Benefit-cost analysis of the long
term containment strategy for
exotic fruit flies in the Torres
Strait
Ahmed Hafi, Tony Arthur, Michael Symes and Nicola
Millist
Research by the Australian Bureau of Agricultural
and Resource Economics and Sciences
Report to client to National Biosecurity Committee
October 2013
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
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Cataloguing data
Hafi, A, Arthur, T, Symes, M and Millist, N, 2013, Benefit-cost analysis of the long term containment strategy for
exotic fruit flies in the Torres Strait, ABARES Report to client prepared for the National Biosecurity Committee,
Canberra, October.
ABARES project: 43431
ISBN No: 978-1-74323-183-8
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Acknowledgements
The authors acknowledge the contributions of Philippe Frost of the Australian Chief Plant
Protection Office, and comments and advice provided by Darryl Barbour and Sarah Hilton of the
Australian Chief Plant Protection Office, Barbara Waterhouse and James Walker of the Northern
Australia Quarantine Strategy, Andrew Tomkins of the Torres Strait Fruit Fly Strategy review
panel and Lisa Elliston of ABARES.
i
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Foreword
In July 2010 the National Biosecurity Committee endorsed an initiative to apply the National
Framework for Biosecurity Benefit Cost Analysis (BCA) to all BCAs that evaluate future
biosecurity investments. This initiative aims to ensure national consistency and transparency in
BCAs to improve the efficiency and timeliness of management decisions on biosecurity
investments. Under this initiative a national core capacity for biosecurity BCAs has been created
within ABARES.
The role of ABARES, under the core capacity, is to undertake BCAs on alternative options to
manage selected potential or existing pest and disease incursions. ABARES consults with
relevant experts and stakeholders and then communicates the results and policy implications to
various decision-making entities. These entities include consultative committees, the National
Management Group and the National Biosecurity Committee.
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
is the sixth in a series of BCAs prepared under the national core capacity.
The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is
designed to prevent the entry of 6 exotic fruit fly species to the Australian mainland. It was
established following the incursion of exotic papaya fruit fly in 1995 around Cairns that cost
$34 million (equivalent to around $55 million in 2012-13 dollars) to eradicate and resulted in
bans on imports of Australian horticultural products by overseas countries.
The absence of exotic fruit fly incursions into mainland far north Queensland since 1995
suggests that the Strategy has been successful and avoided the cost of expensive eradication
programs and significant economic costs should eradication fail and the incursion spread to the
rest of Australia.
A key component of the Strategy is a nationally cost shared response program to eradicate the
seasonal exotic fruit fly populations from the Torres Strait islands. However, this border
protection program is currently fully funded by the government, compared to industry sharing
of some of the costs of eradicating post border fruit fly outbreaks.
This report presents a benefit-cost analysis of the response component of the Long-term
Containment Strategy for Exotic Fruit Flies in Torres Strait, including a business case for the
horticultural industries to invest in it. It provides information that would help convince the
industry to participate in the cost sharing arrangements, which would result in the better
alignment of the funding base of the response activities of the Strategy with that of other
nationally cost shared detection and eradication initiatives.
Paul Morris
Executive Director
October 2013
ii
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Contents
Foreword ........................................................................................................................................................... 2
Summary ............................................................................................................................................................ 1
1
Introduction .......................................................................................................................................... 8
2
The threat of exotic fruit flies ...................................................................................................... 10
3
Surveillance for exotic fruit flies ................................................................................................ 15
4
Methodology ...................................................................................................................................... 23
An illustrative economic framework ........................................................................................ 23
Specification of the scenarios ...................................................................................................... 25
Modelling the spread of the incursion ..................................................................................... 26
Estimation of economic impacts ................................................................................................ 29
5
Results .................................................................................................................................................. 34
6
Conclusions......................................................................................................................................... 45
Appendix A: Gross value of production by states ........................................................................... 46
Appendix B: Estimating the benefits of the Torres Strait Fruit Fly Strategy ........................ 47
Incorporating uncertainty ............................................................................................................ 47
Estimating producer and consumer losses ............................................................................ 50
References ...................................................................................................................................................... 52
Tables
Table 1 Potential losses without and with eradication (present values over 100 years) .. 4
Table 2 Benefits of eradication without the Strategy (present values over 100 years) ..... 5
Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years) . 6
Table 4 Benefits to industry of cost sharing (present values over 100 years) ....................... 7
Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategy
................................................................................................................................................................. 10
Table 6 Host crop - exotic fruit fly mapping ..................................................................................... 11
Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit
flies ......................................................................................................................................................... 12
Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait
Fruit Fly Strategy 2002-03 to 2011-12. ................................................................................... 17
Table 9 Cost of the response component of the Torres Strait Fruit Fly Strategy ............... 19
Table 10 Jurisdictions' share of the total cost .................................................................................. 20
Table 11 A 4 by 4 Markov probability transition matrix ............................................................. 27
iii
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 12 The number of additional sprays of insecticides per hectare by state and
territory ............................................................................................................................................... 31
Table 13 Cost of on-farm sprays and disinfestation of produce ............................................... 32
Table 14 Production volumes affected by state of incursion ..................................................... 33
Table 15 Producer losses in the event of an incursion without the Strategy (present
values over 100 years) ................................................................................................................... 35
Table 16 Consumer losses in the event of an incursion without the Strategy (present
values over 100 years) ................................................................................................................... 36
Table 17 Economic losses in the event of an incursion without the Strategy (present
values over 100 years) ................................................................................................................... 37
Table 18 Benefits of eradication in the event of an incursion without the Strategy
(present value over 100 years)................................................................................................... 38
Table 19 Benefits of eradication in the event of an incursion with the Strategy (present
value over 100 years) ..................................................................................................................... 38
Table 20 Benefit - cost analysis of the Torres Strait Fruit Fly Strategy (present values
over 100 years) ................................................................................................................................. 40
Table 21 Benefits to industry of cost sharing (present values over 100 years) ................. 41
Table 22 Sensitivity of the benefits to change in incursion probability and the budget
(present values over 100 years)................................................................................................. 44
Table 23 Gross value of production of fruit crops that are potential hosts to exotic fruit
flies ......................................................................................................................................................... 46
Table 24 A 4 by 4 Markov probability transition matrix ............................................................. 47
Figures
Figure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special
Quarantine Zone and movement restrictions for biosecurity risk material including
fruit fly hosts ...................................................................................................................................... 18
Figure 2 Transition probabilities used to model the spread without eradication ............. 28
Figure 3 The impact of eradication on transition probabilities ................................................ 49
Figure 4 Basic supply and demand model for exotic fruit fly susceptible crop product . 50
Boxes
Box 1 Target species of the Torres Strait Fruit Fly Strategy....................................................... 16
Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy ........ 18
Box 3 Northern Australia Quarantine Strategy (NAQS) ............................................................... 21
Box 4 Queensland government activities targeting exotic fruit flies in Torres Strait ...... 22
Box 5 An illustrative economic framework to estimate the benefits of the Torres Strait
Fruit Fly Strategy .............................................................................................................................. 24
iv
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Summary
The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait (the Strategy) is
designed to prevent the entry of exotic fruit flies to the Australian mainland. It was established
following the 1995 papaya fruit fly incursion around Cairns that cost $34 million (equivalent to
around $55 million in 2012-13 dollars) to eradicate and reduced horticultural income due to a
ban on imports of Australian horticultural products by overseas countries. According to Cantrell
et al. (2002), the incursion lasting 5 years has cost the horticultural industries approximately
$100 million. The absence of exotic fruit fly incursions into mainland far north Queensland since
then suggests that the Strategy has been successful and avoided the cost of expensive
eradication programs, short term losses from reduced market access, and long term productivity
losses to horticultural industries should eradication fail and the incursion spread to the rest of
Australia. The avoided potential economic cost represents the benefit to horticultural industries
of the early detection and rapid response program implemented under the Strategy. The Beale
review of Australia’s quarantine and biosecurity arrangements lauded the Strategy as – an
initiative with a small investment ($200,000) each year that has prevented expensive response
actions ($35 million). However, unlike the arrangements for post-border fruit fly outbreaks, the
current arrangements for this key border prevention measure only shares the cost between
Australian governments with no contribution being made by the horticultural industry.
In recognition of the significant benefits to horticultural industries, the Primary Industries
Standing Committee (PISC) in 2012 announced a review of the Strategy, focussing particularly
on the development of a business case for the participation of the horticultural industry in the
long term cost sharing arrangements.
ABARES was asked by the secretariat of the National Biosecurity Committee to conduct a
benefit-cost analysis with the focus on developing a business case for the horticultural industries
to invest in maintaining the Strategy.
The overall benefit-cost analysis is positive with robust benefit-cost ratios. This report shows
there are significant benefits for the horticultural industry in its participation in the cost sharing
arrangements for the Strategy, resulting in better alignment of the funding base of the Strategy
with that of other nationally cost shared detection and eradication initiatives.
The threat of exotic fruit flies
Given the presence of multiple species of exotic fruit flies in neighbouring countries immediately
to the north, Australia faces a risk of these flies entering northern parts of the country. A
potential incursion of exotic fruit flies is recognised by the National Fruit Fly Strategy as one of
the six key risks facing current fruit fly management arrangements (Plant Health Australia,
2010).
Compared to the Queensland and Mediterranean fruit flies, other exotic fruit fly species can
potentially cause more damage because some species attack fruits at an earlier stage of
development (unripe fruits) and can survive in a wide range of climatic conditions. Given the
wide range of species of fruit fly exotic to Australia, there are very few fruit crops that would not
be susceptible to infestation by at least one exotic species. For example, despite its name, papaya
fruit fly attacks most edible fresh fruits, both tropical and temperate, with the exception of
pineapples, and most vegetables other than root vegetables, leafy vegetables, peas and chokos
(ABARE, 1995).
The gross value of Australian horticultural products that would be susceptible to infestation by
exotic fruit fly species targeted by the Strategy is estimated at $2.1 billion in 2011-12 which is 54
1
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
percent of the total gross value of all horticultural products produced in that year. If an exotic
fruit fly incursion in mainland far north Queensland spreads to the entire state, then
approximately half of the gross value product of all Australian host horticultural products,
around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of
the value of tomatoes, mandarins, avocados, mangoes, eggplants, passionfruits and chillies are
expected to come under threat. In Queensland, the most threatened commodities in terms of
gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million),
mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados
($53 million).
Economic losses to affected industries can arise from lost profits due to additional costs being
incurred from insecticide sprays on-farm to avoid the potential reduction in marketable yields of
fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the
area of incursion due to export bans imposed on the affected areas and the cost of regulations
implemented during an incursion could also be significant. To some extent these sales losses can
be mitigated by appropriate disinfestation of products. However, development of effective
treatments and subsequent negotiations to have them accepted for either domestic or
international trade may be time consuming, resulting in ongoing loss of market access until the
negotiations are successful. The cost of complying with these treatment protocols represents the
ongoing additional cost of disinfestation of produce destined to export market, though this cost
could be significantly less than the value of sales that could have been potentially lost if the
export bans were maintained (ABARE 1995).
The Torres Strait Fruit Fly Strategy
The Torres Strait Fruit Fly Strategy targets six exotic fruit fly species that have established
populations in South East Asian countries and Papua New Guinea. Australia is most concerned
with populations of 3 species in Papua New Guinea, namely Bactrocera papayae (papaya fruit
fly), B. cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the
Australian mainland via the Torres Strait islands. Papaya and New Guinea fruit flies and to a
lesser extent melon flies have been found in some Torres Strait islands in most years over the
last decade. The flies disperse to the islands through wind-assisted natural dispersal, especially
during the annual monsoon season, when northerly winds assist dispersal from Papua New
Guinea. However, the surveillance and eradication activities implemented under the Strategy
have prevented the flies from establishing permanent populations in the Torres Strait islands,
which would otherwise have increased the likelihood of these species entering the Australian
mainland.
The Strategy has two components:
1) The Australian Government Department of Agriculture funded and implemented trap based
monitoring program for early detection of target flies, carried out under the Northern
Australia Quarantine Strategy (NAQS); and
2) A nationally cost shared response program to eradicate the flies from the affected islands by
supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill
techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the
Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis,
while the male annihilation blocking (lure and kill) is implemented directly by QDAFF.
The current arrangements for the second (response) component of the Strategy are to share the
on-going cost between Australian governments, with no contribution from industry. As these
arrangements came into being prior to the establishment of the Emergency Plant Pest Response
Deed (EPPRD), they do not include industry contributions. While cost sharing arrangements
2
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
with industry contributions are in place for the management of post-border exotic fruit fly
outbreaks, efforts need to be made to convince the industry of the significant benefits it receives
from the response element (second component) of the Torres Strait Fruit Fly Strategy and the
justification, therefore, in it contributing to the costs of the program. Currently, the importance
of sharing the cost of a mainland eradication campaign is more easily understood by
stakeholders than that of an eradication program to prevent the pest from entering the
mainland, as is carried out in the response component of the Strategy. The government fully
funding the response element of the Strategy, as happens now, is inconsistent with the principle
of the EPPRD and this deed process would provide a mechanism for industry input.
For example, the 1995 papaya fruit fly incursion on mainland far north Queensland was
eradicated with funds raised using similar cost sharing arrangements even before the deed
became operational (PHA 2011 and Abdalla et al. 2012).
The benefit cost- analysis
The business case developed in this study for the participation of horticultural industries in the
cost sharing arrangements for the response component of the Strategy is based on the estimated
long term benefits of the Strategy to horticultural industries and their sensitivity to key
parameters. A group of 25 host crops are included in this study.
The benefit from the Torres Strait Fruit Fly Strategy is equal to the difference in the costs
without and with the Strategy. Without the Strategy, it is assumed that any incursion is detected
late on mainland Australia with an established population in mainland far north Queensland. It
is further assumed that an eradication program is undertaken with some uncertainty
surrounding its success.
The economic costs of the without Strategy scenario equals the sum of:
1) the cost of the eradication program;
2) the cost of development of product disinfestations;
3) the cost of implementing necessary regulations; and
4) depending on the probability of eradication, the expected losses arising from the spread of
