NORTH- HOLLAND

The Impact of rBST on the Structure of the England and Wales Dairy Sector

M I C H A E L BURTON

ABSTRACT

A farm level, econometric, cost function is estimated for dairy farms in England and Wales, which is then used as a basis for estimating changes in the size structure and regional distribution of milk production, rBST is introduced as a yield-enhancing factor, and the effect of this innovation on costs generates alternative scenarios for milk production. The results indicate that the adoption of rBST causes some structural change, but essentially this would be limited to a minor reinforement of the underlying pressures for structural change that exist already.

Introduction Recombinant bovine somatotropin (rBST), which enhances milk yield, is currently

not licensed for general use in the European Union (EU), and there are no proposals to permit it in the near future [1]. One of the most contentious issues in the ban on its use is the notion that the traditional criteria of safety, quality, and efficacy should be aug- mented by a fourth hurdle based on the socioeconomic consequences of adoption [2, 3]. One of the recurring concerns is the possible effects on production structures, the maintenance of family farming, and the possibility that adoption will concentrate milk production in the hands of the larger milk producers [4-6]. Although farm level trials are being undertaken, and these will aid in identifying the profitability of adopting the treatment at the farm level, they cannot give any guidance on the possible implications of adoption on the industry as a whole. This paper presents a model that attempts such an ex ante analysis for the dairy sector in England and Wales, for a variety of alternative scenarios. The scenarios are required because the cost of the treatment will not be known until it is commercially available, and although the effect on yields is known from experi- mental data, the effect on average yields in the industry is also unknown. Given the restriction imposed by milk quotas, the primary impact of adoption is on the market valuation of quota, and the distribution of milk production between farms. The model is restricted entirely to the farm level and is explicitly based on the assumption that farmers are profit maximizers. Thus adoption of the new technology depends solely on the profitability of so doing, as determined by changes in costs, and there is no scope within the model for animal welfare or ethical considerations to influence that decision.

MICHAEL BURTON is a lecturer in the School of Economic Studies, University of Manchester. His teaching and research interests are primarily in the areas of commodity modeling and natural resources.

Address reprint requests to Dr. Michael Burton, CAFRE, School of Economic Studies, University of Man- chester, Manchester MPI3 9PL, UK.

Technological Forecasting and Social Change 50, 93-104 (1995) © 1995 Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010

0040-1625/95/$9.50 SSDI 0040-I 625(95)00050-K

94 M. BURTON

As such, the model will overstate the potential changes, but prior to full release onto the market it is uncertain how producers will respond on this issue. The model also does not address issues relating to consumer responses to rBST, al though, if adverse, these will clearly have impacts on milk returns [7, 8].

Methodology There are a number o f methodologies that have been used to evaluate the implications

of new technologies, ranging f rom enterprise budgets [9, 10], farm-opt imizat ion studies [11] and a variety of econometr ic-based methods [12]. There has been relatively little analysis of the impacts of adopt ion of rBST in the UK, and none based on an econometric methodology. The approach used is similar to Oxley et al. [13], in that it is based on a cross-section cost function, using farm level data. The assumption is made that the produc- tion technology is essentially the same for all farms, and the cost of product ion is related to the level o f output and the value of the input prices, a l though a vector of farm-specific characteristics is also included. If a single year's da ta are used then it is usually the case that the prices paid for inputs will be the same across all farms, and hence have to be excluded, a l though a pooled time series/cross-section approach overcomes this. An aver- age total cost function of the following form is estimated, where C is the cost per unit of output; ct, a vector of parameters; PI , a vector of input prices; Q, the farm level output ; Z, a vector of farm-specific characteristics; and e, an error term, with i the farm identifier.

Ci = f l (a , PI , Qi, Zi, •i) (1 )

This can then be used in the primal profit maximizat ion f ramework (2), in order to derive individual supply curves (3).

