Appendix 3 Swine Genetics on PEI

Introduction

This virtual case study was carried out as part of the Knowledge Assessment Methodology Project in Prince Edward Island. As one element of the methodology, virtual case studies are used to explore the weaknesses and strengths of the knowledge economy, employing as a vehicle the planning of a hypothetical, knowledge-based enterprise in an area of comparative advantage that is affected by technical change. It is emphasized that this report is almost entirely drawn from the expertise and experience of the participants, and is not intended to propose that such an enterprise actually be established on PEI.

The virtual case study was conducted on the campus of the University of Prince Edward Island on April 24, 1998. Participants included representatives of the pork industry, the Atlantic Veterinary College (AVC), the Hog Commodity Marketing Board, The Crops and Livestock Research Centre of Agriculture Canada, the Provincial Government, and other professionals from the private sector. The U.S. National Research Council was represented by Dr. David Meeker, Coordinator of the Ohio Pork Industry Center and Associate Professor of Animal Sciences, The Ohio State University; Dr. John Dobrinsky, Research Physiologist, Embryology and Cryobiology, Germplasm and Gamete Physiology Laboratory, U.S. Department of Agriculture, Beltsville, MD; and Dr. Michael Greene, Director of International Development Programs, National Research Council.



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--> Appendix 3 Swine Genetics on PEI Introduction This virtual case study was carried out as part of the Knowledge Assessment Methodology Project in Prince Edward Island. As one element of the methodology, virtual case studies are used to explore the weaknesses and strengths of the knowledge economy, employing as a vehicle the planning of a hypothetical, knowledge-based enterprise in an area of comparative advantage that is affected by technical change. It is emphasized that this report is almost entirely drawn from the expertise and experience of the participants, and is not intended to propose that such an enterprise actually be established on PEI. The virtual case study was conducted on the campus of the University of Prince Edward Island on April 24, 1998. Participants included representatives of the pork industry, the Atlantic Veterinary College (AVC), the Hog Commodity Marketing Board, The Crops and Livestock Research Centre of Agriculture Canada, the Provincial Government, and other professionals from the private sector. The U.S. National Research Council was represented by Dr. David Meeker, Coordinator of the Ohio Pork Industry Center and Associate Professor of Animal Sciences, The Ohio State University; Dr. John Dobrinsky, Research Physiologist, Embryology and Cryobiology, Germplasm and Gamete Physiology Laboratory, U.S. Department of Agriculture, Beltsville, MD; and Dr. Michael Greene, Director of International Development Programs, National Research Council.

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--> Background Pork production is a $31 million industry in Prince Edward Island, producing about 200,000 animals per year. It is comprised of about 250 producers, highly organized, who cooperatively own PEI Quality Swine Co., which produces breeding females in two low-disease facilities for all producers on the Island. The disease burden is relatively low; the Island appears to be free of Transmissible Gastroenteritis (TGE) and has a prevalence rate of about 33 per cent of farms infected with Porcine Reproductive and Respiratory Syndrome (PRRS). These two viral diseases are common in North America, and have major negative consequences in other regions. Further, PEI is an island with limited routes of access from the mainland, and there is the possibility of establishing a low-disease, biosecure zone for pork production. Such a status would make PEI highly competitive as a source of low-disease breeding stock, and would enable PEI to be a repository for special genotypes. For example, pigs may be used in the future for research purposes in such human xenotransplant applications as embryo brain tissue for Alzheimer's patients. These applications require expensive, highly inbred populations, which reproduce poorly, and are therefore vulnerable to loss. A biosecure island would also enable the preservation of genetic diversity of pigs, by preserving in culture samples of populations of pigs in areas subject to decimation by disease and enable the regeneration of these herds in a low-disease condition. The development of genetic engineering and embryo transplant technologies on the Island would also expedite shipping of germ plasm and even permit the production of designer pigs for a specialty or niche market. The Enterprise The virtual case study will describe a company called ''Island Genetics" with the following characteristics: Statement of Purpose The enterprise will build on PEI's strengths in biosecurity, in industry organization and structure, and its current capability to produce low-disease animals, in order to export low-disease breeding stock to international markets. What is the product or service ? The main product would be high quality 21 day old F-1 breeding females shipped live, to be used as parent breeding stock when they are about 8 months old. Longer term opportunities include: embryos, semen, and fertilized eggs; a repository of rare, valuable varieties of hog such as those used in medical re-

