SIBI new on-farm technology economic case study: electronic identification

Case study: Clayton South of WaginOwner: Clayton South

Property location: 30km east of Wagin

Property size: 4000 hectares

Stock: 5000 dohne ewes mated to dohne rams and 1500 dohne ewes mated to

terminal rams

Technology: Electronic identification

Clayton South and Polly Medlen run a 4000 Ha farm east of Wagin in the Great Southern of WA. The farm is currently run with 60% allocated to cropping and 40% to sheep as they build up the flock to take on more land in the next year or so when the cropping will return to around 70%. The sheep flock consists of a 5000 dohne ewe core flock with 1500 extra ewes mated to terminal white Suffolk rams. The core dohne flock is being managed for high fecundity with a premium placed on twinning ewes and the flock lambing percentage is between 100 and 120% each year. Ewes not suited to the core dohne flock are transferred to the terminal sire mated flock.

Clayton pregnancy scans all ewes on the farm with different management for twins, singles and dry ewes. Prior to 2013, Clayton had been identifying twinning ewes manually by placing a micron disk on those ewes identified with twins at scanning. The same ewes started to turn up in the twin flock and Clayton began to think by selectively breeding from these sheep he could significantly improve the productivity of the whole flock. Clayton’s breeding objective is to ultimately produce a ewe that can wean her own bodyweight in lambs by 15 weeks as well as produce a 5kg fleece.

During 2014 Clayton purchased a fully automatic sheep handler on the farm and chose a higher end model so he could include automatic weighing, three way drafting and electronic identification (EID) reading of EID ear tags. At the same time a stick reader was purchased to improve the ease of management within the flock. While the sheep handler cost $33,000 in total, only $15,000 was related to the EID, around $5500 for the EID reader and panels, $5500 for the three way drafting and $4000 for the load bars. The stick reader was an extra $3000 to purchase. For EID to work, the sheep need to have an electronic ear tag with a unique 16-digit number allowing the reader to identify the animal. The EID ear tags cost a lot more than the visual tags he had been using and are currently $1.40 each while the old tags only

cost $0.30. All female sheep born on the farm from 2015 on have been EID ear tagged.

EID allows each animal to be managed individually and can be a powerful tool to improve the flock but it also adds cost and time to the sheep program. The benefits from EID can be both generational and genetic in nature. Genetic improvements continue to flow through the flock over time and are cumulative. Generational gains are the incremental benefits to the flock each year from removal of poor performing sheep and better management and are non-cumulative.

Determining the value of EID is a challenge as in itself, EID is nothing more than a system of automatically gathering information around specific sheep. In some ways the simplest way to compare EID is to collect the same data manually and see how much time it takes. However this analysis fails to take into account human nature where we sometimes know it’s worth doing something, but just don’t do it because it takes too long or seen as unpleasant. EID along with automated sheep handling, weighing and data capture equipment allows information to be quickly and accurately collected that in general would not be collected if it was done manually. In this analysis the benefits of EID include some of those manual processes that wouldn’t be done and while it leaves the analysis open to challenge, seems to more effectively represent the real world.

The key areas currently being used on the South farm with EID are:

1) Improving reproductive performance in the flock2) Improved lamb weight management and opportunistic ewe lamb mating3) Fleece weighing to improve the fleece cut

Clayton wanted to know if the investment in EID was worth making and this report analyses his situation. The assumptions used in this report are given in the appendix at the end of this report.

Improved reproductive performanceThe Dohne ewe flock is run to maximise twinning and the lambing percentage. Before starting with EID, Clayton had been using micron disks to manually tag the twin bearing ewes to keep them in the flock. Singles and dry ewes weren’t marked and remained in the flock. With the twin flock being managed separately, Clayton would bring them back in after scanning to place a micron disk on each twin bearing ewe. Two people could tag 250 ewes in an hour. With the twinning ewes being the only ones tagged, Clayton felt he was missing a lot of the value around both time of pregnancy and being able to understand what was happening with the single and dry ewes.

Improving lambing percentage is a key profit driver on the farm with the three groups, dry, single and twinning mobs managed separately. Clayton wanted to further extend his analysis of breeding and so now captures five different classes -

early and late twins, early and late singles and dry ewes with the information captured by a stick reader during pregnancy scanning.

Table 1: management options resulting from pregnancy scanning

Dohne flock Terminal flock

Dry ewes Go into terminal flock if they have done well in the past or are culled from the farm

Sold straight away

Early twin ewes

Core of the dohne flock going forward. All stay in the main flock.

While early twining is a priority even early twinning ewes in the terminal flock don’t go back to the main flock. These ewes stay in the terminal flock provided they are sound the following year.

