# Assessing Animal Welfare and Farm Profitability in Cow-Calf Operations with Stochastic Partial Budgeting

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## Abstract

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## Simple Summary

^{2}increase in space allowance per calf (achieved by a corresponding reduction of herd size) was associated with a 6.9 to 18.7% reduction in farm-level contribution margins in the short term. Our results suggest that FAW improvements can be costly for farms and these costs should be considered while taking policy decisions regarding improvements in FAW standards.

## Abstract

^{2}and the calf 2.2 m

^{2}. We found that a 0.5 m

^{2}increase in space allowance per calf (achieved by a corresponding reduction of herd size) was associated with a 6.9 to 18.7% reduction in contribution margins in the short term. Our analysis does not include possible indirect gains like decrease in disease incidence and enhanced non-use or ‘soft’ values associated with increased FAW. However, our analysis indicates that high FAW standards can be costly and careful cost–benefit analysis should be a part of decision-making processes regarding FAW standards. Our results also suggest a need for government support payments and/or the development of market mechanisms to stimulate farmers to continue producing livestock-based foods with high FAW.

## 1. Introduction

## 2. Materials and Methods

#### 2.1. Background

^{2}[18]. The legal requirement of indoor space allowance for the calf alone is 2.2 m

^{2}per calf in group housing, given that the live weight of the calf is less than 150 kg [18]. We modelled a new (hypothetical) space allowance policy, where calves had an additional 0.5 m

^{2}/calf (a 25% increase) of space in all weight categories less than 150 kg.

#### 2.2. Scenarios

^{2}of space for 20 calves (complying with Swedish FAW legislation), and that the increase of 0.5 m

^{2}/animal was accomplished by reducing calf herd size by four calves. This scenario was further divided into two sub-scenarios, where calves were raised indoors in Scenario 1a, while Scenario 1b took 90 days of grazing into account (an average of legally required periods in different regions of Sweden).

^{2}(5 m

^{2}for the mother cow and 2.7 m

^{2}for the calf, under the new policy) of free space. In this scenario, the farm would still have to reduce calf herd size by an additional unit, as only two calves would fit into the extra 7.7 m

^{2}. Hence, as far as the calf herd was concerned, the policy would lead to a reduction of herd size by two. This scenario was also divided into two sub-scenarios, where Scenario 2a meant that calves were raised indoors, while Scenario 2b took grazing time into account in the same way as Scenario 1b.

#### 2.3. Data and Calculations

## 3. Results

^{2}/calf increase in space allowance, the income for the farm increased by 2024 (SD = 287.8) SEK per year due to the increase in DWG (from Equation (3)). However, this increase in income was offset by an increase in costs due to increased feed (silage and grains) intake and reduction of income due to decreased herd size. The reduction in income due to decreased herd size was 10,076 [= 2519 × 4] SEK (Equation (2)). The increase in silage and grain costs was 639 (91.1) and 35 (3.9) SEK, respectively (Equation (4)). The total decrease in benefit (increased costs + reduced income) from the policy change was 10,750 (92.0) SEK per year in the short term.

^{2}/calf increase in mandatory space allowance was associated with a net change in contribution margin of −8726 (303.4) SEK per year as compared to the baseline (Equation (1)). Hence, the contribution margin after the policy change in this scenario was 41,654 SEK. This represented a reduction in herd-level contribution margin from 50,380 [20 × 2519] SEK to 41,654 SEK. Thus, a reduction in a herd-level contribution margin of 17.3% $\left[\left(1-\frac{41,654}{50,380}\right)\times 100\right]$ as compared to the baseline. Figure 1 suggested that DWG was the most important variable driving the contribution margin. The decrease in herd size, assumed to be deterministic, was also an important variable that reduced revenue and negatively affected the herd-level contribution margin in the short term. Our simulation yielded a range of net change in contribution margins between −7186 and −9200 SEK.

^{2}/calf increase in space allowance, the income for the farm increased by 1012 (SD = 143.9) SEK per year due to the increase in DWG (from Equation (3)). However, this increase in income was offset by an increase in costs due to increased feed (silage and grains) intake and reduction of income due to decreased herd size. The reduction in income due to decreased herd size was 10,076 [= 2519 × 4] SEK (Equation (2)). The increase in silage and grain costs was 320 (69.1) and 17 (3.5) SEK, respectively (Equation (4)). The total decrease in benefit (increased costs + reduced income) from the policy change was 10,413 (72.4) SEK per year in the short term.

^{2}/calf increase in mandatory space allowance was associated with a net change in a contribution margin of −9401 (164.8) SEK per year (Equation (1)). Hence the contribution margin after the policy change in this scenario was 40,979 SEK. This represented a reduction in herd-level contribution margin from 50,380 [20 × 2519] SEK to 40,979 SEK. Thus, a reduction in a herd-level contribution margin of 18.66% $\left[\left(1-\frac{40,979}{50,380}\right)\times 100\right]$. Figure 2 suggested that DWG was the most important variable driving the contribution margin. The decrease in herd size, assumed to be deterministic, was an important variable that reduced revenue and negatively affected the herd-level contribution margin in the short term. Our simulation yielded a range of net change in contribution margins between −8918 and −9894 SEK.

