Documenti di Didattica
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Aalt A. Dijkhuizen
Roger S. Morris
5 tJ
Contents
Preface
A d v a n c e d m e t h o d s of economic analysis
13 Risk analysis and the international trade in animals and their products
S.C. MacDiarmid
13.1 Introduction 171
13.2 Terminology 172
13.3 Analysis of risk 172
13.4 Managing risk 173
13.5 Examples 175
13.6 Concluding remarks 183
References 184
R.S. Morris
Department of Veterinary Clinical Sciences, MasseyUniversity, Palmerston North, New Zealand
Objectives
From thischapter thereader should gain knowledge of:
• the nature of the various effects of disease on feed intake and protein, energy and nutrient
metabolisms
• themeasurable effects of disease anddisease control measures onlivestock productivity
1.1 Introduction
The traditional distinction between animal health and animal production has become
increasingly blurred inrecent years, asthe trends inlivestock production systems have led
advisers to progress from formerly looking at single technical issues to now consider
multiple issues simultaneously in order to optimize the system. Greater and greater
emphasisisbeinggiven tofine-tuningthemanagement systembymodifying various facets
of the management strategy in response to monitoring data obtained from afarm. In the
health areathis trend has led toemphasis on subclinical diseases andtheir interaction with
management, asthemorespectacular andvisible diseaseshavebeenbrought undercontrol.
In dealing with animal health issues in livestock enterprises, economic evaluation has
become increasingly important astheeffects of thediseases which remain tobe controlled
are far more subtle than was the case for epidemic problems - where the question of
economics did not have to be raised because the answer was self-evident. Before it is
possible to develop appropriate techniques for improving the economic efficiency of a
livestock enterprise through health management methods,it isfirstnecessary todefine the
ways in which aparticular disease lowers productive efficiency.
Over the years since animal health economics first developed, it has become clear from
many studies that typically animal health measures yield veryhigheconomic returns tothe
livestock producer, although there areintriguing exceptions tothis generalization. At first
sight itisnotclearwhydiseasecontrolshouldbeanymoreprofitable thanother investments
afarmer might make,orwhythisgeneralfindingisnotuniversally true.Inordertoexplain
the unusual nature of the effects of disease on animals and hence to show how economic
studies on animal disease should be carried out, it is first necessary to define the exact
mechanismsbywhich adiseasecan influence productivity.Thisinformation isalsorelevant
toanimal scientists, whohave inmany cases failed torecognize theconfounding influence
of diseases in studies they undertake of management factors inlivestock production.
Chapter 1
X X 31
Consequential Premature Changed x
Reduced Reduced yield Reduced Altered 1_
production death value of body and/or quality of capacity production of Body material
effects in animals weight milk, eggs, wool, for work dung (used diverted for use
affected etc. for fuel) of disease agent
animals
=E
•• m 1
Herd Reduced Reduced fertility Lower precision
production productive life of and fecundity in recognition of animals Increased yield
effects animals of superior genetic merit of disease agent
Figure 1.1 The various ways in which a disease may affect the productive value of animals in
a herd or flock
and select for examination those which appear to be relevant. Each of the mechanisms is
discussed individually, and then consideration is given tohow they should be combined to
evaluate the effect of disease on profitability.
Effects on ingestion
Many diseases alterfeed intake in affected animals. In almost all cases intake is reduced,
but rarely it may be increased. Diseases which cause pain during prehension (contagious
ecthyma of sheep) or mechanical difficulty (actinobacillosis of the tongue incattle) will
reduceintaketemporarily.Diseaseswhich affect locomotorability orreduceappetitedueto
a fever or similar discomfort will also lower intake. However, many diseases appear to
reduce intake in subtle ways which may not be recognized unless careful measurements
are made. These effects have been documented most carefully for parasitic diseases,
although in some cases intake has been reduced only in more severe forms of the disease
(Hawkins &Morris, 1978). Depression of feed intake can also occur in non-infectious
diseases such asnutritional deficiencies (Scott etal.,1980).
It is intriguing that feed intake should be commonly depressed by disease when other
evidence showsclearly thatfeedrequirementsareincreasedbymanyofthesamediseases,
since productivity falls under the influence of the disease.From the limited studies which
havebeen conducted to resolve this apparent paradox, it would appear that itresults from
disturbances inbodyhomeostaticmechanismsofthehost.Symons&Hennessy(1981)have
found that cholecystikin levels rise as appetite falls in Trichostrongylus colubriformis
infestations, and return to normal in line with appetite when the infestation is terminated.
In the same disease, corticosteroid levels rise and thyroxine levels fall inresponse tothe
parasite, while insulin levels fall apparently in response to reduced intake rather than
directly due totheparasite. Itisimportant todifferentiate between diseases which merely
depress feed intake and those which lower the efficiency of feed conversion - with or
without any effect on feed intake. The effect on intake iscalled the anorectic effect and
thatonfeed conversion efficiency thespecific effect. Thespecific effect isthemore serious
of thetwo,sincelowerproduction isachieved from the samefeed intake,andefficiency of
the production process is adversely affected, whereas the anorectic effect reduces both
intake and output without altering the efficiency of production. This is an important
consideration in studies of animals which consume purchased feed, such aspigs.It isless
important ingrazing ruminants,for which feed production iscloser tobeing afixedcost.
changes (Hawkins & Morris, 1978). One of the few reports of a reduction in feed
digestibility for ruminants was for magnesium deficiency in dairy cows (Wilson, 1980).
However, the situation maybe different inmonogastric animals,since inpigsit wasshown
that internal parasites caused reductions infeed digestibility (Hale etal. 1981).
It nevertheless seems likely that at least in ruminants adverse effects of disease on
productivity which cannot be explained by reduction in feed intake can reasonably be
attributed to lower feed conversion efficiency; although digestibility trials are a crude
method ofassessing changes indigestive function. However, these trials areexpensive and
demanding, and studies of the economic effects of disease become easier to conduct if
changes in digestibility can be disregarded as amajor factor in altering feed conversion
efficiency. It is also clear from the various studies inthis general field that the nature and
extent ofpathological changesinthebodycannotbeusedasanydirectguidetotheseverity
ofeffects of adiseaseonproductivity.
animal cannot recover any of the nutrient content of theblood in this case. In studies on
theeffects of ticksonhostmetabolism itwasfound that haemoglobin and plasma albumin
fell, whereas globulin rose.Thus the animal was able to synthesize increased supplies of
globulins,butcould notmaintain levelsoftheotherbloodconstituents.This wasattributed
in part to adisturbance of protein metabolism, but the injection of atoxin by thetick was
alsohypothesized.Tofurther emphasizethetenuouslinkbetweenthepathologyofadisease
and its effects on productive processes, O'Kelly and Kennedy (1981) found that ticks
adversely affected function in the gastrointestinal tract and reduced organic matter
digestibility. It is difficult to explain why this should be so when such effects are not
common for parasites directly affecting the tract.
Although these are the two most fully studied diseases, evidence for other diseases ina
variety ofspeciesconfirms thecentralimportanceofthederangementofprotein metabolism
inthe diseaseprocess.
There isalsoimpairment of energy metabolism, butthis appearstobelargely secondary to
the alterations inprotein metabolism, andisaresult primarily of the energy costs of tissue
regeneration. Mineral and micronutrient metabolic flows are also altered by parasitic
diseases, which are the only ones to have been studied. There is reduced retention of
ingested calcium and phosphorus in growing sheep infested with Trichostrongylus
colubriformis or Ostertagie circumcincta. Consequently, bone growth and skeletal
development areimpaired;andthiscanreducematurebodysizeandcapacity toaccumulate
muscle.Cobalt, copper and vitamin status of animals have all been reported tobe affected
byparasitism aswell.
Sincelung diseasecan adversely affect productivity, another mechanism by which disease
might impair physiological function is areduction in respiratory function. It seems more
likely, however, that itistheregenerative process following lung diseasewhich causes the
production deficit.
