Effects of production and marketing circumstances on economic values for beef production traits

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1 Effects of production and marketing circumstances on economic values for beef production traits K. R. Koots and J. P. Gibson Centre for Genetic Improvement of Livestock, Department of Animal and Poultry Science, University of Guelph, Guelph, Ontario, Canada N1G 2W1. Received 11 March 1997, accepted 20 September Koots, K. R. and Gibson, J. P Effects of production and marketing circumstances on economic values for beef production traits. Can. J. Anim. Sci. 78: The effect of altering production and marketing circumstances on economic values is quantified for a complete beef production system. Absolute and relative economic values were found to vary substantially with large, but realistic fluctuations in prices and costs. In addition, several examples of different management and different genotypes gave markedly different economic values than in the base situation. Also investigated were the effects of rescaling the enterprise to accommodate three alternative limitations; fixed feed available from pasture, fixed dollars available for feed or fixed amount of beef produced. The effects of rescaling were highly dependent on whether or not fixed costs were accounted for. When fixed costs were ignored (corresponding to a small positive profit) the economic value for mature size decreased while that for fertility increased, but other traits were largely unaffected by rescaling. Overall, production circumstances that reduced survival and fertility yielded the largest changes to economic values. Key words: Economic values, beef cattle, rescaling Koots, K. R. et Gibson, J. P Effets des circonstances régissant la conduite de la production et de la mise en marché sur les valeurs économiques des caractères de production de bovins de boucherie. Can. J. Anim. Sci. 78: Les auteurs chiffrent les effets des modifications affectant les conditions de conduite de la production et de la mise en marché sur les valeurs économiques dans le cadre d un système intégré de production de bovins de boucherie. Les valeurs économiques absolues et relatives variaient considérablement en réponse à des fluctuations larges, mais tout de même réalistes, des prix et des coûts de production. En outre, dans plusieurs exemples le choix du système de conduite et du génotype des animaux utilisés produisait des valeurs économiques sensiblement différentes de celles obtenues pour le modèle de base. Nous avons également examiné les effets de la restructuration de l atelier de production en fonction de trois circonstances : disponibilités fixes de fourrages tirés du pâturage, montant fixe d argent disponible pour l achat d aliments du bétail ou quantité fixe de boeuf produite. Les effets de la restructuration différaient fortement selon qu on tenait ou qu on ne tenait pas compte des coûts de production fixes. Dans la seconde hypothèse (correspondant à une situation légèrement benéficiaire), la valeur économique du poids à l âge adulte diminuait, tandis que celle attribuée à la fécondité augmentait. Quant aux autres caractères, ils étaient essentiellement peu sensibles à la restructuration. Dans l ensemble, ce sont les conditions de production susceptibles de réduire le taux de survie des veaux et la fécondité des mères qui produisaient les modifications les plus fortes des valeurs économiques. Vandepitte and Hazel (1977) and Smith (1983) have studied the effect of changes in economic values on predicted response to selection indices in simple theoretical examples, and concluded that responses were generally robust to errors in economic values. The range of economic values obtained for practical examples of production and marketing circumstances has not been determined for beef production systems. Economic values have previously been reported for beef production systems (Simm et al. 1986; Bourdon and Brinks 1987; Ponzoni and Newman 1989; Newman et al. 1992; Kolstad 1993; Amer et al. 1994b; MacNeil et al. 1994), but few results are directly comparable. The marketing and production systems and the assumptions employed all vary between studies. It is important to determine the sensitivity of economic values to changes in marketing and production circumstances, in part to understand limitations of any recommendations made and to determine if customised indices (Upton et al. 1988) are required to match production and economic environments of individual herds. Most descriptions of profit ignore economic constraints that occur when some inputs or market demands are likely Mots clés: Valeurs économiques, bovin de boucherie, restructuration 47 to be fixed. Such situations can be dealt with by rescaling the production system to meet the primary constraint, as proposed by Smith et al. (1986). This approach has not been investigated in a practical example of a beef production system. Output limitations have been studied in practical dairy examples (Gibson 1989) but it is not clear what effect rescaling would have in beef production where the limitations are more likely to be on inputs. The objectives of this study were: 1) to quantify the sensitivity of economic values to changes in production and marketing circumstances, and 2) to investigate the effect on economic values of rescaling the operation, using the bioeconomic model of an integrated beef production system developed in Koots and Gibson (1998). MATERIALS AND METHODS Bioeconomic Model Details of the bioeconomic model were presented in Koots and Gibson (1998). Briefly, the model describes an integrated beef production herd managed so that there are 50 pregnant

