Economic Values

What are economic values (EVs)?

Ten traits have been identified as having a measurable economic value to NZ farmers. Economic values represent the dollar value of a one-unit increase in one of the traits if all the other trait values were held constant. 

The economic values are applied on a 'profit per unit' basis. For example, one additional kg of protein creates an estimated $7.10 of additional profit when all other trait values remain the same.

The breeding values are multiplied by their respective economic values to produce the index Breeding Worth (BW). The ten traits in BW can be categorised as representing either 'Production efficiency' or 'Robustness' traits.

How Economic Values are calculated

Calculations of economic values account for milk production, historical and current milk prices, income from culls, surplus cows and calves, the cost of feed, the cost of generating replacements and general dairy farm expenses.

For some traits a one-unit increase is associated with an increase in profit, other times it is associated with a decrease in profit.

Examples of traits where an increase in the breeding value is associated with an increase in profit are milk fat yield, milk protein yield, fertility, functional survival, body condition score and udder overall. In other words, higher breeding values for these traits are better for farm profit.

Examples of traits where an increase in the breeding value is associated with a decrease in profit are milk volume, liveweight, gestation length, and somatic cell count. In other words, lower breeding values for these traits are better for farm profit.

Production efficiency traits

Protein, Milk Fat, Milk Volume

The economic values for milk fat yield, milk protein yield and milk volume account for the income associated with higher production as well as the feed costs required to produce each milk component. Economic values are calculated using five-year averages of the milksolids price paid, the volume charge and the value component ratio (VCR).

The VCR is used to partition the milksolids price into a value for milk fat yield and a value for milk protein yield.

To calculate the economic value of specific milk components, we account for:

• the dollar value of milk components
• the amount of energy required to produce each milk component
• the feed cost required to accommodate the extra energy/feed a cow requires to produce additional milk components.

Liveweight

The liveweight economic value accounts for maintenance requirements and feed costs associated with growing and maintaining heavier animals as well as the extra income associated with cull cow value and the value of their calves.

• Cow maintenance requirements – increasing liveweight can lead to higher annual maintenance feed requirements for the cow.
• Heifer replacement feed costs – feed requirements are higher for maintaining and growing larger replacements.
• Cull cow value – heavier cows have more value as culls.
• Surplus calf value – increasing cow liveweight increases the size (and value) of surplus calves produced.

Robustness traits

Somatic Cell Score

The economic value for somatic cell accounts for decreased costs associated with less clinical mastitis, fewer penalties due to bulk tank somatic cell counts and better survival of cows with lower somatic cell counts.

The economic value for somatic cell accounts for:

• Survival – cows with low somatic cell will survive longer in the herd.
• Price penalties on milk supplied – low somatic cell cows help keep the bulk somatic cell count down, which avoids penalties via grades from milk processors.
• Mastitis treatment costs – low somatic cell cows have fewer cases of clinical mastitis.

Fertility

The economic value for fertility includes value gained through increased longevity and value gained through earlier calving dates of more fertile cows.

The economic value accounts for:

• Longevity - high fertility leads to increased longevity for early calving cows, as they have more chance to get in calf the following season (and therefore won’t be culled).
• More replacement heifer calves and more high value beef calves – more fertile cows will be in-calf to high genetic merit dairy bulls and/or high genetic merit beef bulls achieving a premium.
• Less natural mating bulls – with a higher proportion of the herd conceiving to artificial insemination in the first six-weeks, less natural mating bulls are required which will save costs.
• Less non-pregnant heifers – better fertility means less non-pregnant replacement heifers. This includes the value of a culled heifer and the costs associated with rearing or purchasing additional replacement heifers.

Gestation length

Early calving dates - cows and heifers with high fertility contribute a much tighter pattern of calving across the herd, and they themselves generally have longer lactations. This value is offset slightly by the cost of increased feed demand in early spring.

Functional Survival

The economic value for functional survival recognises that animals with better longevity independent of low production or poor fertility will reduce the requirement for replacement heifers.

The economic value accounts for:

• Heifer replacements – a herd with higher functional survival requires fewer replacements. This is offset slightly by the loss of cull cow income and reduced rates of genetic gain.
• Costs and revenues per lactation – cows of different ages differ in their contribution to herd profitability. The extra mature cows in a high survival herd are typically more profitable than first calvers, they are easier calving, easier to get back in calf, and produce more milk.

Body Condition Score

The economic value for BCS represents the improved profitability of an animal that can maintain body condition over her lactation.

Cows that lose body condition easily incur costs in two key ways:

• Feed efficiency – it’s inefficient for a cow to lose condition and then have to gain it again prior to the next calving.
• Days in milk – a thinner cow may have to be dried off earlier, reducing days in milk and, therefore, production and profit.

Udder overall

The economic value for udder overall represents the improved profitability of an animal that has superior udder conformation.

Cows with poor udder conformation incur costs in three key ways:

• Increased risk of developing mastitis.
• Increased cost of wintering a cow whose udder deteriorates early in the season.
• Increased cost of rearing a heifer to replace a cow whose udder has failed.

Dollar contributions to BW for Udder Overall BV: The difference in the profitability of a cow with an average udder vs a cow with very poor udder is much more than the difference in profitability between a cow with an average udder and a cow with a really good udder For this reason, udder overall has been incorporated in BW with a non-linear economic value in order to clearly show the impact of diminishing returns as udder overall improves between cows. The difference in the profitability of a cow with an average udder vs a cow with very poor udder is much more than the difference in profitability between a cow with an average udder and a cow with a great udder.

Unlike the other traits in BW where all animals have the same economic value applied regardless of their breeding value, the dollar contribution to BW from udder overall is calculated using a slightly different economic value depending on their udder overall breeding value.

By using the non-linear EV for udders, we can penalise lower breeding value animals more than rewarding higher breeding value animals.

This can be calculated using the following equation:

Dollar contribution to BW =Component A–Component Bwhere:

• • Component A = $63.499 x Udder Overall BV
  • Component B = $31.687 x Udder Overall BV x Udder Overall BV

Note: for Udder Overall BV above 1.002, the dollar contribution to BW is fixed at $31.687

Industry averages

Economic values are calculated assuming industry averages for animal production, feed requirements, and farm systems. The following table is a list of the industry averages for the key performance traits which are incorporated into the EV calculations.