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Technological changes that will affect the cattle industry

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Title:
Technological changes that will affect the cattle industry an economic perspective
Series Title:
Staff paper
Creator:
Simpson, James R
Place of Publication:
Gainesville Fla
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Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
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Language:
English
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20 p. : ill. ; 28 cm.

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Subjects / Keywords:
Beef industry -- Technological innovations ( lcsh )
Cattle -- Economic aspects ( lcsh )
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bibliography ( marcgt )
non-fiction ( marcgt )

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Bibliography:
Includes bibliographical references (p. 19-20).
General Note:
"September 1984."
Funding:
Electronic resources created as part of a prototype UF Institutional Repository and Faculty Papers project by the University of Florida.
Statement of Responsibility:
by James R. Simpson.

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Full Text
TECHNOLOGICAL CHANGES THAT WILL AFFECT
THE CATTLE INDUSTRY: AN ECONOMIC PERSPECTIVE
by
James R. Simpson
Staff Paper 263 September 1984
Staff Papers are circulated without formal review by the Food and Resource Economics Department. Content is the sole responsibility of the author.
Food and Resource Economics Department
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611




TECHNOLOGICAL CHANGES THAT WILL AFFECT
THE CATTLE INDUSTRY: AN ECONOMIC PERSPECTIVE by
James R. Simpson*
A virtual revolution has taken place in cattle production and marketing techniques in much of the world over the past two decades. The European Economic Community (EEC) has moved from being a major beef
deficit region to a net exporter. Japan, while continuously increasing beef imports, has made great improvements in its production and marketing structure. In the United States beef production per head of all cattle inventory increased from 55 kilos in 1950 to 70 kilos in 1960--and is now about 90 kilos.
The changes during the past few decades have been spectacular but pale in light of potential developments over the next two decades. The purpose of this report is to describe some of the innovations related to feed production and storage, techniques of direct applicability by dairy
and beef cattle producers, and changes in the beef and milk marketing system. Many of the techniques discussed are now beginning to be applied; others are still in their most basic stages. Together they
represent a fascinating array of fruits from modern science. In an
effort to place these technologies in perspective, the technological
*James R. Simpson is Professor, Food and Resource Economics Department, University of Florida. Prepared for distribution at the Southern Regional Outlook Conference, Atlanta, Georgia, October 1-3, 1984.




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change process is first described. Then, after the technologies are
reviewed, a critical analysis from an economic perspective is provided.
Technological Change and Productivity Technological change in agriculture is now increasing at an increasing rate as we are in what Lu, Cline and Quance (1979) termed the
era of "science power" (Figure 1). This new era follows the previous
rather short one of mechanical power and a slightly longer one called horse power.
Technology, a human-made resource which can be increased through research and development, has begun to be recognized as a resource because of the complementary relationship among various technologies. This means that imagination, time lag in adoption, and institutional constraints are the major limits to growth in livestock productivity, rather than the traditional three: land, labor and capital. In effect,
whereas previous technologies such as mechanization of agriculture were heavily capital intensive, the new ones are more knowledge intensive-a
new dimension which is especially uncomfortable to economists since coefficients are not generally available for projections.
Productivity is a measure of the technological efficiency with which resources are converted to commodities and services. There are
two types of productivity: partial productivity, and total factor produdtivity. Partial productivity can be measured by ratios of output to a single input in which both the numerator and denominator are measured either in physical units or constant money values. Total factor productivity presumably is most useful, but difficulties abound due to dis-




3
120
Hand power Horse power Mechanical Science
H oo power I power .
100
Civil War WW I WW II
80
r-. 60
a 201775 1800 1825 1850 1875 1900 1925 1950 1975
Year
Figure 1 U.S. Agricultural productivity growth
Source: Lu and Quance, 1979, p. 3.
.WY
0 2 lp
a I
00
0 X 0 X1 X 3 X2Input mix($
Figure 2 Impact of technological change on output




