Economic Returns from United States Artificial Insemination Sires in Holstein Herds in Colombia, Mexico, and Venezuela1

GENETICS AND BREEDING Economic Returns from United States Artificial Insemination Sires in Holstein Herds in Colombia, Mexico, and Venezuela 1 F. HOLMANN,2 R. W. BLAKE,2 R. A. MILLIGAN,3 R. BARKER,3 P. A. OLTENACU,2 and M. V. HAHN4 Cornell University Ithaca, NY 14853 ABSTRACT

in milk than from economic effects (lower milk prices, higher semen cost, and real interest rate). Locally processed semen from imported bulls increased the number of profitable choices in Venezuela. (Key words: net present value, semen, Latin America)

Net present values of milk income over feed and semen costs were estimated for 102, 198, and 47 US Holstein AI sires with semen available in Colombia, Mexico, and Venezuela in early 1987. Also evaluated were four US bulls imported to Venezuela for local semen processing. Net present values of semen were compared with those obtained by US producers. Data were PD of bulls and milk and semen prices in each country. Alternative scenarios were for conception rates of 30 and 50%; daughter milk response to US sire PO milk of .30 to .60 for Colombia and Venezuela, and .40, .55, and .75 for Mexico; and real interest rates of 7 and 10%. Average economic returns from investing in US semen in Colombia, Mexico, and Venezuela were negative for most scenarios. Opportunities for positive returns were greater in Mexico than in Colombia and Venezuela. Zero to 56,9 to 82%, and 2 to 85% of sires in Colombia, Mexico, and Venezuela had positive returns for the scenarios considered. Imported semen should be used judiciously in situations of high conception rate and environmental opportunity for high milk response to sire selection. Lower profitability in these countries than in the US was mainly from less daughter response

INTRODUCTION

Received August 7. 1989. Accepted February 14, 1990. 1Project 414, a contributing project to Southern Regional Project S49. Genetic Methods of Improving Dairy Cattle for the South. 2Depar1ment of Animal Science. ~ent of Agricultural Economics. ":Facultad de Ciencias Veterinarias. Universidad Central de Venezuela, Maracay. 1990 J Dairy Sci 73:2179-2189

The primary use of biotechnology (using living organisms or their components in industrial processes) in livestock production in developed countries has been to incorporate selected germplasm into animal populations by AI (16). In contrast, this biotechnology has been exploited less intensively in developing countries, including Latin America, than in developed ones. Plasse (14) reported that less than 5% of the Latin American cow population is bred by . AI because conception rates are low and there are relatively few trained personnel to provide technical assistance in AI breeding programs. Consequently, he recommended restricted use of AI only in selected matings to produce bulls for natural breeding. Latin American milk producers face more difficult economic environments than are found in more affluent countries in temperate regions of the world. As summarized by Blake et al. (6), milk prices are lower, the real interest rate on capital is higher and its variability greater, and purchased input costs (especially without subsidy) are greater. All of these factors make the financial planning horizon for genetic improvement an insecure one. About 25, 55, and 43% of the milk consumed annually in Colombia, Mexico, and Venemela are from imported powder (12, 13; Antonio Botero, Secretary, Asociaci6n Colombiana de Ganado HolsteinFriesian, personal communication). The annual values for these imports in US dollars were $190 million in Colombia and $505 million in

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Mexico in 1988 (10; Antonio Botero, personal conununication), and $70 million in Venezuela· in 1986 (12). Johannsen (10) suggested that if Mexico eliminated milk imports and invested the equivalent annual import value to revive its dairy industry, the cmrent milk deficit might be eliminated and more than 100,000 additional jobs could be generated in the next 6 yr from expanding dairy herds and from a larger service industry. Thus, decisions by Latin American governments to cover milk deficits by importing milk at subsidized prices may have restricted possible favorable returns from investing in the dairy industries of these countries. Decisions about using AI are probably constrained by these and other factors that reduce the certainty of favorable economic returns. In the US, prior to July 1989, sire transmitting abilities for milk were expressed as Predicted Differences Milk (pDM) for daughters. The PDM genetic evaluations published semiannually by USDA corresponded to the expected difference in milk yield of a bull's daughters compared with daughters of the average sire of first lactation cows in 1982, given equal mates. Assuming no dependency between herd average milk yield and daughter variance, the expected regression coefficient of US daughter milk yield (expressed as a deviation from herd mean) on sire PDM would be unity. Indeed, Powell and Norman (15) obtained a mean within-herd regression coefficient for daughter milk response (MR.) per unit of sire PDM of 1.0 for all-lactation milk yield on alllactation PDM for US Holstein daughters lactating in 1979, but coefficients increased with herd average milk yield [range .75 in herds with lowest average yields (<5500 kg/lactation) to 1.49 in herds with highest average yields (>9500 kg/lactation)]. An important implication of these results is that US herds achieving higher milk yields from better management (Le., greater environmental opportunity) get higher MR than herds with average management (Le., herds obtaining MR = 1.0). Therefore, all US dairy producers do not receive the same increase in milk sales from using AI. Blake et al. (6), considering MR alternatives and relevant economic information for Mexico, estimated that the profitability of US Holstein AI sires to Mexican dairy producers in 1987 could have been 84% as much as for their US Journal of Dairy Science Vol. 73, No.8, 1990