2 48 CANADIAN JOURNAL OF ANIMAL SCIENCE cows each fall with all progeny not required as replacements raised to slaughter, under intensive conditions typical of eastern Canada and many European countries. There are 16 traits with several traits expressed as residuals after accounting for functional relationships with mature size. Sensitivity Analysis Sensitivity of economic values to changes in marketing and production circumstances was investigated by re-estimating economic values for a number of different conditions. MARKETING. Individual costs (feed, as well as husbandry and marketing) and returns (beef price and carcass penalties) were altered by 50% from base values described in Koots and Gibson (1998). A 50% change in beef and feed prices was chosen to represent a wide range of changes in prices of production inputs and outputs, including changes in the beef:feed price ratio. The beef-to-feed price ratio has ranged from 9.1 to 16.7 in Ontario (McMorris et al. 1986). Alternatively, a 50% increase in feed price could reflect a 50% error in National Research Council (1984) equations for ME requirements. Similarly, increases in non-feed variable costs could reflect changes in other costs associated with level of production, such as opportunity costs. An increase of 50% in beef price could similarly be assumed to relate to a variety of changes in the marketing segment of the system. In North America, consumer demand for beef has declined steadily since the mid-1970s (e.g., Taylor 1994). A trend toward smaller portions (Taylor 1994) might result in future payment schemes that have greater penalties for oversized carcasses. Carcass weight penalties were doubled in the base model to determine the effect of such a payment scheme on breeding objectives. Future marketing systems in Canada may pay for some measure of carcass quality. In the United States for example, the amount of marbling affects the price received for a given carcass. To investigate the impact this might have on breeding objectives, a marketing scheme similar to those in the United States was assumed, and under-marbled carcasses were assessed a penalty using a threshold model, similar to that described for over- and under-weight carcasses (Koots and Gibson 1998). Eighty percent of Canada grade A1 carcasses would not have the minimum level of marbling required for Choice grade in the United States (Black and Pickering 1992), and so this proportion of carcasses received a penalty of $0.143 kg 1 carcass (Taylor 1994). Another possible future marketing system might be one that only pays for the lean portion of the carcass (fat and bone are assumed to have no value). Therefore, the trait lean meat yield (Koots and Gibson 1998) was used in a payment scheme for lean meat, with zero value for fat or bone, which was applied to the base situation. A third possible future marketing system applied penalties for under-marbled beef with payment on a lean meat basis. MANAGEMENT. Amer et al. (1994b) argued that the optimum endpoints are not constant across genotypes. Using neoclassical production economics theory, the profit maximizing level of backfat thickness at slaughter depended on breed and sex and ranged between 5.9 mm to 11.8 mm for common beef cattle breeds in Canada. The sensitivity of economic values to such changes in endpoints was investigated in the current model by simulating slaughter at different proportions of mature weight. In the base, animals were assumed to be slaughtered at 7 mm backfat thickness, which was assumed to occur at 0.78 mature weight (Koots and Gibson 1998). To approximate the relationship between backfat thickness and maturity, the results of Gregory et al. (1994) from serially slaughtered steers at the US Meat Animal Research Center were used. The following regression, obtained from the least squares means of backfat thickness over time (Gregory et al. 1994) and fat percentage in the whole rib in the same animals, had a coefficient of determination over 0.99: Back fat thickness = (fat percentage in rib). Animals slaughtered at 0.68 and 0.88 maturity were assumed to have a carcass fat composition of 22 and 30%, respectively (Fox et al. 1988; Preston 1991), compared with 26% in the base. Therefore, feeding animals to slaughter end points of 0.68 and 0.88 mature size would correspond to approximate backfat thicknesses of 5 mm and 11 mm, respectively. The effect of feed quality on breeding objectives was investigated by modelling a production system where the diet given to feedlot animals was similar to that fed to cows over the winter (2.06 Mcal ME kg 1 of DM at $ Mcal 1 of ME versus 2.75 Mcal ME kg 1 of DM at $ Mcal 1 of ME in the base situation). The sensitivity of breeding objectives to a different culling strategy was tested by increasing culling by an additional 10% over and above the policy in the base situation, which was driven by fertility (Koots and Gibson 1998). GENOTYPES. The effect of the mean of traits on breeding objectives was investigated by changing the means of some traits. Relative to the base, mature size was increased 20%, peak milk yield was increased 50%, calving ease, fertility, calf survival and cow survival were each decreased 20% and dressing percent was increased 5%. These changes were chosen to represent large but realistic fluctuations in trait means, well within the range of values generally observed for beef cattle breeds commonly found in Canada. In practice alternative genotypes (e.g., breeds) would differ in many characteristics simultaneously. Therefore, the four traits, mature size, fertility, milk yield and dressing percentage, were altered in various combinations to represent six hypothetical breed types. Although economic values should theoretically be defined at optimum management for each genotype (Dekkers 1991), consideration of all possible combinations of management and genotype was beyond the scope of the current study. Therefore, comparisons of alternative genotypes are made by holding management practices constant at the base situation. The sensitivity of economic values is studied for situations where input or output limitations do not apply. The effect of such limitations is considered separately.

