Economic side of veterinary work
1. Theoretical considerations
Who am I
Farm boy (dairy farm, 45 cows)
Animal science at Wageningen Univesity
●Epidemiology (simulation model of management around cystic ovaries)
●Economics (long term effect of herd health management programs)
PhD at Vet Medicine (AI programs to diagnose mastitis)
Working in field of animal health managementIn between Wageningen University and Faculty of Vet. Med.
●@henkhogeveen
●animal-health-management.blogspot.com
The veterinarian is valuable
To guarantee animal health
To guarantee public health
To guarantee animal welfare
Or 3G:
Global
Green
Guarantee
for foods and friends
The veterinarian is valuable
To guarantee animal health
To guarantee public health
To guarantee animal welfare
But it has to be paid ….
Economics for veterinarians????
This conference:± 60 postersno posters on economics
no need?
To provide advices to farmersAdvices are associated with costs and benefits
To sell yourselfWhy should a farmer hire you?
Outline
The farm level: Production economics
Effectiveness herd health control
Disease control: optimization
Use of economics by veterinarians
Result ….
Vets have to “sell themselves”.
Prove your value
A very basic start: the production function
Resource input (R)
Ou
tpu
t (Q
)
Farms can be more or less efficient
Resource input (R)
Ou
tpu
t (Q
)
Change in resource input: marginal effects
Resource input (R)
Ou
tpu
t (Q
)
Marginal output
Marginal input
Marginal effects of veterinary input
Veterinary input (R)
Out
put (
Q)
Change in output with different levels of veterinary input and all other factors equal
Veterinary input
Change in output with different levels of veterinary input and all other factors equal
Veterinary input (R)
Out
put (
Q)
What level of veterinary input is optimal?
Depends on:
●Price of veterinary input (drugs, time of vet)
●Price of products
Optimal level of veterinary input:
●When costs of 1 unit of additional (marginal) veterinary input
equals
the returns of additional (marginal) production
Veterinary input (R)
Out
put
(Q)
P-inputLine:
P-output
Lower price veterinary input (or higher price output)
Veterinary input (R)
Out
put
(Q)
P-inputLine:
P-output
Veterinary input (R)
Out
put
(Q)
Higher price veterinary input (or lower price output)
P-inputLine:
P-output
It is not that easy
Production function differ from farm to farm, dependant on:
●Management skills
●Farm seize
●Intensity etc.
So optimum veterinary input levels differ also
Farmers do not (always) behave rational
What can we do with this
This is an overall picture
Curative veterinary input vs preventive veterinary input
Veterinary herd health & production programs
Do we know effects?
Goal herd health programs
Optimalisation of:
●Health
●Production
●Production process
●Quality and safety
●Profitability Analysis
Goal
decision
Execution
Planning
Registration
Monitoring
Evaluation
Value herd health programs
Less losses due to diseasesNo guarantee
Additional attention prevention of problems ...
Research difficult, hardly anything done
Old stories
Sol et al (1975-1977)
Effects:
Better reproduction
Less culling
Lower feeding costsOnce upon
a
time……..
Grandma’s stories
Clinical trial 1974-1978 (!)
1500
1700
1900
2100
2300
2500
2700
Begeleid Controle
1974/75
1976/77
Difference: € 80/koe/jaar
Source: Sol et al., 1984
Long term effects
1500
2000
2500
3000
3500
4000
4500
Begeleid Controle
1974/75
1976/77
1980/81
1985/86
No significant differences anymore
Source: Hogeveen et al., 1992
New data
Participants Non participants
Number of cows 83 81
Milk production (kg milk/cow/year) 8591 8231
Percentage fat 4.4 4.4
Percentage protein 3.5 3.5
Calving interval (days) 416 419
AFC heifer (days) 795 807
Percentage non-return 56 days heifer 76 77
Percentage non-return 56 days cow 65 69
Number of inseminations/heifer 1.5 1.5
Number of inseminations/cow 1.9 1.8
Somatic cell count (cells/ml) (*1000) 218 226
Percentage cows high SCC 19 20
Percentage cows new high SCC 9 9
Percentage cows culled per year 25 24
Age at culling (days) 2117 2202
Source: Derks et al., 2013
Different intensity of herd health program
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
pregnan
cy ch
ecks
advice
on fert
ility
analy
sis prod
uctio
n numbe
rs
milk prod
uctio
n
udder
healt
h
nutriti
on
young
stock
reari
ng
claw he
alth
housin
g
never
when problems arise
not always, but regularly
always
No effect on effectivity could be seen (except for culling)
However, …..