Max H~ = P • Qi - f~(6t, PI , Qi, Zi) 'Qi (2)

Qi* = f2(6t, P, PI , Zi) if Hi > 0 (3)

= 0 otherwise

When aggregated using appropr ia te weights the nat ional supply function is obtained:

Q* = E wi " Qi* (4)

If there is an aggregate output constraint and t radable quotas with a rental price of R, then the primal problem becomes:

Max Hi = P • Q~ - fl(~, PI , Q~, zi) • Q~ - R - Q~ (5)

Solving for farm level supplies gives:

Q~* = f2((i, P, PI , Zi, R) if l-I~ > 0 (6)

= 0 otherwise

Instead of solving for the aggregate supply of the product , an aggregate excess demand for quota is derived, given by:

XS = ~ Qi* - Q (7) i

Solving the model then involves identifying the market clearing price o f quota (i.e., aggregate product ion equals the nat ional quota) , and the farm-level supplies. This struc- ture mimics the essential features of the EU milk quota regime as applied in the UK. F rom 1984 to 1993 a quota al location was made to the Milk Market ing Board of England

IMPACT OF rBST ON THE DAIRY SECTOR 95

and Wales as the "first purchaser," and the board was then liable for a levy if aggregate production exceeded that quota. Individual quotas were allocated to producers, and levies charged on those producers over quota if the Board as a whole went over quota. Producers were able to change their quota level either by leasing from other producers, or by perma- nent transfer. The model effectively imposes that the individual producers exactly meet their quota under the threat of punitive levies, and hence the national quota is met and no levy is payable. Given the inherent variability of production this is in fact unlikely to be the case in any one year, and this raises the possibility of producers deliberately choosing to produce more than their individual quota, in the hope that the national quota will not be fulfilled and hence no levy payable. The current model does not permit this, and it would have to be dealt with within the context of expected utility rather than profit maximization. Since 1993 the UK as a whole is treated as a single region for purposes of the aggregate milk quota, but this has no implications for the operation of the model considered here.

The effects of introducing a productivity enhancer is analyzed by changing parameters in the cost function. The basic mechanisms are illustrated in Figures 1 and 2. In Figure 1, the reduction in the marginal cost of production arising from adoption leads to a fall in the industry supply curve, from S1 to $2. The quota restrains production levels to QQ, and the price of quota increases from PI-MC1 to P1-MC2. The distribution of gains from adoption depends on the ownership of the quota: the aggregate benefit to the sector as a whole is increased, but a significant portion of that change is capitalized

P r i c e P1 .................... $ 2

M C 1

M C 2

QQ Q u a n t i t y

Fig. 1. Technical innovation with an output restriction.

96 M. BURTON

[ x[ SAB1 Price ~ l J~SAI I ~ o S B I ................

QA1 QA2 QB2 Qm QQ QuantlCy Quantity Quantity

Fig. 2. Distributional impacts of technical innovation.

into the value of the quota, and it is even possible for the surplus on production net of return on quota to fall, depending on the exact manner in which the supply curve shifts [13]. The distribution of gains among producers will also differ if there is a differential change in the costs of production. Figure 2 illustrates this, for the case of two producers. Producer A achieves much greater benefits as costs fall, and expands production at the expense of producer B, who contracts in the face of quota values that increase more than costs fall. Again, the exact distribution of benefits will vary depending on the ownership of the quota, but it is possible for some producers to decide to leave the industry as leasing quota is more profitable than producing the milk. It is also possible for some producers to suffer a net reduction in profit as a result of the industry adopting the new technology (e.g., a producer who is renting a substantial amount of quota prior to adoption, and who then achieves relatively little cost reduction using rBST but finds the costs of quota significantly increased).

Three technical points should be noted. If there are data on the changing input use from experimental work, then these can be used to identify the change in the costs. Again, this may lead to an accurate representation of the process under consideration, if the cost function is sufficiently detailed. Second, one is using the cost function in a slightly perverse manner. The usual reason for estimating a cost function is that it allows the economic relationships to be derived using duality theory, rather than using the function in the primal profit maximization formulation. Thus the cost function will yield condi- tional input demand equations by differentiation with respect to the input price [14]. Using this framework, the cost function can give no information about the supply response of the producer as the level of output is assumed to be exogenous. If used in the primal framework, however, the cost function is used to identify the optimal level of output: that is, output is endogenous. For this difficulty to be overcome, some form of two-stage procedure is needed, and the actual level of output should be replaced by an instrument. In the model outlined below, the obvious instrument is the quota level. There was relatively little trade in quota in the period under consideration, 1985/1986, 1 year after the imposi- tion of quotas, although it has subsequently been rising [15]. The current level of leased quota is some 7°70 of total production [16], and this excludes any permanent transfers associated with land transfer. Third, it is often assumed that the function estimated is the long-run cost function, and therefore results generated by the model refer to the long-run equilibrium for the sector. It is quite common for the cost curves to exhibit economies of scale up to relatively high levels of output per farm, and the logic of the

IMPACT OF rBST ON THE DAIRY SECTOR 97

model requires that these economies are exploited. This implies that at the long-run equil ibr ium posi t ion output per farm may be several times higher than the historical average, and i f there is a quota on output , that the number of producers must be commen- surately reduced. The model gives no indicat ion o f the time scale within which this adjust- ment is to take place, however.

