FCR(97-98)87
For discussion
on 9 January 1998
ITEM FOR FINANCE COMMITTEE
HEAD 22 - AGRICULTURE AND FISHERIES DEPARTMENT
Recurrent Account
Subhead 149 General departmental expenses
Capital Account
Subhead 700 General other non-recurrent
New item "Compensation and ex gratia payments to
affected poultry farmers and operators"
LOAN FUND
HEAD 262 - PRIMARY PRODUCTS
New Subhead "Kadoorie Agricultural Aid Loan Fund
- loans to poultry farmers"
New Subhead "Loans to poultry wholesalers and retailers"
Members are invited to approve -
- creation of a new commitment of $104 million for paying compensation to owners for the birds slaughtered and ex gratia grants to affected operators;
- creation of a new subhead under the Loan Fund with a commitment of $80 million to enable the Kadoorie Agricultural Aid Loan Fund to make loans to affected poultry farmers;
- creation of a new subhead "Loans to poultry wholesalers and retailers" under the Loan Fund with a commitment of $570 million for making loans to affected wholesalers and retailers; and
- supplementary provision of $16.4 million to meet increased expenditure of the Agriculture and Fisheries Department.
PROBLEM
Some 1.5 million birds in local farms, government wholesale poultry markets and retail outlets were slaughtered by order of the Director of Agriculture and Fisheries (DAF) under the Public Health (Animals and Birds) Regulations (hereinafter referred to as "the operation"). We need to pay statutory compensation to owners for the birds slaughtered and offer financial assistance to affected farmers and operators in the poultry trade. Also, the Agriculture and Fisheries Department (AFD) has insufficient provision to meet increased expenditure arising from the operation.
PROPOSAL
2. We propose -
- to create a new non-recurrent commitment of $104 million under Head 22 Agriculture and Fisheries Department for providing compensation and ex gratia grants to poultry farmers, wholesalers, retailers and transport operators affected by the operation;
- to provide a loan of $80 million to the Kadoorie Agricultural Aid Loan Fund to enable it to make
low-interest agricultural loans to affected poultry farmers;
- to create a new subhead "Loans to poultry wholesalers and retailers" under the Loan Fund Head 262 Primary Products with a commitment of $570 million for providing low-interest loans to affected poultry wholesalers and retailers; and
- supplementary provision of $16.4 million under Head 22 Agriculture and Fisheries Department Subhead 149 General departmental expenses for meeting increased expenditure arising from the operation.
JUSTIFICATION
Outbreak of avian influenza
3. The first human case of avian influenza H5N1 infection was reported in August 1997 in a three-year-old boy who died in May 1997. The virus isolated was found to be almost identical to the avian virus which had caused an outbreak of avian influenza in chickens in the New Territories in April 1997. As at 6 January 1998, a total of 16 people in Hong Kong are known to have become infected with the virus, of whom four have died.
4. The H5 virus was discovered in samples taken from a Yuen Long chicken farm in December 1997. At about the same time, an unusually large number of chickens died at Cheung Sha Wan Temporary Wholesale Poultry Market. These places were then declared by DAF under section 30 of the Public Health (Animals and Birds) Regulations to be infected places.
5. After a careful review of the situation, including consultation with senior veterinary staff, DAF decided that slaughter of all chickens in local farms, all poultry in the government wholesale markets at Cheung Sha Wan and Western and all poultry at retail outlets was necessary to prevent the spread of avian influenza H5N1 in Hong Kong and protect public health. DAF ordered the slaughter under section 35(1) of the Public Health (Animals and Birds) Regulations.
6. The operation took place from 29 December 1997 to 2 January 1998. Some 1.5 million birds on farms, in wholesale markets and at retail outlets were slaughtered. The carcasses were disinfected, sealed in plastic bags and disposed of in landfills.
The proposed compensation/financial assistance package
7. Under the Public Health (Animals and Birds) Ordinance, Government has to compensate owners for the birds slaughtered. In addition, we consider it necessary to offer other forms of financial assistance to poultry farmers and other directly affected operators in the poultry trade. The various components of the package are described below.
Compensation for birds slaughtered
8. Section 6 of the Public Health (Animals and Birds) Ordinance provides that compensation shall be payable out of the public revenue for any animal or bird slaughtered by order of the Director under the provisions of the Ordinance or of any regulation made under it, to the owner concerned, subject to the other provisions of the Ordinance. Under the Ordinance, "birds" means poultry and all other birds; and "poultry" includes domestic fowls, turkeys, ducks, pigeons and geese.
