-2000 and 2008-2009 financial years (Figure 1). Compensation payments peaked at nearly £24 million during 2008-2009; an increase of 1739% since 1999-2000. From 1999-2000 to the current financial year (up to 30 September 2014) a total of just under £177 million has been spent on bTB compensation.
Compensation paid for pedigree animals has been identified as a significant proportion of the cost as they are responsible for approximately 60% of compensation spent whilst making up around 30% of the animals.
More recently, there has been a decline in annual bTB compensation paid (Figure 1) with £11.8 million spent in the last financial year. This reflects falling incidences of bTB in Wales. From August 2013 to July 2014 there were 826 cases of new herd incidents reported in Wales. This compares to 969 cases reported from August 2012 to July 2013 (a fall of 15%). The numbers of new herd incidents reported between February to June this year were the lowest recorded in any of these months consecutively since 2008 in Wales.
Revised system for bTB Compensation
In its consultation the Welsh Government had proposed that compensation for slaughtered animals would be primarily determined through table-valuations based on market averages for pre-determined cattle categories.
However, following analysis of consultation responses the Welsh Government decided not to adopt a table-valuation system, based on concerns that it would over-value poorer animals and under-value better quality animals. It has decided that a hybrid approach could be difficult to implement and cause confusion as well as being inconsistent. The current system of individual on-farm valuations will therefore continue but with enhancements.
These enhancements will include a system whereby all valuations for pedigree animals worth more than £3,000 will be scrutinised. The maximum payment for any individual animal will be capped at £15,000 to improve the financial stability of the bTB compensation system and to ensure consistent valuations.
In her oral statement the Deputy Minister for Farming and Food stated that when considering the options for a new compensation system the Welsh Government was seeking a system that would:
compensate farmers fairly for the loss of their cattle; to avoid TB compensation being paid at rates of above 100% of the animal’s value; to ensure that the valuation mechanism is cost-effective and financially sustainable for the Welsh Government; and to ensure that compensation payments incentivise farmers to engage effectively in TB prevention measures.