John Fetrow, VMD, MBA, Chair and Professor University of Minnesota
College of Veterinary Medicine
St. Cloud Dairy Expo95 Proceedings
St. Cloud, MN
December 13, 1995

Adoption of New Technologies in Agriculture

Agriculture is the original technology. Adoption of agricultural techniques moved humans from societies of nomadic hunter/gatherers to geographically-stable sustainable communities. Civilizations and governments rest on their ability to feed their people. All other technology, culture, and human advance stand on the foundation of agricultural technology. Each new agricultural technology has advanced the ability of fewer farmers to feed more people. In a world where rapidly growing populations are putting greater demands on our available arable lands and our environment, improved agricultural technologies are critical for our future.

Changing technologies are nothing new to agriculture. Plows, selective breeding, artificial insemination, vaccines, antibiotics, computers; all of these technologies once were new and now seem “normal.” Each new technology was introduced with its champions and its detractors. Sometimes new ideas never take hold and sometimes old technology is replaced. The market generally sorts out which technologies offer a competitive advantage and which do not. No technology is appropriate for every farm. The issue for any single farmer is whether to adopt a new technology on his own farm.

Broadly speaking, people react to new technology in one of four ways. As an example, think about the adoption of a widely used technology, the tractor.

Innovators

These are the ones that actually develop the new technologies, or at least who are first to use it under practical conditions. They are the pioneers, and they take their lumps. Not only are they the ones that gain the first benefit of the new technology, but they also pay the price for working out the bugs and for trying things that simply don't work. With tractors, these innovators were the first to be able to plow vast acreages when compared with draft animals, but they were also the ones to deal with breakdowns, fuel costs, accidents, and in some cases imperfect engineering.

Early Adopters

These are the ones that reap the biggest benefit of the new technology. They watch the innovators until most of the problems are worked out, then take up the innovation and reap the gains in production and efficiency. These people were driving tractors while most were still using draft animals; planting and harvesting more acres more efficiently and reaping the added margins of profit. After all, they were producing their product in the new era, but still selling their product in a market where price was set by those still farming in the old era.

Mass Adopters

These take up the new technology as a necessity of doing business. Their neighbors, the early adopters, are filling the market with product they made more efficiently. As supply grows and the costs of production drops, the market gradually pays less per unit of product and all producers must adopt the technology to become more efficient and survive. Make no mistake, this increases the stress on producers. It is the nature of competitive free enterprise that the consumer benefits (cheaper, better quality food) while the producer must constantly improve to stay even. In most of today’s agriculture, tractors are a fact of life. They are now such a widely used technology that they seem a normal cost of doing business.

Late (or Never) Adopters

These adopt a new technology late or never. Some farmers never adopt a technology because it is inappropriate for their operation. The Amish, for example, still compete within the context of their chosen life style without tractors. Others refuse to make the change or cannot do so. The latter ones compete in a larger market that uses the technology and often do so at a serious disadvantage. Most farms that did not switch from draft animals to tractors passed out of business.

Requirements for the Profitable Adoption of Technology

Since no farm will adopt every new technology and no new technology fits every farm, what should a dairy producer consider when deciding what to do? Several items deserve attention:

1. Efficacy: Does the technology really work under conditions similar to what is faced on your farm? Ideally, this should include both well-controlled research studies and the evaluation of the idea under practical conditions.
   
   
2. Management: Can you manage the new technology and the farm so that you reap the benefits?
   
   
3. Learning: What do you have to learn to take advantage of the new technology? Every new technique requires new skills, knowledge, and ways of thinking. Are you willing to do things and think in a new way?
   
   
4. Start up: What are the start-up costs? What do you have to change in your current operation to get the benefit of the technology?
   
   
5. Phased start-up: Can you try the technology on a small scale at first, testing its value on your farm, or do you need to get in all the way at the beginning?
   
   
6. Labor: What changes in labor will the new technology require, including employee training?
   
   
7. Capital: What capital must you invest to make the changes?
   
   
8. Downside risk: If it doesn’t work, how much sunk cost are you risking?
   
   
9. Feelings: What are your own psychological/ cultural feelings and beliefs about the technology? Remember that sometimes the roadblocks to adopting a profitable technology are not the practical issues, but the emotional ones.

The Technology of rbST

POSILAC^®, Monsanto’s recombinant bovine somatotropin (rbST), is a new compound approved for use in lactating dairy cows beginning at 57 - 70 days of lactation. It is to be administered by subcutaneous injection once every 14 days. It has been shown in repeated research trials and under practical conditions to increase milk production in healthy, well-managed cows. Milk production responses typically rise in the first few days following injection and then gradually decline across the 14-day treatment period. When averaged across the 14 days of the treatment period, the typical response in well-managed herds appears to be an increase of 8 to 12 pounds of milk per treated cow per day. Since its approval by the FDA more than a year ago, POSILAC has been used throughout the United States on all types of dairy farms in all regions, climates, and seasons.

The milk production response of a dairy cow to POSILAC depends on several factors. The extra milk is not produced from nothing. To respond, the cow must be in good health, cow comfort must be adequate, and the cow must consume additional feed to provide the nutrients needed for higher production. Typically, the cow will compensate for higher production by increasing her dry matter intake. In some herds, the composition of the ration may need to be enhanced to support the higher production. Additional attention may be needed to be sure that the cows have access to feed and time to consume it. Heat stress can play an important role in determining the level of response if dry matter intake falls off under hot or humid conditions. Cows with individual health problems, particularly lameness, may not respond well to the product. In addition to the nutritional status of the herd, herds will respond best if they have good management programs for mastitis and reproduction.

rbST Economics

In its simplest form, the profit from the use of rbST can be calculated by subtracting the cost of the product and the cost of additional feed from the value of the additional milk produced. For the typical small, owner-operated farm in the upper Midwest, this may be the only needed calculation. For some farms, particularly where extra labor is hired or other labor outlets are available, the cost of added labor for ordering, administering, and keeping records relating to rbST may need to be considered. More subtle possible costs such as effects on days open, culling, or somatic cell counts are far less clearly defined and probably too small to be significant on most farms.