9. Under the Ordinance, where the birds slaughtered were not infected with any disease, their owners would receive more favourable compensation, at the full value of the birds immediately before they were slaughtered. In this case, we will assume that all birds slaughtered were not infected with the H5 virus. According to the Ordinance, the full value of a bird slaughtered shall be determined by DAF but compensation shall not exceed $30 per bird.
10. Birds slaughtered in the operation came mainly from chicken farms, wholesale markets and retail outlets. We propose to set different rates for birds in each of these places and different rates for different types of poultry as set out at Enclosure 1. In deciding the farm rates for chicken, which are higher than the wholesale and retail rates, we have built into the rates an ex gratia element to take account of certain farm operating expenses. The wholesale and retail rates take into account the fact that 80% of chickens consumed in Hong Kong are imported birds which fetch a lower price than locally-reared birds. Ex gratia payments for poultry wholesalers and retailers are provided for separately on a lump sum basis.
11. Some of the proposed rates will exceed the statutory compensation limit on the full value of a bird of $30. In those cases, we propose to regard the excess as payments on an ex gratia basis.
Other Ex gratia payments and financial assistance
Other Ex gratia payments and financial assistance
12. In addition to compensating the owners for the birds slaughtered in the operation, we consider it necessary to offer other forms of assistance to those directly affected, namely -
| (a) | chicken farmers;
|
| (b) | renters of stalls in government wholesale poultry markets ("poultry wholesalers");
|
| (c) | poultry retailers as follows -
|
| (i) | tenants of poultry market stalls in Provisional Urban Council (PUC) and Provisional Regional Council (PRC) markets;
|
| (ii) | operators of licensed fresh provisions shops in Housing Authority (HA) markets; and
|
| (iii) | operators of licensed fresh provisions shops in private buildings; and
|
| (d) | poultry transport operators.
|
(a) Chicken farmers
13. On the basis of the proposed compensation rates for birds slaughtered which, as explained in paragraph 10 above, have taken account of the farm's operating expenses, a chicken farmer raising 10 000 birds of different sizes will be paid about $300,000. We assess this to be sufficient to tide him over until his farm income resumes. However, some chicken farmers may need additional financial assistance to re-establish their businesses or to upgrade their equipment and facilities for the purpose of improving hygiene in the farms. Under existing arrangements, they may apply for agricultural loans for such purposes from the Kadoorie Agricultural Aid Loan Fund (KAALF).
14. To ensure that the KAALF will have sufficient funds to meet these requirements, we propose to make available loan capital of $80 million to the KAALF by creating a commitment for this purpose under the Loan Fund. The KAALF Committee, a statutory committee established under the Kadoorie Agricultural Aid Loan Fund Ordinance, will administer these loans and determine the loan amount and repayment period for such loans. On a par with the proposed loans to be extended to wholesalers and retailers (paragraphs 16 and 20 below), we will recommend to the Committee that loans to poultry farmers affected by the operation should be granted up to a maximum of $500,000, at an annual interest rate of 2% and be repayable in 12 equal monthly instalments (beginning six months after draw down). Interest will accrue upon draw down and be paid together with the last instalment.
(b) Poultry wholesalers
15. Poultry wholesalers in government wholesale poultry markets will have to meet some routine operating costs during the period when trading is suspended. We therefore propose to make a lump sum ex gratia payment of $40,000 to each wholesaler.
16. Poultry wholesalers may also have short term cash flow problems because they are currently unable to pay for birds ordered from the Mainland before the suspension of imports took place. They may also have other cash outlays to ensure the resumption of normal business when the suspension is lifted. To tide them over this difficult period, we propose to provide, on an exceptional and ad hoc basis, low-interest loans to these poultry wholesalers affected by the operation. We further propose that loans to wholesalers should be granted at up to $150,000 on an unsecured basis and up to a maximum of three months' verified business turnover of the applicant wholesaler or $5 million, whichever is smaller, on a secured basis. These loans will attract an interest rate of 2% per annum and be repayable in 12 equal monthly instalments (beginning six months after draw down). Interest will accrue upon draw down and be paid together with the last instalment. DAF will administer these loans to be funded from a new commitment under the Loan Fund. We estimate that a commitment amounting to $245 million will be required for this purpose. Other parameters for the proposed loans to the affected poultry wholesalers are at Enclosure 2.
17. In addition, we are waiving the rental for market stalls and vehicle parking spaces in government wholesale poultry markets payable by these wholesalers for three months (January to March 1998).