counterparts. This interpretation was based on the assumption that daughter MR in straightbred Holstein herds in Mexico would equal the average response in lowest yielding US herds [i.e., MR = .75 (15)]. However, Stanton (unpublished data) subsequently found that the average MR of US Holstein sires in Mexican, Colombian, and Puerto Rican straightbred Holstein herds were all less than in lowest yielding US herds. The MR (i.e., within-herd regression coefficient for milk response on sire PDM from US data) calculated by mature equivalent, herd average milk yield classes averaged .54 ± .02 for Mexico (range .22 to .66), .32 ± .02 (range .22 to .61) for Puerto Rico, and .32 ± .02 (range .16 to .54) for Colombia. Stanton (unpublished data) also found that the MR increased with the within herd standard deviation for milk similarly in each country. Objectives

Following the initiative described by Blake et al. (6), primary objectives of this study were to predict and to compare the economic returns from straightbred Holstein herds investing in semen from US Holstein AI sires under Colombian, Mexican, and Venezuelan dairy herd management situations, and to compare these economic returns to those obtained by average US dairy producers. Because the MR is less in these Latin American countries than in the US, the subjective predictions of MR from US Holstein AI sires also were of interest to help explain the relatively low rate of AI adoption by surveying dairy and dual purpose (beef and milk) cattle producers and other professionals with Venezuela serving as a case example. MATERIALS AND METHODS

Data to meet objectives were 1) the PD for milk and fat of the 102, 198, and 47 US

Holstein AI sires with semen available for purchase in Colombia, Mexico, and Venezuela after the January 1987 USDA Sire Sununary, 2) milk and semen prices for early 1987 in each country, and 3) subjective perceptions from Venezuelan producers and Venezuelan and US professionals from survey interviews. Also evaluated was a set of four US Holstein proven bulls (with PD information) that were imported to Venezuela for local semen processing.

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TABLE 1. Information needed to calculate net present values for each sire for conditions representing sttaightbred Holstein dairy herds in Colombia, Mexico, Venezuela, and the Us. 1

Country Variable

Colombia

$fki-

Milk price, Fat differential, $~ Calving interval, mo Age at first calving, m04 Coefficient of daughter milk response to US sire selectionS

.18 14 37

Mexico .20 1.32 14

29 .30 .60

.40 .55 .75

Venezuela

us .25

.16

3.70

13 27

14 31 .30 .60

1.0

ISire codes and semen prices were obtained locally in early 1987 for the 102, 198, and 47 US Holstein AI sires with semen available for purchase in Colombia, Mexico, and Venezuela. Sire PO for milk were obtained from the 1anuary 1987 USDA Sire Summary. In the US there were 394 Holstein sires with semen available for purchase. 2Mi1k prices were obtained in Colombia from the Asociaci6n Colombiana de Ganado Holstein-Friesian; in Mexico from the Asociaci6n Holstein-Friesian de M6xico. field research in Venezuela (7); and in the US from the USDA Sire Summary. 3pat differential for Mexico based on 3.0% fat milk and for the US on 3.5% faL No differentials for fat were paid in Colombia or Venezuela.

~m studies of Abubakar et aI. (3) for Colombia and Mexico, from Holmann et a1. (7) for Venezuela, and from Blake et aI. (6) for the US. SCoefficients of daughter milk response per unit of sire Predicted Difference were obtained from Stanton (unpublished data) for Colombia, Mexico, and Venezuela and from Powell and Norman (15) for the US.

Calculation of Economic

Returns Income from additional daughter milk due to sire selection begins to accrue several years after AI of the dam. Net present value procedures with appropriate discounting are thus required to appropriately rank AI sires that vary in price of semen and in genetic transmitting abilities for milk. Net present values for each sire (PV$, expressed on a three-lactation lifetime basis per daughter) were calculated for conditions representing each country using microcomputer software developed for this purpose (5). Information needed to calculate sire PV$ for conditions in Colombia, Mexico, and Venezuela is in Table 1. Alternative PV$ summaries were for conception rates to first service (CR) of 30 and 50%. Predicted Differences for milk and fat were multiplied by regression coefficients 0btained by Stanton (unpublished data) to estimate milk income for these Latin American countries (fable 1). Real interest rates (RIR) of 7 and 10% were used to discount the stream of income and costs based on variations from 1965 to 1984 for Latin American countries including Colombia, Mexico, and Venezuela

