The economics of successes and failures in animal breeding


The development of selection index theory 70–80 years ago formally embedded economic principles in the practice of animal breeding, and many of our leading practitioners have made important contributions in this area. Animal breeders have relatively infrequently drawn on economic theory and instead have developed their own simple and practical tool kit to address the issues of prioritizing traits for genetic selection decisions and when undertaking cost benefit analysis. We know from our quantitative work that models do not have to be true in order to be useful, and the tool kit we have has certainly proved useful. It is also much more accessible than many of the highly complex theories that exist in economics.

In this editorial, I argue that principles of economics can help us to better understand successes and failures in animal breeding. Notable successes include the massive and sustained improvements in the productivity of intensively farmed livestock species, particularly pigs and poultry systems but also dairy production systems. Failures include attempts to move exotic genotypes into unsuitable environments, and the relatively low return to substantial investment in ongoing genetic improvement in extensive and low-input production systems in both the developed and developing worlds.

When compared with most farm management alternatives, genetic improvement is an extremely slow and quite clumsy technology option. For many of our successes, these deficiencies have been offset by the permanent and cumulative nature of genetic improvement, and the ability to remould farm management systems and practices to suit the new genotypes that have evolved.

The main farmed species and farming systems are highly varied in terms of how genetic improvement can be achieved and distributed, and undoubtedly, these differences have contributed to the successes and failures. However, economic principles of market failure, vertical integration, value capture, intellectual property (IP) rights, efficiency because of competition and disruptive technologies interact with these differences and so are also key contributors to success. A relatively simple understanding of these factors can be useful in identifying potential remedies for our not infrequent failures. In the absence of this understanding, we as animal breeders may be tempted to continue serving up the same old approaches using ever more complex statistical methods and highly expensive genomic tests that fail to free industries from the shackles of low adoption and ineffective distribution of genetic improvement.

Attempts to address market failure in animal breeding have a long history, most notably in the establishment of novel and distinctive physical characteristics (horns, ears, coat colour, body shape, etc.) which effectively brand breeds and sometimes lines within breeds such that they can achieve a market premium. Differentiation relative to unimproved commercial or cross-bred stocks is critical, but differentiation relative to lower-performing competing breeds and lines within breeds is also very important. Unfortunately, there is also a long history of selection focus drifting almost fully onto distinguishing characteristics, and a consequent loss of focus on the production characteristics required for ongoing improvement. Within breeds, failure of commercial farmers to be able to physically observe superior genetic performance, either at all or within a reasonable time frame, has been and still is a major impediment to improvement in many extensive livestock farming systems. It seems no coincidence that the least successful livestock species for within-breed improvement are commonly those with the most extensive farming systems.

Vertical integration, whereby a single commercial entity maintains ownership of animals from breeding through to processing, and even marketing and distribution in the livestock value chain, often overcomes many problems of market failure. Improved animal identification, measurement technologies and information systems are also helping to create more transparent markets. This is important, because vertical integration usually requires large scale to justify a breeding programme. Increasing scale also increases risk. Vertical integration is often but not always a key contributor to the success of intensive livestock breeding programmes. Unfortunately, extensive livestock industries are already subject to variation in the production environment. Globalization of markets appears to be exacerbating fluctuations in input and output prices. It seems therefore that vertical integration is unlikely to accelerate rapidly in extensive livestock industries, because of the concentration and magnification of risks.

Value capture is a critical contributor to the success of many plant breeding programmes. For example, the inability of farmers to multiply their own seed from hybrid corn creates a captive market for seed, which provides revenue for ongoing investment in genetic improvement. Value capture is also a key and often highly controversial factor in animal breeding programmes. The massive and rapid international dissemination of elite Holstein dairy cattle semen leaves AI companies on a desperate treadmill striving to maintain a point of difference, while their competitors’ opportunities to identify elite sons of the top sires globally have historically been limited only by the relative sizes and efficiency of their respective progeny testing schemes. But still, a historically strong emphasis towards the need for high reliability, itself a conservative measure of risk compared with accuracy, has helped dairy AI companies to stave off potential competition from semen from high-merit unproven young bulls.

The trend in animal breeding programmes over many decades has been towards privatization of breeding programmes, and a switch in publicly funded research effort away from practical breeding and towards a search for new step change and/or disruptive technologies. IP rights pertaining to germplasm are weakly controlled in animal breeding. This motivates prevention of leakage of elite germplasm to competitors, something that has been achieved to a reasonably high extent in pigs, poultry and for some species in aquaculture. This protection seems justified in the context of the developed world, relying on private investment to drive high levels of genetic progress. In contrast, for developing countries, much of the genetic progress that arises comes about through lateral shifts and exploitation of high-performing germplasm. Indeed, for much of global dairy production, and in extensive livestock industries, genetic progress also comes about through the same means. These lateral shifts occur at the levels of sire sharing within group breeding schemes up to wide-scale international trade in elite germplasm across many species and farming industries. Thus, competition has led to more efficient breeding programmes in some industries, but sharing of germplasm is a substantial contributor to a large amount of realized genetic gain in others.

Molecular biologists have long-threatened animal breeders with new approaches that would act as disruptive technologies for the process of achieving animal genetic improvement. After many years of promises, genomic selection appears to be on the verge of offering a major disruption to the global business of dairy cattle breeding. Barriers to market entry by new progeny testing initiatives have revolved around the cost of setting up a scheme sufficient to meet minimum reliability criteria and the time required to achieve results in industry, in an already highly competitive business. These barriers can potentially be broken down by public investment and availability of accurate predictions of the genetic merit of young bulls. It will be interesting to see how the future unfolds. Genomics may yet help reverse the trends of disappointing rates of genetic improvement in extensive species and in developing countries.

Big decisions and consequent changes to approaches are likely for animal breeding over the next decade as food demand grows and new technologies continue to unfold and be exploited. Economics, and an understanding of the past, will help us to shape the future to take full advantage of the huge potential of livestock genetic improvement.