Chicken and egg
There is a relation, no “real” causality
Economics are not studied
There is more than economics: other reasons
0%
20%
40%
60%
80%
100%
Een beterrendement
behalen (N=167)
Bedrijfsblindheidvoorkomen
(N=162)
Meer structuuraanbrengen in dewerkzaamheden
(N=160)
Eenbedrijfsprobleem
(N=158)
Regelmatigecontrole
bedrijfsgegevens(N=161)
Op aanraden vande dierenarts
(N=155)
Ver
delin
g va
n de
ant
woo
rden
helemaal wel
wel
neutraal
niet
helemaal niet
Better
profitability
Prevent
“blindness”
Provide
structure
Solution for a
disease
problem
Frequent look
at farm data
Adviced by
veterinarian
Reasons to not take a herd health program
0%
20%
40%
60%
80%
100%
Ik verwacht hogekosten (N=53)
Ik verwacht eenlaag rendement
(N=50)
Ik verwacht dathet me teveel
tijd kost (N=52)
Geen interesse(N=53)
Er is geen PCaanwezig (N=48)
Ik heb al eenandere instantieals begeleider
(N=50)
Er is geengoede
administratie opmijn bedrijf
(N=49)
Mijnbedrijfsomvang
is te klein(N=46)
Ver
del
ing
van
de
antw
oo
rden
helemaal niet niet neutraal wel helemaal wel
High costs Low profits Too much of
my own time
Not
interested
No computer I have
another
advisor
I have no
good data
Farm too
small
In short
Herd health programs seem to be effective
Not much real data
No recent economic data
Outline
The farm level: Production economics
Effectiveness herd health control
Disease control: optimization
Use of economics by veterinarians
What are you selling?
Drugs
Advices ->disease control
But are these cost-effective?
Yes they do reduce diseases
Or ……..
Economic effects of diseases
Expenditures (additional resources) ●Drugs
●Veterinarian
●Labour
●Expenditures to control disease
Losses (decrease in production)●Decreased production level
●Discarded milk
●Changes in milk price (milk quality)
●Culling
Total costs
Expenditures + losses
Often overlooked
90 % of studies only look at losses
Farmers tend to look at expenditures
We need to optimize
Source: McInerney et al., Prev. Vet. Med, 1992
Control vs failure
Control expenditures (€)
Output losses (€)
Source: McInerney et al., Prev. Vet. Med, 1992
High losses, low control expenditures
Control vs failure
Control expenditures (€)
Output losses (€)
Source: McInerney et al., Prev. Vet. Med, 1992
Low losses, high control expenditures
Control vs failure
Control expenditures (€)
Output losses (€)
Source: McInerney et al., Prev. Vet. Med, 1992
Optimal
Control vs failure
Control expenditures (€)
Output losses (€)
Distinction between losses and control
Treatments......are part of control
Costs of disease calculations:
●Production losses
●Culling
●Drugs
●Labour
●Veterinarian
●......
High losses, low control expenditures
Low losses, high control expenditures
Optimal
Let’s change terminology
Preventive costs (€)
Failure costs(€)
Animal diseases cost money
10 % of the gross production volume~ 40-50 % of the net income (Dijkhuizen, 1990)
£ 180/cow/year~ 20 % of the average gross margin (Esslemont and Kossaibati,
1995)
Now what if we improve diseases?
●For individual farmer
●For all farmers
Remember the production function?
Resource input (R)
Ou
tpu
t (Q
)
Together they form the supply curve
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
Less efficient
More efficient
S
Quantity
Price
S2
S1
Supply and demand -> equilibrium
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
D
Supply and demand -> equilibrium
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
D
Producer surplus
Supply and demand -> equilibrium
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
D
Consumer surplus
Producer surplus
Consumer surplus+
Producer surplus=
Social welfare
More efficient production (shift of supply)
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
S1
Qe1
Pe1
D
For individual farmer:
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
S1
D
Consumer surplus
Producer surplus
More efficient production (shift of supply)
0 2 4 6 8 10 12 140
2
4
6
8
10
12
14
S
Quantity
Price
Qe
Pe
S1
Qe1
Pe1
D
Consumer surplus
Producer surplus
So economic effects differ
Individual farmers:
●More efficiency
●More profit
Groups of farmers
●More efficiency
●Same profits for farmers
●Society benefits
●Lower prices
●More consumption
Outline
The farm level: Production economics
Effectiveness herd health control
Disease control: optimization
Use of economics by veterinarians
Veterinarians and economics
Important to know the economics of your services
●Herd health programs:
●What is the expected benefit
●Make a portfolio of satisfied producers
●Production diseases
●Find optimum of control and failure costs
●Know that farmers underestimate losses
Veterinarians are no economists
Yes you are right
But you should know something about it
Understand farmers
Understand the economics of your advice
Interpret calculations that are available
Veterinarians should know something about economics
Thank you for your attention Change in output with different levels of veterinary input
and all other factors equal
@henkhogeveen
animal-health-management.blogspot.com
On-line courses on Veterinary Economics on:
www.elevatehealth.eu