Economic Impact of Research in the Swine Industry

by 5m Editor
30 January 2006, at 12:00am

By Ken Engele and Lee Whittington and published by the Prairie Swine Center - Today’s pork industry is global in nature, and pork producers find themselves always looking for areas of competitive advantage. One significant area of competitive advantage is through the early adoption of research results.

Economic Impact of Research in the Swine Industry - By Ken Engele and Lee Whittington and published by the Prairie Swine Center - Today’s pork industry is global in nature, and pork producers find themselves always looking for areas of competitive advantage. One significant area of competitive advantage is through the early adoption of research results. Visit the Prairie Swine Centre

Producers who are successful in identifying and implementing new technologies and management strategies create an advantage through lowering their cost of production, or increasing the amount of revenue generated. However, the perceived financial risks and rewards may limit technological action. In order to provide more detail on the economic impact of research, Prairie Swine Centre in conjunction with the George Morris Centre developed an analytical tool to help provide a more detailed analysis of the economic benefit of research conducted at Prairie Swine Centre.

This financial model has the ability to simulate the economic impact and change in cost and revenue structures, by applying Prairie Swine Centre research results to commercial farms of various sizes. Estimating the economic impact of research on the commercial farm is extremely important when adopting new technologies or management strategies. To value the economic impact of research, a number of Prairie Swine Centre experiments between 1999-2004 were analyzed. In total 22 projects were selected for a detailed financial analysis, with the final result being the net benefit of specific research projects. Research projects were then prioritized in terms of net benefit per hog marketed and ease of adoption.

Throughout the 1999-2004 time period, specific research projects generated a range of net financial benefit to pork producers from $0.11 - $8.84 per hog marketed. In addition, approximately 25% of the projects analyzed generated a net benefit of at least $2.00 per hog marketed, while an additional 25% of research projects generated a return in excess of $1.00 per hog marketed. The overall objective of such a analytical tool is quite simply to assist pork producers in identifying ways to minimize costs and maximize revenues through: 1) Identifying those technologies that can be applied on their operation, and 2) Prioritize their implementation in terms of ease of adoption.

Research Results

In order to estimate the impact of research on different types of operations, ‘default’ farms of various size were developed based on industry data. It is very important to note there tends to be greater variability, in per hog costs and revenues, between similar sized operations than across different operation size. This is a function of different cost structures (example, related to age of facility), ability to adopt new technologies, and management styles.

Table 1 provides a detailed economic evaluation for each research project, summarizing the range and average value (from default) on net income. Average net returns for all projects varied from $0.14 to $6.23 per hog marketed, while the minimum and maximum range in returns vary from $0.05 to $11.50 per hog marketed, depending on specific research criteria. Net benefit of each project was calculated independently; there was no attempt to look at the additive or competing effect of multiple projects implemented simultaneously.

Ease of Adoption

Pork producers in Canada are recognized as innovative, many could be classified as early adopters of new information. With this in mind, the 22 research projects were evaluated for their ease of adoption, as seen in Table 2. Ease of adoption is defined in terms of the time, labour and capital required to implement the new research information on the commercial farm. Three classifications were created: Easy, Moderate and Difficult.

We further describe “Easy” projects as those which can be implemented within 1-3 months, require little labour and little or no capital; “Moderate” can be implemented within 3-12 months, but still require little labour or capital; and “Difficult” projects require greater than 12 months to implement, and is either labour and/or capital intensive. Evaluating this list on the basis of ease of adoption may help to focus efforts on these projects which can provide immediate payback.

Impact on the Industry

Using this three-level description we estimated the extent to which the industry would adopt the research results. Easy projects, such as switching between wheat classes for starter diets, or adjusting water nipples to reduce water wastage, were estimated to be adopted by 80% of the industry. Moderate adoption projects included changing energy levels in the diet, require the specialized services of a nutritionist and perhaps pen reconfiguration.

These “Moderate” adoption projects were estimated to be adopted by 40% of the industry. There were very few projects deemed to be Difficult to adopt. For example novel ingredients like mustard meal can be difficult to obtain on a regular basis, or in the case of moving to large group sow housing systems, extensive barn renovation or rebuilding is required to adopt this technology. These “Difficult” adoption projects were estimated to be adopted by 10% of the industry.

Table 3 summarizes the combination of improvement in net returns (over default) as described in Table 1 with the assumed levels of adoption for each research project. This provides an estimate of the value of Prairie Swine Centre research to the western Canadian pork industry. For example, “Effect of Starter Feeding Regime on Variability in Body Weight and Performance in the Nursery”, is adopted on a Moderate basis (by 40% of the industry), and provides a net return benefit of $1.22 per pig marketed, and assuming the annual marketings of 10 million hogs in western Canada, the benefit annually to the industry for this one project is $4.88 million.

The Bottom Line

Research pays big dividends. Applied near market research conducted at Prairie Swine Centre for the pork industry has and continues to provide significant benefit to pork producers and the entire pork industry. All pork producers will not be able to adopt all research results, in addition not all research projects are completely additive. Pork producers would still realize a significant improvement to their bottom line through the incorporation of any number of research results. If only 10% of the benefit was to be adopted it would improve net return over $3.00 per hog marketed. Prairie Swine Centre would like to acknowledge Saskatchewan Agriculture and Food for their funding of this project.

Source: Prairie Swine Centre - January 2006