exotic fruit flies to the rest of Queensland, other eastern states and the Northern Territory.
The uncertainty surrounding the success of the eradication program is handled by estimating
losses at 5, 10, 25, 50, 75 and 95 per cent probability of eradication.
The expected losses include short-term, short to medium term and long term losses. The short
term losses arise from lost sales due to reduced access to both domestic and overseas markets.
In the short to medium term, there needs to be investment in research and development for
appropriate product disinfestation processes. The long-term losses include on-going costs of
additional insecticide sprays to avoid yield losses, on-going additional marketing costs from
complying with export protocols to regain access to markets. The short term losses are difficult
to predict and therefore the one-off disinfestation development cost and long term revenue
losses arising from additional production and marketing costs only are estimated. Following
ABARE (1995), three different long-term economic impacts of exotic fruit flies are considered.
3
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
1) Cost of additional disinfestation of produce from the affected area destined to overseas
markets assuming that government would be able to develop necessary export protocols
with countries importing Australian horticultural products;
2) Cost of additional insecticide sprays for exotic fruit flies for fruit and vegetable growers in
the affected area; and
3) Cost of disinfestation of fresh fruits and vegetables moving out of affected areas to the rest of
Australia.
The above industry impacts result in higher costs of production and marketing for producers in
the affected areas resulting in lower production and higher average market prices for
horticultural products across Australia. Higher prices are due to affected horticultural producers
transferring some of the increase in cost of production to consumers, depending on the relative
responses by producers and consumers to changes in prices. Economic impacts on producers
and consumers are estimated in terms of reductions in economic welfare to these groups.
Potential losses from exotic fruit fly incursion
In the event of an incursion, the potential losses to producers and consumers from an exotic fruit
fly incursion in mainland far north Queensland spreading to the rest of Australia are estimated
at $2.1 billion and $1.2 billion, respectively (Table 1). If an eradication program is implemented,
these losses could be reduced provided a higher probability of eradication is achieved. The
expected producer and consumer losses can be reduced to $269 million and $174 million,
respectively, if there is a 95 per cent chance of achieving eradication. The total economic losses
incurred until the flies are eradicated decrease from $2.7 billion with a 5 per cent probability of
being eradicated to $443 million with a 95 per cent probability of being eradicated.
Table 1 Potential losses without and with eradication (present values over 100 years)
Without
eradication
With eradication
Probability of eradication
5%
10%
25%
50%
75%
95%
$m
$m
$m
$m
$m
$m
$m
Producer
2080.4
1699.5
1651.5
1492.9
1167.8
734.3
269.0
Consumer
1185.3
976.7
949.7
860.7
678.3
435.1
174.0
Total
3265.7
2676.2
2601.2
2353.5
1846.1
1169.3
442.9
The losses estimated for three commodities (oranges, tomatoes, and bananas) account for half of
the total with the losses estimated for melons, mandarins and pumpkins accounting for an
additional 25 per cent. The remaining 19 host crop commodities account for the remaining 25
per cent of the losses. Producers lose more than consumers as the additional cost of complying
with export protocols reduces profits further on export sales and the asset fixity, particularly in
perennial horticultural crop farms, reduces flexibility in supply adjustment in response to cost
increases.
Benefits of eradication
In the event of a mainland incursion, the potential losses from an exotic fruit fly incursion in far
north Queensland spreading to the rest of Australia can be avoided if the incursion is eradicated
while it is still confined to far north Queensland as demonstrated during the 1995 papaya fruit
fly eradication campaign. For each target probability of eradication, the losses avoided by
eradication equals the losses without eradication (column 2, Table 1) less the losses estimated
4
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
for that eradication probability (columns 3—8, Table 1). The avoided losses or the benefits of
the eradication campaign increase with the probability of eradication as shown in Table 2. The
estimated benefits of eradication increase from $590 million to $2.8 billion as the probability of
eradication increases from 5 per cent to 95 per cent. The estimated cost of eradication also
increases (from $51 million to $90 million) as the probability of eradication increases. The
benefit of the eradication program considered more than exceeds the cost, and the benefit-cost
ratio exceeds 12:1.
Table 2 Benefits of eradication without the Strategy (present values over 100 years)
Performance measure
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
Producer benefits
380.8
428.9
587.5
912.6
1346.1
1811.4
Consumer benefits
208.6
235.6
324.6
507.0
750.2
1011.3
Economic benefits
589.5
664.5
912.1
1419.6
2096.3
2822.7
Disinfest R&D cost
saved
Cost of eradication
0.5
1.0
2.5
5.0
7.5
9.5
51.1
52.5
56.8
65.7
77.6
90.4
538.8
613.0
857.8
1358.8
2026.2
2741.8
12
13
16
22
27
31
Net present value
Benefit cost ratio
Benefits of the Torres Strait Fruit Fly Strategy
In the event of an incursion, the likely losses with the eradication program, presented in
columns 3—8 in Table 1, plus the cost of the eradication campaign plus the cost of developing
product disinfestation processes could have been avoided if the exotic fruit flies had been
prevented from entering mainland Australia. For example, if the hypothetical on-going outbreak
considered can be eradicated with a 95 per cent probability, a cost of $543 million ($443 million
expected losses plus the $90 million eradication cost plus the $10 million cost of developing
disinfestation processes) could have been avoided if the exotic fruit flies were prevented from
entering the mainland.
However, currently there is no exotic fruit fly incursion in Australia and there is uncertainty
surrounding a mainland incursion as well as uncertainty surrounding the probability of
eradication if an incursion is to eventuate. Therefore, the expected avoided losses or benefits
from the prevention of an uncertain incursion could be significantly lower.
The Torres Strait Fruit Fly Strategy is assumed in this study to reduce the annual probability of
incursion of exotic fruit flies to the Australian mainland from 20 per cent to 5 per cent. The
expected producer and consumer benefits of the strategy and savings for government in
eradication costs, estimated after taking into account the reduction in the incursion probability,
are given in Table 3.
5
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 3 Benefits of the Torres Strait Fruit Fly Strategy (present values over 100 years)
Performance
measure
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
Producers
731.8
720.6
678.3
569.8
386.3
150.4
Consumers
420.3
414.0
390.8
330.7
228.7
97.3
Government
20.8
21.7
24.7
31.1
40.1
50.2
1172.9
1156.3
1093.7
931.6
655.2
297.9
Total
Cost of strategy
3.5
3.5
3.7
4.0
4.4
4.7
Net present value
1169.4
1152.8
1090.0
927.5
650.8
293.2
Benefit cost ratio
339
329
296
232
149
63
The expected benefit from the strategy increases from $298 million to $1173 million as the
probability of eradication decreases. That is, the smaller the likelihood of being able to eradicate
an incursion, the higher will be the benefits of preventing the incursion. Expected producer
benefits increase from $150 million to $732 million while expected consumer benefits increase
from $97 million to $420 million. Producers are expected to gain more than consumers,
mirroring the relative magnitudes of the losses to each group that are avoided.
The response component of the Strategy costs an estimated $200,000 a year to implement and
the present value of the stream of expected investment over 100 years is estimated to decrease
from $4.7 million to $3.5 million as the probability of eradication decreases from 95 per cent to 5
per cent. This is because, the larger the likelihood of the incursion spreading further afield (as
eradication fails) the smaller the likelihood of the Strategy being continued. The net present
value (NPV) increases from $293 million to $1169 million and benefit-cost ratio (BCR) from 63:1
to 339:1 as the probability of eradication decreases from 95 per cent to 5 per cent. The smaller
the probability of eradication the larger the NPV and BCR of the response component of the
strategy. At a 5 per cent probability of eradication, the response component of the Torres Strait
Fruit Fly Strategy returns a BCR of 339:1 compared to 63:1 for a 95 per cent probability of
eradication (Table 3). This shows that the investment in the Strategy is more attractive when
there is large uncertainty that an incursion detected late can be eradicated.
Business case for industry participation in cost sharing arrangements
Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry
shares one fifth of the total cost in the event of an incursion. Early detection and prevention of
exotic fruit fly entry could save the industry funds that would otherwise be spent eradicating an
incursion resulting from late detection. Taking these savings also into account the total benefits
to industry increase from $161 million to $736 million as the probability of eradication
decreases (Table 4).
Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy,
seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities
carried out under this component are very similar to those undertaken during an eradication of
a post-border outbreak of fruit flies and therefore industry contributions towards their costs are
not inconsistent under the current arrangements.
Under the EPPRD cost sharing arrangements, papaya fruit fly is treated as a Category 2 pest and
the industry shares 20 per cent of the cost of eradication (Access Economics 2010). The melon
6
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
and New Guinea fruit flies have not been categorised yet and therefore the industry shares of
their eradication costs have not been determined. Assuming a potential industry share of 20 per
cent of the response cost under the Strategy regardless of the exotic fruit fly species, it would
cost just under one million over 20 years ($40,000 per year of a $200,000 budget) compared to
benefits ranging from $161 to $736 million depending on the probability of eradication (Table
4). For the industry, a small investment in the strategy, thus, yields a benefit cost ratio of at least
169:1. The returns on investment increase as the probability of eradication decreases.
Table 4 Benefits to industry of cost sharing (present values over 100 years)
Probability of eradication of a localised incursion
Avoided losses
Saved eradication cost
Benefits
Cost
Net present value
Benefit cost ratio
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
731.8
4.2
720.6
4.3
678.3
4.9
569.8
6.2
386.3
8.0
150.4
10.0
736.0
724.9
683.2
576.0
394.4
160.5
0.7
0.7
0.7
0.8
0.9
0.9
735.3
724.2
682.5
575.2
393.5
159.5
1063
1030
925
716
448
169
As the industry receives over 50 per cent of the benefits but in this example shares only 20 per
cent of the costs, its investment in the Strategy yields producers greater returns compared to the
returns to all groups from the total investment – for example - a benefit-cost ratio of 63:1
compared to 169:1 at 95 per cent probability of eradication (Table 3 and Table 4). Therefore,
there are clear and significant benefits to industry of its participation in the cost sharing
arrangements for the Torres Strait Fruit Fly Strategy. This would result in better alignment of
the funding base of the strategy with that of other nationally cost shared detection and
eradication initiatives.
Sensitivity analysis
The analysis is replicated with incursion probabilities of 10 per cent (lower bound) and 50 per
cent (upper bound) around the most likely value of 20 per cent chosen. For each of the three
incursion probabilities, the net present values and benefit-cost ratios are also estimated for an
annual response cost of $400,000.
As expected, without the Strategy, the higher the probability of incursion the greater the benefits
of having the Strategy to producers, consumers and the governments. The net present values
and the benefit- cost ratios for the two budgets considered, also increase as the probability of
incursion without the strategy increases. The doubling of the annual response budget to
$400,000 halves the benefit-cost ratios, but they still remain positive.
As discussed under the business case for the horticultural industry, for a given overall
investment, the industry contribution to this investment yields producers greater returns
compared to the returns to all groups from the total investment. Therefore, when the annual
response budget is doubled, the industry would still receive higher returns on its potential 20
per cent share of the annual budget.
7
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
1 Introduction
Compared to Queensland fruit fly, exotic fruit fly species such as papaya fruit fly attack a greater
number of crops and could therefore cause a greater damage to Australian horticultural
industries (ABARE, 1995). The Long-term Containment Strategy for Exotic Fruit Flies in Torres
Strait (the Strategy)was established following the 1995 papaya fruit fly incursion in far north
Queensland that cost Australian governments and horticultural industries $34 million (in 1995
dollars) to eradicate over 5 years and reduced horticultural incomes resulting from the ban on
imports of Australian horticultural products by overseas countries. According to Cantrell et al.
(2002), the incursion has cost the horticultural industries approximately $100 million over the 5
year period.
The National Fruit Fly Strategy (NFFS) recognises a potential incursion of exotic fruit flies as one
of the six key risks facing current fruit fly management arrangements (Plant Health Australia,
2010). Under the Torres Strait Fruit Fly Strategy, seasonal incursions of exotic fruit flies in the
Torres Strait islands are detected and the incursion is promptly eradicated before the flies enter
the mainland.
The early detection and response to incursions delivered under the Torres Strait Fruit Fly
Strategy is complemented by related initiatives under the NFFS and Queensland government
activities targeting exotic fruit flies. For example, specific initiatives to further strengthen the
Torres Strait Fruit Fly Strategy are contained in one of the fifteen projects identified under the
NFFS implementation action plan. These projects are designed to deliver improved market
access, emergency response arrangements against fruit fly incursions and minimise the impact
of fruit files on horticultural industries (Plant Health Australia, 2010).
The lack of an incursion of exotic fruit flies in mainland Australia since 1995 suggests that the
Torres Strait Fruit Fly Strategy has been successful to date. According to NFFS, the Strategy since
its establishment has detected over 2800 exotic fruit flies belonging to three species in regular
seasonal incursions in the Torres Strait islands. These incursions have been promptly eradicated
thus preventing the establishment of residual permanent populations (Plant Health Australia,
2010).
According to some expert opinion, without the Strategy, a mainland incursion could be expected
within 12-18 months and therefore the Strategy has apparently prevented the recurrence of
such incursions. When expressed as a likelihood of incursion in any given year, considering the
lack of an incursion since 1995, the strategy could be seen as greatly reducing that likelihood.
Consequently, the likelihood of recurrence of a localised incursion in far north Queensland
similar to the one that occurred in the Cairns area, is reduced and the costs of an expensive
eradication campaign and the economic impact of the incursion potentially spreading into an
Australia wide incursion are avoided. These avoided economic costs, including the lost sales in
the short-term, represent the benefit from a successful detection and eradication program
implemented under the Torres Strait Fruit Fly Strategy. However, there is little information
available on the magnitude of the avoided losses or the benefits that can be directly attributed to
the Strategy. Specifically, the information on the benefits to different horticultural industries is
useful in identifying the key beneficiaries of the Strategy so that they could be convinced to
contribute to the cost sharing arrangements in line with the principles of the Emergency Plant
Pest Response Deed (EPPRD). The broader participation of beneficiaries in these arrangements
is expected to better secure ongoing funding for the maintenance of the Torres Strait Fruit Fly
Strategy. In this context, it is timely, that the Primary Industries Standing Committee (PISC)
8
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
announced in 2012 a review of the Strategy to particularly examine the longer term funding
arrangements and make recommendations on options for cost sharing with beneficiary
industries.
9
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
2 The threat of exotic fruit flies
Exotic fruit fly species
There are a number of exotic fruit fly species, including papaya fruit fly that cause significant
damage to fruit and vegetable crops in South East Asia and the Pacific. For example, papaya fruit
fly has established populations in Thailand, Malaysia, Singapore, Borneo, Indonesia, Sulawesi,
Christmas Island and Papua New Guinea (Drew and Hancock, 1994). The exotic fruit fly
populations in the neighbouring countries to the north of Australia present a real risk of these
flies entering the northern parts of the country. A significant pathway for their entry from
Papua New Guinea exists in the Torres Strait region. The Torres Strait Fruit Fly Strategy lists 6
lure-responding exotic fruit fly species that have established populations in Papua New Guinea
and South East Asian countries (Table 5). The Strategy particularly targets three of these
species (papaya fruit fly, melon fly and New Guinea fruit fly) that have established and
unmanaged populations in the Western Province of Papua New Guinea. The Strategy also refers
to three additional species of non lure-responding fruit flies that are known to be present in
neighbouring New Guinea and Timor Leste.
Table 5 Bactrocera exotic fruit fly species targeted by the Torres Strait Fruit Fly Strategya
Species
B. carambolae
B. papayae
B. philippinensis
B. cucurbitae
B. tau
B. trivialis
Common name
Carambola fruit fly
Papaya fruit fly
Philippine fruit fly
Melon fly
New Guinea fruit fly
Nearest known location
Sumbawa, Indonesia
PNG (Western Province)
Philippines
PNG (Daru, Western Province)
Java, Indonesia
PNG (Western Province)
Likely host crops
Most fruit crops
Most fruit crops
Most fruit crops
All cucurbits
All cucurbits
Most fruit crops
Note: a. There are about 80 other species of fruit flies currently found in Australia, many being native species. However only
six of them have any significant impact on horticulture (Drew, Hooper and Bateman, 1982) with the species that cause most
of the damage to horticultural industries being Queensland fruit fly in the eastern states and the Mediterranean fruit fly in
Western Australia.
Source: Technical Advisory Panel for exotic fruit flies (2013)
Host crops of exotic fruit flies
The range of Australian crops that would be affected by the three target flies is not accurately
known; however, the crops targeted by these flies in other countries, particularly in South East
Asian countries, could help in the identification of their potential Australian hosts. ABARES
obtained the assistance of the Australian Chief Plant Protection Office (ACPPO) of the
Department of Agriculture in identifying the host crops. ACPPO has consulted a number of
sources including Allwood et al. (1999), Hamacek et al. (1997), Drew et al. (1994), Crop
Protection Compendium of the Centre for Agricultural Bioscience International (CABI), Pacific
Fruit Fly Web of the Secretariat of the Pacific Community (SPC), various Industry Biosecurity
Plans and Plant Health Australia in identifying the host crops. ACPPO has identified a total of 68
crops; however, only 25 major crops are included in this study as production data were not
available for the remaining minor but emerging cropping industries. The crops selected are
listed in Table 6 along with the information for each crop on which exotic fruit fly species would
choose it as a host. Each crop is affected by at least one target fly species with 9 crops affected by
two species and just two (mango and guava) affected by all three species. Of the 25 host crops,
papaya fruit fly affects 20 crops, melon fly 15 crops and the New Guinea fly 4 crops. The list
includes 15 fruit and 10 vegetable crops (Table 6).
10
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 6 Host crop - exotic fruit fly mapping
Crop
B. papayae
B. cucurbitae
B. trivialis
(Papaya fruit fly)
(Melon fly)
(New Guinea fly)
Avocados