Premature death
This effect istheeasiest of alltheconsequences of disease tomeasure, andtherefore tends
tobeconsiderably overemphasized incomparison with other effects. Ineconomic studies,
death losses should be measured asthe difference between the potential market value of
the animal and its value when dead (which may not be zero), less the costs which would
havebeen incurredinobtainingthemarketvalue (suchasextrafeed andcaretomarketage,
marketing costs,etc.).
True market value of final products may be altered due to changes in the ratio of meat to
fat or to bone or reduced protein content. The value of offals may also be reduced due to
pathological changes caused by agents such as Fasciola hepatica or Echinococcus
granulosus.Presenceoflesionsofazoonoticdiseasemayrendertheanimaltotally unfit for
consumption.
Somediseases (suchascaseouslymphadenitis insheep)mayrenderproductsless attractive
to the consumer for aesthetic reasons, and hence may reduce meat consumption. Diseases
which affect the skin, such as warble fly infestation or even sheep lice, may reduce the
market value of hides ortheir valuetotheuser.
genetic selection effort. Forexample,itwas shown thatinternal parasitism can affect wool
production by sheep in ways which distort selection by objective measurement of wool
characteristics. Since, for practical purposes, resistance to internal parasitism cannot be
regarded as a heritable trait, genetic selection will be more efficient if effective parasite
control iscarried out intheherd.
8
Howeconomically important isanimal diseaseandwhy?
young children. Animal products are also important sources of other nutrients, notably
mineralsandvitamins,anddiseasescanbothreducethetotal supply ofanimalproductsand
modify thecomposition of animal products inways which reduce their nutritional value.
Animal welfare
In considerations of animal welfare issues, little is said about the importance of ensuring
through disease control that animals are in ahealthy state -yet this is avitally important
issue inprotecting the welfare of managed animals. It deserves more prominent attention
in discussions of animal welfare matters. There have been surprisingly few efforts to
quantify welfare effects of diseases,andmost oftheinformation availableisopinion rather
than solid evidence.However, some efforts havebeen madetodefinejust what the effects
are(Gibson, 1987;Webster, 1995).Someofthemechanisms through whichdisease affects
the welfare of animals are starting tobeelucidated (Rothwell &Dantzer, 1992).However,
greaterbiologicalunderstanding willbeneededbefore quantitative assessmentsofthe effect
of disease onanimal welfare canbe attempted.
but requires a large number of farms because of the extent of variation in uncontrolled
factors between farms.
There are standard economic techniques which should be used to describe and summarize
the outcome of economic studies. The most common ones are partial budgeting,
cost-benefit analysis and decision analysis. Each of these techniques, their application and
limitations are discussed in more detail in following chapters of this book.
The focus of economic studies must be on estimating the benefit of action against a disease,
rather than just on the economic impact of the presence of a disease. Although it is not
possible to get all of the economic data which might be desired for every disease,
experimental studies can now be supplemented and expanded using other analytical
approaches, of which computer modelling is among the most useful. It is also necessary, in
cases where chance is an important element in the epidemiology of the disease, to include
an evaluation of the riskiness of each of the alternative courses of action in economic
studies. There are standard economic procedures for doing this, which are also discussed
in following chapters.
References
Bown, M.D., Poppi, D.P.&Sykes, A.R., 1986.The effect of post-ruminal infusion of protein or
energy onthepathology of Trichostrongyluscolubriformisinfection onbody composition inlambs.
Proceedings of theNew Zealand Society of Animal Production 46:27-30.
Garriz, CA., Gallinger, M.M., Touraille,C, Steffan, P.E.,Fiel.CA., Ambrustulo, R.R., Biondani,
CA., Zamorano,M. &Bulman, G.M., 1987.Gastrointestinal parasitism: its effects on muscle, fat
and bone composition of the carcass and organoleptic characteristics of meat. Proceedings
MSDAgvet Symposium on Gastrointestinal Parasitism, August 19, 1987:59-68.
Gibson, T.E. (ed.), 1987. Animal disease - a welfare problem? British Veterinary Association
Animal Welfare Foundation, 96pp.
Hale, O.M., Stewart, T.B.,Marti, O.G., Wheat. B.E. &McCormick, W.C, 1981. Influence of an
experimental infection ofnodular worms(Oesophagostomumspp.) onperformance ofpigs.Journal
of Animal Science 52:316-322.
10
How economically important is animal disease and why?
Hawkins, CD. &Morris, R.S., 1978.Depression of productivity in sheep infected with Fasciola
hepatica. Veterinary Parasitology 4:341-357.
Houben, E.H.P., 1995. Economic optimization of decisions with respect to dairy cow health
management. PhD-Thesis,Department ofFarmManagement, Wageningen Agricultural University,
Wageningen, 146pp.
Huirne, R.B.M., 1990.Computerized management support for swine breeding farms. PhD-Thesis,
Department of Farm Management, Wageningen Agricultural University, Wageningen, 165pp.
Kristensen, A.R., 1993. Markov decision programming techniques applied to the animal
replacement problem. Doctoral dissertation, The Royal Veterinary and Agricultural University,
Copenhagen, 183pp.
O'Kelly, J.C. & Kennedy, P.M., 1981. Metabolic changes in cattle due to the specific effect of the
tick Boophilusmicroplus.British Journal ofNutrition 45:557-566.
Rothwell, N.&Dantzer, R., 1992.Interleukins in the brain. Oxford: Pergamon Press, 207pp.
Schepers, J.A. &Dijkhuizen, A.A., 1991. The economics of mastitis and mastitis control in dairy
cattle: acritical analysis of estimates published since 1970. Preventive Veterinary Medicine 10:
213-224.
Symons, L.E.A. & Hennessy, D.R., 1981.Cholecystikin and anorexia in sheep infected by the
intestinal nematode Trichostrongylus colubrifonnis. International Journal of Parasitology 11: 55-59
Van Arendonk, J.A.M., 1985. Studies on the replacement policies in dairy cattle. PhD-Thesis,
Department of Animal Breeding and Department of Farm Management, Wageningen Agricultural
University, Wageningen, 126pp.
Wilson, G.F., 1980. Effects of magnesium supplements on the digestion of forages and milk
production of cows with hypomagnesaemia. Animal Production 31: 153-157.
11
2
Economic decision making in animal health management
Objectives
From thischapter the reader should gainknowledge of:
• basic principles underlying economically sound decision making
• major components of aconceptual model for economic analysis
• production function principles
• cost functions
2.1 Introduction
Economics issometimesqualified asthediscipline that simply measures things inmonetary
units, while everyone else uses physical units.This view, however, is far too simple and
inappropriate. Economics -as ascience -primarily deals with decision making, whereby
moneyisonlyoneoftheelements.Animalhealtheconomics,therefore,canbedescribedas
thediscipline that aims toprovide aframework of concepts,procedures and data to support
thedecision-making process inoptimizing animal health management (Dijkhuizen, 1992).
Controlling the cost of production isbecoming critically important in modern livestock
farming. Improvinganimalhealthandfertility canplayamajorroleinachievingefficient and
economically rewarding production. Current veterinary services are evolving tomeet the
needfor servicetargeted tightly totheneedsof farmers throughplanneddisease prevention
andcontrolprogramsandmanagementforoptimumhealth.Theapplication oftheseservices
israrely an all-or-nothing affair. Usually several programs or measures are available, each
ofthemoffering adifferent degreeofprotectionandrequiringadifferent levelofinvestment.
Determining the optimum input level, therefore, is to alarge extent amatter of economic
decision making.Not only isthis the case for theindividual livestock owner,but also fora
nationalgovernment thatmustdetermineanoptimumpolicyonspecific contagiousdiseases.
In thischapter thebasic economic framework and principles torely onwhen dealing with
these aspects arediscussed and illustrated.
