The Economic Impact associated with the Outbreak of WSD in Queensland

The aim of every government and its institutions in their governance efforts is to stimulate economic development, alleviate inflation, and economic stagnation in order to increase citizens’ living standards. As a result, policymakers and state agencies should develop and enforce effective economic policies that have the ability to reduce operating and construction costs while growing tax earnings, fostering industry growth, and making citizens’ lives more accessible. Government entities and their associates can successfully achieve their goals of minimizing the costs of investing in their economies, while supporting their local industries by having a better insight into economic theories and the concepts of microeconomics such as the capitalist theories of Karl Marx and Maynard Keynes (Net Industries, 2014; Hornborg, 2014).

Essentially, microeconomics studies how various entities such as public and private players operating under limited resources (products and services) and scarcity of government regulation interact in the market to create a given market system. Theoretically, in a free market, the quantity of products demanded by buyers is always equal to the quantity that suppliers supply to the market and tends to approach economic equilibrium in the long-run in reaction to changes in price. For the market in Queensland, the price of pawns will increase considerably because most farmers have been forced to destroy thousands of pawns following the outbreak of white Spot Disease. The purpose of this paper is to analyze the economic impacts of the WSD outbreak in Queensland on local producers (farmers) and consumers and suggest interventions that the government should adopt to mitigate the impacts and boost the growth of its economy.

WSD Outbreak in Queensland

Prawn farmers in Queensland started raising concerns over possible white spot disease infection when they noticed white spots on their prawns. White Spot Disease is a viral infection that can cause a substantial loss of prawns and other crustaceans. In mid-2016, the Biosecurity Queensland confirmed the farmers’ worries when it announced the first outbreak of white spot disease in an aquaculture environment of the South-East of Queensland. According to most farmers, their prawns possibly got the infection from the pawns imported from America and Asia where the disease in prevalent. The Federal Department of Agriculture also confirmed that more than 70 of the imported consignments tested positive for WSD, although the department exported or destroyed most of them (McCarthy, 2016).

Following the WCB outbreak, most of the prawn farmers in Queensland were forced to destroy their stock amounting to million dollars and believe that the infection is a “wake-up call” for the country’s biosecurity system. Ian Rossmann, one of the farmers most affected by the WCB outbreak described the incidence as an economic sabotage in the prawns rearing business because he personally had to destroy his prawn’s worth over $1 million towards the end of 2016. Rossmann and other blames the Queensland authority and biosecurity for not following the right protocol when testing the imported prawns, which they are adamant are the cause of their hefty loss. Moreover, the local producers contend that the benefits of importing fresh prawns from overseas was far less that the risks and losses it caused to the Queensland economy (McCarthy, 2016).

Impact on Output and price of Pawns Following WSD Outbreak

The outbreak of WCB forced most prawn farmers to destroy their stock worth million dollars, which greatly reduced the quantity of prawns that the farmers would supply to the market in the next few months. One of the major facets of the economy is that supply and demand of any given product and service are not only interdependent, but they are also sensitive variations in its price. Before the outbreak, the market for prawns in Queensland was a competitive market in which both buyers and sellers had negligible influence on price for prawns in the market. However, the prawns are likely to become scarce after most farmers destroyed their stock following the WCB outbreak, which will force farmers (sellers) to substantially determine market prices. Because prawn producers will be few in the market, they will set their prices higher to enjoy the benefits of monopolistic competition and increase their profit earnings.

According to the law of demand and supply, an increase in the price of a product results to a proportionate decrease in the quantity demanded by consumers. However, the theory holds when the products in question have many substitutes, are not a necessity, and consumers have middle or low income. Thus, when the prawn producers increases their prices due to the shortage, local consumers will potentially shift sources of food in the aquiculture environment.

Figure 1: Demand Curve for Prawns

Price

P1 A

P2 B

P3 C

Q1 Q2 Q3 Quantity

When prawn farmers increase their prices for P3 to P1, the quantity demanded by consumers will decrease proportionately from Q3 to Q1.

Figure 3: Supply Curve

Price

P3 C

P2 B

P1 A

Q1 Q2 Q3 Quantity

When the price for prawns increases from P1 to P3, more farmers will be willing to supply more of their products and the quantity supplied will consequently increase from Q1 to Q3. On the other hand, it is apparent that demand of a product depends on the consumers’ tastes and preferences. Consequently, residents of Queensland will potentially shun consuming local prawns when they learn of the WCB outbreak, which will reduce their production significantly due to the reduced demand in the market.

Impact of the WSD Outbreak on Economic Welfare of local Producers and Consumers

The parties most affected by the WSD outbreak in Queensland’s aquatic setting are the local prawn producers (farmers). Because, the prawns business had higher potential for future growth following increased solicitation of the public to consume fresh organic foods many farmers had invested heavily in the rearing and production of prawns in Queensland. After the viral infection outbreak majority of the farmers including Ian Rossmann, Elwyn Truloff and Simon Rossman incurred hefty when they destroyed stocks of prawns amounting to over $4 million. The loss is a major economic drawback not only to the prawn farmers, but also to the Australian government that would earned more revenue from the sale of the prawns through taxation. For instance, in a statement after incidence, a representative of Biosecurity Greenland said that it was the first time they had missed a harvest in the last 27 years and that it was a costly experience prawn farmers (Bernholz, 2015).