Empirical Model The analysis is based on an average cost function, est imated using da ta for 348 dairy

farms, using Milk Market ing Board (MMB) milk costs survey da ta for 1985/1986 [17]. The cost funct ion differs f rom that used in other studies of this nature [13, 18], in that the output var iable used is the average herd size, with yield assumed to be exogenously determined, bu t included in the cost function as a farm-specific shift factor. A consequence o f this is that , for a given level of output , the cost function shifts as yield and cow numbers change. Thus, if yields are increased and cow numbers fall by the same percentage, the marginal cost of product ion falls. The advantage o f this specification is that the introduc- t ion o f rBST into the model can be t reated as any other yield enhancement, and be

accommoda ted by simply changing the level of milk yield achieved by each farm, with the implicit assumption that rBST affects the underlying costs in the same way as any other change in yields. The only addi t ional ad jus tment that has to be made is the cost o f the t reatment .

The est imated equat ion is repor ted below:

cpel = 0.2984 - 0.0038 * d u m l - 0.0001 * dum2 - 0.0129 * dum3 + 0.0172 * dum4 (14.35) (0.94) (0.01) (3.37) (4.13)

+0.0169 * dum5 + 0.1893 * cfp + 0.0388 * cidum + 0.1704 * duroc (4.17) (1.86) (5.01) (10.45)

- 0 . 0003 * ahs + 0.6932 * ahs 2 * 10 -6 - - 0.0510 * expmy * 10 -3 (7.21) (5.86) (10.10)

+0.0033 * exmpy 2 * 10 -6 + 0.0099*(my-expmy) * 10 -3 (7.27) (4.40)

S u m S q 0.1612 S t d E r r 0.0220 cpelMean 0.1449 R 2 0.7001 R E 0.6885 F(13,334) 59.986

Variable Definitions

cpel

dum#

cidum

dumc

cfp

ahs

expmy

my

Cost per expected liter.

Regional dummy, 1 = Wales, 2 = Northern and Nor th Eastern, 3 = Nor thWestern , 4 = East Midland, Eastern and South Eastern, 5 = Southern.

D u m m y variable = 1 for Channel Island breed, as defined below.

Dummy variable = 1 for 2 Nor th Western farms.

Price o f compound feed, ,~ / tonne

Average herd size, head

Expected milk yield = farm quo ta / ahs , liters.

Milk yield, liters.

98 M. BURTON

The cost per expected liter is defined as the costs of milk production divided by the quota level o f the farm. I f the costs are based on realized output then there may be some farms that incur costs but then suffer biological variation in output (due to adverse weather, disease, etc.), which cause the costs per liter to be inflated. The level o f quota seems an adequate proxy for the planned level of output. There may be some costs that can be adjusted in the face of unplanned variations, however, and a variable defined as the difference between the expected and actual milk yield is included to allow for this. It is highly significant, and of the expected sign. Regional dummies are included to allow for differing natural resources that may be available. To some extent, some farms are operating with different production technology, in that they are using Channel island breeds that produce lower output, of higher quality. These herds are not directly identifi- able in the data set, but a dummy variable has been constructed for the 10 herds that achieved a price for their milk of more than 18 pence per liter (p/l) (the average price in the sample is 15.6 pence). Finally, a dummy variable is included for 2 herds in the North West region, which had very high fixed costs, occurring as a result of excep- tional circumstances.