3 KOOTS AND GIBSON SENSITIVITY OF ECONOMIC VALUES 49 Table 1. Effect of changes to input costs and output prices on economic values ($ per genetic standard deviation) expressed relative to the economic value for calf survival 50% increase Double carcass Trait Base Beef price Feed price NFVC z penalties Mature size Calving ease, cows - d y Calving ease, cows - m y Calving ease, heifers - d Calving ease, heifers - m Fertility Calf survival Cow survival Peak milk yield Residual gain Residual intake, growing Residual intake, mature Residual slaughter wt Dressing percentage Calf survival x z Non-feed variable costs, includes husbandry (veterinary, straw, miscellaneous) and marketing costs. y d, direct; m, maternal. x Absolute economic value ($ per genetic standard deviation). Effect of Rescaling Smith et al. (1986) argued that estimates of economic values that allow unconstrained increase in outputs (or inputs) are incorrect because increased outputs (or inputs) could be achieved by non-genetic means, such as increasing the size of the enterprise. Economic values should be estimated as the difference in profit due to genetic improvement and that due to increasing the size of the enterprise. An equivalent approach, in terms of relative economic values obtained, is to rescale the enterprise so that total output (or input) remains constant. This is the approach used in the present study. When considering various input or output limitations, the herd size (number of pregnant females at pregnancy checking) is scaled back so that no additional output (or inputs) are produced (or required). For example, when estimating the economic value of mature size, the profit of the enterprise is first calculated for the base situation. Then mature size is increased 0.05 phenotypic standard deviation (or 5.9 kg) and the profit of the enterprise is recalculated. With no rescaling, the difference in profit is the economic value of mature size. However, increasing mature size has also affected the total amount of pasture consumed, the total amount of feed consumed and the total amount of beef sold. For each of these possible limitations, the herd size is reduced so that the total output (or input) does not exceed the amount in the base situation. Rescaling to fixed amount of pasture, for example, requires reducing the herd size from 50.0 to 49.81, so that the total amount of pasture consumed does not exceed that in the base ( Mcal). In the present study, three separate constraints were considered, and these relate to both input and output limitations: 1) Fixed amount of pasture available. The land available for pasture is often considered fixed, at least in the short term. 2) Fixed total amount of feed input in dollars. The amount of feed that could be purchased was considered limited, reflecting a realistic constraint in terms of cash flow. 3) Fixed total amount of beef produced. Such a limitation would arise if the market for beef was saturated or if production quotas applied. RESULTS For the various production and marketing situations simulated, only the results from a purebreeding system are presented and discussed in the main text. Results obtained for specialized sire and dam lines were similar to those for pure lines and are given in Koots (1994). Estimates of economic values are expressed in dollars per genetic standard deviation and for ease of comparison of the different scenarios, are standardized to 1 for calf survival. Table 2. Economic values ($ per genetic standard deviation) expressed relative to calf survival for payment schemes that reflect carcass quality Payment scheme Trait Base Marbling Lean only Both Mature size Calving ease, cows - d z Calving ease, cows - m z Calving ease, heifers - d Calving ease, heifers - m Fertility Calf survival Cow survival Peak milk yield Residual gain Residual intake, growing Residual intake, mature Residual slaughter wt Dressing percentage Marbling Lean meat yield Calf survival y z d, direct; m, maternal. y Absolute economic value ($ per genetic standard deviation).

