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Economic Consequences of the Swine Flu Outbreak By Geary W. Sikich
Copyrightc Geary W. Sikich 2009.World rights reserved.
Published with permission of the author.
Introduction A paradigm isbroadly defined as: a philosophical or theoretical fra
mework of any kind.
A paradox on the other hand, is an apparently true statement or group of stateme
nts
that leads to a contradiction or a situation which defies intuition.A paradox, w
hile
seemingly self-contradictory or absurd in reality expresses a possible truth.
At the time of this writing H1N1 known as Swine Flu has spread through much of t
he
world.Its low mortality rate has made it a relatively mild pandemic.Yet to be
determined is what will happen when the flu season arrives in the northern hemis
phere
this fall.The World Health Organization (WHO) and Centers for Disease Control (C
DC)
have been revising much of their guidance and we are seeing almost daily some
revelation from the WHO, CDC and the popular media.
Far Greater Immediate and Long Term Impacts? The economic impact of the swine fl
u virus in some countries may be drastic, the chief
economist for the International Monetary Fund has warned.Chief economist Olivier
Blanchard said the tourism industry in some countries may be negatively affected
during
a speech at the Carnegie Endowment for International Peace in Washington.
Thomson Reuters reported recently that fears of a deadly swine flu pandemic wrec
king
an already wobbly global economy.These fears have materialized with a vengeance
in
the commodities markets.Hog futures dropped dramatically and cascaded to share
prices of U.S. meat companies which also dropped.Egypt reported that it will sla
ughter
its entire pig population of approximately 300,000 in an effort to stem the Swin
e Flu
virus.Early sell-offs in commodities recall market reactions to the SARS and H5N
1 bird
flu in 2003. Those outbreaks also raised concerns over demand for food commoditi
es.
Economic Impacts are already being felt The impact of Swine Flu on the markets c
ombined with the current financial crisis and
an already weak world economy could make Asia¡¦s experience during the Severe Acute
Respiratory Syndrome (SARS) outbreak in 2003 pale.This is partly due to the fact
that
the current Swine Flu virus is spreading faster than SARS did.Secondly, we have
seen
a much quicker reaction by the WHO and CDC, raising the Pandemic Phase from 3 to
5
in rapid succession.The cascade effects will be seen in commodity prices, stocks
of
food companies, energy prices, pharmaceutical company expenditures to find a vac
cine
and any measure of things to come, the region's economies may find themselves in
a
much deeper hole should swine flu spread.Economists and industry leaders are
closely watching the spread of the swine flu.Should a severe outbreak of the flu
occur
in Asia, economists and industry executives fear the economic damage would be wo
rse
than that of the Severe Acute Respiratory Syndrome outbreak in 2003.
Economic Consequences of the Swine Flu Outbreak In an article entitled, ¡§Matthews b
orrows against turkeys¡¨ (By Iain Dey, Sunday Telegraph, published on 24/06/2007) th
e following excerpts reveal the economic impact that H5N1 is already having: Ber
nard Matthews, the poultry farmer whose eponymous empire was blighted by avian f
lu earlier this year, has been forced to refinance his business by securing its
future against his stock of turkeys. Sales of the company's "bootiful" turkeys h
ave been hammered by the health
scare. Recent research suggested sales of both frozen and fresh turkeys
across the UK are down around 30 per cent in the wake of the outbreak. The
last figures provided by the company suggested a 20 per cent plunge in
sales.
Bernard Matthews has now been refinanced through an asset finance deal
struck with Burdale, a subsidiary of Bank of Ireland, and supported by a
handful of other major international lenders.
The loans have been secured against some of the company's 56 farms, its plant an
d equipment, as well as its livestock, according to banking sources. Matthews fo
unded the business in 1950 with 20 turkey eggs and a second-
hand incubator. The business turned over about ¢G400m last year and
employs more than 6,000 people worldwide. The company produces 7m
turkeys in the UK every year.
The avian flu disaster is estimated to have wiped around ¢G70m from
Matthews personal fortune. The business is run from his Norfolk mansion,
Great Witchingham Hall, set in 36 acres, which he restored from dereliction.
My colleague, John Stagl and I transcribed some notes as we were preparing to di
scuss
the economic consequences of a pandemic at a luncheon in Chicago in 2006.We had
come to the conclusion at the time, that a pandemic will have a domino effect
worldwide.We all know that a pandemic will create a unique set of conditions tha
t
impact society, the business markets and medical support systems.One of the
differentiating characteristics of a pandemic, unlike any other disaster, is its
wide-spread
impact.We have already seen that this impact has occurred without human-to-human
contagion occurring.The economic consequences to the poultry industry have been
dramatic.
However, let¡¦s turn our attention to the human-to-human aspects of the post-pandemi
c
period.While we know that the medical community will be one of the hardest hit a
reas,
it is by no means the only area that will suffer extensive near-term and severe
long term
impact.The medical impact, for that matter it will most probably be the most sho
rt-lived
impact factor of the pandemic (in terms of deaths, etc.) and post-pandemic perio
ds
(people will alter their lifestyles to, perhaps do with less medical services).T
he longer
term ramifications will be felt economically throughout the world.Below is a lis
t of some
of the various elements that will feel the impact of a pandemic, either directly
or
Economic Consequences of the Swine Flu Outbreak indirectly.Impacts will reverber
ate through various sectors of the worldwide socio-
economic system.The key point to note is that the reverberation and cascading ef
fect
will be painfully uneven.Some countries will fare better than others.Some compan
ies
will fare better than others.Collectively though, each will feel the impact of t
he other as
if they were dominos falling creating a cascade effect.An analogy would be to co
mpare
the cascade effect of a pandemic to a tsunami wave.The initial wave may be hardl
y
noticeable however, as it ripples out it gains strength until it surges over the
land
causing devastation and destruction.Current thinking about pandemic generally st
arts
with the recognition of the illness and a projection on its societal impacts.We
know
that:
ú@People are affected
ú@Society is unprepared
ú@Governments are unprepared
ú@Private Sector Enterprises are unprepared
ú@Medical Institutions will be impacted
ú@Economic Sectors Worldwide will be impacted
ú@Medical Support Systems are impacted
ú@Social Behavior will reflect be Susceptible to Significant Degradation
But what we do not know and can only speculate about is the scalable variables b
rought
about by random chance.Biological variables (mortality and morbidity rates as a
result
of the pandemic) can be estimated based on the lethality of the virus (currently
at
almost 60% versus the Spanish Influenza virus which was around 2 ¡V 3%).There is a
n
excellent study that has been published regarding the impact of a pandemic on th
e Life
Insurance Industry (I will cite from it later).With scalable variables, as Taleb
says in the
Black Swan, ¡§the longer you wait, the longer you will be expected to wait.¡¨This is as
a
result of the scalability of random events ¡V randomness runs counterintuitive to
conventional logic and the normal bell curve deviations that we are used to.
So, here are some purely speculative projections as to what the post-pandemic
recovery, restoration and realignment may look like.I have based some of what I
am
about to project on limited historical evidence from the Plague and Spanish Infl
uenza.I
use the term ¡§limited¡¨ as a reference to the differences in technology, population,
education, industrialization, etc. that was present at the time of the Plague an
d Spanish
Influenza (a mere 89 years ago as of this writing in 2007).
Here are some fast facts (courtesy of Maplecroft Index ¡V August 2007) to ponder a
s we get ready for our journey into post-pandemic speculation. úANearly two billio
n people (mostly in developing countries) do not have access to electricity úANear
ly half the world's population (three billion people) have never made a phone ca
ll
Economic Consequences of Swine Flu Outbreak 2009 Rev 1
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