The MMB costings are for milk production only, although the farms do produce other crops, and therefore there is an opportunity cost in changing herd numbers due to the profit foregone on other land-using activities. Data on the individual farm level stocking rates are used with an assumed net profit for the competing activity, so that the generalised profit maximisation problem becomes:

Max Hi = P-MYi-AHSi - ft(o., PI, MYi, AHSi, Zi) 'MYi 'AHSi (8) - R" MYi'AHSi + Hoi" (TAi - AHSi" FHi)

where f~(--) is the estimated average cost per liter, TAi is the total farm area, FHi the forage hectares per cow, and Hoi the profit per hectare on the alternate land use. In the simulations that follow the latter is set at ~el00 per hectare for all farms, although it is relatively simple to change this, or even to introduce some geographical variation in the value. The model is solved for the market-clearing quota value (R) and the individual farm level o f herd size and hence milk output. Essentially, an initial value for milk quota is chosen, and then an iterative search undertaken, with changes in the value o f R depending on the value of aggregate excess demand for quota. The excess demand curve (and hence output level) of each of the 348 farms is identified. These are then aggregated, using raising factors, so that impacts can be identified by both region and herd size classification.

Given the shape of the underlying cost curves, the long-run equilibrium herd size is substantially higher than current herd sizes, with economies of scale existing up to a herd size of approximately 220 cows (Mukhtar and Dawson [18] obtain similar results). The time scale over which this adjustment will take place is unspecified, however, and therefore an ad hoc partial adjustment mechanism is introduced into the model, which ensures that only 20°70 of the adjustment in herd size occurs. Even with this constraint, there is a substantial change in the structure of the industry, with 4307o of producers leaving; a small (707o) reduction in herd numbers as the quota level of output is produced by fewer, higher-yielding cows, and the price of milk quota is simulated as 4.2 pence per liter (p/l). It is also possible to identify the changes in grass-land usage, utilizing the information on forage hectares per cow reported for each farm. The model is capable of identifying the regional and herd size changes that underlie these aggregate results. All regions lose producers, but the reduction is greatest in the East and South regions (55 and 63°70). There is also a redistribution in milk output away from these two regions and toward the others, with the South West increasing by some 2107o. The aggregate

IMPACT OF rBST ON THE DAIRY SECTOR

TABLE la Comparison of Base Solution 0B) and Actual (A) Distribution of Milk Production, England and Wales

99

Simulated Price of Quota (p/l): 4.2

Average Average milk Region Herd size Solution herd size output (1) Producers

Wales 0-50 A 28.9 133929.9 4188 B 0.0 0.0 0.0

50-100 A 70.4 329171.8 2049 B 76.6 396741.3 2603

100 + A 136.8 663927.7 645 B 135.4 691196.8 1264

North & N. East 0-50 A 31.5 139211.3 3111 B 0.0 0.0 0.0

50-100 A 70.0 343458.7 2377 B 84.4 415236.4 1727

100+ A 137.1 769561.1 951 B 136.4 756308.2 2173

N. West 0-50 A 32.6 158517.0 2917 B 0.0 0.0 0.0

50-100 A 67.5 349171.5 2779 B 77.8 412420.8 1975

100+ A 145.2 787468.6 1489 B 137.8 785131.2 2291

East 0-50 A 32.8 119541.3 1 643 B 0.0 0.0 0.0

50-100 A 71.9 395287.7 1877 B 72.3 383160.9 907

100 + A 157.8 844739.4 1055 B 148.8 887157.7 1139

South 0-50 A 32.3 142361.9 1336 B 0.0 0.0 0.0

50-100 A 72.6 363953.5 2203 B 94.5 550352.2 595

100 + A 170.2 916330.3 1333 B 159.4 934050.4 1194

S. West 0-50 A 31.5 132096.7 3447 B 0.0 0.0 0.0

50-100 A 73.9 373138.9 3436 B 80.0 380851.5 2827

100+ A 158.4 832304.0 1486 B 141.4 774030.4 3266

r e d u c t i o n in cow n u m b e r s a lso m a s k s r eg iona l di f ferences , w i th the E a s t a n d S o u t h fa l l ing

b y 26°70 a n d 35070, w h e r e a s t he S o u t h Wes t , Wales , a n d t he N o r t h & N o r t h E a s t reg ions

ga in ( 2 1 % , 15°70 a n d 1907o, respect ively) . T h e r e is a lso a s igni f icant c h a n g e in the size

d i s t r i b u t i o n o f t he h e r d s , wi th n o p r o d u c e r s o p e r a t i n g wi th less t h a n 50 cows in any

