Zoetis: Unlock New Areas of Profitability

Rising input costs, devastating disease outbreaks, trade restrictions and costly channel customer mandates have challenged producers to work harder to remain profitable in recent years. While these dynamics continue to put economic pressure on producers, some promising new technologies and production options may offer some economic relief.

With so many new products and alternative methods available to producers, “I always encourage producers throughout the meat complex to neither openly accept nor reject a new production option without pausing and thinking through its potential economic return,” said Glynn Tonsor, PhD, associate professor, agricultural economics, Kansas State University.

Whether it’s a new piece of equipment, a new animal health product or a new technology, producers can find economic value in cost savings, revenue generation or a combination of the two. Therefore, it’s important to understand the scope of changes that a new input or alternative process can bring and to not oversimplify your assessment.

Tonsor recommends a thorough evaluation process that effectively considers short-term and long-term benefits and the overall impact of those decisions in practice. He suggests the following approach:

1. Get informed. Seek information from many sources with the goal of educating yourself on a specific topic.
2. Verify proof of concept. Determine feasibility in real-world applications by finding examples where a product or method has been used.
3. Consider the “no adoption” cost. Look at the competitive landscape to understand whether the cost of not adopting puts you at a disadvantage.
4. Communicate. Keep customers informed when implementing a new technology to obtain agreement and buy-in.
5. Understand your business and assess your risk tolerance. Are you generally willing to accept risk in return for expected higher returns, are you more interested in short-term or long-term impacts, and are you flexible about making production changes?

Recently, Tonsor as part of a multi-economists team applied this approach to the use of immunological castration (IC). Vital to their economic analysis and for the benefit of producers who are considering IC adoption, Tonsor and his colleagues note a growing base of knowledge about this alternative production option and its associated advantages. Research and on-farm trials specific to North American production systems provide insights about how IC works compared with physical castration methods. Approved in more than 60 countries, IC technology has been used around the world, including in key U.S. export markets for more than a decade. This gives producers the opportunity to learn from real-world applications and as a result, they benefit from the lessons learned from producers around the world. As use of the technology among global competitors increase, U.S. pork producers will risk losing market share by not adopting it.

“IC requires upfront discussion within the pork supply chain because of its direct impacts at multiple levels,” Tonsor said. “Having that good communication also will result in fewer surprises in the long run.”

February 25, 2014 - Zoetis