-
Bananas
Beans




Bitter gourds

-
Capsicums


-
Cherries



-
-
Chillies
Cucumber

Eggplant


-
Grapefruit

-
-
Guava

Lemons


-

-
Limes

-
-
Lychees



-
-
Mandarins
Mangoes


Melons
-


-
Okra
-
Oranges
-

-
Passionfruit



-
Pawpaw and Papaya


-
Peaches


-
Pumpkins
-
-
Rambutan


-
Tomatoes


-

-
-
-
-
Source: ACPPO (2013)
The gross value product of horticultural hosts potentially susceptible to attack by papaya, melon
and New Guinea fruit flies in Australia is estimated at $2.1 billion in 2011-12 which is 54 percent
of the total gross value of all horticultural products produced in that year (Table 7). If an exotic
fruit fly incursion in mainland far north Queensland spreads to the entire state, then
approximately half of the gross value product of all Australian host horticultural products,
around 90 percent of the value of bananas, papaws, papayas, limes and lychees and over half of
the value of tomatoes, mandarins, avocadoes, mangoes, eggplants, passionfruits and chillies are
expected to come under threat. In Queensland, the most threatened commodities in terms of
gross value product are bananas ($283 million), tomatoes ($230 million), beans ($94 million),
mandarins ($89 million), capsicums ($83 million), mangoes ($55 million) and avocados ($53
million).
The information on the gross value of exotic fruit fly host fruits in other Australian states is given
in Appendix A.
11
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 7 Gross value of production of fruit crops that are potential hosts to exotic fruit flies
Fruit commodity
Type
Australia
Queensland
$m
Gross value as a per
cent of total gross
value of Australian
fruit producea
%
$m
Queensland gross
value as a percent
of Australian
gross value
%
Tomatoes
Vegetable
418
10.6
230
55
Bananas
Fruit
316
8.0
283
90
Oranges
Fruit
198
5.0
5
3
Melons
Vegetable
188
4.8
54
29
Mandarins
Fruit
137
3.5
89
65
Beans
Vegetable
130
3.3
94
73
Capsicums
Vegetable
113
2.9
83
73
Avocados
Fruit
105
2.7
53
51
Mangoes
Fruit
100
2.5
55
55
Cherries
Fruit
95
2.4
0
0
Peaches
Fruit
92
2.3
5
6
Pumpkins
Vegetable
71
1.8
26
36
Lemons
Fruit
34
0.9
15
43
Cucumber
Vegetable
28
0.7
11
38
Limes
Fruit
25
0.6
22
89
Pawpaw and Papaya
Fruit
18
0.4
16
90
Eggplant
Vegetable
13
0.3
9
66
Passionfruit
Fruit
13
0.3
9
70
Lychees
Fruit
11
0.3
10
98
Grapefruit
Fruit
10
0.2
1
10
Chillies
Vegetable
5
0.1
4
79
Bitter gourds
Vegetable
2
0.1
0
3
Okra
Vegetable
2
0.0
0
0
Guava
Fruit
1
0.0
1
47
Rambutan
Fruit
1
0.0
1
67
2127
53.8
1076
51
Total
Note: a. Total value of Australian fruit and nut production in 2011-12 is estimated at $3953 million
Source: ABS (2012) and ABARES calculations
Nature of the damage and economic implications
Compared to the Queensland fruit fly, exotic fruit flies can potentially cause more damage
because some attack fruits at an earlier stage of development (unripe fruits) (ABARE, 1995) and
can survive in a wide range of climatic conditions.
Papaya fruit fly attacks most edible fresh fruits, both tropical and temperate, with one exception
being pineapples. It also attacks most vegetables other than root vegetables (potatoes, sweet
potatoes, carrots and onions), leafy vegetables (such as lettuce and cabbages), peas and chokos
(ABARE, 1995).
The adult females lay their eggs just under the skin of the host fruit or vegetable. Within two to
three days the eggs hatch into larvae which, as they feed, damage the fruit by burrowing into
healthy tissues causing decay and premature fruit drop. Considerable damage can occur under
12
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
the skin before obvious signs of infestation can be seen on the fruit or vegetable. The most
obvious signs of infestation are small discoloured patches on the skin which develop from the
punctures made by the female fly as she laid her eggs. Secondary infections, either bacterial or
fungal, may also follow from the damaged host tissues leading to more markings on the surface
of the fruit or vegetable.
Economic losses to affected industries can arise from lost profits due to additional costs being
incurred on insecticide sprays on-farm to avoid the potential reduction in marketable yields of
fruits and vegetables. Potential lost sales to overseas markets and domestic markets outside the
area of incursion due to trade restrictions imposed on the affected areas could also be
significant. To some extent these sales losses can be mitigated by appropriate disinfestation of
products. However, the development of effective treatments and subsequent negotiations to
have them accepted for either domestic or international trade may take time; resulting in
ongoing loss of market access until the negotiations are successful and agreed protocols take
effect. The cost of complying with these protocols represents largely the cost of disinfestation of
produce destined to export markets and this cost could be significantly less than the value of
sales that could have been potentially lost if the export bans were maintained (ABARE 1995).
The rationale for government response to exotic fruit fly threat
In general, when faced with pest and disease threats, governments have a role in providing
biosecurity in terms of pre-border, border and post-border services that market forces, if left
alone, would fail to provide adequately. These services, due to the public good nature of their
demand, benefit all users including those who can choose not to pay thus making it unprofitable
for a private supplier to provide (Sumner et al. 2005). Government responses to the threat from
all species of fruit flies include quarantine restrictions, monitoring and surveillance, eradication
and ongoing control (Abdalla et al. 2012).
The success of the Torres Strait Fruit Fly Strategy in keeping exotic fruit flies out of the
Australian mainland since 1995 has benefitted producers and consumers of fresh fruits and
vegetables. It has benefitted producers by lowering the marginal cost of production and
marketing and consumers by keeping prices lower compared to the levels they would have
increased to had a widespread incursion of exotic fruit flies occurred. The reduction in marginal
cost of production and marketing results from the avoidance of on-farm expenditure on
additional insecticide sprays and disinfestation of produce destined to exotic fruit fly free
domestic and export markets. Following Sumner et al. (2005), the reduction in per unit cost of
production and marketing attributed to the Strategy does not depend on the volume of
production that is protected by the Strategy. In other words, it doesn’t depend on whether the
exotic fruit fly incursion is confined to mainland far north Queensland or it spreads to the rest of
Queensland or to other eastern States and the Northern Territory. Assuming each host
horticultural industry is perfectly competitive; per unit cost reduction experienced by an
individual producer is not affected by the number of other producers who would also experience
similar reductions. On the other hand, in most situations, assuming that there are no natural
barriers to the spread of exotic fruit flies within Australia, the cost of implementing the Strategy
does not increase in proportion to the volume of production protected (Sumner et al. 2005).
The case for cost sharing by industry
Following Ekboir (1999) and Sumner et al. (2005), when private incentives to provide border
services are less apparent, horticultural producers are expected to respond to incentives created
by collective actions through industry organisations. This means horticultural industry
organisations representing producers would be expected to respond positively to incentives
13
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
created by institutional arrangements for sharing the costs (with governments) of protecting the
industry from potential exotic fruit fly incursions. Cost sharing arrangements with industry
contributions are in place for the management of post-border exotic fruit fly outbreaks. Industry
needs to be convinced that similar incentives also exist for sharing the cost of border services.
Governments and industry sometimes share the cost of post-border fruit fly management as
required under EPPRD (Abdalla et al. 2012). Access Economics (2010) states, that EPPRD cost
sharing arrangements recognise that the failure to promptly eradicate an outbreak of exotic fruit
fly on one property can undermine the pest-free status of an entire region or state, resulting in
the exclusion of all growers in the region or state from accessing domestic and international
markets.
Papaya fruit fly incursion in 1995
The papaya fruit fly outbreak in 1995 around Cairns marked the second incursion of a serious
exotic fruit fly pest in the Australian mainland (since the entry of Mediterranean fruit fly to
Western Australia in 1895). In 1993, it was detected on five Torres Strait islands and
subsequently eradicated by the then Queensland Department of Primary Industries (QDPI). It is
believed to have been carried into Torres Strait by monsoon winds from Irian Jaya and Papua
New Guinea, where it had been first detected in 1992. In 1995, papaya fruit fly established small
populations around Cairns, in Mareeba and to a lesser extent around Mossman (Cantrell et al.
2002). Its source is unknown but the fly was speculated to have possibly come from the Torres
Strait islands. Immediately after the detection, QDPI declared a 10,000 square kilometre
quarantine zone. No fresh host fruits and vegetables were allowed out of the quarantine zone
without a permit from QDPI.
In response to this incursion, some overseas countries banned imports of specific Australian
horticultural produce. These include imports of Australian mangoes by Japan, bananas by New
Zealand and all fruits and vegetables by the Solomon Islands. The export bans affected 5 percent
of the value of Australian mango exports and 10 percent of the value of banana exports in 1995.
Approximately, one fifth of the value of exports from the quarantine zone was lost in that year
(ABARE 1995).
The Plant Health Committee (PHC) of the Standing Committee on Agriculture and Resource
Management (SCARM) decided to undertake an eradication campaign costing an estimated $34
million (in 1995 dollars) over a 5 year period. A benefit-cost analysis conducted by ABARE (now
ABARES) on the request of then AQIS estimated that if papaya fruit fly was not eradicated it
would have cost $74 million (in 1995 dollars) a year in terms of additional production and
marketing inputs (ABARE 1995). The campaign was successful in eradicating the pest in four
years (Cantrell et al., 2002).
14
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
3 Surveillance for exotic fruit flies
In addition to the Torres Strait island route, exotic fruit flies can also enter Australia through the
increased flow of trade and people from South East Asian countries where these flies have
established populations. Other surveillance activities for exotic fruit flies include pre-border,
border and post-border measures. Pre-border import risk assessments are used to examine the
likelihood that exotic fruit flies would enter, establish and spread through regulated pathways,
and the consequences should that occur. If the assessed risks are above the ‘very low’ score, then
pre-border treatments may be required or access denied (Abdalla et al. 2012). Quarantine
restrictions are in place as part of border measures to reduce the risk of fruit fly infested fruits
entering the country and some states. Post-border measures include fruit fly trapping programs
implemented in all states and territories to detect exotic fruit flies entering through other
pathways. These measures are designed to provide an early detection mechanism in high risk
areas and ongoing confidence to importers that Australia remains free from these exotic species.
For example, exotic fruit flies belonging to the species Bactrocera philippinensis (Philippine fruit
fly) were detected in Darwin in 1997 through the trapping program implemented by the
Northern Territory government and were promptly eradicated.
The purpose of this study is to undertake a benefit cost analysis exclusively of the investments in
response (eradication) elements of the Torres Strait Fruit Fly Strategy. The analysis does not
cover other pathways, nor the costs of monitoring and surveillance in Torres Strait which are
borne by the Australian government and delivered under the auspices of the Northern Australia
Quarantine Strategy (NAQS); however, the relevant information on these pathways is presented
to provide the context.
Target exotic fruit fly species
Of the six exotic species listed in Table 5, Australia is most concerned about three species that
are widely established in the New Guinea landmass, namely B. papayae (papaya fruit fly), B.
cucurbitae (melon fly) and B. trivialis (New Guinea fruit fly) that could enter the Australian
mainland through the Torres Strait (Box 1). Papaya and New Guinea fruit flies and to a lesser
extent melon flies (referred to as target flies in this report) have been found in some Torres
Strait islands in most years over the last decade after being blown by monsoonal wind from New
Guinea (Table 5). The surveillance and eradication activities conducted under the ongoing
Torres Strait Fruit Fly Strategy have resulted in the prevention of the flies from establishing
permanent populations in the Torres Strait islands which would have otherwise increased the
potential of them entering the Australian mainland.
15
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Box 1 Target species of the Torres Strait Fruit Fly Strategy
B. papayae (papaya fruit fly)
A major plant pest of horticultural crops in South East Asia with over 190 host plant species
belonging to 114 genera and 50 families (Allwood et al. 1999). It has established populations in
Thailand, Malaysia, Singapore, Borneo, Indonesia, Papua New Guinea and Christmas Island. In
Papua New Guinea, it is found in carambola, cashew, papaya, pomelo, mango and guava (FrancoDixon and Francis, 2009). It was found in 35 host plant species in Australia during the 1995
papaya fruit fly incursion (Hancock et al. 2000). Papaya fruit fly has been recorded on some
Torres Strait islands during the monsoon (‘incursion’) season (usually November – June) in most
years since the original incursion there in 1993. Eradication and response measures
implemented under the Torres Strait Fruit Fly Strategy have prevented the establishment of
permanent populations.
B. trivialis (New Guinea fruit fly)
New Guinea fruit fly is found regularly in Papua New Guinea and Indonesia. It is also found
occasionally in small numbers in some Torres Strait islands during the incursion season after
being blown in by wind from the southern parts of New Guinea. New Guinea fruit flies found in
the Torres Strait islands are detected and eradicated by trapping and response activities,
respectively carried out under the Strategy. It attacks a range of fruits belonging to 11 genera
and ten families. It is regularly found in guava and plants belonging to genus Syzygium (FrancoDixon and Francis, 2009).
B. cucurbitae (melon fly)
Melon fly is native to tropical Asia. It is found in Asia and Hawaii in over 125 species of both
cucurbit and non-cucurbit hosts. Non-cucurbit hosts found in Asia and Hawaii include beans and
papaya. In South East Asia, it has been found in 42 host species belonging to 26 genera and 12
families (Allwood et al. 1999). It has established populations in Papua New Guinea (and the
broader New Guinea landmass) affecting 95 per cent of bitter gourd fruits produced in the
country (Franco-Dixon and Francis, 2009).
The Torres Strait Fruit Fly Strategy
The Long-term Containment Strategy for Exotic Fruit Flies in Torres Strait was established in
1996 as a result of a decision made by SCARM following the papaya fruit fly incursion around
Cairns. The Strategy aims at reducing the likelihood of exotic fruit fly incursions in far north
Queensland through continuous monitoring and eradication of seasonal fruit fly incursions in
the Torres Strait islands. The implementation of the strategy is overseen by a Technical Advisory
Panel (TAP).
The Torres Strait Fruit Fly Strategy has two components:
16
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
1) Australian Government Department of Agriculture funded and implemented trap based
monitoring program for early detection of target fruit flies, carried out under NAQS; and
2) A nationally cost shared response program to eradicate the flies from the affected islands by
supplementary trapping to delimit the incursion, application of bait sprays and lure-and-kill
techniques. Response trapping and bait-spraying are undertaken by NAQS on behalf of the
Queensland Department of Agriculture and Fisheries (QDAFF) on a cost-recovered basis,
while the male annihilation blocking (lure and kill) is implemented directly by QDAFF.
During the 10 years to 2011-12, the Torres Strait Fruit Fly Strategy has detected around 500
exotic fruit flies belonging to the three target species. Papaya fruit fly is the most frequently
detected species (75 per cent) with the New Guinea fruit fly being detected in 24 percent of all
target detections (Table 8). Under the response component of the Strategy, additional traps are
installed around the locations of initial detections to delimit the incursion and eradication
