Technology: Price Tag and Profit2004 Beef Improvement FederationBarry H. Dunn, Ph.D.Executive Director and Endowed ChairKing Ranch Institute for Ranch ManagementTexas A&M University Kingsville

TechnologyAny device, service, product, medicine, vaccination,

and now as industry production segments become aligned, any specific procedure or protocol

Adoption RatesRelatively low rates when compared to competitors, NAHMS, 1998Rates vary between segmentsRates vary within segmentsMarket signals are changing rapidly!Consumer preferenceAnimal health issuesTrade People exhibit different patterns

- X Cattle Co.

TX001256783245 Cattle Co.

TechnologiesAIEstrus SynchronizationSupplementationBreeding SystemsHerd HealthGrowth PromotantsEmbryo TransferCloningAnimal ID

Technology and Profitability Obvious Correlation?Ranch A: ExtensiveRound up & market 1 X a yearLimited vaccinationYear round breedingUnplanned X breedingNo dehorningNo individual IDLittle or no supplementationRanch B: IntensiveIDFull array of vaccinesLimited breeding seasonPlanned X-breedingImplantsBalanced rations & supplementationAI & Estrus SynchroStrategic marketing Retained ownership

Technology and Profitability Obvious Correlation?Ranch C: ChosenSingle BreedExtensive vaccinationSynchronization AI BreedingIndividual IDPlanned supplementationNo implantsTargeted market

Influencers Dr. Chris DinkelDr. Wayne PurcellDr. Harlan HughesDr. John LawrenceDr. Tom JenkinsDr. Eddie HamiltonDr. John StermanProfessor Jay ForrestorM. B. Johnson

Real Retail Price of BeefDomestic Production Tons of BeefUS Cattle InventoryEconomic History of the Cattle Industry According to

Real Retail Price of BeefDomestic Production Tons of BeefUS Cattle InventoryEconomic History of the Cattle Industry According to Me

Goals for Today:To put the $ of Technology in ContextPartial Budgets are partial budgets Measuring impact at the payoff pointCosts and benefits change with different levels of production Impact can be different on firm vs. industryUnexpected outcomes shouldnt be unexpectedThe future value of technology needs to be discounted

Most Widely Used Tool in Evaluation

Positives and LimitationsPositive:Easy to useStraight forwardShows costs and benefits

Doesnt Measure:RiskAffect on Cash FlowQuality of LifeInter-relationshipsFixed costs are often understated or ignoredUnexpected outcomes Efficiency

In the Partial Budget process:Variable Costs are most commonly evaluated:Often on a per head basisBUT, 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!

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?

The Correct End Point?The Point of Sale!Correct Feedback is Critical!For example: Fixed costs are $100/Beginning Year Breeding FemaleIf 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!

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

SystemsPreg % Semen Costs $3/Unit $13/Unit $23/Unit Labor Cost ($/hour)5.7710.7715.775.7710.7715.775.7710.7715.77CoSync407.828.318.8110.5 10.9711.4713.1313.6314.13Co Sync505.365.856.358.018.519.0110.6711.1711.67Co Sync604.845.345.837.508.008.4910.1610.6511.15SelSync407.047.908.768.569.4210.2810.0810.9411.80SelSync504.715.576.436.617.478.338.519.3710.23SelSync604.335.196.056.617.478.338.899.7510.61

Marginality

Marginal Cost CurveUnits of OutputsMarginal Cost, $

Marginal Price Curve, FirmPrice per Unit, $Units of OutputsD1

Marginal Price Curve, FirmPrice per Unit, $Units of OutputsD1

Marginal Price Curve, IndustryUnits of OutputsPrice per Unit, $D1

Marginal Price Curve, IndustryUnits of OutputsPrice per Unit, $D1

Unexpected OutcomesGrowth Implants : European EmbargoWeaning Weight : DystociaBacterial Resistance to AntibioticsInbreeding : Lethal TraitsCrossbreeding : LongevityPositive Associative AffectCarbohydrates : Obesity

+-BCausal Loop Diagram

The Future Value of Today's TechnologyBecause 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 technologyUser of technology

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

Age of CowNPV, Current MarketNPV, Low Point MarketRemaining Life(yr)$(yr)1783.53599.69421,026.86794.36431,145.81909.78541,210.20954.46651,170.59936.69661,088.04874.93571,068.73853.35581,027.38797.3259979.12714.82410899.87612.88411794.09480.57312734.60431.322

Real $ Retail BeefBeefProduction

A Systems ApproachDescribe the situationExamine mental modelsMeasure and define criteria Place things in context!Use Causal Loop DiagramsDevelop simulation models

SummaryTechnologies need to be placed in context!Partial Budgets are partial budgets Measure impact at the payoff pointCosts and benefits change with different levels of production Impact can be different on firm vs. industryUnexpected outcomes shouldnt be unexpectedThe future value of technology needs to be discounted

The ChallengeTechnology can be used not only to increase and improve:ProductionEfficiencyConsumer AcceptanceBut also to: Improve Nutritive ValueAddress Environmental Challenges