The outbreak will also affect the economic welfare of consumers because they are the immediate players in the business. Prawn producers had to destroy a substantial portion of their stock after the viral infection, which led to a massive shortage of prawns. Like in other markets and economies governed by the forces of demand and supply, the shortage will provoke prawn producers to raise prices for their products to meet their operational costs and compensate for the losses incurred. The farmers’ move to raise their prices will be partly because both the Queensland’s agriculture department and the Australian Federal Department of Agriculture have ruled out their push for compensation claiming that the country has no emergency response for the management of diseases affecting aquatic animals. Prawns are food products and thus a necessity for most Australian consumers. Consequent, increasing their prices will negatively affect the economic welfare of consumers especially those in low and middle classes who will be forced to forego other products based on the principle of opportunity cost (Arnold, Dräger & Fritsche, 2014).

Strategic Interventions to Mitigate the Economic Impacts

The current conditions in the aftermaths of WCB outbreak have negative impacts to both prawn producers, consumers and the Queensland government and will eventually cause the country’s economy to plummet. Nonetheless, the government can adopt proactive interventions to prevent further exacerbation of the economic impacts. Although the authorities have already destroyed over 34 ponds including those of the uninfected juvenile prawns, the government should first examine the prawns for infection and assess the level of infection before destroying the ponds to prevent further losses. Also, the government should consider the farmers’ calls for compensation and compensate all the prawn farmers affected by the WCB outbreak at least three-quarters of the losses they incurred because the infection was caused by the government imported prawns. This will help the farmers to cover part of their production costs including labor, feed and electricity bills, which amount to over $1 million.

The other intervention is for the government to support local prawn producers by offering subsidies and incentives to business starters and other existing farmers to producers enough prawns for the country and eliminate the need for importation. Although, prices guided or control the allocation of limited recourses in the market economy and are determined by the laws of demand and supply, the government should regulate the prices prawns producers set during the shortage period (Hornborg, 2014).

Impact of the Interventions on Price and Output of Pawns

The primary purpose of the above interventions is to improve the economic efficiency of the Queensland’s government and that of prawn farmers. As a ratio the business’s entity’s output to input, economic efficiency is given as,

Economic Efficiency (%) =

Where worth is the annual revenue earnings from the business operations and Cost is the aggregate expenses the business incurs annually. When implanted adequately, the interventions will help prawns farmers improve their economic efficiencies to over 100%, expand their businesses and produce more prawns. Also, the government’s acceptance for the farmer’s call for compensation will help prawn producers revitalize their businesses by restocking their ponds. Moreover, the government’s initiative to offer incentives and subsidies will attract more investors in the prawns rearing and production industry. Accordingly, the output and supply of prawns in the country’s markets will increase substantially and according to the law of demand and supply, there will be a significant decline in the prices of prawns.

Like in other market economies, the need to earn supernormal profits during the shortage of prawns may push farmers to exploit consumers by setting their prices. Nonetheless, government’s regulation of the market prices will ensure that prawn producers and suppliers set prices that are within the acceptable range and consequently protect consumers from inflation effects and exploitation (Green, 2016).

Economic impacts of the Interventions on the welfare of Producers and Consumers

The overall objective of the proposed interventions is to improve the economic welfare of both prawn producers and consumers by maximizing production and optimizing their prices. The need for proactive strategic interventions is essential to counteract further and future infection of the prawns, prevent potential inflation associated with the drastic prawn shortage as well as prevent economic depression that may possibly hit Queensland. All business organizations have major goal of increasing their productivity and growth, while providing products at the lowest price possible to remain consumer-friendly. By compensating prawn farmers for the heavy losses they incurred during the WCB outbreak, Queensland’s government will help the farmers to meet their production costs and avoid potential loss of the capital they invested in the businesses (Bernholz, 2015). Also, through price regulations, the government will be able to protect small-scale prawn producers and starters from unfair pricing competition from importers and the established large-scale producers.

Consumers are always the major beneficiaries in market economies with adequate supply of products and services because suppliers will be in consistent tussle over market share and control, which may involve their products at relatively lower prices. All the proposed interventions aim at improving the production of prawns by Queensland’s farmers, which will subsequently increase amount of the prawns available to consumers. As a result, the interventions will improve the consumers’ economic welfare by allowing them to obtain local fresh prawns at a lower cost (Arnold, Dräger & Fritsche, 2014).

Conclusion

The government of Queensland can successfully achieve its goals of minimizing the costs of investment, supporting local industries and promoting its overall economic development by having a better insight into economic theories and the concepts of microeconomics. In mid-2016, the Biosecurity Queensland the first outbreak of white spot disease in an aquaculture environment of the South-East of Queensland, which the farmers believe came from the imported prawns. The outbreak had far-reaching effects especially to the producers who incurred heavy losses amounting to about $4 million. Because many prawn producers had to destroy their stock, the outbreak will possibly result to inflation due to the massive shortage of prawns. To mitigate these economic impacts, Queensland government should compensate producers for the losses incurred, offer subsidies and incentives to small-scale and start-up prawn producers and regulate prices for the prawns during the shortage.

References

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Green, R. (2016). Classical theories of money, output and inflation: a study in historical economics. Springer.

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Marty McCarthy. (2016). White spot outbreak a ’wake-up call’ for Australia’s biosecurity system, as prawn farmers claim imports are to blame - ABC Rural - ABC News (Australian Broadcasting Corporation). Retrieved April 7, 2017, from http://www.abc.net.au/news/2016-12-23/qld-prawn-farmers-blame-white-spot-outbreak-on-imported-prawns/8144876

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