When it comes to traceability, what’s it worth to you? What would get you to change your current animal ID system? How much information—and to whom—would you be willing to give out to help combat animal diseases?
A trio of ag economists have tried to answer these questions in a recently released study.
James Mitchell, Dr. Glynn Tonsor, and Dr. Lee Schultz conducted a study of cow-calf producers and feedlot operators on their willingness to adopt different identification systems, including electronic systems such as radio frequency identification (RFID) tags like those favored by the USDA for animal disease traceability programs, and what it would take for them to do so.
“What this study really tried to look at is how do [traceability] program design and market incentives act together to hopefully try to increase participation in electronic traceability programs,” summarized Mitchell, a PhD candidate in the Kansas State University (K-State) Department of Agricultural Economics.
“We were looking at what kind of premium a cow-calf producer would need to adopt this kind of a program and is that premium even feasible for a feedlot to want to pay that to receive cattle at that same form of traceability.”
The study was conducted via survey mailed out to those who sell feeder cattle (cow-calf operators) and those who buy feeder cattle (feedlot operators). Out of 1,500 surveys sent to each group, 318 cow-calf surveys (21 percent) and 195 feedlot surveys (13 percent) were returned.
“Using producer surveys, we presented cow-calf producers, backgrounders, stockers, feedlots with scenarios where they could choose among different traceability options and then, based on their answers to those questions, we can back out how they value different traceability attributes,” summarized Mitchell.
The findings were presented most recently at K-State’s Risk and Profit Conference, held Aug. 22-23. The study’s short title is “Comparing willingness to supply and willingness to pay for cattle traceability.”
Mitchell was the lead author of the study. Tonsor, K-State professor of agricultural economics, and Schultz, associate professor of economics at Iowa State University, were contributing authors and have done considerable research in this area. The study was funded by a grant from the USDA.
Different needs, different values
“When we think about traceability, USDA program designers are really concerned about decreasing our response time to diseases, preventing disease losses, but those in the cattle industry are concerned about making money,” Mitchell noted, talking to K-State’s daily “Agriculture Today” radio program before the Risk and Profit Conference.
“So, you have this conflicting story here, of trying to make an effective traceability program, but also trying to incentivize people to use this program, because for animal traceability to be effective, you need high enrollment of animals and producers.”
Incentives can come in several forms, but the simplest is price; the cost versus the benefit in economic terms. The study found that both cow-calf and feedlot operators are more sensitive to traceability program costs than to the economic results of those programs. Mitchell called this unsurprising but important.
“For feeder cattle sellers, they are more sensitive to the costs of implementing a traceability system than they are the premium or discount they might receive for selling cattle with some form of traceability,” he said, noting that the “costs” are more than the physical costs of purchasing a tag or RFID tag. It can include changes in management, record keeping systems, the infrastructure necessary to utilize the tags, and so on.
“On the other side of that, for feeder cattle buyers, they are more price sensitive to the cost, or the premium or discount they would have to pay, to receive cattle with some form of traceability than they are the premium or discount they might receive moving forward.”
This latter detail can be somewhat extreme. For example, the study found that fed cattle premiums and discounts “do not have a statistically significant effect on feedlot producers’ choice of traceability.”
Study participants were offered a variety of potential traceability programs that differed in the details, both in level—no traceability, traditional visual traceability, and electronic traceability—but also in design. This included management details, such as privately run, government-run, or a public-private partnership.
“A cool thing about this project is we can attach values to specific traceability attributes to see what trait or attribute of a traceability system is most important to a producer when they’re deciding to adopt this or procure feeder cattle with some form of traceability,” commented Mitchell.
Both cow-calf and feedlot operators agreed; they don’t want a government-managed program. And it would take a lot of money to convince them otherwise.
“Results show that cow-calf producers would need premiums of $55.05/head to be indifferent between a traceability system that is privately managed and a system that is managed by the government,” noted the study’s report.
“Producers are willing to accept discounts of $9.74/head before switching to a government managed system.”
Similarly, feedlot operators in the study would accept discounts of about $22.50/head before switching to a government managed traceability system.
The bottom-line of the study’s findings is that both cow-calf producers and feedlot operators are very cost-sensitive on traceability programs and are very wary of a government-managed program, being willing to pay a lot to not be entangled in a government program. These details have policy and incentive implications, particularly in the current situation where USDA is pushing for a cohesive animal disease traceability system in the U.S.
“What we find is you need both of those aspects [incentives and program design] to work together to get participation to a level that would be deemed desirable,” summarized Mitchell.
“For some producers, there are some clear managerial or marketing benefits,” said Tonsor of the adoption of traceability systems. “There is some probability that we will have an animal health event (at some point) that we need that info on and so forth, but in general, the benefit of these systems are less known and certain than the costs.
“Therefore, it shouldn’t be surprising that the cost of participating has a bigger marginal impact on participating than what we present as benefits, which are higher cattle prices,” he continued.
From this, the researchers suggest that efforts to get producers to adopt certain traceability systems should focus on costs and design.
“Results show that policies would be most effective at reducing costs at the cow-calf level or offering cost-shares for feedlot producers who want to procure cattle with electronic traceability,” the report summarized.
“Moreover, cow-calf producers are more sensitive to changes in the ‘economic carrot’ for adopting electronic traceability than the ‘economic sticks’ for choosing not to adopt traceability.” — Kerry Halladay, WLJ editor