(c) Poultry retailers
18. The stock of poultry held by operators at retail outlets is replenished every day or two and is therefore generally quite low. The compensation per bird slaughtered will therefore be insufficient to provide a reasonable amount of financial assistance during the period when trading is suspended. Like the wholesalers, these retailers have certain routine operating expenses to meet. Moreover, while operators in PUC/PRC/HA markets are having their rental waived for three months as determined by the respective authorities, fresh provisions shops outside of these markets will have to continue to pay rent while trading is suspended.
19. We propose to render assistance by making lump sum ex-gratia payments of $30,000 to retail poultry operators in PUC/PRC/HA markets and $60,000 to poultry retailers operating licensed fresh provisions shop outside of these markets.
20. We consider it highly desirable on public health grounds that operators of poultry stalls and fresh provisions shops should take this opportunity to replace wooden cages, where these are still in use, by plastic or metal cages for the keeping of live poultry. These poultry stall operators may also have other expenses required for resumption of their business when the suspension is lifted. To provide the necessary financial assistance, we propose to provide a low-interest loan of up to a maximum of $300,000, comprising up to $150,000 on an unsecured basis and the additional $150,000 on a secured basis, to each retail operator for these and related purposes. We estimate that a commitment amounting to $325 million will be required for this purpose. The same parameters for the loans as applicable to the wholesalers (Enclosure 2) will be adopted.
21. For ease of administration, we propose to provide the low-interest loans to both wholesalers and retailers from a single commitment in the Loan Fund. Taking account of the proposed loans to be extended to wholesalers (paragraph 16 above), we require a total commitment of $570 million. DAF will be the vote controller and will administer the loans to both the wholesalers and retailers under the Loan Fund. The Urban Services Department, Regional Services Department and the Housing Department will assist in the processing of loan applications from the retail operators.
(d) Poultry transport operators
22. Poultry are transported from the Mainland to government wholesale poultry markets and from these markets to retail outlets on lorries operated mainly by self-employed drivers and their helpers. Lorries used for transporting live poultry are specially designed for this purpose and are generally unsuitable for other uses. These transport operators are therefore directly affected by the operation. AFD has records of these lorries and their drivers.
23. These transport operators will have some routine operating expenses to meet during the period when trading is suspended. We therefore propose to make a lump sum ex gratia payment of $24,000 per lorry to the owners of the lorries based on records kept by AFD. As all those directly involved in the lorry operation (i.e. the owner/driver and his helpers) are affected, we expect the owner receiving the ex gratia grant to pay his helpers their routine share of the receipts.
24. In addition, we are waiving the monthly rental for vehicle parking spaces in government wholesale poultry markets for three months (January to March 1998) for poultry transport operators renting such spaces in government wholesale poultry markets.
Responsibility of employers
25. We are aware that the operation may also have affected the livelihood of workers in various trades in one way or another. As a matter of principle, the Government considers that it is the responsibility of the employer to meet his obligations to his workers. Furthermore, there is a legal responsibility on the employer to pay workers still in his employ or to pay any laid off employees the wages and other benefits provided for under the Employment Ordinance and the employment contract. If an employer is insolvent, his employees may apply for ex gratia payment from the Protection of Wages on Insolvency Fund. The Comprehensive Social Security Assistance Scheme provides a further safety net. While we have not made direct ex gratia payments to employees, we expect employers in the poultry trade to discharge their responsibilities to their employees having regard to the compensation and financial assistance made available under the proposed package.