(9). These two RIR also were used to account for risk from uncertain changes in milk price and cost of inputs. A short financial planning horizon of one generation of descendants (daughter only) was used to restrict risk from uncertain changes in milk price, cost of inputs, and RIR during the three-lactation average lifetime assumed for daughters of a sire (11). Feed cost was assumed to be 45% of milk income (11, 17). Income from male offspring was assumed not to depend on sire. Thus, PV$ per daughter per lifetime represents the additional milk income over costs of feed and semen from an average daughter of a selected sire. Greater average daughter milk yield is expected from US germplasm in Holstein populations with less genetic potential than in the US. To account for this economically favorable effect, 300 kg milk and 9 kg fat [R. L. Powell, 1987, USDA-DHIA Sire Summary for Holstein-Friesian bulls used in Mexico (Spring 1987), personal memorandum.] were added to the respective PD (genetic base year was 1982) of each bull prior to calculating PV$ for each country. Additional breeding costs (e.g., detection of estrus and labor costs) could not be included due to lack of data. Thus, the economic returns from semen investment are probably overestimated in this study. 10urnal of Dairy Science Vol. 73.

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Regression coefficients of MR of .30 and .60 were used to represent Colombian and Ven-. ezuelan herd situations and MR coefficients of .40, .55, and .75 were used to represent Mexican herd situations. Stanton (unpublished data) found about 7% of herds in Colombia with MR ~.60 and 40% of herds with MR S.30. For Mexico, 7% of herds had MR ~.75, 43% of herds had .~.55, and 19% of herds had MR ~.40. Although Venezuelan data were unavailable to estimate MR, herd milk yield standard deviations for Venezuelan Holstein herds were similar to those in Colombia and Puerto Rico for the same herd average milk yield classes, which supported the assumption that daughter MR also might be similar. Details about herd milk yield standard deviation distributions by country are given by Hobnann (8). In this study, a mean MR of .30 was used to represent average management conditions in Colombia and Venezuela and a mean MR of .55 was used to represent average Mexican management conditions. Objectives of this study also were to compare the economic returns from investing in US Holstein semen in Colombia, Mexico, and Venezuela to the economic returns in US dairy herds (Le., those obtaining MR = 1.0). An attempt was made to distinguish economic and management causes of differences in profitability from the AI biotechnology between Latin America and the US. First, the economic environment was standardized by assuming that Colombia, Mexico, and Venezuela obtain the same milk price, RIR, and semen cost as in the US. Thus, the resulting differences in profitability would be due to management effects (i.e., lower MR). Next, the management effect was standardized by assuming that Latin American countries obtain the same MR as in average US herds (Le., MR = 1.0 and CR = 50%). Resulting differences in profitability now would be due to economic effects (i.e., lower milk prices and higher RIR and semen cost). SubJective PercepUons about Daughter Response In Milk

Subjective perceptions about MR from US Holstein semen were obtained from August 1987 to March 1988 from Venezuelan producers and from professionals in both countries using a questionnaire. Responses in VeneJournal of Dairy Science Vol. 73, No.8, 1990

zuela were obtained by personally interviewing 142 herd owners or managers (48 Holstein herds, 45 crossbred herds with about >50% Holstein genes, 49 crossbred herds with about ~O% Holstein genes), 13 consultants, and 7 university professors. In the US, 17 university professors [from Technical Committees of the two regional dairy cattle breeding projects (North Central region, NC-2; Southern region, S-49)] and 7 personnel from international divisions of organizations active in cattle or semen exports were surveyed by mail using the same questionnaire. Venezuelan consultants were animal scientists, veterinarians, or agriculturalists who either worked privately, provided technical assistance to suppliers of local milk plants, or were extension agents from the Ministry of Agriculture. The survey questionnaire to obtain oral and written responses is given by Hobnann (8). Survey respondents were asked, in units with which they were familiar (metric equivalents are in parentheses), how much milk (actual daily yield or deviation from daily herd mean yield) they would predict from daughters of US Holstein AI bulls with PDM of 1900 lb (862 kg), 1300 lb (590 kg), 700 lb (317 kg), 100 lb (45 kg), and -500 lb (-227 kg) milk and local Holstein dams of average potential. Respondents were told to assume that mature daughters of each bull would be milking in the same herd at the same time. Producers and professionals answered the survey assuming that daughters were under either their own (if straightbred Holstein) farm management conditions or those of an average Holstein herd. A simple linear regression of expected daughter milk yield on sire PD was fit to obtain coefficients for each group of respondents. RESULTS AND DISCUSSION Opportunity for Net Economic Return from Imported Semen

Table 2 shows mean PV$ of all bulls and of those offering positive economic returns (PV$>O), percentage of bulls with PV$>O, and average semen cost of bulls with PV$>O for the 102,198, and 47 US Holstein bulls marketed in Colombia, Mexico, and Venezuela in 1987 for alternative values of MR, CR, and RIR. Average economic returns on semen investment were negative for most scenarios in each

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PROFITABilITY OF SIRES IN LATIN AMERICA

TABLE 2. Mean net present value (PV$) of all bulls and of bulls with PV$>O, percentage of bulls with PV$>O, percentage of bulls with PV$>O at the 90% lower confidence limit [-CL (90%)], and average semen prices for the 102, 198, and 47 Holstein sires with PV$>O in Colombia, Mexico, and Venezuela for various milk responses to US sire selection (MR.), conception rate (CR), and real interest rate (RIR). Combination

MR

CR

PV$

RIR.

