18An Assessment of the Economic, Environmental and Social Impacts of NSW Agriculture’s Investment in the Net Feed Efficiency R,D&E Cluster

Griffith, G.R., Alford, A.R., Davies, B.L., Herd, R.M., Parnell, P.F. and Hegarty, R.S. (2004), An Assessment of the Economic, Environmental and Social Impacts of NSW Agricultures’ Investment in the Net Feed Efficiency R,D&E Cluster, Economics Research Report No.18, NSW Department of Primary Industries, Armidale, August.

Executive Summary

This report presents the results of one of a suite of five evaluations conducted in 2003 in the former NSW Agriculture1 into significant areas of research and extension investment. The particular area of investment examined here is net feed efficiency in beef cattle.

Description of Net Feed Efficiency

Feeding cattle is a major cost of beef production. In southern Australia, beef cows and their progeny are generally run on improved pastures until they are either sold direct for slaughter or as store cattle for subsequent finishing on pasture, or in feedlots. The cost of developing and maintaining improved pasture ranges between $7.50 and $12.86 /DSE/year depending on area sown and stocking rate. In a typical enterprise targetting the domestic supermarket trade, the lower estimate means that 60 per cent of the variable costs of production are related to feed cost. Supplementary feeding with hay, grain and silage is often necessary to fill feed gaps for cows on pasture and to ensure young cattle grow to specification. Such supplementation adds further to the cost of feeding cattle. Further, the cost of feed accounts for 70 per cent of the variable cost of operating a feedlot.

Net feed efficiency (NFE) refers to the efficiency of feed utilisation assessed after accounting for the requirements for growth and maintenance of body tissue, and is calculated as residual feed intake. This is simply the difference between an animal's actual feed intake and its expected feed requirements for maintenance and a particular growth rate. Genetic selection for improved feed efficiency aims to reduce feed-related costs and thereby improve profitability.

The former NSW Agriculture commenced R,D&E in this area in the early 1990s, with a major project funded by the Meat Research Corporation (MRC). Since then, NFE has been part of the research program of the Cooperative Research Centre for the Cattle and Beef Industry (CRC I) and the Cooperative Research Centre for Cattle and Meat Quality (CRC II). Recently, research has commenced on the relationship between NFE of cattle and output of greenhouse gas (GHG), where the experimental work has focussed on evaluating breeding for improved NFE as a GHG abatement strategy.

This area of research began in NSW Agriculture and the Department remains a key player, recognised worldwide as a leader in the science of NFE.

Approach to evaluation

The evaluation was approached in two parts. First, an attempt was made to properly account for all of the resources employed in this R,D&E cluster.

The total value of inputs to this NFE R,D&E cluster of projects were estimated to be $20.6 million between 1991/92 and 2019/20. For NSW Agriculture expenditures, actual project payments were taken from MRC and CRC documentation. Estimates were made of the fulltime equivalent (FTE) staff of different categories involved in the NFE cluster of projects over the various periods of time they were in operation, and in some, expected maintenance R,D&E out to 2020. The 2002 costs for representative FTEs were calculated as salary plus oncosts of 23 per cent. The total cost of these NSW Agriculture inputs was estimated as $13.9 million on a present value basis using a 4 per cent real discount rate.

For external funding, actual project payments were taken from MRC/MLA and CRC documentation where appropriate. An estimate was also made of the contributions of Breed Society extension officers to this cluster. The total cost of these inputs from external sources was estimated as $6.7 million on a present value basis. Thus of the total value of inputs into this R,D&E area, NSW Agriculture contributed over two-thirds.

Second, an attempt was made to estimate the economic, environmental and social benefits of the potential adoption of the NFE technology in the Southern Australian beef industry. The economic benefits at the farm level were assessed by the use of a whole-farm linear program representing a typical mixed beef-sheep farm on the Northern Tablelands of New South Wales. Gross margin budgets were developed for the NFE cow enterprise and the cow enterprise it would be expected to replace and account was taken of the dynamics of the herds over time. The farming system was simulated under both possible enterprise combinations and the financial outcomes of the farming system were compared. In making these comparisons, a very conservative approach to modelling the uptake of the NFE genetics was followed to allow for any potential unfavourable but as yet unknown relationships between NFE and other traits. Models were also calculated to assess the impact of NFE cattle in a feedlot situation.

