This paper examines the adjustment of pig production to an animal
disease epidemic. We raise two major aspects regarding the adjustment. Firstly, even
if the characteristics of an epidemic depend on the structure of farming, agricultural
producers face a great uncertainty about the number of animals removed from market
and the duration of export distortions. Secondly, livestock production is inelastic in the short run. When an
outbreak occurs, producers are unable to quickly increase aggregate production
because it takes time to produce reproduction animals or to raise fattening animals.
Even if producers are able to decrease production in the short run e.g. by culling
animals prematurely, it may be costly for an individual producer to reduce yield levels
or the number of animals in stock unless policy or market explicitly provide incentives
for such behaviour. Results suggest that
trade ban duration can have large impact on losses. When the expected duration of the
trade ban increases, losses increase at an increasing rate for durations which we
simulated. Results also suggest that if export market become completely closed and
remain closed for sufficiently long time, meat market can in practice collapse. The modelling approach proposed in this paper has the potential to examine
how rationally behaving producers could adjust production after observing epidemics
and export shocks of different magnitudes. Models such as this are best suited for
comparing differences in results between scenarios. In contrast to this, the results of an individual scenario should be interpreted with caution, as they are affected by
parameter values, such as elasticity estimates, calibration values and production costs,
which are to some extend normative. Our approach could be complemented by more
thorough analysis of behaviour of consumers, producers and adjustment options. As
the duration of market shock seems to be important, an interesting application is to
combine epidemiological and economic models in order to study disease policy issues
such as emergency vaccination, where uncertainty and time play an important role.