4 50 CANADIAN JOURNAL OF ANIMAL SCIENCE Table 3. Economic values ($ per genetic standard deviation) expressed relative to calf survival for four different management systems Slaughter end point Low 10% energy additional Trait Base 5 mm 11 mm 11 mm z 11 mm y diet x culling Mature size Calving ease, cows - d w Calving ease, cows - m w Calving ease, heifers - d Calving ease, heifers - m Fertility Calf survival Cow survival Peak milk yield Residual gain Residual intake, growing Residual intake, mature Residual slaughter wt Dressing percentage Marbling Lean meat yield Calf survival v z Penalties for under-marbled carcasses. Payment for lean only. x Lower energy diet in feedlot (2.06 Mcal ME) compared with base (2.75 Mcal ME). w d, direct; m, maternal. v Absolute economic value ($ per genetic standard deviation). Table 4. Effect of changes in the means of some genetic input factors on economic values ($ per genetic standard deviation) expressed relative to calf survival Larger Higher Lower Lower Lower Lower Higher mature peak calving cow calf cow dressing Input size milk ease fertility survival survival percent trait Base (20%) (50%) (20%) (20%) (20%) (20%) (5%) Mature size Calv. ease c, d z Calv. ease c, m Calv. ease h, d Calv. ease h, m Fertility Calf survival Cow survival Peak milk Residual gain Resid. int., growing Resid. int., mature Residual sl. wt Dressing percentage Calf survival y z c, cow; h, heifer; d, direct; m, maternal. y Absolute economic value ($ per genetic standard deviation). Sensitivity Analysis The sensitivity of economic values to changes in production and marketing circumstances are presented in Tables 1 to 4. In each case comparison is made to the base situation described in Koots and Gibson (1998). It is worth noting that the model is constructed such that slaughter is at a constant (optimum) backfat and so variation in back fat deposition rates is reflected in variation in residual slaughter weight. MARKETING. In Table 1 economic values are presented for the base and for situations with increased beef prices, increased feed costs, increased non-feed costs, and increased carcass penalties. An increase in beef price had a marked effect on the economic value for mature size, fertility and the residual feed intake traits (Table 1). The economic value for mature size increased and that for fertility decreased, suggesting that the costs associated with maintaining a cow herd become relatively less important when returns are increased by 50%. The residual feed intake traits also become less important in this situation. Increasing the costs of feed by 50%, which represents an extreme change in feed price, also had a large effect on the economic values. These were generally the opposite of those obtained from increasing beef price (Table 1). The residual feed intake traits become the most economically important

5 KOOTS AND GIBSON SENSITIVITY OF ECONOMIC VALUES 51 traits, while fertility and mature size also increased in importance, but in the opposite direction to that observed for increases in beef price. Overall, economic values were more sensitive to changes in feed price than to changes in beef price. With the exception of mature weight, an increase in beef prices generally resulted in a decrease in economic values relative to calf survival, whereas an increase in feed costs resulted in increased economic values relative to calf survival. Groen (1989) found a similar result with increases in product prices and production costs in dairy cattle. The effects of a 50% increase in non-feed variable costs on economic values are similar in direction to those observed for increased feed costs but were much smaller in magnitude (Table 1). This is expected because feed costs make up a larger portion of the total costs than do all other variable costs. In the feedlot segment, for example, feed cost, non-feed variable costs and fixed costs make up 59%, 14% and 27% of the total cost, respectively. In general, economic values were not much affected by increased carcass weight penalties. This is due to the size of animals modelled in the base, for most carcasses were not penalized. Heifers were slightly penalized for being undersized, and this is reflected in the slightly increased economic value for mature weight when penalties were doubled. In practice, average carcass size would be larger than assumed in the base purebreeding situation, because a large number of marketed animals are sired by larger terminal sire breeds and would therefore be heavier at the same level of carcass fat. The effect of a twofold increase in carcass penalties, therefore, is expected to have a larger impact than obtained for the base genotype. Including a penalty for insufficient marbling did not affect most economic values for the non-marbling traits (Table 2). Only mature weight had a slightly lower economic value compared with the base. This is likely due to the system being less profitable overall, because 80% of carcasses were penalized for insufficient marbling. The economic value for marbling was of intermediate importance ($5.74 σ g 1 ) compared with the other 14 traits. Economic values with payment for lean meat are reported in Table 2. The economic value for most traits were similar to the base, however the value of fertility increased slightly and the value of lean yield becomes the most important trait ($22.61 σ g 1 ). This result is not unexpected because increased lean yield results in more saleable product at no additional cost in the model. The economic values with penalties for under-marbled beef when payment is for lean meat are similar to those obtained with payment for lean and no marbling penalties (Table 2), except the economic value for mature weight is somewhat reduced. ALTERNATE MANAGEMENT SCENARIOS. Economic values estimated for production systems where animals were slaughtered at different endpoints are given in Table 3. Economic values for different end points were quite similar. However, the value of mature weight increased slightly with the earlier endpoint (5 mm) and decreased with a later end point (11 mm), relative to the base (7 mm). Hence, the marginal return for an animal decreases as it matures. Economic values for the residual feed intake traits exhibited similar changes in magnitude, but in the opposite direction to those observed for mature weight. The introduction of penalties for under marbled carcasses might encourage beef finishers to take carcasses to a higher fat finish. Therefore, the effects of