13
Chapter 2
components: people, products and resources. It is people who want things and make
decisions, therefore being the driving force for economic activity.Products are goods and
services that satisfy people's needs and may be regarded as the outcome of economic
activity.Resourcesarethephysical factors andservicesthatarethebasesfor generating the
products,and,assuch,arethestartingpointsofeconomic activity.Thesethree components
canbeputtogether toportray thebasic conceptual model that underlies economic analysis
(Figure2.1).
(Costs) (Value)
In Figure 2.2 animal disease isportrayed in the system as an influence which affects the
livestock resource transformation process and results in extra resource use and/or fewer
animalproductsthanbefore (directeffects). Thesedirectlossesmaybeimmediately visible
(death, abortion), or obscured (reduced milk yield).Animal disease may also affect other
parts oftheeconomic system,thusdiminishingbenefits topeople (indirecteffects). These
indirect losses can bedivided intothose that arefairly obvious (collapse of export trade),
and those that areobscure (constraints onagricultural developments).
Probably the most useful addition to this basic economic model for certain decision
situationswouldbetoincludealoopindicatingthat someanimal 'products' arenotused for
human consumption but asbreeding stock, and soform part again of the resource base.In
doing thisthe notion of 'capital' isintroduced.
Direct effects
Disease People
Indirect effects
Toexpress the physical effects in economic terms, the 'value' of products and 'cost' of
resources are required. The idea of value is not intrinsic in any product or service, but is
determined by the people's request for the products, and is relative to their availability
14
Economic decision making in animal health management
('supply and demand'). Economics attempts to deal with the real value of any product,
which may or may not be accurately captured in its recorded price. Similarly, the idea of
cost stemsfrom theresourcesthatareusedinmakingaproduct available.Thisunderliesthe
definition ofthereal cost (or 'opportunity cost').Theopportunity cost of usingaresource
in aparticular way is the value of that resource if it were used inthebest alternative way,
which again may not adequately be reflected by financial expenditures incurred in its
production. Both 'real value' and 'real cost' -and hence the losses from one and the same
disease -may differ considerably across the various economic levels tobe considered, ie,
the individual farmer, thejoint livestock owners,theconsumers andthe national economy,
asisillustrated inTable 2.1.
In the case of the common diseases that the individual farmer can control (eg,mastitis),
supply anddemandforce animalproductmarketpricestochangeovertimewiththeaverage
diseaselevel.Thustheresultinglossesaretransferred totheconsumers,andconversely itis
the consumer whobenefits from improved animal health. On asufficiently large market
(suchastheEuropean Union)thereishardly anyrelationbetweentheextentandseverityof
these diseases on the one hand, and the average income of thejoint livestock owners on
the other.However, for the individual farmer this linkage doesexist.The farm in question
may suffer more (or less) from disease than is compensated for by the average 'disease
margin' included in the market price. To a lesser extent this also applies to a group of
livestock owners.
In the case of an epidemic of contagious diseases (eg, foot-and-mouth disease), market
pricesof output primarily depend onwhether ornotrestrictions onforeign tradewillbeim
posed. When an outbreak doesnot lead toexport bans,the market prices may temporarily
rise alittle,depending on the spread and duration of theoutbreak. Ifexports are restricted,
however, prices in countries that export much will drop substantially due to an oversupply
on the domestic market. This fall in price causes losses which may greatly exceed the
direct losses from the disease owing to, for instance, mortality. Unaffected farms also
suffer from thisdropinmarket prices.Consumers willbenefit, however,making the losses
tothenational economy considerably fewer than those tothejoint livestock owners.
15
Chapter 2
1.Farm (individual Direct relation between Great incidental loss, Great loss to the
producer) loss and degree of the even if the farm is not affected farms (possible
disease per farm. affected by the disease. compensation for
Particularly in pig and Possible compensation destroyed animals);
poultry farming great for destroyed animals. advantage to farms not
effect on income. affected.
2. Sector (joint Loss, if the price does Significant loss, Moderate loss
livestock farmers) not adjust itself. Ona particularly in the case (depending on possible
sufficiently large of export products, compensations and on
market (eg, the EU) resulting from dropping degree of price
hardly any relation prices owing to failing adjustments).
between level of demand.
disease and income of
livestock farmers, due
to price adjustment.
3. Supply and
processing industries;
service and trade 3
a
Possible effects have not been specified. Price changes areassumed tobepassed ontothe consumer fast and
completely.
16
Economic decision making in animal health management
Y=/(X 1 IX 2 ,...,X n )
This relationship indicates that the amount of product Yis a function of the amount of
variable inputXj andthe level of thefixedinputs X 2 through X n .
The relationship between the amount of a single variable input and the output of a single
productcantakeoneofthreegeneralforms:constantproductivity,diminishing productivity
and increasing productivity of thevariable input. Constant productivity exists when each
additional unit of variable input added tothe fixed factor(s) increases output by the same
amount. Withdiminishing productivity each additional unit adds lesstototal output than
the previous one, whereas with increasing productivity the opposite occurs.The most
classical production function is assumed to include both increasing and diminishing
productivity, asisillustrated inFigure2.3.
Totalphysical product (TPPxj) growsatanincreasingrateuntiloutput levelaisreached,
and increases at adecreasing rate between aand c. Beyond output level c, total physical
product declines with increased input of Xj.
Twoothertechnicalrelationships -themarginal physical product (MPPxj) andthe average
physical product (APPxj) -canbe derived from theproduction function and are important
in selecting the optimum amount of a variable input. Marginal physical product is the
increment to total physical product attributable to the addition of a single unit of input
(MPP xl =ATPP xl /AX 1 =AY/AXj) and is,therefore, equal to the slope of the TPP curve
at anylevel of input. Averagephysical product isequal tothe average output per unit of
variable input and iscalculated astotal physical product divided bythe amount of variable
input used (APP xl =TY?xX/Xx =Y/Xj).
From these relationships, three stages of production can be defined, as is also shown in
Figure 2.3.Stage 1 isdefined as the area in which marginal physical product islarger than
average physical product. In Stage 1 the MPP x j curve increases, reaches its maximum
(when output gets to level a), and then declines. Average physical product increases
throughoutthestageandreachesamaximum attheboundarybetween Stages 1 and2(when
output gets tolevel b).Notice that at thisboundary marginal physical product and average
physical product areequal.Within Stage 2marginal physical product is further declining,
and reacheszero attheboundary between Stages2and 3(when outputgetstolevelc).
Average physical product is declining and positive throughout Stage 2. Stage 3 is
characterized by declining total physical product and negative (and declining) marginal
physical product. Average physical product, ofcourse,continues todecline inStage3.
The three stagesprovide the decision maker withuseful information indefining the range
17
Chapter 2
which isthe most efficient for production. Itwould be irrational tooperate ineither Stage
1orStage3regardlessofthelevel ofinputandproduct prices.Itisobviousthat onewould
not want to operate within Stage 3.Applying additional units of the variable input and
forcing production intoStage3reducetheamountoftotalproductproduced.Ifthepricesof
the variable input and the product are assumed to be constant and positive, one would
makemoremoneybyleaving someofthe variableinput unused.Producing within Stage1
isnot rational either,because amoreefficient useof the variable input canbe obtained by
higher levels of input until the APP x j curve reaches itsmaximum. Production, therefore,
should alwaysoccurinStage2,butthedecisionmakermustconsiderthepricesofinputand
output inordertodetermine exactly theprofit-maximizing level of the variable input tobe
used.
Tobetterillustratethethreetechnicalrelationshipsdiscussedbefore, ahypothetical response
toanthelmintic dosing ingrowing cattle is summarized inTable 2.2
18
Economic decisionmaking inanimal health management
In Table 2.2 the average physical product curve reaches its maximum with five doses,
indicating theboundary between Stages 1 and2.Thisboundary isfurther confirmed bythe
fact thatthemarginalproduct curveintersectswiththeaverageproductcurve.Themarginal
physical product curve falls below zero beyond six doses, being the boundary between
Stages2and3. Therational range,therefore,isnarrow inthiscaseandincludesfive andsix
dosesonly (Stage2).