^{2}/calf increase in space allowance, the income for the farm increased by 2277 (323.7) SEK per year due to the increase in DWG associated with increased space allowance (using Equation (3)). However, this increase in income was offset by an increase in costs due to increased feed (silage and grains) intake and reduction of income due to decreased calf herd size. The reduction in income due to decreased herd size was 5038 [= 2519 × 2] SEK (Equation (2)). The increase in silage and grain costs was 719 (101.3) and 39 (4.5) SEK, respectively (Equation (4)). The decrease in benefits (increased costs + reduced income) was 5796 (105.5) SEK per year, in the short term.

^{2}/calf increase in mandatory space allowance was associated with a net change in the contribution margin of −3520 (339.9) SEK per year. Hence, the contribution margin after the policy change in this scenario was 46,860 SEK. This was a reduction in herd-level contribution margin from 50,380 (20 × 2519) SEK to 46,855 SEK. A reduction in a herd-level contribution margin of 6.9 % $\left[\left(1-\frac{46,860}{50,380}\right)\times 100\right]$. Additionally, there may be some revenue from selling the cow that was supposed to produce a calf in the baseline scenario. However, that revenue would be temporary in nature and our contribution margin calculations reflect a fairly short-term steady-state. Furthermore, we are mainly interested in income from selling calves, which is the main product of these kinds of operations. Therefore, the revenue from selling that cow is not taken into account in our calculations. There may be some cost savings from not feeding the removed cow. We used an average of 1200 SEK per year [19] as cost savings in one of our robustness checks. While the reduction in contribution margin did go down, the relationship between increased space allowance and contribution margin still remained negative.

^{2}/calf increase in space allowance, the income for the farm increased by 1138 (161.1) SEK per year due to the increase in DWG associated with increased space allowance (using Equation (3)). However, this increase in income was offset by an increase in costs due to increased feed (silage and grains) intake and reduction of income due to decreased calf herd size. The reduction in income due to decreased herd size was 5038 [= 2519 × 2] SEK (Equation (2)). The increase in silage and grain costs were 360 (79.2) and 20 (3.9) SEK, respectively (Equation (4)). The decrease in benefits (increased costs + reduced income) was 5417 (82.9) SEK per year in the short term.

^{2}/calf increase in mandatory space allowance was associated with a net change in the contribution margin of −4279 (181.7) SEK per year. Hence, the contribution margin after the policy change in this scenario was 46,101 SEK. This was a reduction in herd-level contribution margin from 50,380 (20 × 2519) SEK to 46,101 SEK. A reduction in a herd-level contribution margin of 8.49% $\left[\left(1-\frac{46,101}{50,380}\right)\times 100\right]$.

## 4. Discussion and Policy Implications

## 5. Conclusions

^{2}increase in space allowance per calf (achieved by a corresponding reduction of herd size) was associated with a 6.9 to 18.7% reduction in contribution margins in the short term (when only pecuniary and direct effects are considered). Our work emphasizes the need for careful cost–benefit analysis prior to making any policy decisions on FAW standards. Future work should focus on including indirect gains of FAW in terms of enhanced non-use values and reduction of disease incidence to improve upon the precision of existing cost–benefit estimates.

## Author Contributions

## Funding

## Institutional Review Board Statement

## Data Availability Statement

## Conflicts of Interest

## References

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**Figure 1.**Tornado plot of regression coefficients for determinants of a change in net income under increased space allowance (from 2.2 to 2.7 m

^{2}/calf)—Scenario 1a.

**Figure 2.**Tornado plot of regression coefficients for determinants of a change in net income under increased space allowance (from 2.2 to 2.7 m

^{2}/calf)—Scenario 1b.

**Figure 3.**Tornado plot of regression coefficients for determinants of a change in net income under increased space allowance (from 2.2 to 2.7 m

^{2}/calf)—Scenario 2a.

**Figure 4.**Tornado plot of regression coefficients for determinants of a change in net income under increased space allowance (from 2.2 to 2.7 m

^{2}/calf)—Scenario 2b.

**Table 1.**Overview of the variables used in partial budget models for increased space allowance (from 2.2 to 2.7 m

^{2}/calf).