payment schemes at the high fat endpoint (11 mm) was explored. As shown in Table 3, introducing either a marbling payment system or a leanonly payment system on carcases taken to a high fat endpoint did not impact the economic values of most traits. The most notable change was in the economic value for mature size, which became more negative under both the marbling and lean-only payment schemes. The economic value of the traits marbling and lean meat yield were slightly higher at the high fat endpoint (Table 3) compared with the base (Table 2) under the marbling and lean-only payment scheme, respectively. The feeding of a low energy diet resulted in feeding animals for much longer periods of time, which resulted in negative profit, and had a marked effect on economic values (Table 3). Traits directly related to growth and feed intake become very important, whereas those related to reproduction and survival become less so. The reduced absolute economic value of calf survival ($10.41 σ g 1 versus $17.53 σ g 1 in base) resulted in most other traits increasing markedly in relative value (Table 3). The reduced importance of fertility and calf survival under this negative profit situation suggests that less animals should be produced (in order to lose less money). That is, the model is indicating to the producer to get out of beef production, which is consistent with what one would expect in a situation where variable costs are not covered by returns. Increased culling rate resulted in a younger average cow age (3.79 yr versus 4.65 yr in the base), but had little effect on economic values (Table 3). ALTERNATIVE GENOTYPES. In general, the economic value of the input trait being altered usually changed considerably, while economic values of the remaining traits changed relatively little (Table 4). The largest of these changes were for mature weight, fertility and survival traits. The effects of changes in trait means on the corresponding economic value are shown in Fig. 1. The observed changes indicate the markedly nonlinear relationship between profit and these traits. Mature weight, for example, has an optimum about 10% higher than the mature weight used in the base situation. Decreasing calving ease in cows and heifers by 20% resulted in increased relative economic value for calving ease in cows, but no change in the value for heifers (Table 4). This is because the absolute economic value for calf survival increased substantially ($25.94 σ g 1 versus $17.53 σ g 1 in the base, Table 4), thus masking a similar increase in the absolute economic value of calving ease in heifers. The economic values for various hypothetical breed types could often be predicted from the effect of changes in the mean of traits individually. Because changing the level of

6 52 CANADIAN JOURNAL OF ANIMAL SCIENCE Fig. 1. Effect of changes in trait means on the corresponding economic values for mature weight, fertility and calf survival. fertility had the most important effect on breeding objectives, it is not surprising that changes in fertility dominated the changes in economic values for all six hypothetical breed types. Effects of Rescaling The effects of input or output limitations on economic values for the base beef production system are shown in Table 5. The effect of rescaling depends on whether the enterprise has positive or negative profit. In the base model, fixed costs were ignored because the values obtained from the Ontario Ministry of Agriculture and Food (OMAF ), $ yr 1 for a 50-cow integrated enterprise, were felt to be much larger than would be feasible in practice. As discussed in Koots and Gibson (1998), estimates of fixed costs in the literature ranged considerably, and the mean values from OMAF ( ) were at the high end of the range. Fixed costs in OMAF (1980 to 1991) included costs associated with hired labour, machinery and equipment, vehicles, building and fence repairs, heating fuel, electricity and telephone, property taxes, fire and liability insurance, lease and rent payments, interest charges, and depreciation. Including these fixed costs resulted in the enterprise having large negative returns over costs (Table 5). Under positive profit, rescaling to fixed pasture, fixed amount of feed consumed, or fixed amount of beef produced had little effect on economic values. Only the economic value for mature size changed by 0.2 or more (relative to calf survival). The economic value for mature size became negative or essentially zero in the three cases of input or output limitations. Kolstad (1993) found a similar result for range cow-calf production when the amount of range was limited. That the economic value of mature weight was affected by rescaling the enterprise to meet both fixed inputs and fixed outputs is expected because mature weight affects both the amount of input required by the herd (through increased feed requirements) and the amount of product produced (through larger animals slaughtered). Under a negative profit scenario, the economic values change in the opposite direction. Rescaling under negative profit has not previously been studied, but these results are consistent with the theory presented by Smith et al. (1986). Large negative profit indicates that farmers should not (and could not) continue to operate unless they are gaining substantial non-financial (lifestyle) benefits from farming. The economic values under limitations for a negative profit should therefore be viewed as instructive rather than as a common scenario in practice. Profit margins in beef production in Canada are low and often slightly negative (OMAF ). However, since these beef production systems are generally a secondary enterprise, the majority of fixed costs (land, buildings, machinery) should be shared with other facets of production. Table 5. Economic values ($ per genetic standard deviation) expressed relative to calf survival for three different rescaling options Fixed costs excluded Fixed costs included Rescaling to constant Rescaling to constant Total Total No Pasture feed kg beef Pasture feed kg beef Trait rescaling consumed consumed produced consumed consumed produced Mature size Calving ease, cows - d z Calving ease, cows - m z Calving ease, heif. - d Calving ease, heif. - m Fertility Calf survival Cow survival Peak milk yield Residual gain Residual intake, growing Residual intake, mature Residual slaughter wt Dressing percentage Calf survival y z d, direct; m, maternal. y Absolute economic value ($ per genetic standard deviation).