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parade quantities of inputs. One way economists have overcome this
difficulty is by using real monetary value as a common unit of input measure. Two means used for computing total factor productivity are through index numbers and production functions (Lu, Cline, and Quance, 1979). The latter is most useful for the theoretical approach in this section.
A production function describes the physical relationship between a
firm's input of resources and its output per unit of time under a given state of technology. As technological change takes place the production function coefficients also change. Because the changes are not continuous, smooth, nor necessarily neutral, it is difficult to specify the functional form. However, it can be conceptualized by considering a more abstract concept of input mix on the horizontal axes, rather than the usual single input being varied with the rest held constant as is typically depicted in a production function.
The production function for livestock, shown in Figure 2, has a production function P0 using input mix x0 yielding output Yo by
producing at point a. Another alternative is use Of x2 input to produce Y2 output. The Impact of technological change can be considered in its simplest form as a movement from point a to point b on a new production function, P1, at some later time by changing the mix of inputs. As an example, output Yj could result from purchase and use of a home computer
tied to an individual cow ration distribution system wherein the discounted capital and maintenance cost is offset by a reduction in feed cost. An even higher output than Y2 can be obtained by increasing the input mix. For example, if in addition to the home computer and feed




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distribution system, heat (estrus cycle) detectors were tied to the computer (X 3) and output of Y3 at point e might be obtained. The important factor here is knowledge and careful manipulation of feedstuffs to optimize feed use.
A crucial point to understand livestock industry technological change during the 1980s and 1990s is to recognize that new production functions will not be smooth, but rather will have "blips," as
represented in Figure 2 by the segment d to e. In this case a rather
large output increase from Y2 to Y3 can take place at some point in the future with very little additional total input use, again because of expanded knowledge. As an example, before 1990 some dairy farmers will learn embryo transfer techniques, implant cows with twin male beef breed
embryos, background (i.e. prepare for final feedlot finishing) the calves using anabolic and feed enhancers, determine optimum feed use by
a supplement optimization computer program, and carry the animals to slaughter weight through a cooperatively owned feedlot. More than twice as much beef could be produced per cow under this system.
New Technologies
The last example is somewhat extreme and, clearly, costs and adoption rates, i.e. management, have to be taken Into account. But the
example serves to point out the importance which knowledge and information management will play In the next decade and a half in livestock production. Furthermore, the rate of adoption can be expected to increase at an increasing rate as farm size increases and younger farmers, who are trained and psychologically motivated for change, take over both management and ownership of cattle operations.




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Technological changes related to livestock and meat production are occurring so rapidly that even scientists closely associated with each field of endeavor have a difficult time to assess the implications for commercial application (Bonnen, 1983; Butler, 1973; McElroy and Krause, 1982). The objective of the next several sections is to provide an understanding of the range and breadth of new technologies which have recently been developed or can be expected to have commercial application to the year 2000.
New Animal Related Technologies
Numerous genetic oriented technologies are being developed or have
recently been made available. Examples are heat period control., also known as estrus synchronization, which is used to improve overall pregnancy rate, artificial insemination (AI) efficiency, and to shorten the
breeding season by using hormones. Embryo transfer has as one objective speeding up herd improvement via selection. Multiple calving the
process of a cow delivering more than one calf, is being investigated. Current problems of calving difficulty can be overcome using embryo transfer in a program by emphasizing selection of donors with low birth weights and through careful selection of sires. Embryo sexing.in cows
by the sixth day using non-surgical techniques is now known and being commercially used on a limited basis. Genetically superior beef calves will be produced through emphasis on breeding programs.
Bovine growth hormone (bGH) is a naturally produced hormone which, when given in daily injections, results in dairy cow milk yield
increases of perhaps up to 40 percent regardless of the base level.