activities are carried out by broad scale application of bait spray and installation of male
annihilation blocks where pre-determined trigger points set in the Strategy are met or exceeded.
Over the 10 years to 2011-12, a total of 156 response traps have been installed (Table 8).
Application of bait spray and male annihilation blocking have been undertaken in every year
over the last 10 year period with the number of islands being subject to these treatments
varying depending on the extent of the incursion. Four islands that lie closest to Papua New
Guinea are pro-actively blocked and bait-sprayed annually, irrespective of the number of
detections. The Torres Strait Protected Zone and Special Quarantine Zone are shown in Figure 1
and more details on the working of the Torres Strait Fruit Fly Strategy is presented in Box 2.
Table 8 Exotic fruit fly detections and eradication responses under the Torres Strait Fruit
Fly Strategy 2002-03 to 2011-12.
Year
Papaya
fruit fly
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
100
54
53
21
49
10
5
42
0
39
Number of detections
Melon fly
New
Guinea
fruit fly
0
1
0
2
0
0
0
1
0
1
No. of
response
traps
installed
32
17
4
2
40
1
0
6
3
17
Source: Torres Strait Fruit Fly Strategy review 2013 – background paper
17
42
35
8
32
9
4
3
20
3
37
Response activity levels
No. of
No. of islands
islands bait
where male
sprayed
annihilation
blocking
undertaken
7
8
11
7
8
8
8
4
6
5
4
4
3
4
7
4
4
4
6
4
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Figure 1 Map of Torres Strait showing the Torres Strait Protected Zone, Special Quarantine
Zone and movement restrictions for biosecurity risk material including fruit fly hosts
Source:Torres Strait Fruit Fly Strategy review 2013, Background paper
Box 2 Detection and response activities under the Torres Strait Fruit Fly Strategy
Both detection and response elements of the Strategy rely on traps installed for exotic fruit fly
detection. Paton traps are used for monitoring as they can withstand high rainfall or wind over a
long period between collections; whereas Steiner traps that provide flies easy access while
protecting the trapped flies from water and predators are used as response traps placed with
the aim of delimiting the incursion. A commercially prepared lure dispenser comprising a cotton
wick impregnated with a mixture of attractant and insecticide mounted within a plastic
dispenser is used to lure the flies. A dosage of 4 ml of lure and 1 ml of insecticide (Maldison 50)
is used per trap. Methyl eugenol is used to lure B. carambolae, B. papayae and B. philippinensis
whereas cuelure is used to lure B. curcurbitae, B. tau and B.trivialis. Monitoring traps are cleared
each fortnight during the wet season (January to June) and each month during the dry season.
Traps are cleared more frequently in the wet season due to the high number of flies trapped and
to facilitate more rapid notification and response to exotic fruit fly detections. Torres Straitbased NAQS staff, supervised by NAQS entomologists, are responsible for trap maintenance and
clearances.
Cairns-based NAQS entomologists identify, count and record all trapped flies (including nontarget species) and advise the Technical Advisory Panel (TAP) on the appropriate time to change
from fortnightly to monthly trapping. After each clearance, the TAP is provided with a summary
of trap catch data, which specifically lists the number of target fruit fly species recorded (if any)
and the islands on which they have been trapped. The reports are also provided to the
Queensland General Manager of the Australian Government Department of Agriculture, NAQS
and other stakeholders. NAQS entomologists also advise on any response action required if
exotic fruit fly detections reach thresholds set in the Strategy.
The Torres Strait islands differ in terms of the risk of entry and establishment of exotic fruit flies
depending on the distance from Papua New Guinea (Figure 1) and other infested islands,
18
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
movements of people between islands, the direction and strength of the prevailing wind and
availability of suitable host fruit trees. These differences in risk are reflected in the detection
thresholds for further action set for each of the islands.
For each island and collection period, the actual number of target exotic fruit flies caught in
monitoring traps is compared with two thresholds (low and high) set for that island by the TAP.
Additional (response) traps are installed and protein bait-spraying is commenced on islands
where the first (low) threshold is exceeded and a combination of protein bait-spraying and male
annihilation is carried out if the second (high) threshold is exceeded. Response trapping and
protein bait-spraying are managed by NAQS entomologists while male annihilation activities are
managed by the Queensland manager (Plant Biosecurity) of the Australian Government
Department of Agriculture. NaturalureTM fruit fly bait concentrate at the rate of 7.5 litres per
hectare is used as the protein bait while Caneite blocks impregnated with a mixture of Methyl
Eugenol lure and ultra low volume (ULV) malathion concentrate is used for male annihilation.
Response activities continue for 12 weeks after the last target fly is detected to allow for the
completion of two life cycles. Response traps are decommissioned once male annihilation blocks
are set in place, but reinstalled for a further 12 weeks to increase monitoring sensitivity upon
removal of the male annihilation blocks.
To monitor for the non-lure responding exotic fruit flies mentioned in the Strategy, NAQS
monitoring activities also include rearing fruit fly larvae through to adult flies from apparently
stung potential host fruits collected from Torres Strait island gardens. The officers of the
Australian Government Department of Agriculture undertake surveillance of gardens on the
islands, targeting fruiting plants belonging to the Solanaceae (chillies, capsicum, tomatoes and
eggplants) and the Cucurbitaceae (pumpkins, melons and squash) families. Island residents are
encouraged through public awareness activities to look for exotic fruit flies and collect and
handover suspected fruits for further inspection and rearing.
Cost of the response component of the Torres Strait Fruit Fly Strategy
A set of defined response activities is funded under the cost sharing arrangements subject to an
annual cap. In recent years, total cost shared expenditure either reached or exceeded the
$200,000 annual cap ($202,081 in 2009-10 and $190,341 in 2011-12) (Table 9). PISC recently
decided to raise the cap to $400,000 per year to cover over the cap expenses during high fruit fly
activity seasons and increased need to use helicopters. While agreeing to raise the funding cap to
$400,000 for 2012-13, PISC requested a review of the Strategy be done to examine the longer
term funding arrangements, particularly to see how the cost shared response elements of the
strategy align with the provisions within the EPPRD and what options there are for cost sharing
with the beneficiary horticultural industries.
Table 9 Cost of the response component of the Torres Strait Fruit Fly Strategy
Nominal ($)
In 2012 ($)
2009-10
202,081
214,327
2010-11
190,341
195,810
2011-12
137,624
137,624
Source: Torres Strait Fruit Fly Strategy Review (2013)
19
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Current cost sharing arrangements
Information on how the response cost of the Torres Strait Fruit Fly Strategy is shared between
jurisdictions is given in Table 10. The current cost sharing arrangements between Australian
governments were developed with the creation of the Torres Strait Fruit Fly Strategy in 1996 by
SCARM, the predecessor of PISC. As these arrangements came into being prior to the
establishment of the EPPRD, they do not include industry contributions. However, governments
and industry now take joint actions in response to incursions of exotic fruit fly species.
Particularly, the EPPRD sets out the cost-sharing arrangements and manages the funding of the
responses to incursions of exotic fruit flies. In fact, the 1995 papaya fruit fly incursion was
eradicated using similar cost sharing arrangements before the deed became operational (PHA
2011 and Abdalla et al., 2012). The three exotic fruit fly species considered in this study pose
significant threats to horticultural industries and native vegetation in wet tropics. Accordingly, if
they are to be classified as Category 2 pests under the deed, 80 per cent of the funding for
response actions would be sourced from governments with the remainder coming from industry
contributions (Abdalla et al., 2012).
Table 10 Jurisdictions' share of the total cost
Jurisdiction
Australian Government
Queensland
New South Wales
Victoria
South Australia
Western Australia
Tasmania
Northern Territory
Total
Percentage share of the total cost
50.0
15.4
10.2
12.6
6.3
3.7
1.3
0.5
100
Source: Torres Strait Fruit Fly Strategy Review (2013)
Other initiatives complementing the Torres Strait Fruit Fly Strategy
The border services provided under the Torres Strait Fruit Fly Strategy are complemented by
other government initiatives. They include related activities carried out under NFFS, Queensland
government’s activities targeting exotic fruit flies; and the broader surveillance activities carried
out under NAQS, in addition to its role in implementing the monitoring component of the Torres
Strait Fruit Fly Strategy. Additionally, restrictions on the movement of high risk plant materials
southwards through Torres Strait to the mainland and southwards within Cape York Peninsula,
implemented by NAQS and QDAFF, respectively, reduce the risk of new exotic fruit fly
populations becoming established in far north Queensland.
The NFFS Action Plan and the Torres Strait Fruit Fly Strategy
The 2008 National Fruit Fly Strategy (NFFS) identified six risks facing current fruit fly
management arrangements including the risk of exotic fruit fly incursion. Based on this
assessment, it identified a number of strategies to minimise the overall risk faced by
horticultural industries. The identified strategies reflected the need for an integrated national
approach that clearly defines the roles and responsibilities for industry, government and other
stakeholders. The NFFS implementation action plan released in April 2010 comprises a package
of 15 integrated projects designed to deliver improved market access, emergency response
arrangements against fruit fly incursions and minimise the impact of fruit flies on horticultural
industries in a cost-effective manner (Plant Health Australia, 2010). The maintenance of the
Torres Strait Fruit Fly Strategy is identified as one of the projects (Project Number 6) which is
seen as an integral part of the NFFS Action plan in delivering its intended outcomes. In
20
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
continuing to support the Torres Strait Fruit Fly Strategy, the plan proposes to undertake a
number of initiatives to enhance it. They include:
1) a review of the current area of operation including high risk entry points;
2) a comprehensive benefit-cost analysis of the Strategy;
3) alignment of the strategy delivery and funding with other detection and eradication
programs; and
4) securing on-going funding through a cost sharing arrangement.
While the Project 6 of the plan is specifically on the Torres Strait Fruit Fly Strategy, specific
initiatives for exotic fruit flies are identified in at least three other projects. These include
developing species specific data sets for high risk exotic fruit fly species (Project 1), conducting
risk analysis for exotic fruit flies (Project 2), preparing the industry and government to quickly
respond to an exotic fruit fly incursion (Project 2) and developing a national diagnostic network
for effective and rapid diagnosis of exotic fruit flies (Project 3). Because of the integrated nature
of the projects in the plan, the specific efforts directed to managing the risk from exotic fruit flies
could also benefit from various other fruit fly management initiatives listed under 5 other
projects. They are:
1) Mapping Australia’s fruit fly status (Project 4)
2) Integrated national fruit fly surveillance system (Project 5)
3) National fruit fly information portal (Project 7)
4) National standards for fruit fly management systems (Project 9); and
5) National approach to establishing different forms of pest free areas for regaining market
access (Project 11).
Other government activities
NAQS lists 18 exotic fruit fly species as target species including the 6 lure-responding species
(Table 5) listed under Torres Strait Fruit Fly Strategy. The NAQS activities complementing the
efforts of the Torres Strait Fruit Fly Strategy are described in Box 3. Relevant Queensland
government activities, other than those performed in the implementation of the Torres Strait
Fruit Fly Strategy, are described in Box 4.
Box 3 Northern Australia Quarantine Strategy (NAQS)
The Northern Australia Quarantine Strategy undertakes border and post-border surveillance
activities for plant and animal pests, diseases and weeds along Australia’s northern margin
stretching from Broome to Cairns, and including the Torres Strait islands.
NAQS lists 12 more exotic fruit fly species as target species in addition to the 6 species listed
under the Torres Strait Fruit Fly Strategy (Table 5). Additional species listed under NAQS
include the guava fruit fly (Bactrocera correcta) found in Thailand, Indian fruit fly (Bactrocera
caryeae), oriental fruit fly (Bactrocera dorsalis) found in Vietnam, Tongan fruit fly (Bactrocera
facialis), Sri Lankan fruit fly (Bactrocera kandiensis), Malaysian fruit fly (Bactrocera latifrons),
Cook Islands fruit fly (Bactrocera melanotus), Chinese fruit fly (Bactrocera minax), bezzi fruit fly
(Bactrocera occipitalis) found in Sabah Malaysia, Fijian fruit fly(Bactrocera passiflorae), Japanese
citrus fruit fly (Bactrocera tsuneonis), breadfruit fly (Bactrocera umbrosa) found in Papua New
Guinea and Indonesia and peach fruit fly (Bactrocera zonata)found in Thailand. The list also
21
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
includes three non-lure responding fruit fly species namely, Bactrocera atrisetosa, Bactrocera
decipiens and Bactrocer latifrons. The flies belonging to these species are monitored by rearing
from host fruits. The breadfruit fly is occasionally recorded in Torres strait traps.
In addition to its border and post-border activities, NAQS also contributes to pre-border
activities of the Australian Government Department of Agriculture under the auspices of its
Regional Animal Biosecurity (RABP) and International Plant Health Programs (IPHP). NAQS
scientists participate in collaborative surveys and quarantine capacity building projects in
Indonesia, East Timor, the Solomon Islands and Papua New Guinea.
Box 4 Queensland government activities targeting exotic fruit flies in Torres Strait
Queensland government undertakes a number of activities aimed at reducing the biosecurity
risk in the Torres Strait islands and mainland far north Queensland. They include targeted
surveillance and response activities in Cape York Peninsula, collaboration with NAQS on its
Torres Strait activities, public awareness activities, running the Coen Inspection and Information
Centre (CIIC) and biosecurity capacity building activities in Papua New Guinea. The Queensland
Plant Protection Regulation 2002 has established the Far Northern Queensland Pest Quarantine
Area (FNQPQA) which covers the Torres Strait islands and Cape York Peninsula north of CIIC.
This regulation provides for the prevention of the spread of the targeted plant and animal pests
and diseases within and beyond this quarantine area. The CIIC provides key supporting services
in the form of monitoring the area for emerging biosecurity threats including exotic fruit fly
incursions.
Additionally, the Queensland Plant Protection Act of 1989 lists 22 exotic fruit fly species. The list
includes species covered under NAQS and the Torres Strait Fruit Fly Strategy.
22
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
4 Methodology
Exotic fruit flies have been the subject of three economic studies since the 1995 papaya fruit fly
incursion namely ABARE (1995), Kompas and Che (2009) and Franco-Dixon and Francis
(2009)). ABARE (1995) estimated the average annual economic impact of papaya fruit fly to
Australia at $74 million (in 1995 dollars), while Franco-Dixon and Francis (2009) estimated the
impact on the Queensland banana industry over a 10 year period to be $449 million (in 2009
dollars)
However, none of these studies provided impact estimates by different horticultural industries.
While ABARE (1995) provides estimates of the aggregate impact covering 15 papaya fruit fly
host crops in all states, Franco-Dixon and Francis (2009) provides an impact estimate just for
the banana industry in Queensland. Kompas and Che (2009) estimated that it is profitable to
increase Australia’s annual exotic fruit fly surveillance expenditure from the 2009 level of
$1.4 million to $2.0 million (in 2009 dollars). However, their study didn’t estimate the benefits
to the Australian horticulture industry from the proposed additional surveillance investment
and how this investment should be sourced. Their study also didn’t go to the extent of
disaggregating the overall benefits by different parts of the national exotic fruit fly surveillance