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--> search; and genetic rescue and repopulating of hogs from countries affected by disease. Who are the customers? The customers for the live breeding stock would be large pork producers in North America. Who are the competitors? The competitors are major suppliers of breeding stock breeding females in the United States, such as Pig Improvement Company (PIC). What technologies will be used? Initially, technologies will be those presently utilized by the biosecure production facilities on the Island, expanded to include a larger number of producers. Ultimately the biosecurity of PEI will lessen the need for all producers to maintain strict biosecurity. At that time, genetic engineering, sperm sexing, and embryo preservation and transplant technologies, presently in the experimental stage, will be introduced and utilized. What is the core competency that gives a competitive edge? PEI is a relatively small island suited to mixed agricultural production, with an organizational and jurisdictional capacity to achieve and retain low-disease status. The producer community presently owns two low-disease breeding facilities that supply the Island's pig producers. The existing foundation herd consists of 200 sows. Increasing this base to 2,000 nucleus sows would form a genetic base equal to that of any swine company in the world. Island Genetics, as proposed, could involve existing PEI producers, as well as new producers, to increase the size of the nucleus herd to supply low-disease breeding stock for export. Biosecurity Presently there is no control of live animals entering the Island by bridge or ferry. However, there are draft regulations under discussion by the government that would considerably aid the effort to control disease in swine. The draft legislation in its present form contemplates using weigh stations at the ferry and bridge to check the health permits of pigs coming into the province by vehicle. Market hogs would require certifications of health, and those passing would receive a permit from the Department of Agriculture to go directly to the slaughterhouse.

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--> Semen would also have to be monitored at the source and upon arrival, but as yet there is no provision to police this nor to analyze the incoming semen. The draft regulations do not include embryos. A 1996 survey commissioned by the producer-owned PEI Hog Commodity Marketing Board found no TGE on the Island. The reported prevalence of PRRS, while low by international standards, still shows that a third of hog farms on the Island are infected. PRRS has an economic cost to the swine producer because it lowers growth rates and reproductive performance, and there is ample motivation on the part of the producers to eradicate it. Since PRRS is the most prevalent of swine diseases, eradication and monitoring of PRRS would go a long way toward eradication of all swine disease. PEI Quality Swine, the low-disease breeding arm of the Hog Commission Marketing Board, is at work on a strategic plan; the key issues are to balance restrictions on imports against free trade requirements and swine health regulations against freedom from compulsion. Logistically, it is not a simple matter to clean up the herds. Farmers must sell all animals at once, then wash and disinfect the pens and buildings. They must fill the pens only with clean animals from a reliable source. It is time consuming, and many farmers can not sustain the interruption in cash flow. Leasing additional facilities that may be used by several farms can speed up the process. One biosecure facility is used for breeding low-disease stock. New herds are raised in second facilities while the original pens are being cleaned. In the best case, there need be no cash flow interruption, because the new clean herds grow faster than the old herds. But the cleanout must be carried out in summer for heat to enable complete cleanup and dryout, and it must be monitored. Until the entire island is biosecure there will be risk of reinfection, including mycoplasma pneumonia, which is a highly contagious respiratory disease. The entire process must be assisted and monitored by qualified practitioners, who can be trained by the AVC. To fully capitalize on the low-disease status when it is achieved, production should be increased, both among existing producers and by expansion. The slaughterhouse is presently underutilized, and could sustain a substantial increase in throughput. The Island is self-sufficient in feed, and larger herds than at present can be supported. The feed is a soybean-barley mix. The barley is produced on PEI in rotation with potatoes and is available, but additional soy may have to be imported. With advances in swine nutrition, feed additives also may be effective. The additional manure produced by the larger herd can be used on the potato and expanded barley crops. The major obstacle to expansion of the swine herd is the human population density. There are few places to create new units because of the separation required from both people and other pigs. However if pigs are shipped at 21 days, the new facilities will make a more moderate impact on the environment then would a comparable increase in hog production for meat. Many pig farmers are approaching retirement, especially in Queens County. Usually an old site already

