At the request of the Minister of Agriculture, Nature and Food Quality the Netherlands Agronomic Institute (LEI) estimated the financial compensation that would have to be given to the sector if a ban on mink farming were to be introduced. This calculation was included in the report 'Sanering nertsenhouderij in Nederland: een actualisatie', which provides an update of the situation in the Netherlands (LEI, 2008). In this report LEI calculates the total financial damage as the sum of loss of financial assets, loss of income and demolition costs under two policy scenarios: an outright ban and a gradual phase-out of the sector within ten to fifteen years. The anti-fur campaigning group Bont voor Dieren asked CE Delft to carry out a peer review of the main elements of the LEI report.
CE Delft concludes that under both scenarios LEI overestimates the funds required to compensate the sector for the damage that would result from discontinuation of mink farming.
In the ‘outright ban’ scenario our cost estimate is at least 23% lower than that of LEI: 490.8 million Euro compared with 638.5 million. This difference is due mainly to LEI ignoring the opportunity costs of labour, having the government unjustly pay a certain amount of compensation for entrepreneurial risk and overestimating capital destruction and demolition costs. The recalculated figure of 490.8 million Euro in damages should even be seen as a maximum, i.e. ‘worst case’ scenario. There are a number of other crucial parameters involved which we suspect have been overestimated by LEI. However, as we have no access to the microdata in question (from LEI), we have no way of presenting reliable alternative figures. A sensitivity analysis indicates that if a 10% decrease in the price of mink fur is assumed and a 50% decrease in the current book value of assets, the required compensation would be 373 million Euro.
In the ‘gradual phase-out’ scenario the differences between the two sets of calculations are particularly pronounced. For phase-out periods of ten and fifteen years, LEI calculates respective figures of 535.6 and 508.4 million Euro for damage compensation. In our calculations these figures come to only 16.5 and 5.6 million Euro. This difference is due mainly to LEI making the in our view inappropriate assumption of there being loss of income and capital that requires compensation. In reality, though, the entrepreneurs in question will have plenty of time to gear up to the approaching phase-out, i.e. switch to other activities or another job and cancel investments that would not be recuperated within the transition period (with the exception of the animal welfare investments required by law). If so desired, the government might provide a retraining and/or investment subsidy to support the entrepreneurs in this process.