program such as the Torres Strait Fruit Fly Strategy and separate investments by different
jurisdictions.
The current study builds on these earlier works by covering additional aspects to address the
specific objectives set out for study. The objectives of the study are to:
1) Estimate the long term expected benefits to each key horticultural industry of the Torres
Strait Fruit Fly Strategy;
2) Estimate the sensitivity of the benefit measures (net present value and benefits cost ratio) of
the Strategy to changes in key parameters such as the likelihood of an exotic fruit fly
incursion in the mainland and annual budget; and
3) Develop a business case for the horticultural industries to invest in maintaining the Torres
Strait Fruit Fly Strategy by participating in the current cost sharing arrangements.
An illustrative economic framework
Given the objectives outlined above, the general approach involves estimating for each key
industry the expected losses from exotic fruit fly incursion without and with the Torres Strait
Fruit Fly Strategy and then the expected benefits of the strategy in terms of avoided losses, over
a given planning horizon. The present value of expected benefits (avoided losses) summed over
all industries is then compared with the present value of the expected cost of implementing the
Strategy.
The Strategy aims at reducing the likelihood of exotic fruit fly incursions in mainland far north
Queensland through continuous monitoring and eradication of seasonal fruit fly incursions in
the Torres Strait islands. The reduction in the likelihood of a mainland incursion in any given
time period works through the uncertain pest spread process over time to produce three
distinct effects:
23
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
1) the probability that the mainland far north Queensland remains in the exotic fruit fly free
state, at any given point in time, is increased;
2) the probability that an outbreak similar to the 1995 papaya fruit fly outbreak recurs, at any
given point in time, is decreased; and
3) the probability of a widespread outbreak across all eastern states and the Northern
Territory, at any given point in time, is decreased.
The uncertainty surrounding a localised incursion spreading further afield arises because of the
biological process involved in exotic fruit fly population dynamics is subject to uncertain climatic
and biotic conditions. Consequently, the impact on the spread of exotic fruit flies of border
surveillance and post border eradication measures could also be uncertain.
An illustrative economic framework to estimate the benefits of the Torres Strait Fruit Fly
Strategy is presented in Box 5. For simplicity, this framework abstracts from most of the
uncertainties discussed above and assumes for merely illustrative purposes that there is a
probability of one incursion without the Strategy and a probability of zero incursions with the
Strategy, over the planning horizon chosen. The illustrative framework also assumes that
without the Strategy the incursion would be eradicated with a 100 per cent probability of
success. For simplicity, undiscounted costs and benefits are used in this illustration. The losses
avoided by the Torres Strait Fruit Fly Strategy (benefits from the Strategy) equal the cost of
eradication of the incursion plus the losses incurred until the incursion was fully eradicated.
These benefits are compared with the ongoing costs of implementing the Strategy.
Box 5 An illustrative economic framework to estimate the benefits of the Torres Strait
Fruit Fly Strategy
Consider a hypothetical incursion of exotic fruit flies in mainland far north Queensland without
the Torres Strait Fruit Fly Strategy. Assuming a probability of one incursion over a planning
horizon of T years, the economic losses and eradication costs of the incursion are represented in
the top and middle segments of the diagram. The time path of economic losses from the
uncontrolled spread is given by the full length of abc. If the incursion is detected td years after
the mainland entry and eradicated in te-td years later, the time path of losses with eradication
can then be given by abte and the time path of the cost of eradication by etep . The eradication
program is assumed to continue additional tep-te years to ensure that no more flies are left.
Avoided losses from eradication, P, is given by the difference between the areas under the
curves abc and abte . The losses given by the area under abte , denoted Q, could have been
avoided if the flies were prevented from entering the mainland.
Now consider with the Torres Strait Fruit Fly Strategy, the incursion is detected within the
Torres Strait and promptly eradicated thereby preventing the flies from entering the mainland.
For simplicity, the Strategy is assumed to be fully effective in this illustration so that the
probability of a mainland incursion over the planning horizon, with the Strategy, is zero. The
industry losses until the incursion in the Torres Strait is eradicated are actually zero. Assume
that under the Torres Strait Fruit Fly Strategy, an annual investment of 0g is made over the same
planning horizon.
24
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
c
P
Economic
losses
b
Q
a
td
T
te
e
Eradication
cost
E
T
td
tep
Surveillance
cost g
h
S
0
Time
T
Let the avoided losses from surveillance (area under the abte ) be Q, the cost of eradication (area
under etep) be E and the cost of surveillance (area under 0ghT) be S.
Then the net benefits of the strategy = losses with eradication + cost of eradication – cost of
surveillance (Q + E – S).
The analytical approach includes modelling the pest spread process and economic impacts
under the ‘with’ and ‘without Strategy’ scenarios with each scenario simulated with and without
an eradication program. For each scenario (with or without eradication), the analysis will be
implemented for each key industry by considering the process of an initial localised incursion in
mainland far north Queensland spreading further afield to cover the cropping areas in the rest of
Queensland and other jurisdictions.
Specification of the scenarios
As in the case of any other biosecurity surveillance measures, the benefit from the Torres Strait
Fruit Fly Strategy is assumed to be equal to the difference in the costs (management plus any
consequences) between late and early detections. This study considers that the Torres Strait
Fruit Fly Strategy helps achieve early detection.
Without Strategy scenario
Immediately prior to 1995, papaya fruit fly was believed to have entered from the Torres Strait
islands to mainland far North Queensland and subsequently established small populations. The
flies weren’t detected until they reached Cairns. Based on this experience, the ‘without strategy’
scenario in this study assumes a localised incursion in mainland far north Queensland similar to
the 1995 incursion, which is technically assessed to be eradicable. The delayed detection time of
25
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
the localised incursion corresponds to what Kompas and Che (2009) termed the point of natural
detection on the spread time path of an invasive species with no investment in surveillance. This
scenario also assumes that an eradication program similar to the 1995 papaya fruit fly
eradication program is implemented but there is uncertainty surrounding the success of
eradication.
With Strategy scenario
Early detection is achieved by the Torres Strait Fruit Fly Strategy at an annual implementation
cost of around $200,000 with negligible consequences in the Torres Strait islands and
significantly reduced likelihood of flies entering the mainland (exotic fruit flies have not been
detected in mainland far north Queensland since the establishment of the Strategy). This early
detection scenario is referred to in this paper as the ‘with Strategy’ scenario.
Even though the Torres Strait Fruit Fly Strategy has prevented an exotic fruit fly incursion since
1995, there remains a small residual risk and therefore the likelihood of an exotic fruit fly entry
to the mainland with the Strategy is not zero. In the unlikely event of an exotic fruit fly entry to
the mainland under this scenario, it is assumed that the flies will be eventually detected in a
localised incursion and an eradication program similar to that assumed for the ‘without
Strategy’ scenario is carried out, while maintaining that the Strategy has significantly reduced
the likelihood of an exotic fruit fly entry.
Modelling the spread of the incursion
The spread of the incursion is represented in 4 discrete incursion states:
1) No incursion in mainland far north Queensland (exotic fruit fly populations in Torres Strait
islands are detected early and successfully eradicated);
2) Localised incursion in mainland far north Queensland, following the entry of exotic fruit
flies;
3) Localised incursion in mainland far north Queensland continued due to a failed eradication
campaign; and
4) Incursion spreads to the rest of Queensland, the other three eastern states (NSW, Vic and SA)
and the Northern Territory.
Following Hinchy and Fisher (1991), Hafi, Reynolds and Oliver (1993), ABARE (1995), and
Franco-Dixon and Francis (2009), the uncertainty surrounding the spread from one incursion
state to another overtime is modelled using a Markov probability transition process. Specifically,
the uncertainty surrounding a localised incursion in far north Queensland spreading to the rest
of Queensland and then to other jurisdictions (NSW, Vic, SA and the Northern Territory) is
handled by the use of a 4 by 4 Markov probability transition matrix (Table 11).
26
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 11 A 4 by 4 Markov probability transition matrix
No
infestation
Infestation state at time t+1
No infestation
Initial localised infestation
Localised infestation arising from
failed eradication
Spread to other eastern States
and Northern Territory
Infestation state at time t
Initial
Localised
localised
incursion
incursion
arising from
failed
eradication
Spread to other
eastern States
and NT
(En)
(Ei)
(El)
(En)
Pnn
Pni
Pnl
(Ei)
Pin
Pii
Pil
(El)
Pln
Pli
Pll
(Ee)
Pen
Pei
Pel
(Ee)
Pne
Pie
Ple
Pee
Two Markov transition probability matrices are specified: one for the ‘without Strategy’ and the
other for the ‘with Strategy’ scenario. The first of the incursion states listed above is ‘no
incursion in mainland Queensland’ resulting from the early detection of the flies in the Torres
Strait islands followed by successful eradication before they reach mainland far north
Queensland. Even though the Strategy has been successful in achieving this since the 1995
papaya fruit fly incursion, there remains a residual risk and therefore the probability of the flies
reaching far north Queensland and causing a localised incursion is not zero. The probability
transition matrix used for the ‘with Strategy’ scenario incorporates the role of the Torres Strait
Fruit Fly Strategy in the form of a higher probability of maintaining the exotic fruit fly free state.
The exotic fruit fly free state observed since the 1995 papaya fruit fly incursion is evidence in
that the Strategy seems to have decreased the probability of a mainland incursion.
For each scenario, separate transition probability matrices are produced to represent spread
process with different eradication efforts. In each of these matrices, the impact on the spread
process of the eradication efforts is explicitly incorporated. These matrices are used to produce
time evolutions of the probabilities of being in different incursion states. In deriving these time
evolutions, the time step chosen should be equal to the number of years the eradication program
is expected to run and the transition probabilities estimated per this time step should be used.
The 1995 papaya fruit fly eradication campaign lasted 5 years and as such a 5 year time step is
chosen. The time evolutions of probabilities of being in different incursion states over a planning
horizon of 20 time steps (100 years) are used in estimating economic impacts.
Investment in maintaining the Torres Strait Fruit Fly Strategy, by securing industry
contributions, could be expected to maintain the exotic fruit fly free state so that the industry
could continue to benefit from the Strategy. Such benefits can be estimated by linking an
economic model to spread estimated through the Markov chain models. Appendix B provides
the details of the spread model and how spread estimates are used in the economic model.
Transition probabilities used
The simple aggregate spread model used in the study relies on information for each state of the
incursion, the probability of transition from that state in the current time period to all 4 states in
the next time period. The probability of transition from the 'no incursion' state to 'initial
localised incursion' state (probability of incursion) without the Strategy should reflect the
current likelihood of exotic fruit fly entry if the Strategy were to be removed. ABARE (1995),
relying on expert opinion assumed, without any intervention, each year, there was a 5 per cent
probability of exotic fruit fly entry around that time (before the establishment of the Torres
27
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Strait Fruit Fly Strategy). The likelihood of entry to mainland far north Queensland around that
time reflects the geographical distribution and density of papaya fruit fly populations in Papua
New Guinea around the same time. Experts believe that papaya fruit fly in Papua New Guinea
has spread further afield, and the populations have grown in density since then, resulting in a
significantly greater likelihood of entry to mainland far north Queensland if the Strategy were to
be removed now. The emerging consensus of expert opinions on a higher incursion probability
in recent years have been incorporated in the assumptions made in two benefit-cost analyses on
papaya fruit fly conducted in 2009. Franco-Dixon and Francis (2009) assumed an annual
incursion probability of 50 per cent while Kompas and Che (2009) assumed it to be normally
distributed with a mean of 20 per cent and standard deviation of 10 per cent.
Following Kompas and Che (2009), this study assumes an annual incursion probability of 20 per
cent as the most likely value of this uncertain parameter. The sensitivity of the results to
uncertainty surrounding this parameter is measured by replicating the analysis with annual
incursion probabilities of 10 per cent (lower bound) and 50 per cent (upper bound).
The lack of another exotic fruit fly incursion since 1995 indicates the incursion probability with
the Strategy could be significantly lower than without the Strategy, however the uncertainty
surrounding its value remains unresolved. The analysis presented in this report assumes that
the Strategy has reduced the annual probability to 5 per cent.
The transition probabilities corresponding to the 5 year time step used to model the
uncontrolled spread are presented in Figure 2.
Figure 2 Transition probabilities used to model the spread without eradication
Without Strategy
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑝𝑖 𝑡
0.00
0.03
0.00
0.97
𝑝𝑙 𝑡
0.00
0.00
0.00
0.00
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.77
0.23
0.00
0.00
𝑝𝑖 𝑡
0.00
0.03
0.00
0.97
𝑝𝑙 𝑡
0.00
0.00
0.00
0.00
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
With Strategy
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
Note: Notations used: p = probability of transmission, t = current period, t+1 = next period, n = no incursion, i =initial
localised incursion, l= localised incursion arising from a failed eradication campaign, e = incursion spread to the rest of
Queensland, other eastern states and the Northern Territory.
Data source: ABARE (1995)
Impact of eradication on transition probabilities
Just like the Torres Strait Fruit Fly Strategy reducing the probability of transition from the no
incursion to the initial localised incursion state, an eradication campaign could result in changes
to the transition probabilities in the second and third columns of the matrices shown in Table 11
and Figure 2. A successful eradication of the initial localised incursion is achieved through:
28
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
1) an increase in the probability of transition from the initial localised incursion state to the no
incursion state, Pin (Table 11)
2) a reduction in the probability of transition from the initial localised incursion state to the
localised incursion state arising from failed eradication, Pil; and
3) a reduction in the probability of transition from the initial localised incursion state to the
widespread incursion state, Pie.
However, changes in these transition probabilities arising from the impact on the spread
process of a given eradication effort are uncertain. Following ABARE (1995), these uncertainties
are accounted for by developing 6 more transition matrices for each scenario to represent 5, 10,
25, 50, 75 and 95 per cent probability of eradication within a five year time step. The 6 matrices
used for the ‘Without Strategy’ scenario are presented in Figure 3 in Appendix B. Similar
assumptions are also made to consider the uncertainty surrounding the success of eradication
with the Strategy.
Estimation of economic impacts