Late twin ewes

Retained in the dohne flock but early twinning ewes are more important than late twinning ewes. Data is being collected for use in the future around fleece weight and progeny performance.

Late twin ewes in the terminal flock don’t move back to the dohne flock.

Early single ewes

Retained in the dohne flock at this stage, but lower performing sheep will be moved to the terminal flock depending on how others have gone.

Retained in the terminal flock only if enough sheep haven’t moved from the dohne flock.

Late single ewes

From 2018 any late single ewes from the year before will be moved to the terminal flock or potentially culled if they aren’t performing.

Ewes most likely to leave the farm after the dry terminal ewes are sold.

Introducing pregnancy scanning into a flock is one of the entry paths to using EID. The initial investment consisted of $3000 for the stick reader. New EID tags are also required for the ewes in the core flock, costing $7000. Ewe lambs are given an EID ear tag while wether lambs receive a visual tag. The ewe EID tags cost $1.40 each while the wether lamb visual tags cost $0.30. With around 2625 Dohne ewe lambs born each year the extra annual cost over visual tags is $2800 for EID tags. It takes about 4 hours for Clayton to collate the data after it’s been captured.

With the ewes scanned during pregnancy testing it doesn’t take any extra time to capture the pregnancy status. The sheep CRC has calculated culling maiden ewes

that are dry (around 15% of maidens) or twice dry ewes (maiden and first year as an adult - 8% of maidens) gives a genetic gain in reproduction of around 2.5% in 10 years or around 0.25% per year. While he isn’t calculating as closely as the CRC, Clayton believes he is getting a one percent improvement in three years or 0.33% per year.

A net present value (NPV) analysis of the EID scanning was undertaken. A NPV looks at all benefits of investment in EID across its life after deducting the costs incurred over the same time. A dollar today is worth more than a dollar in the future, so the NPV calculation converts both income and expenses into today’s dollars. One way to think of this is if a friend asked to borrow $100. If they pay you back tomorrow you might say just pay me back the $100, but what if they couldn’t pay your back for a year, depriving you of its use for that length of time. You might still lend the money but say you need to be paid interest as a form of payment for the deprivation of use. That’s the concept behind a NPV calculation, money saved or spent today is worth more than money spent or earned in the future. Because the NPV factors in a time value of money calculation, if the result is greater than zero, then the investment is worth making. If it’s negative or below $0, then you’d be better off not buying the equipment as you could put your money to better use elsewhere.

Genetic gain is cumulative, building up over time. At the start the gains are small and not worth a lot but like rolling a rock down a hill when it gets going, genetic gain gets faster and faster. Chasing genetic gain puts some people off as they don’t see the long term benefits but the costs are immediate. To start scanning the ewes, the Souths had to invest $10,000 up front ($7000 for EID ear tags in the core ewe flock plus $3000 for the reader) plus commit to ear tagging all new Dohne ewe lambs on the farm costing $2800 per year. The initial benefits are low but build over time.

Over 10 years if the farm is able to generate 0.33% of genetic improvement per year the investment has a positive NPV of $6700 or for every dollar invested produces $1.70 in extra income and would be worth making. At 10 years and 0.25% increase per year, the investment generates a negative return of $2,700 meaning for every dollar invested, it would only return $0.70 and not be worthwhile. Breakeven for 0.25% rate of genetic gain occurs at 11 years when the time value of money is included. Table 2 below shows the impact of increasing the time of investment to 15 and 20 years. With the gains being cumulative, the benefits in the later years are significant.

Table 2 Investment return on using Electronic identification to increase the reproductive rate at 0.25% and 0.33% per year

Rate of genetic gain 10 years 15 years 20 years

0.25% per year

Net present value -$2700 $19,200 $45,200

Benefit cost ratio 0.7 2.9 5.5

Years to payback 10 10 10

0.33% per year

Net present value $6700 $38,200 $74,600

Benefit cost ratio 1.7 4.8 8.5

Years to payback 8 8 8

With genetic gain being cumulative, if the analysis is extended for a longer time, the breakeven rate of genetic gain falls. For the South’s farm the breakeven rate of genetic gain is given in table 3 below and is as low as 0.12% per year if the analysis is run for 20 years. When the analysis was taken over more than ten years a new scanner was purchased at year 11.

Table 3 Breakeven rate of genetic gain for varying term of investment into electronic identification equipment

Years 10 15 20

Genetic gain breakeven 0.27% 0.17% 0.12%

To convert to other farms, with 90% lambing and 0.33% annual genetic gain in reproductive rate over 10 years, table 4 shows the return from investment in EID ear tags along with twin management over different flock sizes. Breakeven occurs at a flock size of 2225 ewes.

