Economic Analysis of Pharmaceutical Technologies in Modern Beef Production

Cattle production is the largest single agricultural sector in the U.S. with cash receipts of $49.2 billion in 2005, writes John D. Lawrence and Maro A. Ibarburu, Iowa State University.

8 February 2009

3 minute read

The industry includes more than 980,000 farms with cattle in all 50 states. Like the rest of agriculture cattle producers have adopted efficiency and quality improving technology to meet consumer demands for a safe, wholesome, and affordable food supply.

Preston and Elam chronicled the 50 year evolution of beef production technologies and estimated a significant savings of resources to produce our current supply of beef. Conversely, if the U.S. used only the current resources for cattle production, the beef industry and supply would be significantly smaller and beef prices to consumers significantly higher.

This research extends the earlier work by using meta analysis to combine information from over 170 research trials evaluating pharmaceutical technologies in the cow-calf, stocker, and feedlot segments of beef production.

These results were used to estimate the farm/ranch level economic value of parasite control, growth promotant implants, sub-therapeutic antibiotics, ionophores, and beta agonists for the industry in 2005. These results were used in the Food and Agriculture Policy Research Institute (FAPRI) model of U.S. agriculture to estimate the impact on beef production, price, and trade if these pharmaceutical technologies were removed from the market.

While much of the discussion about technology use is focused on growth and efficiency in the feedlot sector, animal health and well being are also important.

This analysis found that parasite control in the cowherd has a significant impact on calf production and cost to the beef system. Growth and efficiency enhancing technologies in the feedlot also have a significant impact on cost of production. These technologies will be particularly important in a bioeconomy era of higher feed costs.

Using 2005 prices and production levels the estimated direct cost savings to producers of the five pharmaceutical technologies evaluated was over $360 head for the lifetime of the animal. Selling prices would have to increase 36 per cent to cover the increase in costs. However, producers and consumers adjust to the changing costs. The FAPRI model of the US beef sector shows a:

14 per cent smaller calf crop,
18 per cent reduction in US beef production,
180 per cent increase in net beef imports, and
13 per cent increase in retail beef prices.

Cattle prices do increase, but not as fast as cost of production. Packers and feedlots adjust to maintain operating margins similar to current levels resulting in lower returns to beef cow herds and a smaller feedlot and packing industry. Pork and poultry production expand to fill this void for domestic and export customers. Some consumers are requesting natural or organically produced beef and research suggests that a portion of these consumers are willing to pay a premium for such products. However, the complete elimination of efficiency enhancing technologies will result in high beef prices to all consumers and the US would import significantly more beef to meet its demand. The small beef industry means fewer cattle operations and less employment in rural communities.