7 KOOTS AND GIBSON SENSITIVITY OF ECONOMIC VALUES 53 Fig. 2. Variability of relative economic values (relative to calf survival per genetic standard deviation unit = 1.0) for 14 traits (A = mature size; CEDC = calving ease direct in cows; CEDH = calving ease direct in heifers; CEMC = calving ease maternal in cows; CEMH = calving ease maternal in heifers; DP = dressing percent; FR = fertility; PM = peak milk yield; RFG = residual feed intake in growing animals; RFM = residual feed intake in mature animals; RG = residual growth rate; RSW = residual slaughter weight; S1 = calf survival; S3 = cow survival) in a pure breeding system over 32 different production and marketing situations z as described in text. z List of 32 different situations (corresponds to Tables 1 to 5 for pure lines). Situation number Change from base 1 Base 2 Increase in beef price 3 Increase in feed price 4 Increase in non-feed variable costs 5 Increase in carcass penalties for over- or under size 6 Penalties for under-marbled carcasses 7 Payment for lean-only 8 Penalties for under-marbled carcass and payment for lean 9 Slaughter endpoint at 5 mm backfat thickness 10 Slaughter endpoint at 11 mm backfat thickness 11 Slaughter endpoint at 11 mm, penalties for undermarbling 12 Slaughter endpoint at 11 mm, payment for lean-only 13 Lower energy diet in feedlot 14 Increase culling an additional 10% 15 Larger initial mature size 16 Higher initial milk yield 17 Lower initial calving ease 18 Lower initial cow fertility 19 Lower initial calf survival 20 Lower initial cow survival 21 Higher initial dressing percentage 22 Hypothetical breed type 2 (increased PM, DP, decreased FR compared with base (breed type 1)) 23 Hypothetical breed type 3 (increased PM, DP) 24 Hypothetical breed type 4 (increased A, decreased FR) Under small and positive profit margins, the effects of rescaling were small, and similar for the three rescaling options studied, which is also consistent with Smith et al. (1986). In this study, the herd size (number of pregnant females at pregnancy check) was rescaled, so that the limited input or output did not exceed that in the base. Amer et al. (1994a) argued that estimating economic values using neoclassical production economics theory would not require rescaling because farmers are assumed to be profit maximisers. In practice, the results will not differ between the two approaches when the underlying model of the production system and its primary constraints are the same. Using the neoclassical production economics approach, Amer et al. (1994b) reported the economic value for dressing percentage in a Canadian feedlot enterprise to be $8.40 per animal per 1% of the mean. Here, the absolute economic value for dressing percentage ranged from $8.59 to $9.44 per animal per 1% of the mean, depending on whether inputs (range or purchased feed) or output (beef sold) was fixed. Therefore, several approaches and different assumptions all appear to give similar results. Fig. 3. Variability of relative economic values (relative to calf survival per genetic standard deviation unit = 1.0) for 14 traits in a specialized dam line over 32 different production and marketing situations, as described in text and summarized in footnote of Fig. 2. Fig. 2. continued Situation number Change from base 25 Hypothetical breed type 5 (increased A, PM, DP, decreased FR) 26 Hypothetical breed type 6 (increased A, FR, PM, DP) 27 Rescaled to fixed pasture consumed 28 Rescaled to fixed amount of feed consumed 29 Rescaled to fixed amount of beef produced 30 Rescaled to fixed pasture consumed, negative profits 31 Rescaled to fixed amount of feed consumed, neg. profit 32 Rescaled to fixed amount of beef produced, neg. profit

8 54 CANADIAN JOURNAL OF ANIMAL SCIENCE Fig. 4. Variability of relative economic values (relative to calf survival per genetic standard deviation unit = 1.0) for eight traits in a specialized sire line over 32 different production and marketing situations, as described in text and summarized in footnote of Fig. 2. The variability of economic values over the 32 different production and marketing systems considered is illustrated graphically in Figs. 2, 3 and 4 for purebred, dam and sire lines, respectively. Many traits were insensitive to changes in production systems. Economic values for fertility, calf survival and mature weight, however, did fluctuate considerably. Fluctuations were greater in purebred and dam lines than in sire lines, in part a reflection of the smaller number of traits of economic