0 0 0
10
1 10 10
20
2 30 15
30
3 60 20
40
4 100 25
30
5 130 26
20
6 150 25
-10
7 140 20
-20
8 120 15
TVC= P x l X l
n
TFC =lP y i Xi
i=2"
n
TC=TVC+TFC=XPviX:
i=l X1 '
Notice thecorresponding relationship between the production function (Figure 2.3) and
the total variable cost curve (Figure 2.4).Output inFigure 2.3 grows at an increasing rate
until output level a is reached. The total variable cost curve in Figure 2.4 increases ata
decreasing rate within the same range of output. Within Stage 2(output level bto output
19
Chapter 2
O
O
a b c '
Figure 2.4 Total cost functions (identifying 3stages of production)
AFC= TFC/Y
AVC=TVC/Y =P x l X 1 / Y = P x l / A P P x l
ATC=AFC+ AVC
MC=ATC/AY=P x l AX! /AY=P x l / MPP x l
20
Economicdecision making inanimal health management
O
o
a b e
Figure2.5Averageandmarginalcostfunctions
21
Chapter2
That will make the supply curve for afarm identical to the marginal cost curve for all
values of prices thatexceed average variable cost.
The cost calculations are illustrated in Table 2.3 using the data from Table 2.2 on the
hypothetical response to anthelmintic dosing in growing cattle.Fixed costs per head are
assumed tobeUS$100,andinput price US$10perdose.
Table 2.3 Production cost derived from the production function on the hypothetical response
to anthelmintic dosing in growing cattle
X1 Y TFC TVC TC AFC AVC ATC MC
doses kg S/head S/head S/head S/kg S/kg S/kg S/kg
0 0 100 0 100 — — —
1.00
1 10 100 10 110 10.00 1.00 11.00
0.50
2 30 100 20 120 3.33 0.67 4.00
0.33
3 60 100 30 130 1.67 0.50 2.17
0.25
4 100 100 40 140 1.00 0.40 1.40
0.33
5 130 100 50 150 0.77 0.38 1.15
0.50
6 150 100 60 160 0.67 0.40 1.07
7 140 100 70 170 0.71 0.50 1.21
8 120 100 80 180 0.83 0.67 1.50
The values in Table 2.3 are calculated using the equations presented before. Average
variablecosts(AVC)areminimalwithfivedoses(US$0.38/kg).TheoutputpriceP y (ie,the
so-called marginal return),therefore, should notbe lessthan US$0.38/kg, otherwise losses
will be minimized (ie,reduced toTFC) by ceasing production. Ahigher price will make
six doses the optimum. More than six doses are not an option because of the negative
marginalresults.Thesefindings are in agreement withTable 2.2,where five and six doses
were found toform therational range (ie,Stage2).
liUMJ
You canpractise the principles of aproduction function, asdiscussedin this chapter, with the
spreadsheet example in Chapter 19:the farm advisory case.The effects of veterinary services
on the number of piglets weaned on asow farm are shown in aproduction function. You have
to calculate the different cost functions and to find the economically optimal amount of
veterinary input. Sensitivity analyses are done to show the effect of changing prices. This
exercise takes about 45 minutes. A smaller example with real experimental data on
anthelminthics in ewes can give you an indication of how this theory isused in research: you
have to find the optimal treatment for this disease. Thisextra exercisetakes about 30 minutes.
22
Economic decision making in animal health management
of deciding with what intensity each individual control measure will be applied, when the
intensity of the other ones isheld constant. Itis necessary toface thequestion of deciding
the optimum combination of twoor moremeasures aswell.
Theoptimumcombination oftwoinputscanagainbefound byusingthemarginal principle
- the optimum point iswhere the reduction in cost by eliminating oneunit of input A(eg,
teat dipping in mastitis control) equals the cost of the additional amount of input B (eg,
dry-period therapy in mastitis control) tokeep the output (eg,milk production) constant.
Just asan optimum combination of twoinputs can be found, it ispossible tocalculate the
best combination of alarger number of inputs in asimilar way.Theconcept is simple,and
formally named theequimarginal principle:
The returns from a scarce or limited resource are maximized when the input is
allocated toits most profitable uses in such away that the returns from the last unit
of resource is not only equal or higher than thecosts of the last unit of resource,but
also thesame ineach of the alternative uses.
In this way funds will be spread among uses according totheir marginal returns (which
will of course decline progressively as more funds are invested in a single item). This
principle is easy to understand and touse; and is a very powerful economic tool. Yet all
too often decisions in animal health management (and elsewhere) are not made in
accordance with this principle, either because the information does not exist or because
farmers and advisers donot know of it.Itis achallenge for both veterinarians and animal
health economists to make proper estimates of marginal cost and returns from disease
control measures.Oncetheseestimatesareavailable,calculationscaneasilyberedonewith
otherinputvaluestohelpdeterminetheimpactofuncertainestimatesontheoutcome ofthe
decisions (aso-called sensitivityanalysis).
Thereisawiderangeoftechniques availabletohelpperform theseanalysesfor twoormore
measures andfor morerealistic andcomplicated situations.Bothbasic methods (ie,partial
budgeting,cost-benefit analysis,decision-tree analysis)and advanced techniques (ie,linear
programming, dynamic programming, Markov chain simulation, Monte Carlo simulation)
arediscussed and illustrated inthe following chapters.
References
Boehlje,M.D.& Eidman,V.R., 1984. Farmmanagement.JohnWiley& Sons,NewYork,806pp.
Howe,K.S.&Mclnerney,J.P.(eds),1987.Diseaseinlivestock:economicsandpolicy.EUR11285
EN,Commission oftheEuropeanCommunities,Brussels, 190pp.
23
3
Basic methods of economic analysis
Objectives
Fromthischapter thereader should gainknowledge of:
• theneed for farm accounting systems
• theconcept of farm enterprise budgets
• thebasiceconomic methods:partial budgeting,cost-benefit analysis anddecision analysis
3.1 Introduction
In Chapter 2 it was stated that the application of veterinary services is rarely an all-or-
nothing affair. Usually severalprogramsormeasures areavailable,each ofthemoffering a
different degree of protection and requiring a different level of investment. The basic
economic principle for determining the optimal level of input is called the equimarginal
principle:theinputshouldbeallocatedtoitsmostprofitable uses,suchthatthereturns from
the last unit (marginal returns) is notonly equal or higher than the costs of the last unit of
resource (marginal costs),but alsothesame ineach ofthe alternative uses.
Theprinciple issimple,but itsapplication becomes morecomplicated whenthenumberof
inputstodecideonandtherangeofoptionstochoosefrom increase.Methodsareavailable,
however, tohelp tocarry out these more complicated analyses.In thischapter some basic
methods are presented, including partial budgeting, cost-benefit analysis and decision
analysis.More advanced methods follow in Chapters 5to 9.All these methods make use
of information, and that is why the need for farm accounting systems is discussed first.
Furthermore,theconceptofenterprisebudgetsandgrossmarginanalysisisintroduced.This
isbecause thebasic economic methods areusually applied toonly apart of the farm, ie,to
a single enterprise.
3.2 Theneedforfarmaccountingsystems
Accurateandefficient decisionsonanimalhealthmanagementrequireextensive information.
Someofthisinformation canbeacquiredfrom farmrecords,whileotherdatamustbeobtained
from firms with which the farmer deals,or other public and private agencies (Boehlje &
Eidman, 1984).Recordkeepingandaccountingcanbetedious,complexandtime-consuming.
However, it can alsobeveryrewarding when itprovides theessential data for performance
evaluation andassessment ofprogressthatareimportant inmanaging animalhealth.
25
Chapter 3
While there are many reasons for keeping farm accounts, the use of accounts in animal
healthmanagement canbesummarizedundertwoheadings:(1)toprovidedatafor forward
planning,and(2)tohelpcontrol the operation.