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Parasite resistance has been bred into some sheep through selective breeding. It is expected that this type of genetic engineering (GE) will be used in breeding cattle specifically selected for parasite and disease resistance. The hormone HCG, which is a human produced hormone, has been shown to increase pregnancy rates in dairy cows by 11
percent. Sire evaluation programs will increase in scope as demand increases for animals with specific traits.
In the area of animal health, recombinant DNA (rDNA) developed vaccines, another product of GE will soon be common. The first rDNA
vaccine has been developed for foot-and-mouth disease, a problem endemic to many countries. Others are being developed against colibacillosis and infectious diarrhea. Bovine interferons naturally-occurring
proteins of the immune system in cattle, will be manufactured using rDNA techniques for many broad applications such as management of many viralrelated diseases like shipping fever (bovine respiratory disease).
Electronic mastitis detection is a recently developed method for controlling one of the most costly health problems in dairy herds.
Implanted identification (ID) tags are a newly developed tool mainly for use in dairy herds at present. The small, match size tags, permanently lodged in the stomach, are read electronically and thus permit continuous monitoring of a cow's performance indicating, for example, body temperature change. An Ivermectin (tradename IVOMEC), released in late 1983, is the first commercial parasiticide effective against both internal and external parasites. A monoclonal antibody developed by GE
techniques to reduce losses from E. coli scours was introduced recently for commercial use. Fly control methods are receiving extensive
research emphasis.




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Nutrition is another major area in which significant advances are expected. For example, anabolics, such as IMC's Ralgro, are a major means of increasing growth in calves and cattle. It is expected that
new types of even more effective growth enhancers will be developed. Feed additives to improve feedstuffs digestibility are increasingly being used. Sodium bicarbonate in rations has been shown experimentally to increase weight gain by 14 percent through increasing feed intake by 8 percent and maintaining a neutral rumen pH. Straw, hay and crop residues treated with hydrogen peroxide have been shown to improve digestibility of these low-value feeds dramatically. The use of ammonia is now well known and increasing being adopted. Plastic pellets can be used as a substitute for roughage. Experiments have shown that 50 grams of the pellets compare favorably with 1.9 kg of hay, and they can be recycled. Wastes from animals such as poultry litter, hog excrement and cattle manure are increasingly being used as cattle feedstuffs. Recent attention given to ensiling these wastes with other material such as corn forage or grass hay has yielded promising results.
Other nutrition related advances include supplement selection based on measurements of pasture, hay and crop residues to provide balanced rations for grazing cattle. By-products from a variety of non-agricultural industries will be used to a greater extent as replacements for grains. Rumen-regulating drugs to improve feed digestibility and absorption along with expanded feed intake are being worked on. Microflora developed through genetic engineering will be used to metabolize raw feedstuffs into nutrients more efficiently. Computerized feeding
control to provide individual daily determined rations for dairy cattle




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will be used increasingly in an effort to reduce feed costs, veterinary expenses and death losses. Milking machine equipment linked to a computer will relate ration formulation to milk yield as well as general recordkeeping.
Processing and marketing improvements will continue to help reduce costs to consumers. Some of them are on-farm extraction of water from milk to reduce transportation costs, and irradiation of meat by an ionizing process to sanitize it and extend shelf life. These methods
will be in general use by the 1990s. Robots will be used to a much
greater extent in agribusiness, especially in meat slaughter and processing plants. A natural use of them is to fabricate restructured meats designed to resemble high quality cuts. This is especially important for Europe and other areas where most meat is from lean type animals. In addition, about 70 percent of a beef carcass is of low quality meats. Electrical stimulation of carcasses, now used in the United States, will be adopted in all the developed world by 1990 as it greatly improves tenderness of lower quality carcasses and alleviates need for chilling. Mechanical tenderizing performed at the supermarket is a new method for greatly improving tenderness of lower quality meat and cuts.
Another technique in advanced research stage is hot carcass processing. Still another is carcass grading by computers through the incorporation of TV cameras. Blended beef using about 25 percent of a
new generation of soy analogs can be expected to make a major impact in the U.S. market. The analogs are already common in Europe. It is
expected that the market for these products will grow, especially in