All

(%) Colombia .60

50

Mexico .75

-15 -27 -78 --88

29 21 22 IS

50

7

-55

30

10 7 10

-59 -118 -120

7 10 7 10

50

7

30

10 7 10

.40

($/unit)

49

34

23 17

19 13

9.19 8.26 6.65 5.65

9

17

14

5.65

6 4

10 2 0

8 2 0

5.00 3.50

1 -12 -{is -77

50 38 33 22

82. 77 57 49

78 71 47 33

9.07 8.60 7.49 6.96

-24 -34

28

72

63

8.41

64

-91 -98

21 18 IS

34 21

52 23 16

7.93 6.42 5.58

7 10 7 10

-45 -51 -111 -115

15 12 12 9

52 37 14 9

34 27 10 8

6.94 6.23 4.32 3.83

7 10 7 10

19 9 -16

-25

35 26 21 15

85 81 62 49

83 77 53 43

6.60 6.18 5.07 4.61

50

7

-17

9

455

30

-21 -51 -55

6 4 4

47 34

40

10 7 10

30 9 2

4.19 3.20 3.00

50

50

50 30

.30

(%)

56

30 Venezuela .60

-CL (90%)1

46

30

55

>0

($)

7 10 7 10

30

30

>0

Semen price2 of bulls with PV$>O

11 2

1Perceutage of bulls with PV$>O at the lower limit of the 90% confidence interval, Le., P[(PV$ - CL)>O]~.95. 2Average for all bulls was $17, $18, and $9 in Colombia, Mexico, and Venezuela. 3ttalic values indicate average management scenarios.

country. More important for rational economic decisions about managing genetic improvement programs, 0 to 56%, 9 to 82%, and 2 to 85% of AI sire choices were profitable (PV$>O) under Colombian, Mexican, and Venezuelan conditions. Thus, net economic returns from US Holstein semen are unequal between countries in Latin America. For average management scenarios (italic values in Table 2), 17% of bulls in Colombia,

72% of bulls in Mexico, and 47% of bulls in Venezuela had PV$>O. However, Stanton (unpublished data) found that about 40% of herdyears in Colombia and 62% of herd-years in Mexico had MR less than overall mean responses. Thus, significant percentages of Holstein herds in Colombia and Mexico, and maybe similarly for Venezuela, would have fewer opportunities to earn profit from investing in imported US semen than indicated for loumal of Dairy Science Vol. 73,

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HOLMANN ET AL.

PV$ldaughter/lifetime

6Or------::...-----------. 40

•

AllBuIh

Fa

Bulls ",ith P,,"S

>c

$Iunit

20 .,..------.:...----------~

15

20

a

10

·20 .40

.60 . L -_ _. _ _ _ _ - - - -........----~.____---' Colombia Mu:ico Vrnezuela

Colombia

Mexico

Venezuela

Country

Country

Figure 1. Mean net present values (PV$) for all and for the bulls with PV$>O in Colombia, Mexico, and Venezuela and. mean PV$ of four imported bulls with semen processed in Venezuela. Average daughter milk response to sire selection were .30 for Colombia and Venezuela and .55 for Mexico; and for conception rate of 50% and real interest rate of 7%.

Figure 2. Mean semen price for all bulls and for the ones with PV$>O in Colombia, Mexico, and Venezuela, and mean semen price of four imported bulls with semen processed in Venezuela. Average daughter milk response to sire selection were .30 for Colombia and Venezuela and 55 for Mexico; and conception rate of 50% and real interest rate of 7%.

herd management obtaining the average MR. Figure 1 shows mean PV$ for all bulls and for the bulls with PV$>O in Colombia, Mexico, and Venezuela, and the mean PV$ of four imported bulls with semen locally processed in Venezuela for the average MR.. 50% CR. and 7% RIR. Imported bulls will be discussed later. Results indicate that opportunities for positive economic returns from imported semen under average herd situations were less in Colombia and Venezuela than in Mexico. As would be expected, the proportion (number) of bulls with positive PV$ to choose from and their average semen price decreased with declining MR and CR and with increasing RIR (Table 2). Semen from bulls yielding positive returns on investment for these MR was 21 to 54% ($3.50 to $9.19 per unit) as costly as the $17 average for semen from the 102 bulls in Colombia, 21 to 56% ($3.83 to $9.07 per unit) as costly as the $18 average for semen from the 198 bulls in Mexico, and 33 to 73% ($3.00 to $6.60 per unit) as costly as the $9 average semen price for the 47 bulls in Venezuela. Figure 2 shows mean semen prices for all bulls and for the ones offering PV$>O in Colombia, Mexico, and Venezuela. Also shown is average semen cost of the four bulls imported by Venezuela for local semen processing. Thus, profit was sensitive to semen price.