reg ion . N o t all o f these p r o d u c e r s h a v e lef t t he i ndus t ry : s o m e h a v e e x p a n d e d u p to

h i g h e r h e r d levels. T h e resu l t s f r o m th i s s i m u l a t i o n a re r e p o r t e d in T a b l e 1 a, c o m p a r i n g

t h e ac tua l d i s t r i b u t i o n o f p r o d u c t i o n ac ross r eg ions (A) a n d f a r m sizes w i th t he s i m u l a t e d

va lues (B), a s s u m i n g n o new t e c h n o l o g y . T a b l e l b r epo r t s t h e r eg iona l c h a n g e s in cow

n u m b e r s , m i l k o u t p u t a n d p r o d u c e r s , b y b o t h p e r c e n t a g e a n d a b s o l u t e f igures.

W h e n r B S T is i n t r o d u c e d , the in i t ia l a s s u m p t i o n is t h a t t he cos t is a~30 pe r cow, a n d t h a t it i nduces a 15°70 inc rease in yields. T h e c h a n g e s in t he f a r m level m a r g i n a l cos t

cu rves t h a t th i s i nduces resu l t s in f u r t h e r c o n c e n t r a t i o n o f the i ndus t ry , a n d a n inc rease

1 ~ M . B U R T O N

T A B L E l b

Regional Changes in the Distribution of Milk Production, England and Wales

Cows: Milk output :

Region 000 head m liters P roducer s

Wales 17.34 243.28 - 3014

07o change 4.91 14.62 - 4 3 . 8 0

N o r t h & N. Eas t 47.40 378.70 - 2540

070 change 12.01 19.11 - 39.44

N. West - 29.28 7.66 - 2920 070 change - 5.87 0.29 - 40.63

East - 120.44 - 471.91 - 2529 070 change - 33.88 - 2 5 . 7 8 - 55.27

South - 183.50 - 771.27 - 3084

070 change - 42.67 - 34.83 - 63.29 S. West 90.16 630.45 - 2 2 7 6

% change 15.08 21.19 - 27.20 Tota l - 178.31 16.91 - 16365

070 change - 6.78 0.13 - 42.70

i n t h e v a l u e o f m i l k q u o t a t o 5 . 2 p / 1 . T a b l e 2 b e l o w a l l o w s c o m p a r i s o n b e t w e e n t h e b a s e

s i m u l a t i o n , a n d t h e r e s u l t s g e n e r a t e d w h e n r B S T is i n t r o d u c e d k T h u s t h e c h a n g e s r e p o r t e d

a r e a d d i t i o n a l c h a n g e s , a t t r i b u t a b l e t o a d o p t i o n o f r B S T . T a b l e s 3 t o 5 r e p o r t t h e r e s u l t s

o f v a r y i n g t h e a s s u m p t i o n s a b o u t c o s t o f t r e a t m e n t a n d y i e l d e f f e c t . T h e m o d e l o p e r a t e s

s o t h a t t h e d e c i s i o n t o a d o p t r B S T is e n d o g e n o u s : o n l y i f i t i n c r e a s e s f a r m l e v e l p r o f i t a b i l i t y

w i l l i t b e a d o p t e d . I f i t is a d o p t e d b y a f a r m , t h e n a l l o f t h e c o w s w i l l b e t r e a t e d : t h e r e

i s n o p o s s i b i l i t y f o r p a r t i a l a d o p t i o n a c r o s s c o w s , n o r a c r o s s t h e y e a r . T h e r o l e o f r B S T

a s q u o t a m a n a g e m e n t t o o l i s t h e r e f o r e e x c l u d e d . T a b l e 6 r e p o r t s t h e p e r c e n t a g e a n d

n u m b e r o f c o w s t h a t a r e t r e a t e d w i t h r B S T u n d e r t h e f o u r a l t e r n a t i v e y i e l d / c o s t s c e n a r i o s .

i The effects classified by herd size are available f r o m the au thor .