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--> enjoys neighbor tolerance, and these sites can be used and expanded, using new technology. Some research is required to determine the composition of the new seed stock, comparing PEI swine against other breeds. It may be advantageous to buy or enter into an agreement with a breeding company off the Island to develop the capacity to work with other breeds; existing healthy PEI sows can be used to propagate the lines. Eventually, import of live pigs should be prohibited. In general, free trade agreements require a tolerance, but if the Island is demonstrably PRRS-free, then restrictions relative to that disease could be justified. A list of known diseases should be drawn up, and a strategic plan developed to eliminate each one explicitly so as to eventually prevent nearly all importation, although there should be exclusions for research purposes and for candidates for "genetic rescue." (It may be politically impossible to proclaim disease-free status and prevent all importation, and the practical target may be "low-disease" with rigorous inspection and control of imports.) There are international guidelines for transport of embryos and sperm. Semen can be tested at AVC. It is not feasible to test embryos because the testing is destructive and the embryos are too valuable; the source herds have to be tested. Production Requirements Facilities and Siting Facilities can be established by starting with existing infrastructure, by expansion of existing farms, or creating new structures and sites. Two thousand sows would be required in order to be globally competitive and limit the risk of inbreeding, but they can (and should) be housed on several different sites. Two thousand sows generate 20,000 pure line breeding females per year. About 6,000 can be selected as of very high genetic status. If we assume a 50 per cent replacement rate annually, 1,000 of these can be used for replacements in the nucleus herd, and 5,000 will be used to maintain a multiplier herd of 10,000 sows. This is roughly the size of the existing herd (approximately 10,000), so that up to a 100 per cent increase is needed. Ten thousand pure line sows would produce a total of approximately 200,000 F-1 hybrid pigs per year, of which nearly 100,000 could be sold at 21 days as potential parent stock. This could be done with a 50 per cent growth by current producers and 50 per cent by new installations. There is a national data base maintained in Ottawa of all pure bred pigs. Semen can be selected from boars all over Canada, and sows can be selected from the best grandparents in Canada. But a private company may choose to stay out of the pool in order to protect proprietary genetic stock. In that case it must be self-sustaining, and the stock must be large enough to contain its own genetic diversity. That will require at least four different lines within the 2,000 sows. More

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--> may be needed to service a niche market and to provide high technology services for the biomedical and other specialty markets. For the commodity market, high health F-1s must be competitive on quality and cost. The 2,000 pig facility can be sited in three locations. That would require three nucleus barns plus 15 multiplication sites. Some of the existing producer operations could become multipliers. In all about 12 additional facilities might be required across the Island. Existing producers can finish those males and unselected females not sold at 21 days. Subcontractors and Suppliers Construction and electrical contractors on the Island are adequate. The feed can be procured locally. The equipment required can also be obtained from suppliers on the Island. The AVC can provide the training necessary for staff and producers. The genetic testing technologies must be licensed, and people must be trained to use them. Alternatively, AVC could be contracted to carry out the necessary quality assurance testing. It could be done under an ISO 9000 regime, after bringing a consultant, perhaps from Denmark, to certify the processes. Once achieved, the system itself can be exported as an additional high technology service. Distribution and Shipping Live 21-day breeding females will be shipped, and the technology is well established. They can be trucked over the Confederation Bridge and flown out though the large airport at Halifax, or they can go by truck all the way to Chicago or even Mexico, using rigs with food and water aboard. Shipping batches of 200250 21-day old pigs requires specialized trucks with feed, water, and air conditioning. Alternatively, a specialized container can be designed that can be shipped by truck or plane. Such containers may already be available in Quebec, and the loads only need be trucked that far. If 14-day-old breeding females are shipped, loads can be as large as 500-800. Human Resources At the head of the company must be someone who knows the industry and knows the markets. In the genetics industry, the technology and the quality control are so fundamental that often the CEO makes the technical decisions. The CEO may have to visit potential clients, with a veterinarian along to talk with technicians. There must be a staff vet or a contract with the AVC. The selection of stock requires knowledge of genetics. Decisions must be made in each generation, including selection of sperm to accommodate changing market preferences. For the