Economic, environmental and social effects

The outcomes of this R,D&E cluster can be grouped as economic, environmental and social. The main outcomes of this R,D&E cluster to date have been economic. Genetic variation in residual feed intake exists, the trait is moderately heritable (around 0.4), and selecting high efficiency bulls will produce calves, steers and cows that are more feed efficient on pasture and in the feedlot. Further, where it has been formally measured, there does not seem to be any significant adverse implications for other traits of commercial importance. Thus breeders can select for NFE and growth and meat quality and not have to make any significant tradeoffs. The scenario for the cattle industry without access to the NFE technology would be that productivity would improve based on past and easily forecast rates of genetic gain. The NFE technology is taken to provide an additional improvement above that already filtering through from past R,D&E.

This information has been taken up by the Australian stud cattle industry, and estimated breeding values (EBVs) have been made available in some breed societies to assist commercial producers introduce NFE-superior genetics into their herds. The adoption process has commenced, although only at very modest levels to date.

An on-farm testing facility has been devised so that cattle breeders can measure and monitor their herd with respect to NFE. Unfortunately, such a facility is costly to purchase and there is a high opportunity cost in allocating breeding stock to intensive feeding trials. However, new research is examining a simple blood marker test as a way of differentiating between NFE efficient and inefficient breeding stock.

The economic benefits of the widespread adoption of this technology throughout the southern Australian cattle herd was estimated to be an improvement in the net present values (NPVs) per breeding cow per year over the base herd of $6.55, evaluated at a discount rate of 4 per cent. This per cow benefit was multiplied by the number of breeding cows in the southern Australian beef herd, and then by the assumed adoption rate of the technology to generate an aggregate value of $128.6 million for the cow-calf component of the southern herd. The increase in the asset value of the southern herd over time as the NFE trait diffuses through the breeding herd has been included in these calculations. For the feedlot sector, it was estimated that the savings in feed costs in a feedlot in southern Australia due to the introduction of NFE cattle would be $4.34 per breeding cow per year, or an aggregate value of $29.4 million. Adding these components together, the total estimated benefits from the adoption of the NFE technology were calculated to be $158.0 million over the period 2003-2020.

In addition, the NFE technology has some quite positive but potential environmental outcomes. If a cattle producer introduces genetics with superior NFE, then over time the herd will require less feed to maintain the same herd size and farm income. This may result in a lower stocking rate and may provide some environmental benefits to the farm in terms of better ground cover, greater water holding capability and less grazing pressure on preferred pasture species. Superior NFE cattle will also produce less manure and urea and more easily cope with drought conditions. More promising though is the potential reduction in GHG emissions from more feed efficient cattle. Selecting for improved NFE will reduce GHG.

Social outcomes from the R,D&E in this area of work are more difficult to identify and to quantify. Because the technology has been developed in Australia, the beef industry will be less dependent on imported genetics. This may result in more vibrant breed societies and industry organizations, and perhaps greater export opportunities. Since cattle selected for NFE can cope more readily with dry conditions, the beef industry would not be as adversely effected by droughts and this may provide some social benefits during such times.

Comparing the benefits to all recipients in southern Australia relative to the costs incurred by all R,D&E suppliers resulted in a NPV of $137.4 million, an internal rate of return (IRR) of 13 per cent and a benefit cost ratio (BCR) of 7.7. Comparing the benefits to NSW producers relative to the costs incurred by NSW Agriculture resulted in an NPV of $65.1 million, an IRR of 9 per cent and a BCR of 5.6.

Funders and beneficiaries

It was noted above that of the total value of inputs into this R,D&E area, NSW Agriculture has contributed over two-thirds. Although there may have been good reasons for the mostly public funding in the early years of the research, the current mix of funding may now be too heavily weighted towards public funds. Those components of the NFE R,D&E cluster that generate essentially private benefits to the cattle industry and cattle producers should be increasingly funded by those groups. The environmental components of the work should however be mainly funded by the public sector as the majority of benefits will accrue to society at large.

1 This work was done prior to the formation of the NSW Department of Primary Industries (on July 1, 2004) through an amalgamation of NSW Agriculture, NSW Fisheries, State Forests of NSW and the NSW Department of Mineral Resources.