When calculating the financial impact of rbST on a given dairy, data specific to the dairy are necessary. For the purposes of example in this paper, the following assumptions are made:

Milk price: the example models three prices: $10.50, $11.50, and $12.50 per hundred pounds net to the farm.

Table 1
Profit and return on Investment for the use of rbST

Model Assumptions

Herd size, ration, and rbST costs:

100 cows in the herd

80% percent of eligible cows are treated with rbST

0.33 Meal energy per pound of milk

0.78 energy density of ration per pound DMI

$0.07 price of ration per pound of dry matter

$5.80 price per dose for rbST

Reproduction and overall rbST usage rate:

120 days open

70 days dry

63 days in milk at start of rbST

400 day calving interval

267 days of rbST use/lactation (assumes continuous use to the end of lactation)

67% of the herd will be receiving rbST at any given time

Labor:

2.0 hours spent each two weeks for labor

$7.00 wage rate per hour

$365 cost for labor per year

Other:

$0.00 other rbST related costs/cow/year

$10.00 cost/cwt to produce milk in the herd, without the use of rbST

18,000 lbs production/cow without rbST

Table 1 illustrates the profit and return on investment in rbST for the example dairy herd. To be profitable (breakeven), the response to rbST must be at least six pounds of milk, except at a milk price of $12.50/cwt, where five pounds is sufficient to become profitable. Once profitability is established (past breakeven), the profit and return on investment mount swiftly. Figure 1 illustrates the profit for the three milk prices and each level of response. Figure 2 illustrates the return on investment. At typical response levels (10 pounds, underlined in Table 1), annual profits range from more than $5,000 for the herd at $10.50/cwt up to more than $10,000 at $12.50/cwt. Return on investment at a 10-pound response level ranges from 77 to 125 percent, certainly an excellent rate compared to the typical overall rate of return for dairy farming (usually below 10 percent).

Because the return from the use of rbST is based on milk production and on milk price, at any given response level the profit from rbST will decrease as the milk price decreases (see Figure 1). This does not mean, however, that as milk price drops the farm should stop using rbST . If the production response is beyond breakeven, rbST remains a valuable investment even if the magnitude of profit is decreased. In situations where milk price is decreased, total farm profit will decrease, with or without the use of rbST . As the milk price drops, the profit derived from using rbST will account for more and more of the total farm profits. As Table 2 and Figure 3 show, at low milk prices the profit derived from rbST may account for as much as one half or more of total farm profit. In our example, if milk price were $10.50 and the level of response were 10 pounds, 41 percent of total farm profits would be derived from rbST use.

Figure 1
Percent of farm profit due to POSILAC^®
(given assumptions in model)

Figure 2
Return oninvestment in POSILAC^®
(given assumptions in model)

Table 2
Contribution of rbST use to total farm profit

Figure 3
Profit from use of POSILAC^®
(given assumptions in model)

rbST: How to Judge Its Use

Earlier in this paper, several criteria were discussed relating to the adoption of a new technology. rbST is simply another new technology like tractors, artificial insemination, or vaccines were in their day. How does rbST measure up to the criteria?

1. Efficacy: Extensive controlled research and more than a year of widespread field use have demonstrated that rbST works as expected in well-managed herds. Herds that try the product and do not see a response may want to explore whether some aspect of management is limiting the response.

2. Management: To receive a response, management, cow comfort, and nutrition must all be in place. This may require improvements in some herds.

3. Learning: rbST is fairly simple to use, although it will require some extra record keeping. As noted in #2, above, the greatest learning challenge for most dairies will be learning to manage for higher production.

4. Start-up: Start-up costs are small. In many herds, the only initial investment is the cost of the product.

5. Phased Start-up: rbST can be used on a limited number of candidate cows to see the effect in the herd. When trying such an approach, the dairyman must be careful to select healthy cows for the trial that are likely to respond.

6. Labor: For most upper Midwest farms, little additional labor will be necessary.

7. Capital: No significant capital investments are necessary to use rbST , unless investments are needed to improve facilities of feeding to support a good response. If these sorts of investments are needed, they are probably needed on the farm whether or not rbST will be used.

8. Downside Risk: Using rbST has limited down-side risk. Beyond the cost of the product for a few injection cycles, the farm has little to lose if there is no response.

9. Feelings: For many, this is the major impediment to the use of rbST . Personal feelings, concerns about community responses, and misinformation have all contributed to an emotional environment around the decision to use rbST . For many, the emotional considerations have weighed more heavily than the economic or biological ones.

Summary

The adoption of rbST technology is fundamentally no different than the adoption of any other new technology. There are several issues to consider before initiating its use. Field experience has shown the product to be very effective in well-managed, well-fed herds. With typical levels of response, the return on investment will reach or exceed 100 percent. As the milk price declines, the rbST use may contribute a very large proportion of the farm’s total profit. The benefits of rbST, as for any new technology, will go to the early adopters who learn to use it effectively in their herds.

Presented at the St. Cloud Dairy Expo 95, St. Cloud, Minnesota

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