Economic Effects of Herd Management

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Among the bulls offering positive economic returns, reducing MR from .60 to .30 for each CR and RIR diminished PV$ by 61 to 72% in Colombia and by 73% to 81% in Venezuela (Table 2). A reduction in MR from .75 to .55 for each CR and RIR diminished PV$ by 32 to 45% in Mexico. A 20% lower CR, 30% instead of 50%, for each MR and RIR reduced PV$ by one-fourth to one-half in Colombia, by onefifth to one-half in Mexico, and by one-third to one-half in Venezuela (Table 2). Thus, imported semen should be used judiciously only in situations of high MR (e.g., high producing herds) and CR (e.g., age group of females, such as heifers only). Opportunities for positive economic returns (PV$>O) are enhanced by low semen cost. Risk

Several alternatives to restrict the risk from investing in imported semen are now discussed. Increasing the likelihood of positive economic returns is especially important, because herd management and economic environments in Latin America are more Wlcertain than in the US. Two restrictions on risk already have been applied to conditions in each country: a finan-

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PROFITABllITY OF SIRES IN LATIN AMERICA

TABLE 3. Mean net present value (PV$) and semen prices of four US Holstein bulls imported to Venezuela for various milk responses to US sire selection (MR), conception rate (CR), and real interest rate (RIR).

PV$ (All)!

Semen price of bulls with PV$>O

($) 42 39 32 29 19

($/unit) 2.75 2.75 2.75 3.00 2.75

M 9

~OO

7 W

4

3.00

Combination MR

CR

RIR

- - - - - (%)

.60

50 30

.30

50

7 10 7 10 7

W 30

~OO

1At MR of .60, three sires had PV$>O with CR of 30% and four bulls with 50% CR. At MR of .30, three bulls had PV$>O with 30% CR, four bulls with 50% CR and 7% RIR, and three bulls with 50% CR and 10% RIR. At lower bound PV$ of the 90% confidence limit, three bulls had PV$>O for all combinations considered. 2ltalic values indicate average management scenarios.

cial planning horizon of one generation of descendant and real interest rates of 7 and 10%. A planning horizon only counting income from daughters is one way to restrict risk from uncertain changes in future input costs and milk prices which may affect the economic survival of the farm. Alternatively, rankings of sires with PV$>O were mostly unaffected (80 to 100% of bulls were the same in each country) when analyzed for an infinite number of generations (RIR = 7%), suggesting that the same bulls provide the most profit for either planning horizon. This outcome was due to the lower MR in Colombia, Mexico, and Venezuela, which is associated with reduced variance of genetic differences among bulls, than in the US. Thus, bulls with different transmitting abilities for milk become more alike in daughter yields and economic benefits under the economic and environmental conditions of Latin America, especially when milk income is discounted heavily into the future by considering the resulting increase in yield for all generations of descendants. Discounting with a greater real interest rate is another way to restrict risk. By choosing 10% instead of 7% RIR (Table 2) in addition to a short planning horizon, economic returns for bulls offering PV$>O were reduced by 28 to 33% in Colombia for each MR and CR [e.g., 21 PV$ (instead of 29 PV$) for MR. = .60 and CR = 50%], by 17% to 33% in Mexico, and by

26% to 33% in Venezuela. Also, the percentage of bulls with PV$>O were reduced by up to 10% in Colombia, by up to 15% in Mexico, and by up to 13% in Venezuela. Thus, a 10% RIR portends a riskier view of future returns, which results in fewer sire choices offering less profit but with a greater likelihood of positive returns from the remaining sires with PV$>O. Table 2 also contains the percentages of bulls by country with PV$>O at the lower 90% confidence limit (i.e., P[(PV$ - CL) >0]~.95}. Imposing this additional restriction on risk to ensure high probability of positive economic returns from imported US semen reduced the choice set of bulls by up to 12% in Colombia, by up to 11% in Mexico, and by up to 15% in Venezuela. Consequently, a useful semen investment strategy would be to select judiciously US sires using PV$ information with risk restricted. As already shown, accurate information about the CR, MR., and RIR to describe specific local management situations would enhance opportunities from the AI biotechnology by guiding choices of semen purchases that are most likely to be profitable. Imported Bulls