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--> niche market, monitoring biosecurity, or biopreservation of foreign herds, a full time equivalent service will be required. It might be useful to hire an internationally known geneticist as a consultant. Current producers who elect to join the company will need training, and company staff will need continuous training and updating. The provincial government and the university have adequate training facilities, and it should be supplemented by periodic attendance at conferences across North America. Training should be done on the basis of a company operations manual, which could be prepared in partnership with the university. Marketing and Market Research For high quality product, it is advantageous to rely on skilled agents instead of using mass marketing strategies. The company should have a good marketing expert, who may be the CEO. High quality replacement breeding females are almost a commodity, but the competition focuses on value. Generic advertising is not useful in this market, but selling is done on a one-on-one basis. One hundred thousand breeding females a year can be sold to just five customers for about US$20 million, provided that the customers are kept happy. This requires a very specialized person. The government could assist by paying part of the cost of the marketing person, or, more generally, by including the marketer in trade missions and other activities of Agriculture Canada, which is known for its aggressive and imaginative marketing. Alternatively, the company could form a marketing alliance with another company. For example, a swine feed or equipment company could become a dealer for PEI females, or a U.S. genetics company could increase its product line. Before the specialty market is fully developed, the pigs can be grown out as market pigs and sold in the ordinary swine market on a break-even basis. However, the profit of the company will come from sales of breeding stock, net of the costs of testing, research, and marketing. Research and Development Sexing of sperm is still experimental; the patent is owned by USDA and eventually can be licensed. Such a technology could increase the percentage of offspring eligible to become female parents, and increase products for sale without increasing infrastructure. Presently the sexing procedure damages the sperm to the extent that they can not be frozen. Embryo transplant is presently performed surgically. Embryos can be sorted by sex in batches. Embryos can be easily and cheaply shipped in nitrogen in a cryovessel by plane, with almost indefinite lifetime. A non-cryopreserved specimen lasts for 48 hours, and boar semen one week. Federal Express can send four day embryos in culture without

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--> freezing and transferred directly into sows, so there is no need for long term preservation. PEI should aim for state-of-the-art technologies, which are currently changing rapidly. Once the high technology applications are established, a research facility will be necessary, either within the company or on contract. Semen sexing requires highly trained personnel and is very expensive; the equipment itself would cost upwards of $100,000. DNA testing would also require new equipment. These services can be outsourced to the veterinary college at Guelph University, Ontario, initially if resources are not available locally. AVC can assist as well, and it also has an unused laboratory facility that could be dedicated to the embryo transfer operations. The record of performance (ROP) product testing can be done on-site, either by checking the males left behind for weight gain or by agreement with buyers to provide the data. Blood tests and DNA tests can initially be outsourced to AVC. Depending on the marketing agreement, it may not be necessary to test every animal, and lot quality assurance sampling can be done instead. This would be explored more thoroughly during the ISO certification process. Legal And Regulatory Requirements Licenses Island Genetics would require a license from the Hog Board, which it could obtain without a problem. There is no general license to export swine, but each individual pig must be inspected before shipment. It is tested for disease, including leptospirosis and brucellosis. A fee of $15 per pig is charged for the inspection. Use of the technologies for sperm sexing will require a patent license from USDA. The embryo preservation techniques at present do not require a fee (but neither are they ready for commercialization). A minor expense will be membership in the purebred breeding association. The genetic testing for the national gene pool along with the record of performance will cost more, if the company decides to participate. The Hog Board is also about to launch a Pork Quality Assurance procedure for certification based on food safety product quality. It requires a record of feed, medications, vaccination, etc. If the company exports to Europe or Japan, it will need ISO 9000-type certification. All these assurances will contribute to consumer confidence in the product. Environmental Issues The Departments of Agriculture and the Environment are in the process of redrafting the siting and environmental regulations for hog production, with

