Farmers must pay their share during a disease outbreak like foot and mouth, but it could have been worse

Industry groups say the deal is a win for farmers who could have faced much higher costs under scenarios such as a foot and mouth disease outbreak.

Taxpayers will shoulder the lion's share of the clean-up bill but farmers will have to pay a hefty portion as well.

The complex breakdown in costs is contained in a formalised "deed" made by industry bodies with Animal Health Australia.

AHA is the lead agency with the job of responding to a disease arrival.

The deal seeks to make sure those who directly benefit from the eradication or containment of a disease "pay an appropriate and equitable proportion of the costs".

The deed is an agreed split of the costs of EAD-response (emergency animal disease).

All major livestock industry bodies including Australian Dairy Farmers, Cattle Council, Australian Pork, Sheep Producers Australia and Woolproducers Australia have signed up.

In their defence, industry groups say the cost-sharing deal is not just about money as it also gives them a say in the management of the response.

The likely cost of a large-scale outbreak has everyone worried.

Some groups fear they could be bankrupted by cost-sharing deals and others are concerned their producer members may refuse to pay increased levies.

The "deed" includes a cap on how much the industry will have to pay.

Under these agreed national arrangements, producers would have to pay 20 per cent of the cost of the response to foot and mouth disease.

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These national clean-up costs, likely to amount to billions of dollars, will come on top of a devastating hit to on-farm income from lost markets.

The latest figures put FMD's potential impact as high as $80 billion.

But this is the economic impact not the recovery cost, so farmers would not be up for their 20pc, or $16 billion.

The clean-up costs are also expected to be substantial although no-one yet knows how much that would be.

Farmer payments are capped at 1-2pc of the industry's gross value of production (GVP).

This agreement over GVP is crucial - it is the cap which industry bodies are relying on.

The deed says the industry's bill cannot be higher than 1-2pc of its GVP.

For instance, the GVP of Australia's livestock industries was calculated by ABS to be $31 billion in 2020-21 - suggesting the cost to be capped for farmers would be $620 million.

Producers would need to pay their one fifth share of the eventual recovery cost through increased transaction levies over 10 years under the current arrangements.

At the moment the other grave livestock threat, lumpy skin disease, would see producers up for half the total bill - again to be paid back over 10 years.

There are already calls to lift lumpy skin into the same category as foot and mouth.

Government experts calculate a lumpy skin disease outbreak could cost Australia more than $7 billion in its first year.

Experts believe lumpy skin disease is much more likely to arrive in Australia before FMD.

Industry groups are desperate to avoid the expensive 50/50 cost sharing deal, to access the 80/20 arrangement.

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African swine fever is also lurking dangerously close to Australian shores and shares the same category as lumpy skin, with the 50/50 cost sharing arrangements.

Transaction levies are set at $5 for cattle sales or about two per cent of the sale price for sheep ($1.50 for lambs) but there is a component of the levy which would be 'activated' to help pay for an animal disease outbreak.

The government is expected to "initially" cover an industry's cost-sharing obligations but the relevant industry "will then repay the government within a reasonable time period - generally up to 10 years".

Farmer industry levies pay for marketing, research and development and a small contribution for Animal Health Australia.

That small contribution currently paid to AHA funds biosecurity, animal health and welfare activities including emergency animal disease preparatory activities.

But most producers do not realise their levies also include a component called Emergency Animal Disease Response Agreement (or EADRA levy) which currently lays dormant but would be "activated" to repay the government for the industry share of an outbreak.

That EADRA levy is currently set at zero (so no one is currently paying it) but the mechanism is there to be triggered if there is a major disease outbreak.

The size of that "extra" payment would still need to be negotiated and would depend on the actual cost of the outbreak, but still needs to be paid.

The "extra" payment will be 1pc of GVP for all EADRA listed diseases response costs except for FMD which will be 2pc GVP - this does not include the cost of loss of markets, etc.

A FMD outbreak "would result in a significant reduction in greasy wool exports which would reduce wool industry output by $1.2 billion on average for each year affected."

Australian Wool Innovation has already been questioned over its preparedness for an outbreak.

The gross value of wool production is expected to be $3.4 billion in 2022-23, suggesting with a FMD outbreak, the cap for growers would be $64 million.

Woolproducers Australia chief executive Jo Hall said the EADRA deed was explicit in providing guidance on the cost sharing arrangements between industry and government.

"Of the diseases listed under EADRA, industry is liable to repay the Commonwealth its proportion of response costs as outlined in the schedules. For all diseases this is 1pc of the industry's GVP, with the exception of FMD of which cost-sharing is capped at 2pc GVP," she said.

"By having a cost sharing arrangement this ensures that industry, through representation on the National Management Group has a say in how the response will be enacted."