T A B L E 2 Regional Changes due to rBST Introduction: 15% Yield Effect, £30 Cost

Price of q u o t a before in t roduc t ion (p/l): 4.2

Price o f q u o t a af ter in t roduc t ion (p/I): 5.2

Cows: Milk ou tpu t :

Region 000 head m liters Producers

Wales - 26.08 136.93 - 249

°70 change - 7.04 7.18 - 6.45

Nor th & N. East - 53.58 73.47 - 441

07o change - 12.12 3.11 - 11.32

N. West - 81.89 - 121.91 - 693 07o change - 17.44 - 4 . 6 6 - 16.26

East - 69.65 - 214.25 - 794 07o change - 29.63 - 15.77 - 38.81

South - 71.38 - 303.79 - 444

070 change - 28.95 - 21.05 - 24.82

S. West - 37.93 343.59 - 2 5 5

070 change - 5.51 9.53 - 4.20 Total - 340.51 - 85.98 - 2879

070 change - 13.89 - 0 . 7 0 - 13.11

IMPACT OF rBST ON THE DAIRY SECTOR

TABLE 3 Regional Changes due to rBST Introduction: 15% Yield Effect, £50 Cost

101

Price of quota before introduction (p/l): 4.2 Price of quota after introduction (p/l): 4.9

Cows: Milk output: Region 000 head m liters Producers

Wales - 26.55 134.54 - 249 % change - 7.16 7.06 - 6.45

North & N. East -61.59 35.54 -566 % change - 13.93 1.51 - 14.53

N. West - 88.94 - 160.69 - 799 o70 change - 18.94 -6.15 - 18.28

East - 69.04 - 209.70 - 794 % change -29.37 - 15.44 - 38.81

South - 63.08 - 258.09 - 379 % change -25.58 - 17.89 -21.20

S. West - 39.09 337.92 - 255 % change -5.68 9.37 -4.20

Total - 348.29 - 120.48 - 3025 % change - 14.20 -0.98 - 13.78

D i s c u s s i o n

The assumption that the yield effect is 15070 with a cost o f £ 3 0 results in an increase

in quota value, to 5.2 p / l , and a significant redistribution o f milk production, with falls o f 1607o and 21 070 in the East and South. Cow numbers fall in all regions as yields increase, but those regions that gain milk output fall by the least. Similarly with producers, there are falls in all regions, but these are concentrated in the East and South, with reductions

o f 39070 and 25070, respectively. There is relatively little change in the herd-size structure,

at both regional and national level. Increasing the cost of t reatment to ,~50 has almost

identical impacts on the distribution o f milk production, presumably because this cost is the same for all farmers. Profitability will be reduced, however, and this is reflected in the lower price for quota that is generated (4.9 p/l) .

Table 4 reports the impact o f a 5070 yield response and a £30 cost. At this level o f impact, the economic implications o f the technology are becoming marginal, although

there is still a significant uptake (31% of cows are treated; see Table 6). The milk quota price is bid up by a very small amount (to 4.232 p/ l ) and only the South and Wales

reduce milk product ion, with relatively small reductions in the number of producers in each region, with the others static. If the cost o f t reatment falls to ,~20 per cow then all regions again loose producers, with an overall fall o f 5070, and small shifts o f production to the South and North West f rom the other regions (Table 5).

Table 6 indicates that under most circumstances, adoption is close to 100070 of cows. Only for a 5070 yield effect and ,~30 cost does the level o f adopt ion fall below 98070. Those who do adopt are concentrated in the South West and North and North East, and within the larger farm-size groups. The exact cause o f this distribution appears to be a complex

interaction between regional differences in costs, and herd size. I f costs are increased to ~50 per cow and the yield response is 5070, then no adoption occurs at all.

C o n c l u s i o n s

The model presented here allows for a relatively simple method of examining, ex ante, the impact o f rBST adoption. The introduction of yield and herd size into the cost function as separate variables, and the assumption that yields are set exogenously by

102 M . B U R T O N

T A B L E 4 Regional Changes due to rBST Introduction: 15% Yield Effect, £30 Cost

Price o f q u o t a before in t roduc t ion (p/l): 4.2

Pr ice o f q u o t a a f te r in t roduct ion (p/l) : 4.2

Cows: Milk ou tpu t :