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--> guidelines for management of manure and odor management. These deal with construction and siting of storage facilities and housing, and with the responsibilities toward the community. There are also guidelines for odor management. An environmental impact statement is required before construction, and there are requirements in the regulations for public consultation. There is a history of bad experience and bad feelings between hog producers and the community, and regardless of the guidelines, it will be necessary for each producer to deal personally with neighbors. On the other hand, the guidelines provide that the public will not be able to stop construction of the facility if all requirements are obeyed. There is also a Farm Practices Act before the legislature, which will discourage nuisance complaints by the public against legitimate farming activities. Nevertheless, it would be good practice to carry out tests before and after operation commences to monitor odor and water quality. In general, these regulations are supportive of the formation of high technology production units like Island Genetics. Insurance required includes the usual liability, fire, and workers' compensation. There should also be insurance against damage to pigs, for example, if the power fails, so that an accident does not wipe out all assets. Product liability insurance on the health of the pigs is expensive but optional. An alternative would be to sell breeding stock "as is" and ask customers to quarantine the breeding stock for 30 to 90 days; it will be necessary to explore whether customers would accept that, or whether such disclaimers would undermine the marketing strategy. Implementation Plan Estimated Start-up Costs Industry-standard data is available on customary construction and service costs. For the high technology part, some aspects are not yet on the market, and therefore it is difficult to assess the costs. For the 21-day breeding females, no separate nursery is required, and building and manure storage costs are estimated at C$1500 per sow for gestation to farrow facilities. The breeding stock itself would be about C$2500 per sow. Stakeholders The enterprise could be producer-owned or funded by venture capital. Possibly the leadership would come from local producers, who would prepare a basic plan for approach to venture capital, seeking about $5 million for the nucleus herd. There is a precedent on PEI in the case of a consortium of producers who raised money for a potato dehydration plant. The hog producers are linked already through their participation in the PEI Hog Commodity Marketing Board,

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--> which owns the present Quality Swine nucleus units. There are also a PEI Swine Breeders Association and a Quality Swine Multipliers Association, and all producers belong to one or more of these organizations. If the associations were involved, then all producers would have a stake. The processing plant will also be a stakeholder, one way or the other. Sales of 21-day breeding females may reduce the number of pigs sent to the plant, and this may raise concerns about the viability of the plant, which is presently operating below capacity. Alternatively the increased number of males may increase its business. The plant is being subsidized by the Provincial Government and by the producers; the government values the prosperity of the pork industry, but it may be concerned about any development that might hurt the plant. Source of Financing There is an immigrant investor fund in Canada, which provides loans at low rates for Canadian enterprises like this one. There is also private venture capital available. There is a small fund available to Enterprise PEI from Garden Province Meats, the operator of the processing plant, intended for expansion of the pork industry and increased input to the plant. Island Genetics may qualify if the increased number of males generates a net increase. If the producers are involved as stakeholders and investors, they can go to the bank themselves and borrow with no additional security required beyond the stock and facilities. That would give the producers their equity stake and a share in the benefits. Management The enterprise could be started by a team put together by the producers, but before long it will be necessary to hire a professional manager with marketing skills as described above. There already may be such people on the Island. Biosecurity The key to success of this enterprise will be creation and maintenance of the low-disease herd, and that will require positive actions to increase the biosecurity of the Island. There is at present no impediment to importing or raising diseased pigs on PEI. The proposed new regulations will create buffer zones for new facilities and make it more difficult to import pigs, but nothing will prevent existing producers from raising diseased pigs. In order to become competitive in the swine breeder market, it will be necessary for the whole island to maintain the same standard. The government will not be able to pressure a determined minority to conform, so the pressure must come from the producer community. As older farmers leave the industry, their stock can be replaced with low-disease pigs, and