10
restructured meats. Reef snacks from lower quality irradiated meat may soon be found in vending machines. Finally, boxed beef will
increasingly replace carcasses in the delivery system from packing plant to supermarket in countries outside the United States.
- Crop and Forage Production
Biotechnology opens the door for rapid increases in plant improvement through recovery of desirable plant genotypes from tissue culture, protoplast fusion, and cloning. Recombinant DNA facilitates the direct manipulation of an organism's genetic material to produce offspring with
desired characteristics. Although use of rDNA is still in early stages of development, major advances will be made.
Some plant breeding work includes increased photosynthetic efficiency which will1 probably happen first with maize. It is estimated
that an increase of only 1-2 percent in photosynthetic efficiency will double yields. Nitrogen fixing organisms will be used to a greater extent as their biochemistry becomes better known. Maize seed produced by genetic engineering will result in plants growing to maturity even with early or premature frost. GE will be used to speed up development of new hybrids over conventional plant breeding techniques.
Seed treatment to protect seeds from seed-borne, soil-borne, and mobile organisms are being worked on. In addition, emphasis is being
given to treating seeds with plant growth regulators for weed control, and with fertilizers. Plant growth regulators of brass inos teroids, a
hormone still in the developmental stage, are expected to have widespread impact on crop yields. They now are being used in Europe to




decrease wheat height. Salt tolerance has been bred into more than 50 crops including forage grasses and legumes, cereal crops and oilseeds. Fertilizer efficiency will be improved greatly. One area involves maize which will provide its own nitrogen and use fertilizer more efficiently. Chemicals for agricultural use are now being synthesized by computer modeling to spot active compounds. This technique will greatly speed up production of new ones. Polyacetylenes are a recently discovered group of plant chemical insecticides that absorb sunlight and literally burn insects to death.
Some of the more exciting agronomic practices include increased use of double cropping as shorter maturing varieties are developed.
Computer controlled planting in which proper depth and spacing is automatically selected to improve uniformity will become common. Notill. (zero-tillage), the practice of reducing the number of tillage passes, will be used to a greater extent where labor and tillage are problems. Custom prescribed tillage, a dynamic system using information feedback to modify tillage practices throughout the year, will be possible as farmers purchase computers and software becomes available.
Forage quality will be improved through plant genetics and management. Included will be more use of legumes in grass swards to decrease nitrogen fertilizer requirements. Hydroponics, a controlled environment
agriculture in which plants are grown without soil, has considerable potential in more densely populated areas, especially for vegetables. This will release land for grain and forage production. New water
conservation practices are also developing rapidly.




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Mechanization is an important new area for reducing costs of animal feedstuffs. Innovations Include solar bin-buildings to air dry grain to 20-24 percent moisture. Bale silage bags which provide oxygen-free storage for round-baled forage have been developed recently and will be improved in response for more treatment using ammonia. Controlled
traffic is a technique In which fixed rows are developed to reduce soil compaction. Automatic guidance mechanisms are forthcoming, especially for grain harvesting. Engine, draft and tractive efficiency will
continue to be improved greatly. This will improve fuel efficiency,
extend machinery life, and optimize work rate. Integrated control
harvesting is a new system in which sensors on grain combines automatically adjust settings for optimal harvesting, and for information recording and analysis.
Data management and coordination techniques, perhaps the most
important aspect in the new scientific revolution, are being developed with bewildering rapidity. A virtual information explosion has taken place in the past five years due to greatly expanded use of computers for data analysis and dissemination of information. This expanded
hardware and software has led to considerable psychological change among farmers and others related to agribusiness vis-a-vis knowledge as a major farm Input.
Microcomputers which improve data management capability, open up a variety of linkages to production level equipment. One major area for animal agriculture is rapid and accurate identification of individual animals. For example, a passive transponder has been developed which, when implanted or incorporated in a neck collar, can be linked to a