The economic losses include short-term, short to medium term and long term losses. The short
term losses arise from lost sales due to reduced access to both domestic and overseas markets.
In the short to medium term, there needs to be investment in research and development for
appropriate product disinfestation processes. The long-term losses include on-going costs of
additional insecticide sprays to avoid yield losses and on-going additional marketing costs from
complying with export protocols to regain access to markets. The short term losses are difficult
to predict and as such the one-off disinfestations development cost and long term revenue losses
arising from the additional costs of production and marketing being incurred only are estimated.
However, the long term losses in terms of transaction costs involved in the registration of
suitable chemicals for on-farm sprays and product disinfestation were not considered in this
study. Following ABARE (1995), for each incursion state and horticultural industry, three
different economic impacts of exotic fruit flies are considered.
1) the cost of additional disinfestation of produce from the affected area destined to overseas
markets assuming that the government would be able to develop necessary export protocols
with countries importing Australian horticultural products;
2) the cost of additional insecticide sprays for exotic fruit flies for fruit and vegetable growers
in the affected area; and
3) the cost of disinfestation of fresh fruits and vegetables moving out of affected areas to the
rest of Australia.
The above industry impacts result in higher costs of production for producers in the affected
areas resulting in lower production and higher average market prices for horticultural products
across Australia. Affected horticultural producers are expected to transfer some of the increase
in costs of production to consumers by way of higher prices depending on the relative responses
by producers and consumers to changes in prices (supply and demand elasticities, respectively).
For each incursion state, economic impacts on producers and consumers at a national level are
estimated in terms of reductions in economic welfare to these groups, using economic surplus
measures. A multi commodity partial equilibrium model representing the markets for
horticultural products is developed. For each incursion state and industry, the model estimates
the changes in the market equilibrium price and quantity occurring at a national level resulting
from the estimated increase in the costs of production in the affected areas. For each incursion
29
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
state and industry, the increase in costs of production in the affected area is simulated in the
model by shifting that area’s supply curve to the left. The changes in producer and consumer
surpluses at a national level are estimated using the changes in equilibrium quantity and price
estimated at a national level, along with other industry specific information.
For each industry and the target probability of eradication, the uncertainty surrounding the
spread of exotic fruit fly across 4 incursion states over time is incorporated as follows (details
are in Appendix A).
1) For the ‘without Strategy’ and ‘with Strategy’ scenarios, the time evolution of the probability
of each of the incursion states is derived using equation 1 in Appendix B.
2) For each scenario, time period (5 year time step) and state of incursion, the expected
producer and consumer losses from an exotic fruit fly outbreak with eradication is then
estimated by multiplying the respective economic surplus losses (as estimated assuming
that state would occur with certainty) by the probability of the incursion being in that state.
3) For each scenario and time period, the overall expected producer loss is then estimated as
the sum of expected producer losses for all four states.
4) For each scenario and time period, the overall expected consumer loss is then estimated as
the sum of expected consumer losses for all four states.
For each scenario, industry and target probability of eradication, the stream of producer and
consumer losses estimated over a planning horizon spanning 20 time periods (100 years) is
then discounted and summed over time to estimate the present value of expected losses to these
groups. The expected benefit from the Strategy to producers and consumers of each industry is
the difference in losses between the without and with Strategy scenarios.
The total benefit to all groups and industries plus the present value of the saved eradication cost
is then compared with the present value of the cost of implementing the Torres Strait Fruit Fly
Strategy over the planning horizon.
The splitting of the estimated overall economic impact between producers and consumers of
horticultural products is a key improvement over the methodology employed in ABARE (1995),
Kompas and Che (2009) and Franco-Dixon and Francis (2009).
Economic data used
The economic analysis conducted in this study focuses on 25 host fruit and vegetable crops. The
location and the size of the localised incursion are the same as assumed in ABARE (1995). Other
information taken from ABARE (1995) include the share of exports and production coming from
the localised incursion area in mainland far north Queensland, data on the number of additional
insecticide sprays per hectare, the cost per spray per hectare and the cost of disinfestation per
tonne of produce. These unit costs are adjusted upward to reflect the inflation between 1995-96
and 2012-13. The number of additional sprays and the unit costs of sprays and disinfestation
assumed are given in Table 12 and Table 13, respectively.
30
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 12 The number of additional sprays of insecticides per hectare by state and territory
Crop
NSW
QLD
VIC
SA
TAS
NT
Avocados
12
12
10
10
10
12
Bananas
6
6
10
10
10
6
12
12
10
10
10
12
Beans
Capsicums
6
6
10
10
10
6
Cherries
12
12
10
10
10
12
Grapefruit
10
6
10
10
10
6
Guava
12
12
10
10
10
12
Lemons
10
6
10
10
10
6
Limes
10
6
10
10
10
6
6
6
10
10
10
6
10
6
10
10
10
6
Mangoes
6
6
10
10
10
6
Melons
6
6
10
10
10
6
Oranges
10
6
10
10
10
6
Passionfruit
12
12
10
10
10
12
Pawpaw and Papaya
12
12
10
10
10
12
Peaches
10
6
10
10
10
6
Pumpkins
6
6
10
10
6
6
Rambutan
6
6
10
10
10
6
Tomatoes
10
6
10
10
10
6
Eggplant
6
6
10
10
10
6
12
12
10
10
10
12
6
6
10
10
10
6
12
12
10
10
10
12
6
6
10
10
10
6
Lychees
Mandarins
Bitter gourds
Chillies
Cucumber
Okra
Source: ABARE (1995)
31
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 13 Cost of on-farm sprays and disinfestation of produce
Crop
Cost of disinfestation
for domestic markets
$/tonne
Cost of disinfestation
for export markets
$/tonne
Cost of on-farm
sprays
$/spray/hectare
Avocados
144
141
72
Bananas
124
141
72
Beans
144
141
72
Capsicums
144
141
72
Cherries
144
141
72
Grapefruit
144
141
72
Guava
144
141
72
Lemons
144
141
72
Limes
144
141
72
Lychees
144
141
72
Mandarins
144
141
72
Mangoes
144
141
72
Melons
157
141
42
Oranges
144
141
72
Passionfruit
144
141
72
Pawpaw and Papaya
144
141
72
Peaches
144
141
72
Pumpkins
157
141
42
Rambutan
144
141
72
Tomatoes
144
141
42
Eggplant
144
141
72
Bitter gourds
144
141
72
Chillies
144
141
72
Cucumber
144
141
72
Okra
144
141
72
Source: ABARES calculations to update ABARE(1995) to reflect money inflation between 1995 and 2012.
To estimate the one-off disinfestation research and development costs, first, 13 host crops are
selected after examining the recent export data to see whether any of their products are
currently exported. The information on the host crop – exotic fruit fly species mapping given in
Table 6 is then used to find out how many target species attack each of these crops. It was found
that 7 crops are affected by 1 species, 5 crops by 2 species and 1 crop by 3 species and; a total of
20 crop- species combinations to be considered. According to ACPPO, the research and
development would cost $200,000 to $500,000 per crop per species, resulting in the one-off
research and development costs falling between $4 million to $10 million. The upper bound
value of $10 million is used in this study as there may be a need for developing a different
protocol in some cases resulting in a second one-off cost.
The spread of the localised incursion to cover the rest of Queensland, other eastern States and
the Northern Territory is linked to respective volumes of production being progressively
affected. The corresponding volumes of exports affected are calculated by dividing the aggregate
exports between the localised and widespread incursion states based on state level export data.
The production data for the localised and widespread incursion states and the price of produce
and aggregate exports with no incursion state being maintained are given in Table 14. These
32
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
data are used along with the information on the increase in production and marketing costs and
spread rates (both with and without the Torres Strait Fruit Fly Strategy) in estimating the
expected benefits of the Strategy.
Table 14 Production volumes affected by state of incursion
Crop
No
incursion
Localised
incursion
(Ei and El)
Price of produce
with no incursion
Exports with no
incursion
(‘000 t/y)
Incursion spreads to
the rest of
Queensland other
eastern states and
Northern Territory
(‘000 t/y)
(‘000 t/y)
($/t)
(‘000 t/y)
Avocados
0
0
1,957
2,899
2.49
Bananas
0
0
0
1,559
0.00
Beans
0
0
1,140
3,939
1.14
Capsicums
0
0
332
2,231
0.34
Cherries
0
0
9
9,032
1.21
Grapefruit
0
0
12
1,069
0.38
Guava
0
0
0
2,180
0.00
Lemons
0
1
81
1,389
0.43
Limes
0
0
0
4,562
0.00
Lychees
0
0
0
6,770
0.00
Mandarins
0
198
1,797
1,404
32.58
Mangoes
0
674
2,636
2,726
3.51
Melons
0
0
0
889
0.00
Oranges
0
18
1,605
680
120.66
Passionfruit
0
0
0
4,925
0.00
Pawpaw and Papaya
0
0
0
2,709
0.00
Peaches
0
0
69
1,525
1.52
Pumpkins
0
0
419
693
0.58
Rambutan
0
0
0
8,530
0.00
Tomatoes
0
11
1,322
1,386
1.49
Eggplant
0
0
0
1,855
0.00
Bitter gourds
0
0
0
5,133
0.00
Chillies
0
0
0
2,401
0.00
Cucumber
0
0
0
2,359
0.00
Okra
0
0
0
7,968
0.00
The data on production, exports and prices of horticultural products are sourced from the
Australian Bureau of Statistics (ABS) and ABARES data. Following ABARE (1995) and for
simplicity, a supply elasticity of 1.5 and a demand elasticity of -2 are used for all 25 commodities.
A discount rate of 7 per cent is used as advised by the Office of Best Practice Regulation (OBPR)
of the Department of Finance.
33
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
5 Results
The process of estimating the benefits of the Torres Strait Fruit Fly Strategy is implemented in
five steps:
1) Estimation of the potential economic losses from a localised incursion spreading
uncontrolled to the rest of Australia, without and with the Strategy scenario.
2) Estimation of the potential economic losses with an eradication campaign similar to that
implemented in 1995 to eradicate the localised incursion. This is done both with and
without the Strategy scenarios. Given the uncertainty surrounding the success of eradication,
these losses are estimated at 6 different target probabilities of eradication as discussed in
Chapter 4.
3) Undertaking a benefit-cost analysis similar to that contained in ABARE (1995) of the
eradication program to ascertain that the eradication campaign considered is economically
profitable.
4) Estimating the likely economic cost with eradication (the sum of the loss estimated in step 2
and the cost of eradication campaign). This is done for both with and without Strategy
scenarios.
5) Estimating the benefits of the Strategy to be compared with the cost of implementation.
Potential losses from exotic fruit fly incursion
As exotic fruit flies spread further afield from an initial incursion in mainland far north
Queensland, the use of insecticides on affected farms and treatment of produce marketed are
expected to increase as farmers and marketers try to mitigate the negative impacts. This results
in higher production and marketing costs, lower aggregate production and higher market prices
at the margin for horticultural products. Horticultural producers are expected to transfer some
of the increase in costs of production to consumers by way of higher prices, depending on the
relative responses by producers and consumers to changes in prices. Producers are expected to
lose as they cut back production and the increase in market price is not large enough to fully
offset the increase in costs of production. Consumers also lose as they pay a higher price and
consume less.
The estimates of the potential producer and consumer losses from an uncontrolled spread
without the Torres Strait Fruit Fly Strategy are given in the second column of tables 15 and 16,
respectively. These losses could be less if an eradication campaign is undertaken to eradicate the
localised incursion with the expected losses decreasing as the probability of eradication
increases. Producer and consumer losses estimated, with the localised incursion being
eradicated at 6 different success rates, are given in columns 3 — 8 of Table 15 and Table 16,
respectively. Similar information on economic loss which is the sum of producer and consumer
losses is given in Table 17.
34
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 15 Producer losses in the event of an incursion without the Strategy (present values
over 100 years)
Affected industry
Without
eradication
With eradication
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
($m)
Oranges
553.4
438.9
425.4
381.1
290.2
169.0
38.9
Tomatoes
293.5
233.0
225.9
202.4
154.3
90.2
21.3
Bananas
267.6
257.4
253.2
239.1
210.4
171.9
130.7
Melons
200.8
159.3
154.4
138.3
105.3
61.3
14.1
Mandarins
169.9
135.1
131.0
117.4
89.6
52.6
12.8
Pumpkins
99.4
78.8
76.4
68.4
52.1
30.3
7.0
Peaches
87.7
69.5
67.4
60.4
46.0
26.8
6.2
Mangoes
80.4
66.9
65.1
59.1
46.9
30.7
13.3
Beans
68.7
54.5
52.8
47.3
36.0
21.0
4.8
Avacados
63.0
50.0
48.4
43.4
33.0
19.2
4.4
Capsicums
54.5
43.2
41.9
37.5
28.6
16.6
3.8
Cherries
47.8
37.9
36.8
32.9
25.1
14.6
3.4
Lemons
28.4
22.6
21.9
19.6
14.9
8.7
2.1
Cucumber
14.4
11.4
11.1
9.9
7.6
4.4
1.0
Pawpaw and Papaya
9.9
8.5
8.3
7.6
6.2
4.4
2.4
Grapefruit
9.5
7.5
7.3
6.5
5.0
2.9
0.7
Eggplant
8.3
6.6
6.4
5.7
4.3
2.5
0.6
Limes
7.7
6.1
6.0
5.3
4.1
2.4
0.6
Passionfruit
5.7
4.5
4.4
3.9
3.0
1.7
0.4
Lychees
4.4
3.5
3.4
3.1
2.3
1.4
0.3
Chillies
2.7
2.2
2.1
1.9
1.4
0.8
0.2
Guava
1.1
0.9
0.9
0.8
0.6
0.3
0.1
Bitter gourds
0.7
0.6
0.6
0.5
0.4
0.2
0.1
Rambuttan
0.5
0.4
0.4
0.3
0.3
0.2
0.0
Okra
0.5
0.4
0.4
0.3
0.3
0.2
0.0
Total
2080.4
1699.5
1651.5
1492.9
1167.8
734.3
269.0
35
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 16 Consumer losses in the event of an incursion without the Strategy (present values
over 100 years)
Affected industry
Without
eradication
With eradication
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
($m)
Oranges
148.2
117.5
113.9
102.0
77.7
45.2
10.4
Tomatoes
217.1
172.4
167.1
149.7
114.2
66.7
15.8
Bananas
200.7
193.1
190.0
179.4
157.8
129.0
98.1
Melons
150.7
119.5
115.8
103.7
79.0
46.0
10.6
Mandarins
55.8
44.4
43.0
38.6
29.5
17.3
4.2
Pumpkins
73.4
58.2
56.4
50.5
38.5
22.4
5.1
Peaches
62.1
49.3
47.8
42.8
32.6
19.0
4.4
Mangoes
49.9
41.4
40.3
36.6
29.0
18.9
8.1
Beans
48.2
38.2
37.1
33.2
25.3
14.7
3.4
Avacados
40.2
31.9
30.9
27.7
21.1
12.3
2.8
Capsicums
40.1
31.8
30.8
27.6
21.0
12.2
2.8
Cherries
30.3
24.1
23.3
20.9
15.9
9.3
2.1
Lemons
20.4
16.2
15.7
14.1
10.7
6.3
1.5
Cucumber
10.9
8.6
8.3
7.5
5.7
3.3
0.8
Pawpaw and Papaya
7.4
6.4
6.2
5.7
4.7
3.3
1.8
Grapefruit
6.3
5.0
4.8
4.3
3.3
1.9
0.4
Eggplant
6.2
4.9
4.7
4.2
3.2
1.9
0.4
Limes
5.8
4.6
4.5
4.0
3.0
1.8
0.4
Passionfruit
4.3
3.4
3.3
3.0
2.3
1.3
0.3
Lychees
3.3
2.6
2.6
2.3
1.8
1.0
0.2
Chillies
2.1
1.7
1.6
1.4
1.1
0.6
0.2
Guava
0.7
0.6
0.6
0.5
0.4
0.2
0.1
Bitte gourd
0.6
0.5
0.5
0.4
0.3
0.2
0.0
Rambuttan
0.4
0.3
0.3
0.3
0.2
0.1
0.0
Okra
0.4
0.3
0.3
0.3
0.2
0.1
0.0
Total
1185.3
976.7
949.7
860.7
678.3
435.1
174.0
36
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 17 Economic losses in the event of an incursion without the Strategy (present values
over 100 years)
Without
eradication
With eradication
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
($m)
Oranges
701.6
556.4
539.3
483.1
367.9
214.2
49.3
Tomatoes
510.5
405.4
393.0
352.2
268.5
156.9
37.1
Bananas
468.3
450.6
443.1
418.5
368.2
300.9
228.7
Melons
351.5
278.7
270.2
242.0
184.3
107.3
24.6
Mandarins
225.7
179.5
174.0
156.0
119.1
69.9
17.0
Pumpkins
172.7
137.0
132.8
118.9
90.6
52.7
12.1
Peaches
149.8
118.8
115.2
103.1
78.5
45.7
10.5
Mangoes
130.3
108.3
105.4
95.7
76.0
49.6
21.4
Beans
116.9
92.7
89.9
80.5
61.3
35.7
8.2
Avacados
103.2
81.8
79.3
71.1
54.1
31.5
7.2
Capsicums
94.6
75.0
72.7
65.1
49.6
28.9
6.6
Cherries
78.2
62.0
60.1
53.8
41.0
23.9
5.5
Lemons
48.8
38.8
37.6
33.7
25.7
15.0
3.6
Cucumber
25.3
20.0
19.4
17.4
13.3
7.7
1.8
Pawpaw and Papaya
17.3
14.9
14.5
13.4
10.9
7.7
4.2
Grapefruit
15.8
12.5
12.1
10.9
8.3
4.8
1.1
Eggplant
14.4
11.4
11.1
9.9
7.6
4.4
1.0
Limes
13.5
10.7
10.4
9.3
7.1
4.2
1.0
Passionfruit
10.0
7.9
7.7
6.9
5.2
3.1
0.7
Lychees
7.8
6.2
6.0
5.4
4.1
2.4
0.5
Chillies
4.8
3.8
3.7
3.3
2.5
1.5
0.3
Guava
1.9
1.5
1.4
1.3
1.0
0.6
0.1
Bitter gourd
1.4
1.1
1.0
0.9
0.7
0.4
0.1
Rambuttan
0.9
0.7
0.7
0.6
0.5
0.3
0.1
Okra
0.9
0.7
0.7
0.6
0.5
0.3
0.1
3265.7
2676.2
2601.2
2353.5
1846.1
1169.3
442.9
Total
In the event of an uncontrolled incursion, the losses estimated for three commodities (oranges,