Farmaccountscanprovidedataonproduction levelsoflivestockenterprises,theamountof
inputs used, the prices paid for inputs,and the costs and returns of (animals in) individual
enterprises. Recordscanalsobesummarized toindicate the costs andreturnsonamonthly
basis.The data can be used for developing both short-run and long-run plans for animal
health management. The data are unique to the individual business. Farm and enterprise
planningtypicallyrequiresthatthedataavailablefrom previousyearsbesupplemented with
additional data on expected prices, input requirements and production levels for some
possibledecisions.Nevertheless,thedataavailablefrom thepastprovide astartingpoint for
theplanning procedure (Boehlje &Eidman, 1984).
Farm managers develop, on their own or together with their veterinarian or extension
worker, operational (short-term), tactical (medium-term), and strategic (long-term) plans
(Figure 3.1), which usually include animal health plans. After such plans have been
developed, the managers are concerned with implementing them, with monitoring and
controlling the actual outcome over time, and with making adjustments in the plan if
conditions change. In this way farm management is considered a cyclical process, as is
outlined inFigure 3.1 (Huirne, 1990).
Strategic Planning
Tactical Planning
Plans Analysis
Implementation
Control
In developing plans for theenterprise, the farmer sets physical and financial standards of
performance. Accounting systems can be developed to record data on the physical and
financial performance measuresthathavebeen setfortheenterprise.Thesedataprovidethe
farmer with anopportunity tocompare the actual outcome with theperformance standards
(Huirne et al., 1992). It is not unusual to set standards that are financial in nature.
Farmersprepareprojected costsandreturnsona,forinstance,monthlybasisfor thecoming
year and compare the actual costs and returns with the projections that have been made.
26
Basic methods of economic analysis
When asignificant difference between planned and actual costs or returns occurs, thiswill
immediately be clear tothe farmer. This gives farmers the opportunity to take corrective
actions before a serious economic problem can develop. In the development of longer-
term plans, standards are set at the rate of return on investment and the rate of return on
equity capital on ayearly basis (Boehlje &Eidman, 1984).
Thecosts of veterinary services and artificial insemination (AI)can easily beallocated toa
dairy herd enterprise, and will vary with small changes in the size of the enterprise.
That is why they are called variable costs.The cost of diesel fuel used in drilling wheat,
for instance, will vary with enterprise size,but will be difficult to allocate without very
27
Chapter 3
Totalgrossmargin
minus
Totalfixedcosts
equals
Net profit of entire business
Figure 3.2 Profit budget in grossmargin form (derived from Warren, 1986)
28
Basicmethods of economic analysis
plan,(2)reducedcosts:alistofitemsofcostsforthebaseplanthatwillbeavoidedwiththe
alternateplan,(3)returnsforegone:alistofitemsofreturnsfrom thebaseplanthatwillnot
be received from the alternate plan, and (4) extra costs: a list of items of costs of the
alternateplanthatarenotrequired withthebaseplan.Tousethefour sectionsinaconsistent
manner, the user of thepartial budgeting procedure mustfirstselect oneplan (for instance,
the current one) as the basis for comparison, and the other as the alternative (proposed
change).The change should be adopted ifthe sum of (1) and (2) is greater than that of (3)
and(4).
As an example data were used toquantify the economics of caesarean section for adairy
cow.When represented in apartialbudgeting format they are as follows:
1.Additional returnsresult from heavier weights of calves: US$25
2. Reduced costs include that less feed isrequired because of the drop in milk production:
US$10
3. Returns foregone result from thedropinmilkproduction: US$30
4. Extracosts include cost of surgery and anincrease inculling rate: US$160
The example on caesarean section mentioned before in this chapter is worked out in more
detail in the computer exercise given in Chapter 19.In this exerciseyou have to calculate the
values of the different sections of a partial budget one by one, and use these to draw a
conclusion. You will go through asensitivity analysisto determine how stable your conclusions
are. Thisexercise takes about 30 minutes.
29
Chapter 3
PV= FV/(l+r/100) n
The 'interest rate' used in cost-benefit analysis is called the discount rate, since it makes
future values smallerthanpresentvalues.Thehigherthediscount rate,themoreaprogram
with high initial costs and a low level of benefits over a long period of time will be
penalized.Conventionally,thediscountratedoesnotallowfor inflation ofprices,and future
prices arecalculated atcurrent prices rather than inflation-adjusted prices.This avoids the
difficulty of predicting future inflation rates, which would in any case have noeffect on
the real rate of return from the program under consideration. This discount rate used is
therefore theso-called 'realrateofinterest',beingthedifference betweenthemarketrateof
interest and the inflation rate. For example, if the market rate of interest is 9% and the
inflation rate is4%, thereal rate of interest is5%.
After having calculated the - expected - flow of costs and benefits resulting from the
programandallowing forthetimeatwhichtheyoccur,adecisioncriterionmustbeusedto
make a decision. An overall measure of value is required. Three such measures are
commonly used,each of which has specific advantages and disadvantages:
1.NetPresentValue(NPV),whichexpressesthedifference betweenthetotalpresentvalue
ofbenefits andcosts(presentvalueofnetbenefits). Itrepresentsthevalueoftheprogram
attoday's prices.It indicates the scale of the netbenefits, but does not show the relative
sizeof thebenefits andcosts.Expensive programs will tend tohave ahigh NPV,evenif
thebenefits areonlyafew percentagepointsmorethanthecosts.AnNPVofUS$100000
from US$10million benefits and US$9.9 million costs is quite different from the same
NPV from US$1million benefits and US$0.9 millioncosts.
30
Basicmethodsof economic analysis
2. Benefit-Cost Ratio (B/C ratio),which iscalculated by dividing the total present value
ofthebenefits bythetotal present value ofthecosts.Itrepresents therelative size ofthe
costs and benefits. It gives no indication, however, of the scale of investment, which
shouldbeconsidered if alternative projects arecompared. Following theexample under
number 1,the B/C ratios areUS$10 million /9.9 million = 1.01 and US$1 million / 0.9
million =1.11 respectively.
3.Internal Rate ofReturn (IRR),which reflects the interest rate which would make the
totalpresentvalueofthebenefits equaltothatofthecosts;inotherwords,theinterestrate
which would havetobe charged toreducethenetpresent valuetozero.This measure is
useful becauseitiseasilycomparablewith(real)interestratesinalternative applications,
andbecause it avoids the necessity of selecting adiscount rate.The main disadvantage
isthat there is no simple formula, andit can only be calculated by trying different rates
untilthecorrectoneisfound.Insomecases,thereisnoratethatwillsatisfy thecondition,
for example,if the annualcosts neverexceedthe annual benefits.
The following example isto illustrate the cost-benefit approach for avaccination program
(Table 3.2). The monetary values are inmillions of US$ and the annual real interest rate
equals 5%. The NPV of this program turns out to be US$-1.2m (46.8 -48.0), hence a
negative NPV (while the undiscounted benefits exceed the undiscounted costs).The B/C
ratio is0.975 (46.8/48.0), slightly below the required minimum value of one.Finally, the
IRR canbecalculated by iteration asabout 3.7%.
a 0.95= 1/(1+5/100)!
b 25.7=0.95 x27
31
Chapter 3
Do the computer exercise on cost-benefit analysis in Chapter 19. With this model you can
practise how to calculate the discount factor to determine the present value of future costs
and benefits. Thisisdone with an example of enzootic bovine leucosis.After the calculation of
the present values, you have to usedifferent decision criteria (ie, NPV,BICratio and IRR) to
draw your conclusion. Subsequently, a calculation isdone with a different interest rate. This
exercise takes about 40 minutes.
where
Aj =decision option (action);
S; =state ofnature;
P; =probability of occurrence of state of nature (S;);and
Vjj =value of outcome for each action and stateofnature.
Assuming that one desires to use the expected monetary value (EMV) as the decision
criterion (see below), then the EMV for each action (Aj) will be:EMV(Aj) =E;(Pj VJ:),
with the highest EMVbeing preferred.