13
microcomputer to monitor animal health. Automatic milk yield recording devices are available now which can be linked directly to microcomputers. Automatic individual cow ration formulation and
distribution already is possible by linking a distribution device to a microcomputer. In addition, video cameras are being tested for 24 hour continuous inspection of cattle, especially related to calving and health problems. Soon they will be interfaced with computers to provide a permanent record.
Coordination is an area that will receive increasing emphasis. Cooperative production links will increase between dairy producers and feedlots to take advantage of benefits from controlled breeding programs. Cooperative marketing programs will become joint ventures among selected producers, feeders and packers as benefits of forward and backward integration become increasingly apparent.
Potential Impact on Production
An idea of the potential impact that technological change will have
on livestock production can be obtained by review of the Executive Summary from an RCA Symposium titled "Future Agricultural Technology and Resource Conservation" (English, Maetzold, Holding and Heady, 1983). In the expert's opinion, meat production per breeding cow and per breeding sow will increase 25 percent by the year 2000, and 60 percent by the year 2030. Milk production per cow is expected to increase to 7,275 kg annually by 2000, and 9,090 kg by 2030. In contrast, it is now about 53,590 kg.




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Production per female sheep or goats is expected to increase 35 percent by 2000 and 70 percent by 2030. Broilers, already the target of vast productivity improvements, are expected to have a 30 percent improvement in production efficiency by the year 2000. Age-to-market
weight efficiency of catfish is expected to increase 20 percent by the year 2000 and 200 percent by 2030.
Consideration of individual technologies is useful, but the synergistic effects, i.e., that the total effect of two or more
technologies in combination is greater than the sum of the individual ones, must also be taken Into consideration. For example, a combination of embryo transfer and genetic engineering in the United States could increase milk yield up to 20,500 kilos per cow annually on selected dairies by the first part of the next century. The same holds true for targeting breeding to larger-frame cows especially for ease of calving twins.
The technologies just described are impressive as to scope and potential for both yield enhancement and cost reduction. It is obvious that their adoption, as well as the multitude of technologies now available but not being used, will vary from country to country and even from farm to farm within a district. No attempt is made to to make project of adoption or even of success in commercial development of various technologies now in their embryonic stage. Rather, the salient point is that some farmers will leap at opportunities and, through their early adoption, will benefit to a great extent. The slower adopters will
eventually drop out.




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Economic Implications
The demand for meat products in the OECD (e.g. Canada, Western Europe, Japan, United States) is not likely to expand to any appreciable
degree in the foreseeable future. In effect, the livestock and meat
industry has matured, at least in terms of per capita consumption. At the same time population in the OECD countries will only increase slightly to the year 2000. Thus, the bottom line on the demand side in
the so-called developed countries is total consumption of all meat products will only increase slowly, perhaps at 1-2 percent annually .during this time period. There will be surges or contractions of
consumption in each commodity; beef, pork and poultry, during the next decade and a half due to supply side factors, advertising campaigns, fads, economic conditions and consumer preference changes. But, overall, the trend is clear.
Population will continue to expand rapidly in the less developed countries but, despite uneven economic conditions between them, in general, there is relatively little potential for additional shipments of livestock products to them. Rather, these countries will prefer to spend their limited foreign exchange on GNP generating imports rather than what is widely conceived as being "luxury goods." Consequently,
the second message on the demand side is that countries with meat surpluses will have difficulty in selling their commodities abroad.
The multitude of new technologies described earlier clearly
indicate that the supply curve for OECD countries as a whole will potentially be able to shift out to a great extent, say from S to S1 in Figure 3. If, as projected, demand only shifts slightly, from D to DI




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(3)
S(Current)
S 2(Equilibrium) P2 S1 (Potential)
P1
D1 (Longer term) i D (Current)
I ; I I I
I I I
0 Q Q2 QI Ouantity
Figure 3 Projected impact on supply and demand in livestock products, OECD countries, to the year 2000.