tomatoes, and bananas) account for half of the total economic losses with the losses estimated
for melons, mandarins and pumpkins accounting for an additional 25 per cent (Table 17). The
remaining 19 host crop commodities account for the remaining 25 per cent of the losses. For
each commodity, producers lose more than consumers as additional costs of complying with
export protocols reduce profits further on export sales and the asset fixity, particularly in
perennial horticultural crop farms, reduces the flexibility in supply adjustment in response to
cost increases.
Benefits of eradication
In the event of an incursion, the potential losses from an exotic fruit fly incursion in mainland far
north Queensland spreading to the rest of Australia can be avoided if the incursion is eradicated
while it is still confined to far north Queensland as demonstrated during the 1995 papaya fruit
37
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
fly eradication campaign. For producers and consumers and each target probability of
eradication, the total losses avoided by eradication equals the losses without eradication
(column 2, last row, Table 15 and Table 16) less the losses estimated for that eradication
probability (columns 3—8, last row, Table 15 and Table 16). These avoided losses are presented
along with the avoided disinfestation development costs in Table 18. The avoided losses or the
benefits of the eradication campaign increase with the probability of eradication as shown in
Table 18. The estimated benefit of eradication increases from $590 million to $2.8 billion as the
probability of eradication increases from 5 per cent to 95 per cent. The estimated cost of
eradication also increases (from $51 million to $90 million) as the probability of eradication
increases. The benefit of the eradication program considered more than exceeds the cost, and
the benefit-cost ratio (BCR) exceeds 12:1.
The impact of the Strategy in reducing the likelihood of an incursion is reflected in the reduced
avoided losses (benefits) of eradication and the cost of eradication, while maintaining the
benefits of eradication more than exceeds the costs (Table 19). With the Strategy in place, an
eradication program is expected to yield greater benefit cost ratios at eradication probabilities
higher than 25 per cent, as the cost of eradication starts to decrease faster than the decrease in
benefits.
Table 18 Benefits of eradication in the event of an incursion without the Strategy (present
value over 100 years)
Performance measure
Producer benefits
Consumer benefits
Economic benefits
Saved disinfestation
R&D cost
Cost of eradication
Net present value
Benefit-cost ratio
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
380.8
208.6
589.5
428.9
235.6
664.5
587.5
324.6
912.1
912.6
507.0
1419.6
1346.1
750.2
2096.3
1811.4
1011.3
2822.7
0.5
51.1
538.8
12
1.0
52.5
613.0
13
2.5
56.8
857.8
16
5.0
65.7
1358.8
22
7.5
77.6
2026.2
27
9.5
90.4
2741.8
31
Table 19 Benefits of eradication in the event of an incursion with the Strategy (present
value over 100 years)
Performance measure
Producer benefits
Consumer benefits
Economic benefits
Saved disinfestation R&D
cost
Cost of eradication
Net present value
Benefit-cost ratio
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
228.5
125.4
354.0
265.3
146.2
411.5
381.7
211.9
593.6
598.2
334.2
932.4
848.3
475.5
1323.8
1077.7
605.1
1682.8
0.5
30.4
324.1
11
1.0
30.8
381.7
12
2.5
32.1
563.9
18
5.0
34.6
902.7
26
7.5
37.5
1293.8
34
9.5
40.2
1652.1
41
38
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Benefits of the Torres Strait Fruit Fly Strategy
In the event of an incursion, the losses with eradication estimated for the without Strategy
scenario plus the cost of eradication plus the disinfestation development cost could have been
avoided if the exotic fruit flies were prevented from entering mainland Australia. The potential
avoided producer and consumer surplus losses estimated at 6 different probabilities of
eradication are given in columns 3 — 8 of Table 15 and Table 16. The economic surplus losses
with eradication decrease from $2,676 million with 5 per cent probability of being eradicated to
$443 million with 95 per cent probability of being eradicated (the last row of Table 17). For
example, if the probability of eradication is 95 per cent, a potential cost of $543 million ($443
million surplus losses plus the $90 million eradication cost plus $10 million disinfestation
development cost) could have been avoided if the exotic fruit flies were prevented from entering
the mainland.
Presently, there have been no exotic fruit fly incursions in the Australian mainland and the
seasonal exotic fruit fly detections in the Torres Strait islands are successfully treated and any
residual incursion eradicated. Despite the success of the Torres Strait Fruit Fly Strategy in
preventing the entry of exotic fruit flies since 1995, there is still a likelihood of an incursion in
mainland far north Queensland.
The benefits of the strategy equal the difference in the potential costs of an incursion (the losses
plus the cost of eradication) between the without and with Strategy scenarios. For the ‘without
Strategy’ scenario, different losses including the potential producer and consumer losses with
eradication, estimated at different target probabilities of eradication, are reproduced in the first
5 rows of Table 20. Similar information for the ‘with Strategy’ scenario is presented in the next 5
rows of Table 20. The benefit of the strategy is the difference in likely losses between without
and with the Strategy.
39
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 20 Benefit - cost analysis of the Torres Strait Fruit Fly Strategy (present values over
100 years)
Performance
measure
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
In the event of an incursion without the Strategy
Producer losses
1699.54
1651.5
1492.85
1167.79
734.25
268.95
Consumer losses
976.68
949.72
860.69
678.33
435.07
173.97
Disinfest. R&D cost
9.5
9.0
7.5
5.0
2.5
0.5
Cost of eradication
51.1
52.5
56.8
65.7
77.6
90.4
2736.9
2662.7
2417.9
1916.9
1249.5
533.8
Total
In the event of an incursion with the Strategy
Producer losses
967.7
930.9
814.55
598.03
347.92
118.52
Consumer losses
556.41
535.68
469.94
347.62
206.33
76.72
Disinfest. R&D cost
9.5
9.0
7.5
5.0
2.5
0.5
Cost of eradication
30.4
30.8
32.1
34.6
37.5
40.2
Total
1564.0
1506.4
1324.1
985.3
594.3
235.9
Benefits of Strategy
Producers
731.8
720.6
678.3
569.8
386.3
150.4
Consumers
420.3
414.0
390.8
330.7
228.7
97.3
Governments
Total
Cost of Strategy
20.8
21.7
24.7
31.1
40.1
50.2
1172.9
1156.3
1093.7
931.6
655.2
297.9
3.5
3.5
3.7
4.0
4.4
4.7
Net present value
1169.4
1152.8
1090.0
927.5
650.8
293.2
Benefit-cost ratio
339
329
296
232
149
63
The expected benefit from the Torres Strait Fruit Fly Strategy increases from $298 million to
$1173 million as the probability of success of eradication of a localised incursion decreases. That
is, the smaller the likelihood of being able to eradicate an incursion, the higher will be the
benefits of preventing the incursion. Expected producer benefits increase from $150 million to
$732 million while expected consumer benefits increase from $97 million to $420 million.
Producers gain more than consumers, mirroring the relative magnitudes of the losses to each
group that are avoided.
The response component of the Strategy costs an estimated $200,000 a year to implement and
the present value of the stream expected investment over 100 years is estimated to decrease
from $4.7 million to $3.5 million as the probability of eradication decreases from 95 per cent to 5
per cent. The investment in the response component of the Strategy returns a benefit cost ratio
of at least 63:1 if the localised incursion is eradicated with 95 per cent probability of success.
The smaller the probability of eradication the larger the net present value (NPV) and the benefitcost ratio of the response component of the Strategy. This is in contrast to investing in the
eradication of an incursion in mainland far north Queensland after being detected late. In this
case, the NPV and BCR decrease with the probability of eradication (Table 18). At a 5 per cent
probability of eradication, the response component of the Strategy generates a BCR of 339:1
compared to 11:1 for eradication. This shows that the investment in the Strategy is more
attractive when there is large uncertainty that an incursion detected late can be eradicated. Even
40
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
when there is greater certainty of eradication being successful – for example with a 95 per cent
probability of eradication - a risk averse decision maker is expected to consider the Strategy
more favourably as there is still a likelihood that eradication could fail. Another aspect to
consider is that an investment of $55 million for eradication, every time there is an incursion,
could have high opportunity cost given the tight budgetary positions of Australian governments
which have to contribute to over half of the program cost (depending on the exotic fruit fly
species) under the Deed.
Business case for industry participation in cost sharing arrangements
Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry
shares one fifth of the total cost in the event of an incursion. Early detection and prevention of
exotic fruit fly entry could save the industry funds that would otherwise be spent eradicating an
incursion resulting from late detection. Taking these savings also into account the total benefits
to industry increase from $161 million to $736 million as the probability of success of
eradication decreases (Table 21).
Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy,
seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities
carried out under this component are very similar to those undertaken during an eradication of
a post-border outbreak of fruit flies and therefore industry contributions towards their costs are
not inconsistent under the current arrangements.
Under the EPPRD cost sharing arrangements, papaya fruit fly is treated as a Category 2 pest and
the industry shares 20 per cent of the cost of eradication (Access Economics 2010). The melon
and New Guinea fruit flies have not been categorised yet and therefore the industry shares of
their eradication costs have not been determined. Assuming a potential industry share of 20 per
cent of the response cost under the Strategy regardless of the exotic fruit fly species, it would
cost just under one million over 100 years ($40,000 per year of a $200,000 budget adjusted by
the probability of being in the uninvaded state) compared to benefits ranging from $161 to $736
million depending on the probability of eradication (Table 21). For the industry, a small
investment in the Strategy, thus, yields a benefit cost ratio of at least 169:1. The returns on
investment increase as the probability of eradication decreases.
Table 21 Benefits to industry of cost sharing (present values over 100 years)
Probability of eradication of a localised incursion
Avoided producer losses
Saved eradication cost
Benefits
Cost
5%
10%
25%
50%
75%
95%
($m)
($m)
($m)
($m)
($m)
($m)
731.8
4.2
720.6
4.3
678.3
4.9
569.8
6.2
386.3
8.0
150.4
10.0
736.0
724.9
683.2
576.0
394.4
160.5
0.7
0.7
0.7
0.8
0.9
0.9
Net present value
735.3
724.2
682.5
575.2
393.5
159.5
Benefit cost ratio
1063
1030
925
716
448
169
When looked at from the perspective of the horticultural industry, the strategy yields greater
benefit cost ratios (to the industry) than to overall society – for example 169:1 compared to 63:1
at 95 per cent probability of eradication (Table 20 and Table 21). Therefore, there are
significant benefits for industry in its participation in the cost sharing arrangements for the
41
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Torres Strait Fruit Fly Strategy. This would result in better alignment of the funding base of the
Strategy with that of other nationally cost shared detection and eradication initiatives.
Sensitivity analysis
The benefit-cost analyses presented above use the most likely or plausible estimates for
different parameters. The results could change, if a different set of values are selected. The key
parameters and assumptions that could change the results include:
1) probabilities of incursion (assumed 20 and 5 per cent per year, respectively for the without
and with Strategy scenarios)
2) annual response cost of the Torres Strait Fruit Fly Strategy (assumed $200,000 per year)
3) discount rate (assumed 7 per cent)
4) imports of horticultural produce (assumed to be zero)
The probability of incursion without the Strategy should reflect the current likelihood of exotic
fruit fly entry if the Strategy were to be removed. ABARE (1995), relying on expert opinion
assumed, without any intervention, there was a 5 per cent probability of exotic fruit fly entry
around that time (before the establishment of the Torres Strait Fruit Fly Strategy). The
likelihood of entry to far north Queensland around that time reflects the geographical
distribution and densities of papaya fruit fly populations in Papua New Guinea around the same
time. Experts believe that papaya fruit fly in Papua New Guinea has spread further afield, and the
populations have grown in density since then, resulting in a significantly greater likelihood of
entry to far north Queensland, if the Strategy were to be removed now. The emerging consensus
of expert opinions on a higher incursion probability in recent years have been incorporated in
the assumptions made in two benefit-cost analyses on papaya fruit fly conducted in 2009.
Franco-Dixon and Francis (2009) assumed an annual incursion probability of 50 per cent while
Kompas and Che (2009) assumed it to be normally distributed with the mean of 20 per cent and
standard deviation of 10 per cent. The lack of another exotic fruit fly incursion since 1995
indicates the incursion probability with the Strategy could be significantly lower than without
the Strategy, however, the uncertainty surrounding its value remains unresolved.
Based on estimates provided in Torres Strait Fruit Fly Strategy Review (2013), total cost shared
response expenditures in recent years have reached the $200,000 annual cap. Meanwhile, the
PISC has raised the cap from $200,000 to $400,000 for the financial year 2012-13 to cover
higher expenses due to high numbers of exotic fruit flies trapped and the increased need to use
helicopters.
The time value of money, captured through the discount rate used, could change with the
changing economic environment. Fresh fruits and vegetables consumed locally are largely
produced in Australia; however, imports under existing trading arrangements cannot be ruled
out especially when the prices in the domestic market rise above import parity with the
incursion spreading.
The results of the benefit-cost analyses presented above could be sensitive to changes to any of
the four key assumptions. However, based on the results obtained with the most likely values for
all four assumptions, the sensitivity of the results to changes to the first two assumptions are
only measured in this study, as they are considered to be the two parameters critical in
providing more clarity on the business case for the Strategy and the policy decisions being
considered for sustaining it into the future.
42
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
To measure how sensitive the results are to changes in the incursion probability without the
Strategy, the analysis is replicated with incursion probabilities of 10 per cent (lower bound) and
50 per cent (upper bound) around the most likely value of 20 per cent assumed. For each of the
three incursion probabilities, the net present values and benefit-cost ratios are also estimated
for an annual response cost of $400,000. The results of the sensitivity analysis are presented in
Table 22.
As expected, the higher the probability of incursion without the Strategy the greater the benefits
to producers, consumers and the governments. The net present values and the benefit-cost
ratios for the two budgets considered also follow in the same direction as the probability of
incursion without the Strategy increases. As expected, the doubling of the annual response
budget to $400,000 halves the benefit-cost ratios.
As discussed under the business case for the horticultural industry, for a given investment, the
strategy yields greater benefit cost ratios to the industry than to the overall society. Therefore,
when the annual response budget is doubled, the industry would still receive higher returns on
its 20 per cent share of the budget, even if the incursion probability were to be an unlikely10 per
cent.
43
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Table 22 Sensitivity of the benefits to change in incursion probability and the budget
(present values over 100 years)
Incursion
probability
without the
Strategy
Probability of eradication of a localised incursion
5%
10%
25%
50%
75%
95%
10%
396.9
388.9
360.7
293.9
191.7
71.9
20%
731.8
720.6
678.3
569.8
386.3
150.4
955.9
Consumer benefits ($ m)
10%
228.0
944.1
898.0
770.7
538.1
215.9
223.6
207.9
170.7
113.6
46.5
414.0
390.8
330.7
228.7
97.3
542.2
517.1
447.2
318.4
139.5
12.1
13.5
16.4
20.2
24.1
Producer benefits ($ m)
50%
20%
420.3
50%
548.7
Saved eradication costs ($ m)
10%
11.7
20%
20.8
21.7
24.7
31.1
40.1
50.2
50%
25.9
27.2
31.5
41.0
55.0
71.7
10%
636.6
624.7
582.0
