Exercise One: Cost-Benefit Analysis

The current vaccination strategy in Aftostania has an emergency nature. Every time that there is an outbreak the district veterinary officers decide where and when to apply the available doses. Animals are therefore vaccinated intermittently and so far the strategy has not reduced the incidence of FMD meaning that prevalence of the disease has remained the same in the last years.

A new vaccination strategy is being proposed. Vaccine will be applied twice a year for animals which are at increased risk of FMD infection and/or for those animals for which FMD infection has higher impact. It is foreseen that the program will take 3 years to be carried out that means vaccines will be strategically delivered over a 3-year period and then the program will come to an end. It is expected that the program starts to have an impact on the incidence of FMD after the second year of the program.

You have been asked to run a cost-benefit analysis (CBA) on the vaccination program. The ministry of livestock services of Aftostania want to know which vaccination program is likely to be economically justifiable

You have been provided with the data below:

Emergency vaccination program (current program)

On average approximately 20,000 US$ is spent on the vaccination program per year.

The benefits of this vaccination program, in terms of reduction in FMD incidence as a result of emergency vaccination has been estimated by an expert consultation workshop to be 12,000 US$ annually.

Strategic vaccination program (proposed program)

The yearly investment costs of the vaccination program is expected to be:

• Year 1: 40.000 US$
• Year 2: 45.000 US$
• Year 3: 50.000 US$
• Year 4: 55.000 US$
• Year 5: 55.000 US$

The benefits resulting from the adoption of the new proposed strategic program will be due to the interruption of the current program and the reduction in the incidence of FMD, which results in increased production and reduced treatment costs. The benefits are expected to be:

• Year 1: 0 US$
• Year 2: 20.000 US$
• Year 3: 45.000 US$
• Year 4: 65.000 US$
• Year 5: 80.000 US$

The discount rate considered is 5%.

Exercise: Conduct a Cost-Benefit Analysis for introduction of the new vaccination program in Aftostania.

You should calculate the:

• Net Present Value (NPV)
• Benefit-Cost Ratio (BCR)
• Internal Rate of Return (IRR)