Commercial Poultry Compensation. Stephen L. Ott, Ph.D. Appraisal-Indemnity-Compensation Specialist February, 2010. Presentation Overview. Why Compensation Compensation & Biosecurity How Appraisals Are Done Indemnity Payments Valuation Methodology Appraisal Calculators Data Sources .
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Stephen L. Ott, Ph.D.
Not required by U.S. Constitution, taking clause 5th Amendment
Disease animals can be considered a public nuisance and thus be ordered destroyed by government through its police powers
Notto provide income subsidies to producers.
Not to put producers back into business
It is a secondary benefit
If producers are concerned about getting back in business or losses not covered by government indemnity, then they should purchase business interruption insurance
Function of costs and benefits
Optimal biosecurity occurs where costs equals benefits
Benefits function of
Effectiveness of biosecurity measures to prevent disease
Amount of potential losses
Value per head
Number of head
Q. What is the impact of government compensation programs on optimal on-farm biosecurity expenditures?
A. Indemnities paid reduce losses realized
Which reduces benefit of biosecurity
Which reduces optimal on-farm biosecurity expenditures
Conclusion: government compensation programs reduce private incentive to practice good biosecurity
Consequently, too high indemnity payments can contribute to future disease outbreaks as biosecurity is reduced
Thus, there is tension between encouraging disease reporting (high indemnity payments) and encouraging disease prevention through increased biosecurity (low indemnity payments)
12-month avg., $0.755/lb
Hens $0.8381/lb $0.7936/lb
Toms $0.8387/lb $0.7928/lb
Hens $0.9936/lb $0.9107/lb
Toms $1.0011/lb $0.9160/lb