Technology: Price Tag and Profit 2004 Beef Improvement Federation

1. Technology: Price Tag and Profit2004 Beef Improvement Federation Barry H. Dunn, Ph.D. Executive Director and Endowed Chair King Ranch Institute for Ranch Management Texas A&M University Kingsville

2. Technology Any device, service, product, medicine, vaccination, … and now as industry production segments become aligned, any specific procedure or protocol

3. Adoption Rates • Relatively low rates when compared to competitors, NAHMS, 1998 • Rates vary between segments • Rates vary within segments • Market signals are changing rapidly! • Consumer preference • Animal health issues • Trade • People exhibit different patterns

4. - X Cattle Co.

5. TX001256783245 Cattle Co.

6. Technologies • AI • Estrus Synchronization • Supplementation • Breeding Systems • Herd Health • Growth Promotants • Embryo Transfer • Cloning • Animal ID

11. Ranch A: Extensive Round up & market 1 X a year Limited vaccination Year round breeding Unplanned X breeding No dehorning No individual ID Little or no supplementation Ranch B: Intensive ID Full array of vaccines Limited breeding season Planned X-breeding Implants Balanced rations & supplementation AI & Estrus Synchro Strategic marketing Retained ownership Technology and Profitability Obvious Correlation?

12. Ranch C: Chosen Single Breed Extensive vaccination Synchronization AI Breeding Individual ID Planned supplementation No implants Targeted market Technology and Profitability Obvious Correlation?

13. Influencers • Dr. Chris Dinkel • Dr. Wayne Purcell • Dr. Harlan Hughes • Dr. John Lawrence • Dr. Tom Jenkins • Dr. Eddie Hamilton • Dr. John Sterman • Professor Jay Forrestor • M. B. Johnson

14. 2004 1974 “Economic History of the Cattle Industry According to … ” “Real” Retail Price of Beef Domestic Production Tons of Beef US Cattle Inventory

15. 2004 1974 “Economic History of the Cattle Industry According to Me” “Real” Retail Price of Beef Domestic Production Tons of Beef US Cattle Inventory

16. Goals for Today:To put the $ of Technology in Context • Partial Budgets are partial budgets • Measuring impact at the payoff point • Costs and benefits change with different levels of production • Impact can be different on firm vs. industry • Unexpected outcomes shouldn’t be unexpected • The future value of technology needs to be discounted

17. Most Widely Used Tool in Evaluation

18. Positive: Easy to use Straight forward Shows costs and benefits Doesn’t Measure: Risk Affect on Cash Flow Quality of Life Inter-relationships Fixed costs are often understated or ignored Unexpected outcomes Efficiency Positives and Limitations

19. In the Partial Budget process: • Variable Costs are most commonly evaluated: • Often on a per head basis • BUT, how much did the technology change pounds available to sell? • AND, what did it cost per cwt. sold? • BECAUSE, small changes can get washed out over time. • Changes in Fixed Costs are often glossed over!

20. Where to Measure Impact?At the end of the production cycle! • Impact of calf-hood implant on a yearling? • Value of using a sire with superior carcass traits to an operation that sells at weaning? • Benefits of estrus synchronization? • # of females: cycling, bred, Preg., Calving in days? • %of females: cycling, bred, Preg.? • Lbs weaned per cow exposed? • Value of uniformity? • Value of future benefits?

21. The Correct End Point?The Point of Sale! • Correct Feedback is Critical! • For example: Fixed costs are $100/Beginning Year Breeding Female • If you can produce the same # of weaned pounds with 10% fewer cows: • Fixed costs per cow go up! • Fixed costs per cwt remain the same!

22. 500 lb Equivalent Weaned Calf Breeding Costs per cwt for a Herd Size of 100 at Various Labor and Semen Costs. (Johnson, 2002)

23. Units of Output Units ofInput Marginality

24. Marginal Cost Curve Marginal Cost, $ Units ofOutputs

25. D2 Technology Marginal Price Curve, Firm D1 Price per Unit, $ Units of Outputs

26. Technology D2 Marginal Price Curve, Firm D1 Price per Unit, $ Units of Outputs

27. Technology D2 Marginal Price Curve, Industry D1 Price per Unit, $ Units ofOutputs

28. D2 Technology Marginal Price Curve, Industry D1 Price per Unit, $ Units ofOutputs

29. Unexpected Outcomes • Growth Implants : European Embargo • Weaning Weight : Dystocia • Bacterial Resistance to Antibiotics • Inbreeding : Lethal Traits • Crossbreeding : Longevity • Positive Associative Affect • Carbohydrates : Obesity

31. + Calf Death Loss Total Lbs Weaned Dystocia + + Weaning Weight Birth Weight R + Causal Loop Diagram - + B

32. The Future Value of Today's Technology • Because of extended production cycle, our industry needs to use “Net Present Value” as we evaluate change • Vn = V0 (1 + i )n • Used extensively in planning scenarios • Relies heavily on accurate data and trend analysis • Responsibility of….? • Provider of technology • User of technology

33. NPV for Cattle of Ages 1- 12yr for 2 Market Scenarios (Meek, et al, 1999)

34. Competing Meats Cattle Cycle Net Present Value Cyclical Drought Real $ Retail Beef Beef Production

36. A Systems Approach • Describe the situation • Examine mental models • Measure and define criteria • Place things in context! • Use Causal Loop Diagrams • Develop simulation models

37. Summary Technologies need to be placed in context! • Partial Budgets are partial budgets • Measure impact at the payoff point • Costs and benefits change with different levels of production • Impact can be different on firm vs. industry • Unexpected outcomes shouldn’t be unexpected • The future value of technology needs to be discounted

38. The Challenge Technology can be used not only to increase and improve: • Production • Efficiency • Consumer Acceptance But also to: • Improve Nutritive Value • Address Environmental Challenges