481.0
325.4
142.5
20%
1,172.9
1,156.3
1,093.7
931.6
655.2
297.9
50%
1,530.5
1,513.5
1,446.6
1,258.9
911.6
427.1
Total benefits ($ m)
NPV with an annual response budget of $200,000 ($ m)
10%
633.7
621.7
578.8
477.3
321.3
137.8
20%
1,169.4
1,152.8
1,090.0
927.5
650.8
293.2
50%
1,528.4
1,511.3
1,444.1
1,255.9
907.8
422.5
BCR with an annual response budget of $200,000 (ratio)
10%
220
211
183
133
78
30
20%
339
329
296
232
149
63
50%
730
696
596
425
246
93
NPV with a n annual response budget of $400,000 ($ m)
10%
630.8
618.7
575.7
473.7
317.1
133.2
20%
1,165.9
1,149.3
1,086.3
923.5
646.4
288.4
50%
1,526.3
1,509.2
1,441.7
1,253.0
904.1
417.9
39
15
BCR with an annual response budget of $400,000 (ratio)
10%
110
105
91
66
20%
169
164
148
116
74
31
50%
365
348
298
213
123
47
44
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
6 Conclusions
Before the establishment of the Torres Strait Fruit Fly Strategy, there was significant risk to
horticultural industries from an entry of exotic fruit flies to mainland far north Queensland
through the Torres Strait which is considered the highest risk pathway for exotic fruit flies to
Australia. The industry faced large economic consequences due to a larger range of host crops
and a rapid spread of exotic fruit flies to the rest of Australia if the initial incursion was not
eradicated. These two factors and the 1995 papaya fruit fly incursion costing the governments
and industry $35 million (equivalent to $55 million in 2012-13 dollars) to eradicate indicated
that such an initiative would have potential benefits.
The study identifies significant potential benefits to horticultural industries in maintaining the
Strategy guaranteeing ongoing returns for industry contribution. Given the high benefit-cost
ratios, there is also scope for additional investment in strengthening the Strategy if such
investment profitably reduces the residual risk.
Even though the 1995 papaya fruit fly incursion was successfully eradicated, it cost $55 million
(in 2012-13 dollars) to eradicate and reduced industry incomes due to trade restrictions on
some horticultural products. If conditions were more favourable for the papaya fruit flies to
spread further afield and/or the initial incursion was found to cover a larger area, it would have
been more difficult and costly to eradicate and the losses with eradication could have been much
higher. An investment in the Torres Strait Fruit Fly Strategy could avoid these high losses and as
a result such investment is more attractive when it is difficult to eradicate the initial incursion.
The study estimated that the expected benefit from the Strategy increases from $298 million to
$1173 million as the probability of success of eradication decreases. The corresponding NPV
increases from $293 million to $1169 million and BCR from 63:1 to 339:1. At a 5 per cent
probability of eradication, the response component of the Torres Strait Fruit Fly Strategy
returns a BCR of 339:1 compared to 63:1 for a 95 percent probability of eradication. This shows
that the investment in the Strategy is more attractive when there is large uncertainty that an
incursion detected late can be eradicated.
Under the current arrangements for post-border fruit fly outbreaks, the horticulture industry
shares one fifth of the total cost in the event of an eradication program. Early detection and
prevention of exotic fruit fly entry could save the industry funds that would be otherwise spent
on eradicating an incursion resulting from late detection.
An investment of $55 million for eradication could have a high opportunity cost given the tight
budgetary positions of Australian governments which have to contribute 80 per cent of the
program cost under the deed. Under these circumstances, a surveillance and eradication
strategy costing much less to implement is preferred.
Under the nationally cost shared response component of the Torres Strait Fruit Fly Strategy,
seasonal exotic fruit fly incursions in the Torres Strait islands are eradicated. The activities
carried out under this component are very similar to those undertaken during an eradication of
a post-border outbreak of fruit flies. There is a strong business case for industry participation in
the cost sharing arrangement and the strategy yields higher benefit cost ratios to the industry
than to the overall society. The industry participation would result in the better alignment of the
funding base of the Strategy with that of other nationally cost shared detection and eradication
initiatives.
45
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Appendix A: Gross value of production
by states
Table 23 Gross value of production of fruit crops that are potential hosts to exotic fruit
flies
Fruit commodity
NSW
NT
Qld
SA
Tas
Vic
WA
Australia
$m
$m
$m
$m
$m
$m
$m
$m
Tomatoes
44.6
0.1
229.8
50.5
2.7
52.9
37.6
418.1
Bananas
18.8
4.0
283.1
0.0
0.0
0.0
10.1
316.0
Oranges
93.1
0.0
5.3
51.9
0.0
39.3
8.5
198.1
Melons
52.5
44.0
53.9
3.4
0.0
5.5
29.1
188.3
Mandarins
6.6
0.0
89.1
31.0
0.0
5.7
5.0
137.4
Beans
1.3
0.1
94.3
0.3
2.4
24.6
6.5
129.6
Capsicums
3.8
0.0
83.0
10.4
2.3
4.5
9.6
113.5
Avocados
14.9
0.0
53.2
3.7
0.0
3.4
29.9
105.1
Mangoes
0.3
36.9
55.3
0.1
0.0
0.1
7.3
99.9
Cherries
18.8
0.0
0.0
18.2
28.4
27.5
1.8
94.6
Peaches
12.7
0.0
5.4
5.5
0.5
61.4
6.8
92.3
Pumpkins
25.3
2.2
25.8
2.6
0.8
1.9
12.6
71.3
Lemons
5.3
0.0
14.8
5.8
0.0
7.7
0.9
34.4
Cucumber
4.3
0.5
10.8
7.4
0.1
0.1
5.0
28.2
Limes
1.4
0.3
22.1
0.3
0.0
0.1
0.7
24.9
Pawpaw and Papaya
0.3
0.4
15.9
0.0
0.0
0.0
1.1
17.7
Eggplant
1.5
0.0
8.9
1.8
0.0
0.4
0.9
13.5
Passionfruit
3.7
0.0
8.8
0.0
0.0
0.0
0.1
12.6
Lychees
0.2
0.0
10.4
0.0
0.0
0.0
0.0
10.5
Grapefruit
2.9
0.1
1.0
2.2
0.0
0.9
2.7
9.9
Chillies
0.2
0.0
4.1
0.0
0.0
0.4
0.5
5.3
Bitter gourds
0.1
1.6
0.1
0.0
0.0
0.0
0.3
2.0
Okra
0.0
1.9
0.0
0.0
0.0
0.0
0.0
1.9
Guava
0.7
0.0
0.6
0.0
0.0
0.0
0.0
1.3
Rambutan
Total
0.0
0.4
0.8
0.0
0.0
0.0
0.0
1.1
313.2
92.5
1076.4
194.9
37.0
236.3
177.1
2127.4
Note: a: Total value of Australian fruit and nut production in 2011-12 is estimated at $3953 million
Source: ABS (2012) and ABARES calculations
46
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Appendix B: Estimating the benefits of
the Torres Strait Fruit Fly Strategy
Incorporating uncertainty
Because of the uncertainty of the scale of an exotic fruit fly incursion in Australia, the potential
value of loss (and thus the benefit of border measures to prevent its entry and attempted
eradication or containment effort if it enters) could be lower than that estimated under
certainty.
The uncertainty arises because of the biological process involved in exotic fruit fly population
dynamics is subject to uncertain climatic and biotic conditions resulting in uncertainty
surrounding its geographical spread. Consequently, the impact on spread of border surveillance
measures and an eradication or containment strategy could also be uncertain. Biological models
of insect population dynamics can be helpful in understanding this process and estimating the
probabilities associated with transition from one incursion state to another. Such models fall
under the general form of Markov chain models.
Four incursion states are assumed in this study. They are: no incursion in the mainland while the
flies found in the Torres Strait islands are eradicated from the Torres Strait (En), initial localised
incursion in mainland far north Queensland (Ei) , localised incursion in mainland far north
Queensland arising from a failed eradication campaign (El) and incursion spreads to the rest of
Queensland, other eastern states and the Northern Territory (Ee).The state of no incursion in
mainland Australia is included to represent the status quo where under the Torres Strait Fruit
Fly Strategy,exotic fruit flies detected in the Torres Strait islands are eradicated, thereby
preventing the flies from entering the mainland. Thus the Strategy serves to reduce the
likelihood of flies entering the mainland. At any point in time in the future, any of the four states
could occur and there is uncertainty surrounding the associated likelihoods.
The probability of any of the four states occurring in time t+1 depends on a set of transition
probabilities between time t and t+1 — from one state to another. Given that there are four
incursion states, there are 4 x 4 = 16 such transition probabilities as given in Table 24.
Table 24 A 4 by 4 Markov probability transition matrix
No
infestation
Infestation state at time t+1
(En)
(Ei)
(El)
No infestation
Initial localised infestation
Localised infestation arising from
failed eradication
Other eastern States and NT
(Ee)
Infestation state at time t
Initial
Localised
localised
incursion
incursion
arising from
failed
eradication
Spread to other
eastern States
and NT
(En)
Pnn
Pnl
Pnl
(Ei)
Pin
Pii
Pil
(El)
Pln
Pli
Pll
(Ee)
Pen
Pei
Pel
Pne
Pie
Ple
Pee
47
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
If the probabilities of the states En , Ei , El and Ee at time t are to be denoted pn(t), pi(t), pl(t)and
pe(t), respectively, then following Hinchy and Fisher (1991, p.63),
𝑡
𝑡
𝑡
𝑡
Where:
𝑡
𝑡
𝑡
initial probabilities of the states
(1)
𝑡
,
,
and
and
,
,
and
are respectively the
.
The initial state of the incursion is considered to be ‘initial localised incursion in the mainland
far north Queensland’ and therefore
,
,
and
are assumed to be 1,0,0, and 0
respectively.
Just like the Torres Strait Fruit Fly Strategy reducing the probability of an initial localised
incursion, an eradication campaign could result in changes to the transition probabilities in the
second and third columns of the matrices shown in Table 24 and Figure 2. A successful
eradication of the initial localised incursion is achieved through:
1) an increase in the probability of transition from the initial localised incursion state to the no
incursion state, Pin (Table 24)
2) a reduction in the probability of transition from the initial localised incursion state to the
localised incursion state arising from failed eradication, Pil; and
3) a reduction in the probability of transition from the initial localised incursion state to the
widespread incursion state, Ple.
However, changes in these transition probabilities as a result of the impact on spread of a given
eradication effort are uncertain. Following ABARE (1995), these uncertainties are accounted for
by developing 6 more transition matrices to represent 5, 10, 25, 50, 75 and 95 per cent
probability of eradication in a given 5 year time step. These 6 matrices are given in Figure 3
48
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Figure 3 The impact of eradication on transition probabilities
5% probability of eradication
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑝𝑖 𝑡
0.05
0.00
0.62
0.33
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
10% probability of eradication
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
25% probability of eradication
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑝𝑖 𝑡
0.25
0.00
0.49
0.26
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑖 𝑡
0.75
0.00
0.17
0.08
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
𝑝𝑖 𝑡
0.10
0.00
0.59
0.31
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
50% probability of eradication
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
75% probability of eradication
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑝𝑖 𝑡
0.50
0.00
0.33
0.17
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
95% probability of eradication
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
𝑝𝑛
𝑝𝑖
𝑝𝑙
𝑝𝑒
𝑡+1
𝑡+1
𝑡+1
𝑡+1
𝑝𝑛 𝑡
0.33
0.67
0.00
0.00
𝑝𝑖 𝑡
0.95
0.00
0.03
0.17
𝑝𝑙 𝑡
0.00
0.00
0.03
0.97
𝑝𝑒 𝑡
0.00
0.00
0.00
1.00
Data source: ABARES
For without or with the Torres Strait Fruit Fly Strategy and given a target probability of
eradication, the uncertainty in the spread of exotic fruit flies over time, is captured in the time
evolution of the probabilities of each of the incursion states
𝑡 ,
𝑡 , 𝑡 and
𝑡 , where
t= 1,2,...., T estimated using equation 1. For each time period t, and the state of incursion, the
expected cost of exotic fruit fly outbreak is then estimated by multiplying the cost estimated
(assuming that state would occur with certainty) by the estimated probability of the incursion
being in that state. For each time period t, the overall expected cost of exotic fruit fly incursion is
then estimated as the sum of expected costs estimated for all three states. For without and with
strategy, the stream of losses over t= 1,2,...., T is then discounted and summed over to estimate
the present value. The estimation process is described as follows.
For each incursion state, this study estimated producer and consumer losses for each of the 25
commodities considered. Let the commodities be indexed as i=1,2,....,N, probability time
evolutions without the Torres Strait Fruit Fly Strategy for any given target probability of
eradication be denoted as
𝑡 ,
𝑡 ,
𝑡 and
𝑡 and similar probability time evolutions
with the Strategy be denoted as
𝑡 ,
𝑡 ,
𝑡 and
𝑡 . Note, the target probability of
eradication is not represented in the notation used for brevity and avoid notational clutter and
thus notations can be thought as representing any given target probability of eradication
Denote the losses to producers of commodity i for each of the four states as
,
and
, then the expected benefit of the strategy for producers of commodity i can be given as:
49
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
𝑡
𝑡
𝑡
𝑡
𝑡
𝑡
𝑡
-
𝑡
𝑡
Denote the losses to consumers of commodity i for each of the four states as
,
,
and
. Then the expected benefit of the strategy for consumers of commodity i can be given
as.
𝑡
𝑡
𝑡
𝑡
𝑡
𝑡
𝑡 -
𝑡
𝑡
For each industry i, the present value of producer and consumer benefits of the Strategy can be
estimated as
𝑡
𝑡 and
𝑡
𝑡 , respectively where 𝑡
with r being the annual discount rate. The total benefits of the strategy to producers and
consumers of all products are given by
𝑡
𝑡 and
𝑡
𝑡 ,
respectively.
Estimating producer and consumer losses
In the case of most fresh fruits and vegetables most of what is produced is consumed
domestically and exports comprise just a small share of production while imports can be treated
as negligible. Producer and consumer losses in the domestic market are estimated using a basic
supply and demand model while a much simpler approach is used to estimate producer losses in
the export market. Producer losses in the export market are estimated as the tonnage of exports
multiplied by the sum of per tonne cost of additional sprays on–farm and per tonne cost of
disinfestation to comply with export protocol. Total producer losses are estimated by adding the
export market losses estimated in this manner to the producer losses in the domestic market
estimated using the basic supply and demand model.
In the basic model, an industry’s supply and demand schedules for a susceptible commodity
without exotic fruit fly incursion are represented by S0and D; with an equilibrium price and
quantity of P0 and Qo, respectively (Figure 4).
Figure 4 Basic supply and demand model for exotic fruit fly susceptible crop product
Price
S1
g
S0
a
P1
f
b
P0
c
h
e
D
d
Q1
Q0
50
Quantity
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
Consumer surplus before the exotic fruit fly incursion is represented by the area bounded by
Pobg while producer surplus by P0bd. Hence, economic surplus, the sum of consumer and
producer surpluses, is represented by gbd.
The additional pesticide sprays needed to avoid the yield losses on-farm and disinfestation of
produce destined to exotic fruit fly free domestic markets result in higher cost of production.
This can be represented by an upward shift in the supply schedule from S0 to S1. The new
equilibrium price and quantity for this commodity is P1 and Q1, respectively. Therefore, higher
cost of production results in lower aggregate production and higher market price at the margin.
Producers transfer some of the increase in cost of production to consumers by way of higher
prices depending on the relative responses by producers and consumers to change in price
(supply and demand elasticities, respectively). This can be seen in Figure 4, where the marginal
cost of production per unit of produce increases by ca but the producers transfer only fa of that
amount in the form of an increase in the equilibrium price. Consumers therefore pay a higher
price but reduce consumption in response.
Economic losses for producers and consumers in the domestic market are estimated in terms of
reductions in economic welfare to these groups, using economic surplus measures. Consumer
surplus declines by the area represented by P1ab P0 while producer surplus declines by the area
P0bd less the area P1ae which can be shown to be equivalent to the area P0bch. The total
economic surplus loss is given by the area P1abch.
Producer and consumer losses are defined as
and
,respectively where = absolute value of the elasticity of demand, K = vertical shift in the
supply curve expressed as a proportion of the initial price and Z= proportionate increase in price
estimated as
with defined as the elasticity of supply.
Producer losses for commodity i for each of the four incursion states (
,
,
and
and associated consumer losses (
,
,
, and
) can be estimated in this way.
51
)
Benefit-cost analysis of the long term containment strategy for exotic fruit flies in the Torres Strait
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