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Study shows economic impact of pharmaceutical technology

Positive increases are significant in times of high feed costs

A recent Iowa State University study found that in times of high feed costs such as the cattle industry experienced in 2007, the positive economic impact of pharmaceutical technologies increased from $430/beef animal to $524/head. The latest study--conducted by John Lawrence, PhD, professor of economics at ISU, and his research associate, Maro Ibarburu--is an update of a 2005 analysis which measured the economic impact of pharmaceutical technologies commonly used in beef production--parasite control products, implants, ionophores and beta-agonists--using current feed and cattle prices.

In the initial study, performance data from university studies conducted over the past 20 years to 25 years were combined using meta-analysis, a widely accepted technique for combining empirical data. The performance data were converted to dollar impact using budget data from 10 universities in various regions of the United States. The combined economics indicate that the value of these technologies increased by 22 percent when factoring in the higher feed costs of 2007.

Lawrence says, "Since most of these pharmaceutical technologies improve feed efficiency and/or increase pounds of gain, it should not be surprising that they have a greater impact during times of high feed costs. While the market price for calves and feeder cattle going into the feedlot has decreased as feed costs have increased, the price decline would have been larger if stocker operations and feedlots did not use efficiency-improving technologies."

Lawrence also analyzed the results using the Food and Agricultural Policy Research Institute model of U.S. agriculture to estimate the impact on beef production, price and trade if these pharmaceutical technologies were not used in 2007. The FAPRI model indicates that the U.S beef industry would have seen:

--14 percent smaller calf crop;

--19 percent reduction in total beef produced;

--11 percent increase in retail beef prices;

--9 percent decrease in beef consumption;

--247 percent increase in beef imports.

A segment-by-segment analysis showed that high feed costs and changes in calf prices associated with the bioeconomy era increased total per-head costs for the cow-calf producer by 21 percent and feedlot costs per head by 7 percent. The 9 percent reduction in calf prices more than offset the 23 percent increase in feed costs for stocker operations, resulting in a 5 percent net decrease in total per-head costs.

A complete copy of the study can be found at www.econ.iastate.edu/faculty/lawrence/documents/GET7401-LawrencePaper.pdf, or you may call Doug Swanson, McCormick Company, at 515-251-8805 or doug@mccormickcompany.com.

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