17
then it would be expected that total quantity consumed would increase from Q to Q, while price would fall from P to P1.
The above theoretical scenario is unlikely. Rather, because of projected subsidy cutbacks in OECD countries, or because producers are already at the economic margin, there will be continuous pressure to shift the curve, but it will only shift to a small extent, for example to Q2 at which point output price will be P2. The important point is that the long-term potential supply curve is much further to the right than the equilibrium curve. The net result is that output prices will hover very close to costs and, in fact, few producers will do much better than cover cash expenses.
The economic pressures described above imply continued exodus of producers and marketing firms with the result that a bimodal
distribution (by size) will be increasingly apparent at all points from primary production through distribution channels. Early adopters of new technologies will not only survive, but many will thrive. However, for
every one of the aggressive operators there will be several who will be unable to compete either by keeping costs down, expanding output, or a combination of them.
There are benefits of course. Because the new technologies, at least in beef and dairy cattle production, are largely knowledge based there is more scope than ever for bright, aggressive young people who o nly have limited economic resources to enter the business and grow rapidly to a large size. There will be cyclical price and inventory fluctuations, but these will be mitigated to a large extent compared with the last three decades. That means less price risk.




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Society is, of course, the big winner through lower cost products. Furthermore, there can and will be greater choice available to consumers from an expanded array of products. Perhaps most
significant to society is the challenge for wise use of natural resources. The new technologies mean that more output is possible from an ever reduced land base. One alternative is to simply predict the
dismal effect on producers from reduced, or only marginally increasing land prices. Another approach, and one which has not received any attention, is to take a positive approach and advocate greater national and state purchase of land for reserve and recreational purposes. Such
a general philosophy would lead to consumers being winners on the supply--as well as demand--side.




19
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Bull, Alan T., Geoffrey Holt and Malcolm D. Lilly. Biotechnology:
International Trends and Perspectives. Paris: OECD, 1982.
Butler, L.J. and A. Allen Schmid. "Genetic Engineering and the Future of the Farm and Food System in the U.S." in The Farm and Food System in Transition: Emerging Policy Issues. Michigan State University, 1983.
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English, Burton C., James A. Maetzold, Brian R. Holding, and Earl 0. Heady. RCA Symposium: Future Agricultural Technology and Resource Conservation, Executive Summary. Ames, Iowa: Center for Agricultural and Rural Development, 1983.
Fotenot, J.P. "Present Status and Future Trends in Production of Red Meat, Dairy, Poultry and Fish with Emphasis on Feeding and Nutrition" paper at the RCA Symposium: Future Agricultural Technology and Resource Conservation, Washington, D.C., 5-9 Dec. 1982.
Longmire, Jim and Walter H. Gardiner. Long-Term Developments in Trade in Feeds and Livestock Products. USDA ERS For. Agr. Econ. Rpt. 199, Jan. 1984.
Lu, Yao-Chi, Philip Cline and Leroy Quance. Prospects for Productivity Growth in U.S. Agriculture. Washington, D.C.: USDA ESCS Agr. Econ. Rpt. 435, Sept. 1979.
McElroy, Robert G. and Kenneth R. Krause. New Technologies to Raise
Agricultural Efficiencies. USDA ERS Agr. Info. Bul. 453, Aug. 1982.
McNeil, Douglas W., Clark R. Busbee, and Howard R. Wright, II. "Supply Response to Technological Change and Regulation: The Case of
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OECD. Animal Feeding and Production: New Technical and Economic Developments. Paris, 1981.
Politiek, R.D. and J.J. Bakker. Livestock Production in Europe: Perspectives and Prospects. Amsterdam: El Sevier Scientific Publishing Co., 1982.




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Raun, N.S. and K.L. Turk. "International Animal Agriculture: History and Perspectives." J. Anim. Sci. 57, Suppl. 2 (1983): 156-170. Resh, Howard M. Hydroponic Food Production. Santa Barbara, California: Woodbridge Press Publishing Co., 1978. Simpson, James R. and Donald E. Farris. The World's Beef Business.
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