Summary of the proposed package
26. We provide a summary of the assistance available to various groups of affected operators below -
Operators affected
| Compensation and financial assistance
|
Chicken
farmers
| Payment for birds slaughtered, as per rates in Enclosure 1
2% low-interest loan under the Kadoorie Agricultural Aid Loan Fund, up to a maximum of $500,000
Poultry
wholesalers
| Payment for birds slaughtered, as per rates in Enclosure 1
Lump sum ex-gratia payment of $40,000
2% low-interest loan, up to $150,000 on an unsecured basis and a maximum of three months' business turnover or $5 million, whichever is smaller, on a secured basis
Waiver of rentals for market stalls and vehicle parking spaces for three months
Poultry
retailers
| Payment for birds slaughtered, as per rates at Enclosure 1
Lump sum ex-gratia payment of -
$30,000 per poultry stall in PUC/PRC/HA markets (and waiver of rentals by the Councils and the Authority for three months);
$60,000 per licensed fresh provisions shop outside of PUC/PRC/HA markets
2% low-interest loan, up to $300,000 ($150,000 of which on a secured basis) for purchase of plastic/metal cages and other operating needs
Poultry transport
operators
| Lump sum ex-gratia payment of $24,000 per lorry on record with AFD as transporting live poultry between the Mainland and government wholesale poultry markets and from these markets to retail outlets
Waiver of rentals for vehicle parking spaces in government wholesale poultry markets for three months
| | | |
Supplementary provision required by AFD
27. AFD has incurred additional expenditure in the operation. The estimated amount of supplementary provision required under Subhead 149 General departmental expenses is $16.4 million, made up as follows -
| | $'000
|
| Subsistence allowance | | 327
|
| Transport and travelling | | 3,558
|
| Hire of services | | 7,927
|
| Supplies and tools | | 1,825
|
| Laboratory testing materials | | 429
|
| Minor equipment | | 803
|
| | _______
|
| Sub-total | | 14,869
|
| Contingency (10%) | | 1,487
|
| | _______
|
| Total | 16,356
|
| Say | 16,400
|
| | ___________
|
28. AFD has also incurred additional expenses in paying overtime to eligible staff involved in the operation. We will provide the supplementary provision required under delegated authority.
FINANCIAL IMPLICATIONS
29. We estimate the total amount required to pay compensation and
ex gratia grants to poultry farmers, wholesalers, retailers and transport operators under the proposed package at $104 million, broken down as follows -
| | | | $'000
|
| (a) | Compensation and ex gratia payment for birds slaughtered | | 49,868
|
| (b) | Other ex gratia payments | | 44,052
|
| - wholesalers | 3,840
|
| - retailers | 35,700
|
| - transport operators | 4,512
|
| (c) | Contingency (10%) | | 9,392
|
| Total | | | 103,312
(Say 104,000)
|
A detailed breakdown of the estimate is at
Enclosure 3.
30. Subject to Members' approval of the creation of a new commitment of $104 million, we expect to make the payments as soon as possible. We shall offset any supplementary provision required in 1997-98 by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 789 Additional commitments. We shall offset the supplementary provision of $16.4 million required by AFD by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 251 Additional commitments.
31. The proposed creation of new loan commitments of $80 million for the KAALF and $570 million for providing loans to poultry wholesalers and retailers are one-off commitments in the Loan Fund. There are no recurrent implications for the General Revenue.
BACKGROUND INFORMAITON
32. Since the outbreak of avian influenza, the government bureaux and departments concerned have been seeing groups of traders and poultry farmers associations who wished to air their views on the operation and the compensation package. These groups urged that compensation be paid as early as possible. The Provisional Legislative Council Panel on Economic Services was informed of the proposals in outline on 5 January 1998. We have taken into consideration views expressed by Panel Members and the affected groups in finalising the proposed package.
URGENCY
33. We have placed this item on the agenda for 9 January 1998 which is the first available Finance Committee meeting since the operation. This is to ensure that, if the proposals are approved by Members, we can provide the financial assistance to those affected immediately. We apologise for the inconvenience caused to Members by the late issue of the paper.
-----------------------------------
Economic Services Bureau
January 1998
Enclosure 1 to FCR(97-98)87
Schedule of Rates of Compensation for Slaughtered Birds
Note: The rates per bird below are inclusive of statutory compensation and an ex-gratia element where the full value of the bird exceeds $30. It should be noted that locally-reared birds fetch a higher price than imported birds. The wholesale and retail rates take into account the fact that 80% of chickens consumed in Hong Kong are imported birds.
| Type of bird | Farm rate
(rates for chickens include an ex-gratia element for operating expenses)
$
| Wholesale rate
$
| Retail rate
$
|
|---|
| Chicken | Adult 38
Medium 28
Small 18
Hatching egg 6
| 30
n/a
n/a
n/a
| 34
n/a
n/a
n/a
|
| Goose | 120 | 120 | 130
|
| Duck | 37 | 37 | 40
|
| Pigeon | 27 | 27 | 30
|
| Quail | 7 | 7 | 8
|
| Partridge and others | 45 | 45 | 50
|
Enclosure 2 to FCR(97-98)87
Parameters for the Grant of Loans
to Poultry Wholesalers and Retailers under the Loan Fund
|
1. | Purpose of loan | To assist those in the poultry trade who are directly affected by the order by the Director of Agriculture and Fisheries (DAF) in December 1997 to slaughter poultry and require financial assistance.
|
|
2. | Qualifications of applicants | Applicant must be either -
a renter of a poultry stall in the Western Wholesale Food Market or the Cheung Sha Wan Temporary Wholesale Poultry Market and actively engaged in poultry trading during December 1997; or
a poultry retailer renting a poultry market stall in a municipal council or Housing Authority market or licensed to operate one in a private building and actively engaged in poultry trading during December 1997.
|
|
3. | Number and maximum amount of loans | No more than one loan per applicant will be granted.