As an example, assume that a farmer wants to know whether it is profitable or not to
inseminate the sows twice during the same oestrus (24 hours after the first insemination)
instead of once.Sothere aretwooptions:
32
Basic methods of economic analysis
Aj =inseminate once
A2 =inseminate twice
Sj =pregnant
S2 =notpregnant
Assume further that eighty-three percent of the sows arepregnant after one insemination.
This percentage increases to 86%when the farmer decides toinseminate twice during one
oestrus. Finally assume that all the sows that do not conceive during this oestrus, will
conceive the next time. The cost of delay of conception of one cycle is assumed to be
US$50.Thecost of insemination is US$4per insemination. Now amathematical equation
canbeusedtocalculatewhetherornotthissecondinsemination isprofitable. The selection
criterion istheexpected monetary valueof thecosts:
EMV(Aj) = 12.50=EMV(A2)=Xx8+(1-X)x58
where
X =proportion of sowspregnant after twoinseminations during one oestrus
The solution of this equation is: X=0.91. So at least 91%of the sows should become
pregnant after twoinseminations during oneoestrustomake this strategy profitable.
A payoff matrix is atabular presentation of data on the decision actions (as presented
above) and provides abetter visual presentation of the data. Thepresentation of data may
taketheform presented inTable3.3.
33
Chapter 3
Si vn v21 .... vn Pl
V V V
S2 12 22 •- i2 P2
I I I I I
I I I I I
I I I I I
Sj Vlj V2j •••• Vij PJ
Using some decision criteria, avisual or mathematical computation isthen made to select
thepreferred action.
Amoreconcrete example of apayoff matrix isgivenbelow,inwhich three strategies A,B
andCtocontrolcontagiousdiseaseoutbreaks aredistinguished.Totalpayoff (inmillionsof
US$)ofthestrategies dependsontheregion oftheoutbreakunderconsideration, ie,North,
South,EastandWest, asissummarized inTable3.4.
Aprocessdiagramorflowchartisatechniqueinwhich theselectionprocessispresented
in adynamic sequence of events, information flows, information processing steps and
decision-making steps.This approach is used in computer programming and is gaining
groundindiagnosticworkandareasofartificial intelligence.AnexampleisgiveninFigure
3.3.Indiagnosticwork,thedifferent stagesoftheflowchartbecometheproceduresthatone
goes through in identifying a specific disease.Thusby answering questions related tothe
symptoms of the disease and going through 'yes' and 'no' arrows,one ends upat apoint
where aparticular diseaseis defined.
Decision-treeanalysisisprobably themostfrequently usedtechniqueofdecision analysis.
Adecision tree isdefined as agraphical method of expressing, inchronological order, the
alternative actions available to the decision maker and the choices determined by chance
(Figure3.4).Thefirst stepistoarrangetheproblemsthatmustbesolved andtocharacterize
theinformation needed totranslate the decision into astructure resembling atree. In the
decision tree,choices(Aj) suchaswhether ornottotreat,arerepresentedby squarescalled
decision nodes. Chance events or states of nature (Sj), such asresponse totreatment, are
34
Basicmethods of economicanalysis
Birth
"
Puberty
"
Begin oestrus cycle
"
Mating
1
'
Conception
''
Gestation
*
Parturition
'' i '
Fpmalp nrnsrpnv
retained as rep. acements femal tssol i asproduce
35
Chapter 3
Chance 120
node -North- -0.1-
-South- -0.5- 110
—O -East - -0.3- 90
.West^ -0.L- 40
Decision
"North- 80
node
-South-
-o.r 70
B -O -0.5-
G" -East -
-West - -0.3-
60
50
-o.i- 30
-Nortrr
-Soutrr
-o.i- 60
-O- -East - -0.5- 60
-West- -0.3- 60
-0.1-
Figure 3.4A hypothetical decision tree representing action choices(strategies A, B,C), states of
nature (outbreaks in North, South, Eastand West), the associated probabilities and
monetary values of outcome
The choice of preferred action is based on the decision criterion, eg, highest expected
monetary value (EMV).The EMV criterion canbe used tochoose the decision (A w ) that
maximizestheexpected monetary value.Thiscanbedone asfollows: A w =maxEMV(Aj)
= maxIj(Pj Vjj). EMV(strategy A) =0.1 x 120+0.5 x 110+0.3x90 +0.1 x40 =98,
EMV(strategy B)=0.1x80+0.5x70+0.3 x60+0.1x50=66,and EMV(strategy C)=
0.1 x30+0.5 x60+0.3 x60+0.1 x60= 57.This means that strategy Ahas the highest
EMV,andisthepreferred one.
Anotherexample dealswithtreatment ofleft-displaced abomasum, which primarily occurs
inhigh-producing olderdairy cowsthathaverecentlycalved.Right-flank omentopexy, left-
flank abomasopexy, and right-paramedian abomasopexy can all be used astreatments by
skilled veterinarians with high degrees of success.Theclosed surgical techniques of blind
stitch abomasopexy and thebar suture technique areonly slightly less successful. Anon-
surgical method of rolling the cow to effect physical replacement of the abomasum hasa
highrateofrecurrenceofthecondition andalowerrateof recovery,butthismethodmaybe
preferred byfarmers becauseitisnoninvasive andinexpensive (Ruegg &Carpenter, 1989).
Key question is:when are the losses minimal? Decision-tree analysis as atechnique can
helptomakethechoice.Toconstructthedecisiontree,thefollowing assumptions aremade,
namely:
1.Surgery (right-flank omentopexy, etc.) costs the farmer US$215 and closed surgical
techniques USS100.Rolling thecow costs US$60.
2.Losses in case of premature disposal occur when cows are replaced before reaching
their economically optimal age. The extent of the losses highly depends on age and
productive capacity of the cows concerned. For the cows in this example the
corresponding losses are summarized inTable3.5.
36
Basicmethodsof economicanalysis
37
Chapter3
5.The recovery rate after surgery is 85%,and after closed surgical techniques this is75%.
Rolling hasarecovery rate of30%.
Table 3.6 Expected monetary values (US$) of the different action choices
Choice of Relative production level (% at Mature Equivalent)
action 86-90% 98-102% 110-114% 122-126%
Lad Lac4 Lad Lac4 Lad Lac4 Lad Lac4
Table 3.6 shows that for an average-producing first lactation cow, the EMV of closed
surgery is only slightly lower than the EMV of rolling the cow. A sensitivity analysis
shows that with arecovery rate of 23% for rolling the cow instead of 30%,the EMVs of
both actions would be equal. For an average-producing cow in lactation 4the EMV of
surgery would be equal to the EMV of closed surgery when the recovery rate of closed
surgery equalled 68%instead of 75%.These sensitivity analyses show that theoutcomeof
thecalculations ishighly dependent onthe assumptions made.
EB9E19^
Theexample on left-displaced abomasum discussedabove isworked out in more detail in the
computer exercise in Chapter 19. This example is not built in a spreadsheet format, but in
SMLTREE: a computer program especially useful for building decision trees (but not veryuser-
friendly). You have to build the tree partly yourself, then you can evaluate the tree and do
some sensitivity analyses on the effect of the producing level of the cow, the prices and the
rate of success of the different strategies. Thisexercisetakes approximately 45 minutes.
38
Basic methods of economic analysis
References
Boehlje, M.D.&Eidman, V.R., 1984.Farm management. John Wiley &Sons,New York, 806pp.
Marsh, W.E., 1986.Economic decision making on health and management in live-stock herds:
examining complex problems through computer simulation. PhD-Thesis, University of Minnesota,
St. Paul, 304pp.
Ruegg, P.L. & Carpenter, T.E., 1989. Decision-tree analysis of treatment alternatives for left-
displaced abomasum.Journal of American Veterinary Medical Association 195:464-467.