Table 3 contains mean PV$ and semen costs of the four imported Holstein bulls with semen processed in Venezuela for various MR., CR, and RIR combinations. Average economic 10urnal of Dairy Science Vol. 73,

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TABLE 4. Mean net present value (PV$) for all bulls and of bulls with PV$>O, and percentage of bulls with PV$>O without preferential exchange rate on semen importation for the 47 sires marketed in Venezuela for various milk responses to US sire selection (MR.), couception rate (CR), and reiI1 interest rate (RIR). PV$

Combination

MR

CR

.60

SO

R.IR

All

($)

(%)

7

10

.301

30

7

50

10 7

30

10 7 10

>0

-38 -46 -110 -116 -73

>0 (%)

19

43

12

34

8 9 4

11 2

-76 -145 -146

2

0 0 0

Iltalic values indicate average management scenarios.

returns were positive for most scenarios. Assuming MR = .60, average profitability of this group of imported bulls was 20 to 93% greater than for imported semen from sires with PV$>O also marketed in Venezuela (compare with values in Table 2). Assuming MR = .30, average PV$ of this group of imported bulls was 111 to 133% more profitable than imported semen from the bulls with PV$>O, except for equal profitability when CR = 30% and RIR = 10%. Three or all four imported bulls had PV$>O for each of the conditions considered. Average semen price of imported bulls was $2.75 compared with the $9/unit average price for the 47 sires with imported semen also available in Venezuela. Mean PD for milk of the imported semen from the 47 sires was 477 kg and for the group of imported bulls was 293 kg. Therefore, greater profitability for imported bulls was due to a 31 % lower semen price to obtain 61 % as much PDM from imported semen. Thus, local processing of semen from imported US bulls with modest genetic values appears to have been an effective way to increase the number of profit earning sire choices for Venezuelan producers. SubsIdy on Imported semen

Venezuela subsidized importation of semen and other agricultural inputs until 1989 at a preferential exchange rate that was about half of the official one (14.50 bolivares/$ versus about 30 bolivares/$) while milk price remained the same. To account for the new ecoIournal of Dairy Science Vol. 73,

No.8, 1990

nomic circumstances without subsidy, net returns were reanalyzed after multiplying the semen price of each sire by a factor of 2.1 to adjust for removal of the preferential rate. Table 4 shows mean PV$ of all bulls, bulls with PV$>O, and percentages of bulls with positive PV$ without the effect of preferential exchange rate in semen price for the 47 bulls marketed in Venezuela for the alternative MR., CR, and RIR. Resulting average economic returns were negative for all scenarios, and mean PV$ for the bulls with positive economic returns was 40 to 72% less than for bulls with PV$>O and semen price subsidized. Thus, current opportunities for profit from imported semen in Venezuela are much less than in the recent past, which makes investment in locally processed semen from imported bulls a more viable alternative. Economic Returns In Latin America Compared with the US

An explanation is offered about the proportion of observed differences in profitability between these Latin American countries and average US herds that were due to economic and management effects. Table 5 shows semen price and PV$ information for US Holstein sires available for purchase in early 1987 in Colombia, Mexico, Venezuela, and the US after standardizing the economic environment so that milk and semen prices and RIR are the same as the US for all countries. Compared to 91 % of

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PROFITABlllTY OF SIRES IN LATIN AMERICA

TABLE 5. Mean net present value (PV$) for all bulls and bulls with PV$>O, pm:entage of bulls with PV$>O, and average semen prices of all bulls for the 102, 198, 47, and 394 Holstein sires available for pmchase in early 1987 in Colombia, Mexico, Venezuela, and the US standardized for US economic conditions (Le., assuming for all countries $.25/kg of milk, 3% real interest rate, and US semen prices). PV$ Countryl

All

Colombia Mexico Venezuela US

-8

>0 ($)

22 -7 54

15 62 20 75

>0

Average2 semen price

(%)

($/unit)

50 85 53 91

10 17 11 13

1Assuming a mean daughter milk response to US sire selection of .30 to represent average management conditions in Colombia and Venezuela, .55 in Mexico, and 1.0 in the US with 50% conception rate for all countries. 2As priced in the US.

bulls with PV$>O for the US, average economic returns from all bulls were negative in Colombia and Venezuela, even for the higher milk price and lower RIR. Average economic returns for all bulls in Mexico were 40% of those in the US. For bulls with PV$>O, average profits were 20, 83, and 27% as much in Colombia, Mexico, and Venezuela as in the US. Thus, the management effect of less daughter MR drastically reduced expected profits from US sires in these Latin American countries compared with those in the US. Table 6 shows semen price and PV$ information for US Holstein sires available for purchase in early 1987 in Colombia, Mexico, Venezuela, and the US after standardizing management effects so that MR = 1.0 and CR =

