21 January 2000

Growing doubts over investment in semen straws

Investment in genetics,

indexes and breeding

technology were to the fore

at the British Cattle

Breeders Club conference

in Staffs last week.

Emma Penny and

Jessica Buss report

INVESTING in semen to improve genetic merit may have been worthwhile when progress was rapid but, on farms where progress is slowing, spending less may now be more economic.

Cheshire dairy farmer Andrew Chadwick told the conference that he had decided to spend about £15 a straw on semen, half the price justified a few years ago.

The connection between cattle breeding and economics in the UK has always been tenuous, he said. "In the past several factors have held sway which had no connection with economics – everything from whether it had a black foot or was 60in high or more. I doubt such factors will hold sway in the harsher future we face."

UK producers have justified spending on semen to catch up with the rest of the world and breeders are likely to have gone through or be going through a large acceleration in genetic gain. But now they should ask whether there is any money to be made through investing in genetics, he said.

"In our case, we embraced indexes early and were the first people to price genetic gain." That was before SAC Langhills more authoritative, but similar, PIN index, he added.

"At that time, we proved to ourselves the value of that gain and worked out what paid and what didnt pay in breeding terms.

"I remember doing discounted cash-flow evaluations to show the effect that investment in genetics would make on our business." These calculations showed a large pay back taking seven years.

"Our calculations showed it paid to go for maximum gain, even if all the adverse predictions of all the doom-mongers came to pass.

"Fortunately, we ignored all the prophecies of doom. We also calculated that it paid to have as high a replacement rate as possible – at least 40%. ET, however, on any scale didnt pay."

But now genetic gain is starting to slow and prices for milk and cattle are lower, he believes continuing to invest in genetics at about £30/straw of semen will not produce the same return.

"Now with a smaller and less valuable return from the farm there is a danger of investing far too much." He backed this statement with his experience of investing money off the farm.

"In early 1997 we took a strategic decision to take half our assets out of agriculture – like all these decisions it was complicated by important considerations of family, staff, land and tax and was not driven by pure economics. I agonised over it for so long I missed the top of the boom."

Mr Chadwick has found the assets retained in dairying have halved in value, while money invested elsewhere has doubled in value.

"Money put in a pension scheme has risen by over 50% in two and a half years, in spite of choosing a cautious investment strategy. However, with tax relief it has more than doubled in value."

This experience has made Mr Chadwick question his investments in genetics. "If returns are so much lower, we should invest less and re-check that the investment still gives a return."

He has, therefore, decided to source bulls at about £15 a straw. But hopes to halve that again in the near future.

"We are now selecting different bulls largely on price – there are no must have bulls. We accept a small fall in our rate of increase in genetic gain for production, recognising that our herds will drop down the genetic rating, and that this is the correct business decision to make."

GENETICINVESTMENT

&#8226 Justified when gain rapid.

&#8226 ET doesnt pay.

&#8226 Investment now halved.

Cutting spending on bull semen is a good business decision, despite slowing genetic progress for the dairy herd, believes Andrew Chadwick.