THE IMPACT OF bST ON FARM PROFITS

Data from the same 138 New York dairy farms for the years 1994 through 1997 were used to estimate whether Bovine Somatotropin (bST) generated profits for adopters. Data from these same farms from 1993 were used to sort farms into groups by production per cow, profit per cow, and farm size, in order to test bST response by these delineators. Statistically, farms that used bST on average experienced an output response per cow, but did not profit from using bST. The exception are farms with cows producing between 8159 to 9157 kilograms per cow, who appear to be making money from bST. Lower production per cow farms are getting a bST output response, but are not making money from that response; higher production per cow farms are not even getting a statistically significant output response. _______________ Paper presented at the 4 International Conference on the "Economics of Agricultural Biotechnology" in Ravello, Italy, August 24-28, 2000. The author wishes to acknowledge Chris Barrett, Wayne Knoblauch, David Lee and William Tomek for their useful suggestions. THE IMPACT OF bST ON FARM PROFITS INTRODUCTION The compound bovine Somatotropin (bST) has been commercially available to U.S. dairy producers since February of 1994. Before approved for sale, bST was subject to years of investigation and testing. Given the large production response per cow that most of these tests reported, bST was generally projected to be profitable for dairy farmers, with estimates often exceeding $100 per year per cow (Butler, 1992), although some projected little or no profit (Marion and Wills, 1990). Now that bST has been used by U.S. farmers for a number of years, it is possible to estimate their actual production and profit responses. Bovine Somatotropin is a hormone produced by the dairy cow that regulates milk production. The genetic material for this compound has been isolated and is produced by recombinant biotechnology. This recombinant-produced bovine Somatotropin can then be 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 (1999) 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. Tauer and Knoblauch (1997) used data from the same 259 New York producers in 1993 and 1994 to estimate the impact of bST on milk production per cow and return above variable cost per cow. BST was not available in 1993, but one-third of these farmers used bST in 1994. The use of bST had a positive and statistically significant impact on average production per cow (∝ = .005), but the profit effect, although positive and large, was not statistically different from zero (∝ = .014).