The International Consortium on Agricultural Biotechnology Research (ICABR)
The Impact of Bovine Somatotropin on Farm Profits
Loren W. Tauer, Cornell University, NY
The compound bovine Somatotropin (bST) is a hormone produced by the dairy cow that regulates milk production. BST can be produced by recombinant biotechnology and has been commercially available to U.S. dairy producers since February of 1994. Recombinant-produced bovine Somatotropin is injected into the dairy cow to augment her naturally produced levels of this hormone, enhancing milk production, but requiring additional feed and other inputs to increase milk production. Monsanto is currently the only U.S. supplier of recombinant bST under the registered tradename POSILAC. As of May 11, 1999, Monsanto states that 13,000 dairy producers were using bST, and of the nearly 9 million dairy cows in the United States, approximately 30 percent of the cows are in herds that are supplemented with POSILAC.
Stefanides and Tauer analyzed the production and profit effects of bST using a panel set of 211 New York farms from the years 1994 and 1995. They found a significant and positive effect on milk production per cow from the use of bST, but found that the impact of bST on profits was zero. Nonetheless, there may still be a subset of farmers earning a positive return from the use of bST. They may either have been the most effective learners or have a unique position or characteristic to profit from bST.
This paper implements that concept using four years of bST-use data from 1994 through 1997, and measures the impact by different types of farmers. Observations from 138 New York dairy farms are available. Slightly over half of these farms used bST during that time, with a number of them stopping or starting bST use during the four-year period. Data from 1993 were used to sort farms into production and management groups, and bST impacts were measured with data from 1994 through 1997.
Since farmers displayed various historical bST use patterns over the four years of bST availability, those patterns are used to accommodate any self-selection bias as suggested by Card. A profit function is estimated where profit is a function of output and input prices, other exogenous determining variables, and the use or non-use of bST.
A system of four equations from the four years of data is jointly estimated with seemingly unrelated regression with cross equation restrictions imposed. This system approach is also used to model and estimate the change in milk production per cow from the use of bST.
On average, farms that are using bST are experiencing an output response per cow, but are not profiting from using bST. The exception are farms with cows producing between 81.59 to 91.57 hectoliters per cow, who appear to be making money from bST. Lower production per cow farms are getting a bST response, but are not making money from that response; higher production per cow farms are not even getting a statistically significant output response.
Card, D. 1996. The effect of unions on the structure of wages: a longitudinal analysis. Econometrica 64:957-979.
Stefanides, Z. and Tauer, L.W. 1999. The empirical impact of bovine somatotropin on a group of New York dairy farms. American Journal Agricultural Economics 81:95-102.