39
Economic impact of common health and fertility
problems
Objectives
Fromthischapter thereader should gain knowledge of:
• thefinanciallossesindairycattleowingtoreproductive failure, mastitisandclinical digital
disease
• the way tocalculate theeconomic impact of number of litters per sow peryear, litter size,
feed conversion efficiency, daily weight gain andmortality rateon swine farms
4.1 Introduction
The calculation of financial losses is especially of importance tohelp provide abetter
overall viewoftheimpactofdiseaseandtocontribute toestimatingtheextent ofthelosses
tobe avoided. The latter is particularly the case if adifference in losses among farms is
indicated, in addition to the losses in the average situation. Three questions should be
answered for aneconomic characterization oftheactual situation:
1.Towhatextent doestheprobleminitsvarious forms occur?
2.What arethe quantitative andqualitative effects onproduction, mortality,etc.expressed
inphysical terms?
3. Howcan thesephysical effects beexpressed infinancialterms?
The accuracy of the answers tothese questions -and thus of the economic calculations -
highlydependsontheavailability andusefulness oftheunderlyingdata.Buteven ifenough
data are available,itisnot asimpletasktoquantify the lossesfrom disease,because their
effects:
• arenot always obvious and pronounced;
• areinfluenced byotherfactors such asnutrition and housing;
• have atemporal dimension which adds to thecomplexity of determining their impacts at
different stages intime;and
• often manifest themselves togetherwithotherdiseases.
41
Chapter 4
This may help explain why the outcome of calculations often differs so much, even for
similar farm andpriceconditions.
From amethodological point of view,financiallosses atfarm levelcanbe attributed toone
ormore of the following factors atanimal level:
a. lessefficient production and higher veterinary costs prior todisposal;
b. reduced slaughter value andidleproduction factors at disposal;and
c.lost future income owingtodisposal.
Factor conly occurs when animals have tobe replaced before reaching their economically
optimal age.Thelossisthedifference between (1)theincomethataparticularanimalcould
yieldduringherremainingexpected life,hadthereason for replacement notpresented itself
- given normal probabilities ofdisposal duetootherreasons -and (2)theexpected average
income over the same period of time of replacement animals with normal productive
qualities and normal probabilities of disposal. When calculating the total loss per farm,
factors a,band cmustbe added.
Quantifying theeconomic losses owing to disease is mainly performed by simple partial
budgeting techniques. In the remainder part of this chapter this type of calculation is
illustrated for dairy cattle (ie,reproductive failure, mastitis and lameness) and swine (sow
and pig fattening performance) for typical Dutch conditions. The approach is general,
however, andcould alsobeused for otherfarm andprice conditions.
Calving interval
Theissuesofoptimalcalving intervalsandtheeffect ofachangeincalvinginterval (ordays
open)ontheeconomicperformance ofcowshaveoften beendiscussed.Whilesome studies
have found short intervals of 310 to 340 days to be optimal, others have indicated
intermediate optima between 370 and 400 days. One reason for the different results in
these studies may be the difference in criteria used (eg, milk production only versus a
comparison on total net return) and the different price and production conditions under
consideration. Also, in some field studies the average effect for all cows is presented,
whereas others distinguish between cows that differ inage and calving season. Moreover,
the losses because of extended calving intervals are sometimes wrongly combined with
those from premature disposal, which also affects theresults.
Foravalideconomicevaluation,insight isrequiredintotherelationship-onaper-cowbasis-
betweenthelengthofcalvingintervalandtheresultingnetreturnperunitoftime(day,year).
42
Economic impact of common health andfertility problems
As indicated in Table 4.1, lactation length increases by 40 days and the dry period by 20
days with acalving interval that istwomonths longer. Total lactation milk yield increases
by 582kg,which equals 582/60 =9.7 kgper additional day of calving interval. However,
this increase is considerably less than the average production of 20.3 kg per day with a
calving interval of 12months. So, annual milk yield decreases by 544 kg (ie. 7.4%) or
544/60 =9.1 kg per additional day of calving interval. At amilk price of US$0.42 perkg,
therefore, the average loss amounts toUS$3.82 per day. However, aconsiderable part of
these lossesiscompensated for bythree interrelated factors:
higher percentage of fat andprotein intheextra milk yield;
lower total feed costs;and
positive effect onmilkyield inthe subsequent lactation.
In contrast tothe downward slope of the milk yield curve (kg),the percentages of fat and
protein increase towards the end of lactation. Thus, the fat and protein percentages in the
extra milk yield with lengthened calving interval are relatively high. This is an important
43
Chapter 4
consideration if the milk price is dependent on fat and protein contents (as is the case in
many countries). Feed requirements percow depend, among other things,on age,level of
milk yield, percentages of fat and protein in themilk and livebody weight. Consequently,
total feed costs decrease withdiminishing annual milk yield. Ontheotherhand, feed costs
increase with calving interval because of the increase in live body weight. Finally, the
increased dry period and associated higher livebody weight withlongercalving interval is
assumed tohavea slightly positive effect on milk yield in the subsequent lactation. This
leads to a difference in net milk receipts (calculated as the margin between gross milk
receipts and feed costs),asispresented inTable4.2.
Table 4.2 Losses in net milk receipts per cow per year (US$)a
Calving interval (months) 11 12 13 14 15 16 17
a
Thecalving interval withhighest net milkreceipts isset atzero
Taking into account net milk receipts only,the optimal calving interval for first lactation
cows is one year. For older cows the optimal interval is shorter than one year, while the
loss duetoalongercalving interval ismuchhigherthan forfirstlactationcows.
It is obvious that the number of calves born per year will decrease with longer calving
intervals. With acalving interval of 11months, for instance, theoretically 12/11= 1.09
calves are born per year versus 12/17 =0.71 with acalving interval of 17months. These
differences are slightly reduced when taking into account a-fixed -percentage for calf
mortality. Nevertheless,considering calf salesonly,theshortest calving interval is optimal
for both first lactation and oldercows.
Labour costs per year will slightly decrease with longer calving intervals because of, for
instance,fewer milking daysand number ofcalvesborn. Othercomponents tobe included
involvecostsofinsemination andveterinary treatment.Theirrelationshipwiththelengthof
calving interval, however, highly depends on the underlying causes of the problems (eg,
poor oestrus detection versus retained placenta and/or metritis). It is considered more
appropriate, therefore, toexclude the costs of insemination and veterinary treatment from
the more general type of calculations with respect tocalving intervals as such and add
them separately perfarm as additional costsduetoreproductive failure.
The final economic comparison of calving intervals should be based on the combined
44
Economic impact of commonhealth andfertility problems
outcome of the three categories considered (net milk receipts, calf sales and other
components).Theresults aresummarized inTable4.3.
Table 4.3. Optimal length of calving interval and calculated lossesper cow per year (US$)
Calving interval (months) 11 12 13 14 15 16 17
45
Chapter 4
Table 4.4 Optimal length of calving interval and calculated lossesper cow per year (US$) for an
average cow with different months of calving3
Calving interval (months) 11 12 13 14 15 16 17
Month of calving
- February 0 48 120 158 194 271 347
-May 10 0 57 128 197 239 285
- August 0 8 23 58 146 281 407
- November 0 32 141 258 365 468 519
a
Assuming subsequent calving intervals tobe 12months
Premature disposal
The annual culling rateoncommercial dairy farms is,on average, about 30to35%,nearly
one quarter of which is due toreproductive failure. In quantifying the losses owing to
premature disposal, special attention hastobepaid tofactors associated with age(eg,milk
receipts, value of calves, slaughter value of cows, feed costs andprobabilities of disposal)
and tothe costs of replacement heifers1. The extent of these losses is strongly influenced
by the age and relative production level of the cow under consideration, ranging from
about US$60 for low-producing cows (80-85% at Mature Equivalent) to more than
US$1400for high-producing youngcows(about 125%atMatureEquivalent).Theaverage
loss per cow culled owing toreproductive failure was determined tobe US$220 to 280,
which is much lower than disposal for several other reasons.This isbecause these cows
can finish theirfinallactation inanormal way andtheir slaughter value remainshigh.