50% in each country. Average PV$ for all bulls in Colombia and Mexico were 69% as much as in the US due to the different economic environments of Latin America (Le., lower milk prices, higher semen costs, and higher RIR). Economic returns for all bulls in Venezuela were 22% higher than in the US due to the preferential exchange rate on semen importation in 1987. Thus, differences in mean profitability between Venezuela and the other countries reflected the policy of subsidizing imported agricultural inputs. Without the preferential exchange rate, average semen price for the 47 bulls available in Venezuela would have been $20/unit, and mean PV$ would have been 10 PV$, which represented 19% of the economic returns obtained in the US. Average

TABLE 6. Mean net present value (PV$) for all bulls and bulls with PV$>O, percentage of bulls with PV$>O, and average semen prices of all bulls for the 102, 198,47, and 394 Holstein sires available for pmchase in early 1987 in Colombia, Mexico, Venezuela, and the US standardized for US average management conditions (Le., assuming all countries obtained a coefficient of daughter milk response to sire selection of 1.0 and 50% conception rate). PV$ Countryl

All

>0

- - - - - ($)

Colombia Mexico Venezuela2 US

37 37 66 54

66 78 78 75

>0

Average semen price

(%) 80 88 91 91

($/unit) 17 18 9 13

lAssuming a milk price of $.2S/kg 3.5% milk and real interest rate of 3% to represent US COnditioDl (4) and local milk prices and real interest rate of 7% to represent Colombian, Mexican, and Venezuelan conditions. 2Venezuela allowed importation of semen until 1989 at a preferential exchange rate 2.1 times lower than the official rate. Without preferential exchange rate, mean PV$ of all bulls would have been $10 and $47 for the bulls offering PV$>O, with 81 % of bulls with PV$>O and average semen price of $20/unit. Journal of Dairy Science Vol. 73,

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TABLE 7. Subjective predictions of daughter mille response in mature equivalent mille on sire Predicted Difference (MR) from Venezuelan producers and professionals from Venezuela and !he US for Venezuelan conditions. Countly

D

MR.1

SB

48 45 49

1.38 1.44 1.96

.16 .13 .10

13 7

.77 .85

.15 .12

17 7

1.16 1.25

.09 .26

Venezuela Producers

Straightbred Holstein Crossbred >50% Holstein Crossbred ~ Holstein Consultants Professors US Professors Germplasm exporters

11be MR for US herds were .75 to 1.49 with mean of unity from (15). For Colombia, MR. were .16 to .54 with mean of .32, for Mexico .22 to .66 with mean of .54, and for Puerto Rico .22 to .61 with mean of .32 (Stanton, unpublished data). Standard errors ranged from .m to .08 for US herds, .05 to .10 for Colombian herds, .04 to .28 for Mexican herds, and .04 to .18 for Puerto Rican herds.

economic returns from bulls with PV$>O were predicted slightly greater in Mexico and Venezuela (4% more profitable) compared with the US when MR. and CR were assumed to be the same (MR = 1.0 and CR = 50%). Economic returns from bulls with PV$>O in Colombia were 88% as profitable as in the US when MR. and CR were assumed to be the same. Thus, results from Tables 5 and 6 suggest that the reasons for lower returns to AI in these Latin American countries compared with the US were primarily from limitations to herd management (Le., lower MR.) and, second, from economic conditions (i.e., lower milk price, higher RIR, higher semen price). Dairy research and extension collaborations with institutions in these countries should focus on increasing MR and CR. Learning to manage dairies better in more difficult environments will probably enhance economic payoffs from genetic improvement in milk yield. SUbjective Predictions 01 Daughter Response

"'"k

Table 7 shows subjective predictions of daughter milk. response to US sire selection for Venezuelan producers and professionals from both countries. All respondent groups overestimated the MR compared with actual results for Latin America (Stanton, unpublished data). Consequently, the economic benefits expected from semen investment were implicitly overestimated. Among respondent groups, producers Journal of Dairy Science Vol 73,

No.8, 1990

overestimated MR (profits) the most, followed by US germplasm exporters and professors. Milk response was least overestimated by Venezuelan professors and consultants. Assuming that less profit leads to less incentive for genetic investment, these differences in perceived and realized daughter response especially predispose Latin American producers to disappointment with benefits from AI, which may result in decreased future use. One alternative to increase the AI adoption rate, while reducing the risk associated with low CR and MR, might be to use AI on selected matings to produce bulls for use in natural breeding as recommended by Plasse (14). CONCLUSIONS

Economic returns from US AI germplasm were substantially lower in Colombia, Mexico, and Venezuela than in the US. Observed differences in profitability of US semen between the US and these Latin American countries were mostly due to reduced MR from management, but less favorable economic effects also contributed to lower returns, except in the case of Venezuela. For average management scenarios, 17, 72, and 47% of AI sire choices were profitable (PV$>O) in Colombia, Mexico, and Venezuela. Thus, opportunities for positive ec0nomic returns from investing in US semen were greater in Mexico than in Colombia and Venezuela. To restrict risk and ensure greater economic returns, imported semen needs to be used pru-

