DAIRY FARM DECISIONS ON HOW TO PROCEED IN THE FACE OF TB

Sherrill B. Nott and Christopher Wolf ()

No 11654, Staff Paper Series from Michigan State University, Department of Agricultural, Food, and Resource Economics

Abstract: By early 2000, the number of commercial livestock herds in Michigan with bovine tuberculosis (TB) had increased to the point that policy makers were considering alternative ways to enable farmers to continue production with access to markets while eliminating TB and protecting the public's health. If at least one animal on a farm is found to have TB, a farmer currently has two choices about the future assuming the goal is to stay in the livestock business. Alternative one is depopulation; all animals are removed to a state facility, slaughtered, and tested. A new herd may be purchased after a state supervised clean up and waiting period is completed; this may take one year. Alternative two is test and remove; a recurring series of testing is initiated, but only individual reactor or suspect animals are removed for slaughter and further testing. In both alternatives, regulations allow indemnity payments to be made to the owner by the state and federal governments. This paper analyzes the financial impact of each alternative on two dairy benchmark farms. One has 75 milk cows, the other 150. Monthly cash flow projections for two years were made using FINFLO. A base projection was compared to the above alternatives assuming constant herd size (except for the impact of TB) and constant price levels. The main goal was to illustrate how a farmer might analyze the alternatives if faced with TB infected animals. The 75 cow farm started with $8,309 of cash on January 1, 2000. The base projections resulted in cash of $34,230 by December 31, 2001. Ending cash after two years for depopulation or test and remove were $16,095 and $15,801, respectively. The 75 cow farm started with a net worth of $624,940 on January 1, 2000. The base projection increased net worth by $66,542 over the two years. For depopulation or test and remove, the change in net worth by the end of 2001 was $-15,345 and $48,256, respectively. The 150 cow farm started with $30,659 of cash on January 1, 2000. The base projections resulted in cash of $40,437 by December 31, 2001. Ending cash after two years for depopulation or test and remove were $2,972 and $13,290, respectively. The 150 cow farm started with a net worth of $1,122,940 on January 1, 2000. The base projection increased net worth by $31,765 over the two years. For depopulation or test and remove, the change in net worth by the end of 2001 was $-95,904 and $-1,925, respectively. Benchmark model farms will not exactly fit any particular farm. Each owner faced with TB should make their own projections using their unique situation and timing of cash flows. Once an alternative is adopted, monthly financial comparison sheets can be helpful in managing the transition to TB free status.

Keywords: Livestock; Production/Industries (search for similar items in EconPapers)
Pages: 19
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ags:midasp:11654

DOI: 10.22004/ag.econ.11654

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