Variable | Data | Source | Type | Distribution |
---|---|---|---|---|

Decrease in calf herd size (Scenarios 1a and b) | 4 heads | - | Deterministic | - |

Decrease in calf herd size (Scenarios 2a and b) | 2 heads | - | Deterministic | - |

Production days | 180 days | Agriwise (2018) [19] | Deterministic | - |

Grazing period | 90 days | - | Deterministic | - |

Contribution margin per calf in base scenario | 2519 SEK | Agriwise (2018) [19] | Deterministic | - |

Increase in daily weight gain at increased space allowance | 32 g/day | Andersen et al. (1997) [20] and Herva et al. (2009) [13] | Stochastic | Triangular (22, 32, 33.7) |

Increase in feed intake | 2.5 %/day | Ingvartsen and Andersen (2009) [22] | Stochastic | Triangular (1.25, 2.5, 3.75) |

Price of meat | 33.91 SEK/kg | Agriwise (2018) [19] | Stochastic | Triangular (32.25, 33.91, 35) |

Price of silage | 1.25 SEK/kg | Agriwise (2018) [19] | Stochastic | Triangular (0.94, 1.25, 1.41) |

Price of grains | 1.38 SEK/kg | Agriwise (2018) [19] | Stochastic | Triangular (1.35, 1.38, 1.41) |

Category | Item | SEK |
---|---|---|

Added benefit due to change | Benefit due to weight gain | 2024 (± 287.8) |

Reduced costs due to change | None | - |

Increase in contribution margin = Added benefit + Reduced cost | 2024 (± 287.8) | |

Added costs due to change | Costs due to the increase in silage intake | −639 (± 91.1) |

Costs due to the increase in grain intake | −35 (± 3.9) | |

Reduced benefit due to change | Income forgone due to reduction in calves | −10,076 |

Decrease in contribution margin = Added cost + Reduced benefit | −10,750 (± 92.0) | |

Net Change in Contribution Margin | −8726 (± 303.4) |

^{a}The values presented are means ±standard deviations for stochastic components in parenthesis.

Category | Item | SEK |
---|---|---|

Added benefit due to change | Benefit due to weight gain | 1012 (± 143.9) |

Reduced costs due to change | None | - |

Increase in contribution margin = Added benefit + Reduced cost | 1012 (± 143.9) | |

Added costs due to change | Costs due to the increase in silage intake | −320 (± 69.1) |

Costs due to the increase in grain intake | −17 (± 3.5) | |

Reduced benefit due to change | Income forgone due to reduction in calves | −10,076 |

Decrease in contribution margin = Added cost + Reduced benefit | −10,413 (± 71.3) | |

Net Change in Contribution Margin | −9401 (± 164.8) |

^{a}The values presented are means ±standard deviations for stochastic components in parenthesis.

Category | Item | SEK |
---|---|---|

Added benefit due to change | Benefit due to weight gain | 2277 (± 323.7) |

Reduced costs due to change | None | - |

Increase in contribution margin = Added benefit + Reduced cost | 2277 (± 323.7) | |

Added costs due to change | Costs due to the increase in silage intake | −719 (± 101.3) |

Costs due to the increase in grain intake | −39 (± 4.5) | |

Reduced benefit due to change | Income forgone due to reduction in calves | −5038 |

Decrease in contribution margin = Added cost + Reduced benefit | −5796 (± 104.9) | |

Net Change in Contribution Margin | −3520 (± 339.9) |

^{a}The values presented are means ±standard deviations for stochastic components in parenthesis.

Category | Item | SEK |
---|---|---|

Added benefit due to change | Benefit due to weight gain | 1138 (± 161.1) |

Reduced costs due to change | None | - |

Increase in contribution margin = Added benefit + Reduced cost | 1138 (± 161.1) | |

Added costs due to change | Costs due to the increase in silage intake | −360 (± 79.2) |

Costs due to the increase in grain intake | −20 (± 3.9) | |

Reduced benefit due to change | Income forgone due to reduction in calves | −5038 |

Decrease in contribution margin = Added cost + Reduced benefit | −5417 (± 82.9) | |

Net Change in Contribution Margin | −4279 (± 181.7) |

^{a}The values presented are means ±standard deviations for stochastic components in parenthesis.

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**MDPI and ACS Style**

Ahmed, H.; Alvåsen, K.; Berg, C.; Hansson, H.; Hultgren, J.; Röcklinsberg, H.; Emanuelson, U.
Assessing Animal Welfare and Farm Profitability in Cow-Calf Operations with Stochastic Partial Budgeting. *Animals* **2021**, *11*, 382.
https://doi.org/10.3390/ani11020382

**AMA Style**

Ahmed H, Alvåsen K, Berg C, Hansson H, Hultgren J, Röcklinsberg H, Emanuelson U.
Assessing Animal Welfare and Farm Profitability in Cow-Calf Operations with Stochastic Partial Budgeting. *Animals*. 2021; 11(2):382.
https://doi.org/10.3390/ani11020382

**Chicago/Turabian Style**

Ahmed, Haseeb, Karin Alvåsen, Charlotte Berg, Helena Hansson, Jan Hultgren, Helena Röcklinsberg, and Ulf Emanuelson.
2021. "Assessing Animal Welfare and Farm Profitability in Cow-Calf Operations with Stochastic Partial Budgeting" *Animals* 11, no. 2: 382.
https://doi.org/10.3390/ani11020382