importance in sire lines. DISCUSSION The effect of different production and marketing systems on efficiency of beef cattle production have previously been investigated (Morris and Wilton 1976; Bourdon and Brinks 1987), although their effect on economic values was not specifically addressed. Economic values for situations with double feed costs were reported in Bourdon and Brinks (1987) for mature size and milk production. The economic value of mature size decreased under high feed costs compared with standard costs (Bourdon and Brinks 1987) and that for milk production increased. Similar trends were observed here for these traits (Table 1), although milk production was of trivial importance. The effect of alternative genotypes on economic and biological efficiency has also been previously investigated with beef production models (Wilton et al. 1974; Bourdon and Brinks 1987; Lamb et al. 1992). The impact of the alternative genotypes on economic values, however, was not considered. Economic efficiency was found to depend on the genotype of animals (Wilton et al. 1974; Bourdon and Brinks 1987; Lamb et al. 1992), suggesting that economic values would also be affected, and this was observed here. Economic values have been reported for a wide range of beef productions systems including those typical in Europe (Simm et al. 1986; Wolfova et al. 1995), Australia (Ponzoni and Newman 1989), New Zealand (Newman et al. 1992) or range conditions in North America (Kolstad 1993; MacNeil et al. 1994). In all cases, models and parameters differed in many ways from those examined here so it is difficult to identify specific reasons for differences in results (Koots and Gibson 1998). The effect of rescaling economic values in a practical beef production system has not previously been studied. However, in the models of Kolstad (1993) and Bourdon and Brinks (1987), a limitation of available range was considered. Rescaling to fixed input or output limitations has been shown to be important in determining relative economic values in dairy cattle in Canada and the Netherlands (Gibson 1989; Groen 1989) where there are quotas, and where production would be highly profitable at output prices in the absence of expensive rents for tradable quotas. It is shown here that rescaling beef production systems has only a small effect on economic values because profitability is close to zero. Overall, relative economic values were insensitive to economic inputs (situations 1 to 8 in Figs. 2 to 4). Relative economic values were also largely insensitive to differences in management (situations 9 to 14). Only in situation 13, where the system was very unprofitable, did relative economic values change considerably. Relative economic values were most sensitive to changes in genotype (situations 15 to 26), and moderately sensitive to rescaling (situations 27 to 32). Generally, economic values were shown to be insensitive to many model assumptions, but varied in a moderate and reasonable way, in proportion to the change in the initial means and conditions. All sets of economic values can be rationalized and understood, giving confidence in the performance of the model and the results. There were, however, some large shifts in economic values with changes in some conditions. Reducing fertility and survival rate caused the largest changes to economic values. The economic value for mature weight was affected by practically all alternatives considered. These results suggest that economic values will differ for different production and marketing circumstances. This suggests a customized approach to estimation of economic values may be warranted (Upton et al. 1988). In practice, however, the effects of changes of economic values on selection response depend on which traits appear in the index. Also, small changes in economic values often do not significantly affect the resulting selection responses (Vandepitte and Hazel 1977; Smith 1983). Thus, a relatively small number of selection indices may suffice to cover a wide range of production and economic circumstances. CONCLUSIONS Relative economic values were found to depend on production and marketing circumstances. However, selection indices should first be constructed with these different economic values, because they are likely to be more robust than the economic values themselves (Smith 1983). The ultimate goal remains the recommendation of appropriate selection indices to be used by the beef industry, which will incorporate genetic evaluations on relevant traits with the appropriate economic values. Through examination of the traits