Poultry wholesalers :
Unsecured loan - Maximum of $150,000
Secured loan - Three months' verified business turnover subject to a maximum of $5 million
Poultry retailers :
Unsecured loan - Maximum of $150,000
Secured loan - Maximum of $150,000
|
|
4. | Security | DAF shall ensure that adequate security is provided for the secured loans.
|
|
5. | Interest | 2% per annum for all loans.
|
|
6. | Repayment | Loans to be repaid by 12 equal monthly instalments, the last instalment to include interest accrued. Repayment to start six months after draw down of the loan.
Borrower can choose to have the outstanding principal and accrued interest repaid at any time he wishes within the 12-month repayment period.
In case of default in repayment, DAF may recover the sum outstanding together with accrued interest from the borrower in such manner as she thinks fit.
|
|
7. | Administration of the loans
| DAF will administer the loans. Payment of all loans approved will be made by DAF.
|
|
8. | Submission of applications | Applicants must submit their applications in the form specified by DAF and submit such additional supporting information and documents as may be required by DAF.
Applications by poultry wholesalers are to be submitted to DAF.
Applications by poultry retailers are to be submitted through the Director of Urban Services (DUS) or the Director of Regional Services (DRS), as appropriate. DUS and DRS will vet the applications and transmit them to DAF with their respective recommendations for consideration and approval.
Applications should be submitted within three months from the date of Finance Committee approval of the loan arrangement.
|
|
9. | Authority for approval of loans | The authority for approval of any loan up to $500,000 will be nominated by DAF and be not lower than the Assistant Director level. The authority for the recommendations from DUS and DRS will be nominated by the DUS and DRS respectively and also be not lower than the Assistant Director level.
The authority for approval of any loan exceeding $500,000 will be DAF personally.
|
Enclosure 3 to FCR(97-98)87
Proposed Compensation and Ex-gratia Payments
A. Compensation for birds slaughtered
| Type of birds
| Unit rate
($)
| Number of birds slaughtered
($'000)
| Compensation/
ex-gratia payment
($'000)
|
| At farms
|
| Chicken
|
| Adult | 38 | | Medium | 28 | | Small | 18 | | Hatching egg | 6 |
| 713
330
315
300
| 27,094
9,240
5,670
1,800
|
| Goose | 120 | 0 | 0
|
| Duck | 37 | 1 | 37
|
| Pigeon | 27 | 1 | 27
|
| Quail | 7 | 1 | 7
|
| Partridge & others | 45 | 1 | 45
|
| Sub-total
|
| 1 362*
| 43,920
|
| At wholesale markets
|
| Chicken | 30 | 24 | 720
|
| Goose | 120 | 1 | 120
|
| Duck | 37 | 2 | 74
|
| Pigeon | 27 | 43 | 1,161
|
| Quail | 7 | 0 | 0
|
| Partridge & others | 45 | 5 | 225
|
| Sub-total
|
| 75
| 2,300
|
| At retail outlets
|
| Chicken | 34 | 81 | 2,754
|
| Goose | 130 | 1 | 130
|
| Duck | 40 | 6 | 240
|
| Pigeon | 30 | 15 | 450
|
| Quail | 8 | 3 | 24
|
| Partridge & others | 50 | 1 | 50
|
| Sub-total
|
| 107
| 3,648
|
| Total (A)
|
| 1 544
| 49,868
|
* Hatching eggs excludedB. Lump sum ex-gratia payments to operators affected
| Operators affected
| Number of
operators
| Unit rate
($'000)
| Ex-gratia payment
($'000)
|
| Poultry wholesalers
| 96
| 40
| 3,840
|
| Poultry retailers at PUC/PRC/HA markets
| 774
| 30
| 23,220
|
| Poultry retailers at fresh provisions shops in private premises
| 208
| 60
| 12,480
|
| Poultry transport operators
| 188
| 24
| 4,512
|
| Total (B)
| 1 266
|
| 44,052
|
| Total (A) + (B)
|
|
| 93,920
|
| 10% contingency
|
|
| 9,392
|
| Grand Total
|
|
| 103,312
Say 104,000
|