Table 4 Return from electronic identification for an increase in the reproductive rate of 0.33% per year in the ewe flock over different flock sizes

Flock size 2000 2225 3000 4000 6000

Net present value 0.9 1.0 1.2 1.4 1.6

Benefit cost ratio -$400 0 $1500 $3400 $7100

Years to payback 9 9 9 8 8

The cost of technology has been declining over time. With the cost of the EID ear tags having a significant impact on the return, if they fall in price in the future the return on investment will change significantly. Table 5 shows the impact of lower EID ear tag costs on the returns from better breeding management via EID.

Table 5 The impact of EID ear tag cost on obtaining a return from electronic identification to increase the reproductive rate

Ear tag cost $0.80 $1.00 $1.20 $1.40

Net present value $20,500 $15,900 $11,300 $6700

Benefit cost ratio 3.9 3.0 2.3 1.7

Years to payback 6 7 7 8

Improved lamb weighing benefitsClayton has begun weighing the lambs at marking, weaning and then during summer to see the rate of weight gain. Weighing during marking is done in a lamb weighing box (Lambox) and during weaning weighing is done through the sheep handler and doesn’t add any extra time. Clayton has been monitoring worm egg counts and only drenches one in every two years. When the ewe lambs aren’t being drenched, they are brought in and run over the scales with two operators being able to weigh 600 lambs per hour.

Lamb weighing gives information about the rate of weight gain for each animal and helps determine the lambs that aren’t gaining weight so they can be pulled out of the flock. The most important weights Clayton is looking at are the marking to summer drenching points as these show the performance of the individual animal. By removing the slower growing sheep from the flock, Clayton believes he is getting around 50g of weight gain per year or 0.5kg over 10 years for lambs being sold at 15 weeks. The benefits of the gain don’t move immediately into the terminal flock as the initial genetic gain is contained within the dohne flock.

A second and larger benefit from lamb weighing is the ability to mate the larger ewe lambs as hoggets. All of the ewe lambs are weighed to determine their weight in

January. Those lambs weighing more than 40 kilograms are taken out of the main flock and fed extra lupins (3.5kg per week) to get them to breeding weight before April and are fed for 13 weeks. Around half of the ewe lambs get into lamb and these lambs are fed an additional 8 weeks. The extra lambs generate several benefits. First in the extra lambs they produce. Second, the lambs are also larger and cut around an extra kilogram of wool as hoggets and also the ewes in this part of the flock are more productive as maidens. By weighing the ewes, Clayton can play the year, looking at feed costs as well as lamb prices to determine if it’s worth doing. Around 20% or 500 of the ewe lambs are mated each year, being much higher in good years and lower following poor years.

While the total cost of the sheep handler purchased was $33,000, the EID improvements were valued $15,000 and a Lambox is also used to weigh the ewe lambs at marking that cost $1500. For the Souths’ to invest in EID for better flock management they would need to spend the $15,000 plus EID ear tags for the dohne ewe lambs born each year or around $2800 each year. Clayton does the analysis and this takes around 4 hours to complete.

If Clayton were to look at just the return from the EID improvements to the sheep handler, the initial investment was $16,500 generating a NPV of $46,000 and a benefit cost ratio (BCR) of 3.8. When the full cost of the sheep handler is built into the initial investment, the NPV declines to $29,000 with a BCR of 1.8 (table 6).

Table 6 Value of ewe weighing for improved breeding

EID investment $16,500 $34,500

Net present value $46,000 $29,000

Benefit cost ratio 3.8 1.9

Years to payback 4 6

The largest impact from lamb weighing is related to the ewe lambs that can be mated early. Table 7 shows the return at different numbers of lambs mated. With 5000 Dohne ewes on the farm, breakeven occurs with as few as 8% of the lambs being mated.

Table 7 Impact of number of lambs mated on return from ewe lamb weighing

Number of lambs mated 200 260 390 525

Percentage of lambs mated 8% 10% 15% 20%

Net present value 0 $8000 $27,000 $46,000

Benefit cost ratio 1.0 1.5 2.6 3.8

Years to payback 9 7 5 5

To convert this analysis to other farms, table 8 shows the returns from a single flock of different sizes lambing at 90%. Assuming 20% of ewe lambs being mated but only 10% become pregnant, the impact of flock size can be seen. Breakeven occurs when only 150 lambs are mated annually.