9 KOOTS AND GIBSON SENSITIVITY OF ECONOMIC VALUES 55 currently recorded and traits that could potentially be recorded, advice can be given to the beef industry on optimum recording strategies for genetic improvement. Amer, P. R., Fox, G. C. and Smith, C. 1994a. Economic weights from profit equations: appraising their accuracy in the long run. Anim. Prod. 58: Amer, P. R., Kemp, R. A., Fox, G. C. and Smith, C. 1994b. An economic comparison of beef cattle genotypes for feedlot traits at their optimum slaughter end point. Can. J. Anim. Sci. 74: Black, T. and Pickering, J The Canadian beef and veal grading systems, Ontario Ministry of Agriculture and Food, Factsheet. Bourdon, R. M. and Brinks, J. S Simulated efficiency of range beef production. I. Growth and milk production. J. Anim. Sci. 65: Dekkers, J. C. M Estimation of economic values for dairy cattle breeding goals: bias due to sub-optimal management policies. Livest. Prod. Sci. 29: Fox, D. G., Sniffen, C. J. and O Connor, J. D Adjusting nutrient requirements of beef cattle for animal and environmental variations. J. Anim. Sci. 66: Gibson, J. P Selection on the major components of milk: Alternative methods of deriving economic weights. J. Dairy Sci. 72: Gregory, K. E., Cundiff, L. V., Koch, R. M., Dikeman, M. E. and Koohmaraie, M Breed effects and retained heterosis for growth, carcass, and meat traits in advanced generations of composite populations of beef cattle. J. Anim. Sci. 72: Groen, A. F Economic values in cattle breeding. II. Influences of production circumstances in situations with output limitations. Livest. Prod. Sci. 22: Kolstad, B. W Economic values of performance traits in maternal and paternal strains of beef cattle. M.S. Thesis, Montana State University, Bozeman, MT. Koots, K. R Studies on the genetic and economic parameters required for beef cattle improvement. Ph.D. Dissertation, University of Guelph, Guelph, ON. Koots, K. R. and Gibson, J. P Economic values for beef production traits from a herd level bioeconomic model. 78: Lamb, M. A., Tess, M. W. and Robison, O. W Evaluation of mating systems involving five breeds for integrated beef production systems: I. Cow-calf segment. J. Anim. Sci. 70: MacNeil, M. D., Newman, S., Enns, R. M. and Stewart-Smith, J Relative economic values for Canadian beef production using specialized sire and dam lines. Can. J. Anim. Sci. 74: McMorris, M. R., Wilton, J. W. and Pfeiffer, W. C Breeding system, cow weight and milk yield effects on various economic variables in beef production. J. Anim. Sci. 63: Morris, C. A. and Wilton, J. W Integrated beef production models for crossbreeding studies: comparison of different management programs. Can. J. Anim. Sci. 56: Newman, S., Morris, C. A., Baker, R. L. and Nicoll, G. B Genetic improvement of beef cattle in New Zealand: Breeding objectives. Livest. Prod. Sci. 32: National Research Council Nutrient requirements of beef cattle. 5th ed. National Academy Press, Washington, DC. Ontario Ministry of Agriculture and Food Ontario farm management analysis project. Ontario Ministry of Agriculture and Food, Toronto, ON. Ponzoni, R. W. and Newman, S Developing breeding objectives for Australian beef cattle production. Anim. Prod. 49: Preston, R. L Better methods to measure quality first step in war on fat. Feedstuffs 63(3): Simm, G., Smith, C. and Prescott, J. H. D Selection indices to improve the efficiency of lean meat production in cattle. Anim. Prod. 42: Smith, C Effects of changes in economic weights on the efficiency of index selection. J. Anim. Sci. 56: Smith, C., James, J. W. and Brascamp, E. W On the derivation of economic weights in livestock improvement. Anim. Prod. 43: Taylor, R. E Beef production and management decisions. 2nd ed. Macmillan Publishing Company, New York, NY. Upton, W. H., McArthur, A. T. G. and Farquharson, R. J Economic values applied to breeding objectives: A decentralized approach for Breedplan. Proc. 7th Conf. Aust. Assoc. Anim. Breed. Genetics, Armidale. pp Vandepitte, W. M. and Hazel, L. N The effects of errors in the economic weights on the accuracy of selection indexes. Ann. Genet. Sel. Anim. 9: Wilton, J. W., Morris, C. A., Jenson, E. A., Leigh, A. O. and Pfeiffer, W. C A linear programming model for beef cattle production. Can. J. Anim. Sci. 54: Wolfova, M., Wolf, J. and Hyanek, J Economic weights for beef production traits in the Czech Republic. Livest. Prod. Sci. 43:

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