Region 000 head m liters P roducer s £

Wales - 18.77 - 64.01 - 249

070 change - 5.06 - 3.36 - 6.45

N o r t h & N. East - 2 . 3 9 38.15 0

070 change - 0.54 1.62 0.00 N. West - 1.96 12.12 0

°7o change - 0 . 4 2 0.46 0.00

East - 1.01 - 2.72 0 070 change - 0.43 - 0.20 0.00

South - 14.20 - 87.81 - 64

% change - 5.76 - 6.09 - 3.62

S. West - 3.31 83.86 0

070 change - 0.48 2.33 0.00

Total - 41.62 - 20.42 - 314

070 change - 1.70 - 0 . 1 7 - 1.43

t e c h n o l o g i c a l f a c t o r s , g i v e s a n i n t u i t i v e m e c h a n i s m f o r i d e n t i f y i n g t h e i m p a c t o f r B S T

o n t h e c o s t f u n c t i o n . I t a l s o p r o v i d e s a m e c h a n i s m t o q u a n t i f y t h e e f f e c t s o f t h e d i r e c t c o s t

o f t r e a t m e n t o n a d o p t i o n f o r a n y g i v e n y i e l d r e s p o n s e r a t e . T h e r e s u l t s o f t h e s i m u l a t i o n

u n d e r t a k e n i n d i c a t e t h a t r B S T w i l l t e n d t o r e i n f o r c e t h e r e g i o n a l c h a n g e s i n m i l k o u t p u t

a n d p r o d u c e r n u m b e r s t h a t h a v e b e e n o c c u r r i n g , a n d t h a t a r e d r i v e n b y t h e f u n d a m e n t a l

c o s t s t r u c t u r e o f t h e i n d u s t r y . H o w e v e r , e v e n i n t h e c a s e o f h i g h e s t - y i e l d / l o w e s t - c o s t

c o n s i d e r e d h e r e , t h e m a g n i t u d e o f t h o s e e f f e c t s o n p r o d u c e r n u m b e r s a r e s i g n i f i c a n t l y

l e s s t h a n t h e u n d e r l y i n g c h a n g e s . I f t h e r e is a g e n u i n e c o n c e r n t o m a i n t a i n a p a r t i c u l a r

s t r u c t u r e i n t h e d a i r y i n d u s t r y o n e n e e d s t o d o m o r e t h a n r e s t r i c t o n e p a r t i c u l a r f o r m

o f t e c h n o l o g i c a l c h a n g e .

T A B L E 5 Regional Changes due to rBST Introduction: 5070 Yield Effect, £20 Cost

Price o f quo ta before in t roduc t ion (p/l): 4.2 Price o f q u o t a a f te r in t roduc t ion (p/l): 4.4

" Cows: Milk ou tpu t :

Region 000 head m liters P roducer s

Wales - 19.89 - 6.88 - 249

07o change - 5 . 3 6 - 0 . 3 6 - 6 . 4 5 N o r t h & N. East - 37.76 - 60.88 - 364

070 change - 8.54 - 2.58 - 9.35 N. West - 19.89 24.23 - 154

% change - 4.24 0.93 - 3.62 East - 14.25 - 15.77 - 9 4

070 change - 6 . 0 6 - 1.16 - 4 . 6 2

South - 15.72 - 40.33 - 64 070 change - 6.38 - 2.80 - 3.62

S. West - 2 1 . 9 3 83.95 - 178

070 change - 3.19 2.33 - 2.92

Tota l - 129,44 - 15.68 - 1105 % change - 5.28 - 0.13 - 5.03

I M P A C T O F rBST O N T H E D A I R Y S E C T O R

TABLE 6 Percentage and Number of Cows Treated with rBST under Alternative Scenarios

103

Yield (cost)

Region Herd size 15070 (£30) 15070 (£50) 5070 (£30) 5070 (£20)

Wales 0-50 070 . . . . 1 0 0 0 . . . .

50-100 07o 100.0 100.0 18.9 100.0

'000 187.1 186.8 34.3 180.5 100 + 07o 100.0 100.0 39.8 100.0

'000 157.5 157.3 67.9 170.0 North & N. East 0-50 °70 . . . .

'000 . . . . 50-100 07o 100.0 100.0 7.3 100.0

'000 116.3 108.3 10.6 119.0 I00+ 070 I00.0 I00.0 55.6 I00.0

'000 272.3 272.3 164.0 285.4

N. West 0-50 070 . . . .

'000 . . . .

50-100 070 I00.0 I00.0 0.0 I00.0

'000 135.6 128.3 0.0 144.1

100+ % 100.0 100.0 24.9 100.0

'000 252.2 252.3 78.3 305.6

East 0-50 070 . . . . '000 . . . .

