Random Analytica

***** Please note that the infographics/charts of the Avian Influenza A(H7N9) virus presented were updated with public source information to 0001hrs 9 May 2013 CET/EST *****

Infographic Details

In the past 48-hours of reporting there has been one new case of H7N9 and one retrospective fatality. This brings the total for China to 131-cases including 32-deaths and Taiwan to 1-case without loss of life. Note that all totals include asymptomatic cases.

To date 24.2% of all known cases have been fatal. For context the Case Fatality Rate of SARS was 10.9%.

The Ministry of Health also confirmed that to 6 May there were 42 discharges. That keeps the recovered total to 42 (31.8%) and asymptomatic cases at one (0.8%).

The most recent fatality (with details) reported by the Chinese media was on the 3^rd May 2013 via Xinhua.

Economic Impacts of H7N9: Direct Costs and The Poultry Industry

According to the World Bank, China’s Gross Domestic Product hit $7.318-trillion USD in 2011, making it the second largest economy on the globe. Back in 1982 China had a GDP of $203-million, a mere 1/36^th of its current size, thus an economy that has doubled in size more than six times.

Last year China’s economy grew by 7.9%, the weakest result since 1999 and below expectations.

The first quarter of this year was expected to see growth rates return to 8% or greater. This would be driven by internal consumer consumption over exports. However the first quarter of 2013 disappointed with GDP growing by 7.7%, again under expectations.

Although the avian influenza A(H7N9) virus is not the reason the Chinese economy has been soft it is a contributing factor. Some considerations when considering direct costs:

• Effecting flu controls on the human and fowl populations such as the additional ¥303M ($48.6M USD) which was put up by the Chinese Ministry of Finance in late April;
• Subsidizing the poultry industry as it struggles with the outbreak, like the ¥90M ($14.6M) from the Beijing Municipal Bureau of Agriculture again in late April;
• Additional medical costs and insurance for regional populations costed to the Ministry of Finance, and;
• One of the biggest direct costs of the H7N9 outbreak is the loss suffered by the poultry industry. By mid-April that agriculture component stated that it has lost approximately ¥10Bn ($1.6Bn USD) as chicken consumption halved and chicken/egg prices collapsed.

If the figures are not overstated then the impact to the first and second quarter GDP figures would be at a cost of between 0.1 and 0.15% with a work-in-progress cost to the economy of between 0.2 – 0.3% over the calendar year. Although future poultry losses would not be of that magnitude (as the poultry industry ramps down production and concentrates on protecting its breeding stocks) that number will still likely increase to some degree over the coming months. The standalone poultry industry losses to mid-April alone could account for the 0.3% minimum underperformance of the Chinese economy.

Looking at this from a different angle there is also currently an unrealised loss in terms of the overall chicken population value.

In brief, the Chinese chicken population in 2009 was 4,680,000,000. Here’s a great infographic via The Economist:

Prior to the outbreak becoming known in China the national average broiler price (chickens raised purely for meat production) was ¥9.37 (source: Beijing Shennong Kexin Agribusiness Consulting). At publication date the average price of broilers across Liaoning, Shandong, Henan, Hebei and Jiangsu was just ¥4.07 (source: www.chinafarming.com), effectively a 56% reduction. Eggs have had a similar price decline and broiler chicks around 75% as agribusiness pends new stock purchasing and waits out the virus .

Now I know that not all chickens are broilers (being an owner of nine-chickens and a rooster myself) but with a huge appetite for chicken which is on-hold and an approximate 10-week lifespan of broilers the short-term price impacts of such a decline are a huge drag on first and second quarter Chinese GDP growth numbers.

Another consideration: Taking the 2009 chicken population number of 4,680,000,000 as a base, the bulk of chickens across the country would now be worth, on average, ¥5 less. Thus the national stock, minus protected and virus free breeders could be worth as much as ¥23.4Bn (approx. $3.74Bn USD) less than it was two months ago. If not for other inputs (such as an increase in vegetable prices against the gains in chicken import prices) then the possible impact on GDP could be doubled or even tripled.

In summary, the impacts of the current H7N9 outbreak on the economy are still short-term. Prices always recover when there is a market but by the time the virus passes and confidence returns to the poultry industry the national stock will have decreased, poultry producers have gone out of business and outside of imports the industry will take at least 3-months to re-stock. This will drive up prices in the short-term and those direct impacts will flow through the economy.

Much like the medical unknowns still in play the economic impacts can only be forecast.

Unlike the medical impacts which are tracked on a daily basis and could disappear overnight the negative economic impacts of the virus could be sustained for many months.

Note: My previous post on H7N9 can be found at Random Analytics: H7N9 Infographic (to 6 May 2013)

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Update: (30/07/2013)

• World Poultry published an article on 29 Jul 2013 stating that:

“The total losses of poultry-related companies all over the country up until the end of June exceeded 600 billion yuan ($92.2 billion) since the first case of H7N9 virus was discovered by the authorities at the end of March, according to the latest statistics from the National Poultry Industry Association.”

In my article I envisaged that the loss for the first and second quarters of Chinese GDP would be between 0.1 and 0.15%. The National Poultry Industry Association total would equal 1.26%. Industry bodies tend to overstate the loss in a crisis so I am still confident in my original forecast but happy that the first numbers to be discussed fell well within a reasonable range of error.