PROFlTABlllTY OF SIRES IN LATIN AMERICA

dently only in situations of acceptably high CR (e.g., age group of females) and MR (e.g., high producing herds). Corresponding infonnation about profitability for these management situations would help assure opportunities for positive economic returns from AI. Locally processed, inexpensive semen from imported bulls, especially when compared with semen imported without preferential exchange rate, appears to be an effective way to increase the likelihood of profitable sire choices as well as to promote and increase local employment opportunities for professionals. Because profit from AI is sensitive to semen price, restricting the cost of semen also is important because milk prices and daughter response to sire selection are less than in the US. Thus, in the future, one may expect greater substitutions of low priced, locally processed semen from imported bulls with modest genetic values for the more expensive imported gennplasm from sires with higher genetic values. For situations of average MR and low CR, the use of AI on certain matings to produce bulls for use in natural breeding might be more profitable than widespread AI. However, more infonnation is needed regarding the potential economic returns from using natural breeding bulls of varying genetic potentials compared with using AI. ACKNOWLEDGMENTS

The authors are grateful to the Holstein Association of America and the Office for International Cooperation and Development of the USDA for partial funding of this project. We also thank the Universidad Central de Venezuela in Maracay and the Venezuelan Ministry of Agriculture for their cooperation. REFERENCES 1 Abubakar, B. Y., R E. McDowell, and L. D. Van Vleck. 1986. Genetic evaluation of Holsteins in Colombia. J.

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Dairy Sci. 69:1081. 2 Abubakar, B. Y., R. E. McDowell, L. D. Van Vleck, and E. Cabello. 1987. Phenotypic andgenelic parameters for Holsteins in Mexico. Trop. Agric. (Trinidad) 64:23. 3 Abubakar, B. Y., R. E. McDowell, and L. D. Van Vleck. 1987. Interaction of genotype and environment for breeding efficiency and milk production of Holsteins in Mexico and Colombia. Trop. Agric. (Trinidad) 64:17. 4 Blake, R. W., C. R Shumway, and M. A. Tomaszewski. 1987. PV$ sire summary changes with industry. Dairy Herd Manage. 24(4):20. 5 Blake,R. W.,C.R Shumway, M.A. Tomaszewski, G. P. Rickard, and J. M. LaBore. 1988. Profit-maximizing dairy sire selection package. South. J. Agric. Econ. 20(1):141. 6 Blake, R. W., F. J. Holmann, J. Guti6rrez, and G. F. Cevallos. 1988. Comparative profitability of United States artificial insemination sires in Mexico. J. Dairy Sci. 71:1378. 7 Holmann, F. J., R. W. Blake, M. V. Hahn, R. Barker, R A. Milligan, P. A. Oltenacu, and T. L. Stanton. 1990. Comparative profitability of purebred and crossbred Holstein herds in Venezuela. J. Dairy Sci. 2190. 8 Holmann, F. J. 1989. Economic evaluation of dairy and dual purpose cattle production systems in Venezuela. Ph.D. Diss. Dep. Anim. Sci., Cornell Univ., Ithaca, NY. 9 International Monetary Fund. 1985. Int. Finan. Stat. 38: 12. 10 Johannsen, L. 1988. Editorial: propuesta del sector lechero. Mexico Holstein 19(12):7. 11 McMahon, R. T., R. W. Blake, C. R. Shumway, D. J. Leatham, M. A. Tomaszewski, and K. R. Butcher. 1985. Effects of planning horizon and conception rate on profit-maximizing selection of artificial insemination sires. J. Dairy Sci. 68:2295. 12 Ministerio de Agricultura y Crla. 1986. Estadisticas Pecuarias 1986. Dir. Desarrollo Ganadero, Div. Estudios Tecnicos, Caracas, Venezuela. 13 Perez-Dominguez, M. 1986. Manual sobre ganado productor de leche. 3m ed. Diana Pub!., Mexico. 14 Plasse, D. 1985. The rational use of artificial insemination in tropical beef cattle. Page 137 in Emerging technology and management for ruminants. Frank H. Baker and Mason E. Miller, ed. Winrock Inti. Westview Press, Boulder, CO. 15 Powell, R. L., and H. D. Norman. 1984. Response within herd to sire selection. 1. Dairy Sci. 67:2021. 16 Shumway, C. R., R. W. Blake, D. J. Leatham, and M. A. Tomaszewski. 1987. Assessing the comparative economies of a biotechnology: artificial insemination dairy sires. Agribusiness 3(2):207. 17 Wilcox, M. L., C. R Shumway, R. W. Blake, and M. A. Tomaszewski. 1984. Selection of artificial insemination sires to maximize profits. J. Dairy Sci. 67:2407.

Journal of Dairy Science Vol. 73,

No.8, 1990