50-100 070 83.2 82.7 0.0 87.5 '000 33.6 33.7 0.0 51.3

100+ 070 91.3 91.2 4.9 93.1 '000 114.1 114.3 8.3 151.0

South 0-50 070 . . . . '000 . . . .

50-100 070 100.0 81.9 0.0 100.0

'000 46.0 37.9 0.0 55.5 I00+ 07o 100.0 91.2 12.8 95.0

'000 129.1 114.3 22.5 166.5 S. West 0-50 070 . . . .

'000 . . . . 50-100 070 I00.0 I00.0 5.6 I00.0

'000 203.8 202.8 12.6 206.4

100+ 070 I00,0 I00.0 75.9 100.0

'000 446.3 446.2 349.1 459.8 Total 070 99.2 98.7 31.0 98.8

'000 2094.0 2077.4 747.5 2295.4

R e f e r e n c e s 1. Commission of the European Communit ies , COM(93) 605 final. Office for Official Publications of the

European Communit ies, Luxembourg, 1993.

2. Bent, M., Introduction, in Livestock Productivity Enhancers: an Economic Assessment. M. Bent, ed., CAB

Internat ional , Wall insford, 1993.

3. Bent• M.• The Eur•pean Appr•val Pr•c•dur•s f•r Liv•st•ck Prnductivity Enhancers• in Livest•ck Pr•ductiv-

ity Enhancers: An Economic Assessment. M. Bent, ed., CAB International , Wallingford, 1993.

4. ECOSOC Opinion on bST 15/10/89 - Official Journal o f the European Community, O.J. C56, 25 (1990).

5. Resolution on the Effects of the Use of Biotechnology on the European Farming Industry 16/2/87 - Official

Journal o f the European Community, O.J. C76, 22 (1987).

6. Commission of the European Communit ies, Report Concerning Bovine Somatotropin (B.S.T.) COM(89)

379 final. Office for Official Publicat ions of the European Communit ies , Luxembourg, 1993.

1 ~ M. BURTON

7. Biggs, H., Measuring Consumer Attitudes, in Livestock Productivity Enhancers: An Economic Analysis. M. Bent, ed., CAB International, Oxford, 1993.

8. Smith, B. J., and Warland, R. H., Consumer Responses to Milk from bST-Supplemented Cows, in Bovine Somatotropin andEmerginglssues:AnAssessment. M. C. Hailberg, ed., Westview Press, Boulder, CO, 1992.

9. Butler, L. J., Economic Evaluation of BST for Onfarm Use, in Bovine Somatotropin and Emerging Issues: An Assessment. M. C. Hallberg, ed., Westview Press, Boulder, CO, 1992.

10. Bent, M., Farm Enterprise Budgets and Partial Equilibrium Models, in Livestock Productivity Enhancers: An Economic Analysis. M. Bent, ed., CAB International, Oxford, 1993.

e:* 11. Buckwell, A. , Assessing Economic Impact -- the Optimization Approach, in Livestock Productivity En- hancers: An Economic Analysis. M. Bent, ed., CAB International, Oxford, 1993.

12. Burton, M. P., The Use of Econometric Models in the Evaluation of Livestock Productivity Enhancers, in Livestock Productivity Enhancers: An Economic Assessment, M. Bent, ed., CAB International, Wall- ingford, 1993.

13. Oxley, G., Fox, G. and Moschini, G., An Analysis of the Structural and Welfare Effects of bST on the Ontario Dairy Industry, Canadian Journal of Agricultural Economics 37, 393--406 (1989).

14. Chambers, R. G., Applied Production Analysis, Cambridge University Press, Cambridge, 1988. 15. MMB, Milk Quotas, the First 3 years, Milk Marketing Board, Thames Ditton, Surrey. 16. MMB, Dairy Facts and Figures 1993, Milk Marketing Board, Thames Ditton, Surrey, 1994. 17. MMB, 1985/6 Milk Costs Enquiry, Milk Marketing Board, Thames Ditton, Surrey. 18. Mukhtar, S. M. and Dawson, P. J., Herd size and Unit Costs of Production in the England and Wales

Dairy Sector, Journal o f Agricultural Economics, 41(1) 9-20 (1990).

Received 24 January 1995