|
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 Depart-
ment, University of Florida. Prepared for distribution at the Southern
Regional Outlook Conference, Atlanta, Georgia, October 1-3, 1984.
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 pro-
ductivity. 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 produc-
tivity presumably is most useful, but difficulties abound due to dis-
Hand power
120
100 -
80
60
Mechanical Science
power power
WWI WWII
I
40 ....i*
20-
I
10 tIll !F 1_ ii IF I III I ii
1775 1800 1825 1850 1875 1900
F!
1925
950 1975
Year
Figure 1 U.S. Agricultural productivity growth
Source: Lu and Quance, 1979, p. 3.
.3
o
Y2
y1
Yg
"0
d
b7
(I
~ I
Input mix ($)
Figure 2 Impact of technological change on output
Horse power
Civil War
1
parate 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 contin-
uous, 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 Y0 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 Y1 could result from purchase and use of a home computer
tied to an individual cow ration distribution system wherein the dis-
counted 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
distribution system, heat (estrus cycle) detectors were tied to the
computer (X3) and output of Y3 at point e might be obtained. The impor-
tant 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 anabolics 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 adop-
tion rates, i.e. management, have to be taken into account. But the
example serves to point out the importance which knowledge and informa-
tion 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.
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 preg-
nancy 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.
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 viral-
related diseases like shipping fever (bovine respiratory disease).
Electronic mastitis detection is a recently developed method for con-
trolling 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 contin-
uous 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 inter-
nal 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.
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 resi-
dues treated with hydrogen peroxide have been shown to improve digesti-
bility 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 recy-
cled. 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-agricul-
tural 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. Micro-
flora 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
will be used increasingly in an effort to reduce feed costs, veterinary
expenses and death losses. Milking machine equipment linked to a com-
puter 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
restructured meats. Beef 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 improve-
ment 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 effi-
ciency which will 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 brassinosteroids, a
hormone still in the developmental stage, are expected to have wide-
spread 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 effi-
ciently. 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 dis-
covered 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. No-
till (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 possi-
ble 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 nitro-
gen 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.
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
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 pro-
grams. 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
5,590 kg.
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 avail-
able 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.
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 capital 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
surplusses 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 Dl,
S (Current)
S2(Equilibrium)
2 Sl(Potential)
1 --
I \ D1 (Longer term)
Si D (Current)
I
Q Q2 Q1 Ouantity
Figure 3 Projected impact on supply and demand in livestock
products, OECD countries, to the year 2000.
then it would be expected that total quantity consumed would increase
from Q to Q1 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 adoptors 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
only 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.
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.
Bibliography
Bonnen, James T. "Historical Sources of U.S. Agricultural Productivity:
Implications for R&D Policy and Social Science Research." Am. J. Agr.
Econ. 65 (1983): 959-966.
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.
Cook, Edward, Robert Cummings, and Thomas A. Vankai. Eastern Europe:
Agricultural Production and Trade Prospects Through 1990. Washington,
D.C.: USDA ERS For. Agr. Econ. Rep. 195, Feb. 1984.
English, Burton C., James A. Maetzold, Brian R. Holding, and Earl O.
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
Mechanically Deboned Chicken." Sou. J. Agr. Econ. 15(1983):133-137.
OECD. Animal Feeding and Production: New Technical and Economic Devel-
opments. Paris, 1981.
Politiek, R.D. and J.J. Bakker. Livestock Production in Europe: Per-
spectives and Prospects. Amsterdam: El Sevier Scientific Publishing
Co., 1982.
20
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.
Ames: Iowa State University Press, 1982.
Production Credit Associations. Agriculture 2000: A Look at the
Future. Columbus, Ohio: Battelle Press, 1983.
|
RSS
HIDE