Table 8 Value of mating lambs across different flock sizes using electronic identification to identify suitable lambs

No. of ewes 1500 1700 2000 4000 6000 8000 10,000

No. lambs mated 135 153 180 360 540 720 900

Net present value -$1900 0 $2900 $22,800 $42,700 $62,500 $82,400

Benefit cost ratio 0.9 1.0 1.2 2.4 3.6 4.8 6.0

Years to payback 9 8 8 5 4 4 4

Fleece weighingHaving started with EID and sheep weighing, Clayton South is moving to fleece weighing in 2018 within the dohne flock. During shearing, each fleece is weighed as it comes off the ewe with the data recorded through a stick reader, bar code printer, bar code scanner and indicator attached to load bars. An EID stick reader is used to connect the data to the individual sheep. Having looked at other systems it takes two people working together during shearing to properly capture the fleece weights. Clayton hadn’t fleece weighed before as while it was possible to manually capture the data, it just wasn’t done.

Each year there are 2000 dohne ewe hoggets on the farm. The fleeces of these ewes will be weighed to determine how much they produce with the bottom group either moved to the terminal mob or sold off the farm. The expectation is that fleece weighing will produce a benefit of 50 to 100g per head per generation across the flock.

It takes two people to effectively weigh the fleeces working beside the shearing team with one person reading ear tags and printing barcodes, while the other weighs and records. At 100g of wool expected per generation, the impact of sheep weighing grows over time. Over ten years the NPV from sheep weighing is $7000 and returns $3.50 for each dollar invested (table 9). The value over 20 years is significant and reflects the benefits of sustainable changes to the flock genetics.

Table 9 Value of fleece weighing with electronic identification

Term (years) 10 15 20

Net present value $7000 $59,000 $138,000

Benefit cost ratio 3.5 20.8 47

Years to payback 9 9 9

Fleece weighing is part of the progression that the Souths’ are on since adopting EID in their flock. It is giving them greater access to information and they are starting to use it to improve their management of the flock. Fleece weighing is one tool allowing those sheep producing well below the flock average to be removed from the main flock.

The rate of gain in fleece weighing is cumulative as lower performing sheep and their potential lambs leave the flock. As a standalone investment if the investment is extended for extra years, then the cumulative benefits build up, even remembering that using a NPV model, returns in year 11 are worth a lot less than a return in year one.

The South farm summaryClayton South has adopted EID with his sheep flock. While EID is simply a different ear tag for each lamb, it has given him much better access to information allowing each animal to be managed individually. So far the flock is being managed to improve the:

1. Breeding performance of the ewes to get more high fecundity early lambing ewes2. Genetic weight gain of the flock3. Opportunity to mate ewe lambs when conditions allow4. Improve the fleece weight of the flock.

Across the whole enterprise, the EID costs $19,500 in new capital being $3000 for the stick reader, $5500 for the EID reader and panels, $5500 for the three way drafting ,$4000 for the load bars and $1500 for the Lambox. On top of the initial investment, $7000 is spent up front on tagging the ewes and $2800 has to be spent each year on EID ear tags for the ewes. Each year there are additional costs to weigh ewe lambs, feed the larger ewe lambs, weigh fleeces and analyse all the data.

The investment in EID is making a significant change to the enterprise as it allows individual management of the ewes on the farm. Over 10 years the return from investing $19,500 in the technology returns $109,000 or $6.60 for each dollar invested. If the full cost of the sheep handler is included the NPV falls to $92,000 or $3.50 for each dollar invested (table 10).

Table 10 The return on investment over the whole farm from using electronic identification

Investment value $19,500 $34,500

Net present value $109,000 $92,000

Benefit cost ratio 6.6 3.5

Years to payback 5 6

Finally, during a poor season the benefits of EID and individual management become even more significant. As Clayton South is individually managing his ewe flock, if he needs to sell a proportion of the flock, he can do so based on quantitative measures rather than just selling a full line of sheep. Some of the best genetics may be in the older sheep and worth retaining. EID is giving Clayton access to more information allowing better decision making on the farm.

Appendix: Assumptions used in the analysisThe following assumptions have been used in this report:

The analysis only uses genetic gain, flock gain hasn’t been factored into the benefits

The analysis hasn’t factored in the change in stocking rate associated with having more twin bearing lambs in the flock

Wages costs $38/hour or $46/hour including all costs. $87,000 per year for an experienced farm worker is used as the base

Discount rate: 6 % per year (the long term rate accepted by broadacre farmers in WA, being 2% capital gain and 4% return, the value is below that accepted in other industries)

Inflation 2% per year Lambing percentage 105% Twinning percentage 45% EID ear tags cost $1.40 each Visual ear tag cos $0.30 each EID scanner $3000 Sheep handler cost $33,000, applicable to EID $15,000 Lambox $1,500 Lupin cost per tonne $250 Meat value per kilo $2.10/kg (five year average to June 2017) Wool value per kilo $8.30/kg (five year average for 19 micron wool in WA)