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--> government and industry together can provide incentives or try to buy out the recalcitrant. To restore a diseased facility quickly, additional subsidiary facilities will be needed, as described above, and the Hog Board can make these available. The changeovers must be done in summer, and it will take perhaps five years. Producers can help each other by providing low-disease breeding females. Even after the Island herd is low-disease, a system must be put in place to keep it that way. Accidents will happen, and herds that are reinfected must be isolated. There should be segregated production in one place as insurance to protect against having to reconstitute the entire herd. The pigs must be constantly tested, including against diseases that are not known to be present in PEI. Often there will be false positives, and the alarm this causes must be prepared for. A first step is to implement the strategy to eliminate PRRS within 6 months; that would reduce or eliminate many other diseases at the same time. (Elimination of PRRS will not necessarily help in the U.S. market, because prevalence there is over 90 per cent and the imported breeding females will get infected anyhow, unless producers want to vaccinate them. However the vaccine is a live attenuated virus, and creates sero-positive status in the pig. The producer gains economically from raising pigs free of PRRS that grow more rapidly, but the pigs have no intrinsic value as certified low-disease animals.) At the same time, producers should actively encourage the Provincial Government to strengthen and implement the proposed biosecurity law that will restrict entry of pigs to PEI. Both as a disease prevention tool and as a marketing tool, passage of this legislation is the most important factor for the success of modern, high technology swine genetics on Prince Edward Island. Addendum In July 1998, the Institute of Medicine and the Board on Agriculture of the National Research Council published, The Use of Drugs in Food Animals: Benefits and Risks, which contains the following section on biosecurity.4 THE USE OF DRUGS IN FOOD ANIMALS Biosecurity Biosecurity techniques should be based on an understanding of pathogen transmission. Knowledge of all potential entry routes for pathogens to a herd is an essential prelude to developing a comprehensive biosecurity program. If multiple pathogens having different routes of transmission are listed according to priority for exclusion from a group of animals, a multi-point biosecurity program is warranted. Dial et al. (1992) summarized several sources in formulating 4   The Use of Drugs in Food Animals: Benefits and Risks, National Academy Press ( 1999), P. 197.

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--> biosecurity policies for swine, and these have application for all food animal species. These biosecurity policies include: Locating the herd away from potential sources of infection, including other production facilities, slaughterhouses, sale barns, and roadways. Enclosing the herd in bird-proof facilities. Placing fences around the farm boundary and placing locks on doors and windows to prevent entry of visitors. Prohibiting entry of vehicles used to transport animals, unless they are empty and have been cleaned and disinfected before arrival at the facility. Providing secure loading areas that prevent animals from returning to the building once they have been exposed to trucks. Aggressively controlling rodent and fly populations, including the use of weed control and gravel borders to discourage rodents from approaching the facility. Excluding cats and dogs from the farm complex. Excluding all people, including visitors, who are nonessential to a farm's operations. Ensuring that farm personnel do not come in contact with animals outside the herd. Establishing a minimum quarantine time for incoming people before they come in contact with livestock. Requiring all people to shower before entering the farm and providing clothing to wear on the farm. Ensuring pathogen-free feed sources and instituting methods of delivering feed to the farm that closely control the access of potentially contaminated trucks. Cleaning outside feed spills to avoid attracting rodents and birds. Providing secure manure storage and disposal. Promptly disposing of dead animals. Moving incoming stock into an isolation area that has separate ventilation and manure removal systems. Placing sentinel animals with incoming stock and using diagnostic tests (for example serological tests or postmortem examination) to detect if they became infected. Ensuring that feeds, water, bedding, equipment, and supplies are free of infectious agents. Restricting the use of manure-disposal equipment. Testing the replacement herd for the presence of pathogens. Using high-health technologies (for example, artificial insemination, embryo transfer, surgical derivation, and medicated early weaning) to introduce new genetic stock. Many of these options are based on common sense, but some of the specific elements are difficult to control or implement. The seasonality of biosecurity calls for different measures to be taken at different times of the year. In the fall, wild-animal populations begin to seek additional shelter, warmth, and food supplies, and the domestic animal facilities offer much of what those animals seek.

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--> In those situations, wild animals can spread disease to domestic populations. Similarly, quarantine, disinfecting, and clothing changing are often highly effective measures to counter the spread of potential pathogens. Realistically, few producers have the resources or time to increase their operations to provide for showers and change of clothes every time they enter a different animal facility. If these measures are to be effective, the ease of implementation must be balanced with the return.