46
Economicimpact of commonhealth andfertility problems
4.2.2 Mastitis
Mastitis isgenerally considered adisease of major economic importance indairy cows.In
theliterature,theoutcomeofcalculationsoflossesattributedtomastitisdiffer considerably,
depending on the method used, the sources of losses included and the origin of the data.
Consequently, thoseresults should beinterpreted withcare.
Most frequently, economic calculations on mastitis losses are based on annual herd
parameters ratherthanondaily cowperformances. Previously, thenumber of somatic cells
in milk was used as amajor criterion for estimating the presence and severity of mastitis.
There is anon-going discussion, however, whether thiscriterion isstill appropriate. Using
pathogens in milk as adiagnostic criterion seems tobe more preferable. Four different
typesof pathogens areespecially of importancetobeconsidered: coliform, streptococcal,
staphylococcal and Corynebacteriumpyogenes. Additionally, there may beclinical cases
inwhich nopathogens canbedetected,usually defined asbacteriologically negative.
Theeconomic effects ofmastitiscanbedivided intothreecategories (Houben, 1995):
• reduced milkreceipts;
• costof treatment; and
• premature disposal.
No single setof published data isavailable toquantify these effects. Therefore, they have
to be derived from various sources. These data are summarized in Table 4.5 for Dutch
conditions,andfocus onso-called clinicalmastitis.
Table 4.5 Major input data for infections with clinical signs
Infected Annual milk Annual
quarters decrease per culling
3
Type of pathogen Frequency per case quarter (%) rate(%)
a
Percentage cow casesperyear
" Next lactation
AsshowninTable4.5,thetotalfrequency ofclinicalmastitisisestimatedtoaverage28cow
cases per 100cows per year, with 28x 1.3 = 36 quarters being involved. Streptococcal
infections appeartobethemostfrequent. Theestimated decreaseintotalmilkproduction is
taken tobe 23%, ranging from 17% for coliform to48%for Corynebacterium pyogenes.
47
Chapter 4
Per clinically infected cow, the Corynebacteriumpyogenes pathogen causes the highest
losses, especially because of its extremely high culling rate. Staphylococcal infections
rank second, duetoacombination ofarelatively highnumber of infected quarterspercase
and aconsiderable loss in production. Infections without any clinical signs are,from an
economic point ofview,far lessimportant. At farm level streptococcal infections have the
greatest economic impact, ie,40%of total losses,while Corynebacteriumpyogenes ranks
lowest. The differences incosts per case areoffset by differences infrequency rates.Total
losses per farm average US$88 per cow per year (or about US$4000 for a45-cow herd),
which equals approximately 11% of farmer's net return to labour and management
(Appendix4.1).Reduction inmilkandfatproduction accountsfor 70%oftheselosses, 18%
of which owing totreatment and 12%caused bypremature disposal.
48
Economic impact of common health andfertility problems
Table 4.7 Production data and calving intervals of cows with clinical digital diseases, divided
into cows culled and not culled
Lossof production (in %) Longer calving
milk (kg) fat (kg) protein (kg) interval (days)
49
Chapter4
Reduced milkreceipts 36 8
Longer calving interval 16 3
Treatment costs 12 3
Extra labour inputbythefarmer 17 4
Premature disposal 45 9
Weight fluctuations 1
Total 127 27
50
Economic impact of common health andfertility problems
Revenues foregone
1.1 pigxUS$64 = US$70.40
Reduced costs
Feed for thesow
The allocation of timetogestation, lactation and daysopen per sow peryearchanges with
a delay inconception from 255 (2.22 x 115),67 (2.22 x30) and43 (365 -others) to242,
63 and 60 respectively. Assuming acommon feeding scheme this results in a saving of
about 15kgxUS$0.24=US$3.60.
Feed for thepigs
1.1 pig x30kgxUS$0.40=USS13.20.
51
Chapter 4
• Others
There are hardly any other savings, except for transportation and (medical) treatments,
estimated at US$4.00x 1.1 piglet =US$4.40.
Net result
• Total revenues foregone minus reduced costs equal US$70.40 -(US$3.60 + 13.20+4.40)
=US$49 perthree weeks of delay inconception, orslightly more than US$2perextra day
open.
Ashortening oftheinterval between weaning and conception bythree weeks increases the
annual results presented in Appendix 4.2 to 365/344 x2.22 = 2.36 litters (plus 0.14) and
365/344 x20.6 =21.9pigsraised per sow per year(plus 1.3). Such anincrease implies an
extra profit of about US$58per three weeks of earlier conception, or about US$2.75 per-
avoided-dayopen.So,otherthanwithdairycattle,thecostperadditionaldayopeninsows
decreases withlongerintervals.
Taking into account the difference between the best performing farms realizing more than
2.34 litters per sow per year and the worst performing ones with fewer than 2.14 litters
(Table4.9)impliesadifference inincomeofapproximately US$90persowperyearoreven
37% ofafarmer's typical income (Appendix4.2).
Litter size
Calculating theeconomic value of one additional pigraised per sowperyearincludes:
Additional revenue
• 1 pigxUS$64=US$64
Additional costs
• Feed for the sow:30daysx0.4 kg= 12kg xUS$0.24=USS2.88
• Feed for thepig:30kgxUS$0.40=US$12.00
• Others:transportation, (medical) treatment etc.= US$4.00
Net result
• The additional revenue minus costs equals about US$64 - (US$2.88 + 12.00 +4.00) =
US$45perpigraised.
The same approach can be used when calculating the economic value of one additional
pigborn alive,butthentheprobability ofsurvival shouldbetakenintoaccount.Onaverage,
totalpigmortalityequalsabout 14%(Table4.9)implying asurvivalrateof 86%.Giventhat
themajority ofpigdeathsoccurwithin thefirst few daysof life, theeconomic value ofone
additional pigborn alive is US$45 x0.86 = USS39.The lower the survival rate,the lower
theeconomic value.Thismayespecially betrue with increasing littersize.
The 20%of farms with thebest and thosewith the worst resultsdiffer at least 0.8 pig born
52
Economic impact of common health andfertility problems
Premature disposal
In the Netherlands about 45%of the sows are replaced annually. The average productive
lifespan of the sows,therefore, is 100/45=2.2 years or about 5litters only. Reproductive
problems are the major reasons for disposal (35%),with failure toconceive as its major
component. Low productivity is the second most important reason (17%), together
accounting for morethan half ofthe annualcullingrate.
Increasing the herd life iseconomically attractive,because (1)fewer replacements have to
bebought orraised, and (2) more sows will reach themost productive parity numbers4to
8(Huirne, 1990;Jalvingh, 1993).Dynamicprogrammingwasused (explainedinChapter7)
toquantify the profitability ofincreased herd life. Results are summarized inTable4.10.
Table4.10 shows that income per sow per year increases by US$16 if the average age at
culling is increased by one litter. One litter less decreases income by more than US$20,
indicatingthatareduction oftheriskofremovalissubject todiminishingadditionalreturns.
Assuming adifference in average herd life of two years between the 20% of farms with
thebestandthosewiththeworstresultswould-accordingtoTable4.10-causea difference
inincomepersowperyearofaboutUS$40,or 16%ofafarmer's typicalincome (Appendix
4.2).
53
Chapter 4
Aswithsowherds,itisnotpreciselyknownwhatpartofthesedifferences isdirectlyrelated
tohealthproblemsassuch.Butevenifthisisaminorpart,theeffect onincomefor atypical
farm (Appendix 4.3) will still be considerable, as can be derived from the following
economic calculations for the singleperformance indicators.
54
Economic impact of common health and fertility problems
Mortality rate
Assuming that, on average, mortality occurs halfway the fattening period, the losses
include:
• costs before death: purchase price piglet + 59.5/119 x (gross return - purchase price piglet)
= US$64 + 0.5 x (US$178 - 64) = US$121; and
• return to labour and housing foregone after death: 59.5/119 x (housing +labour + net profit)
= 0.5 x (US$20 + 10 - 1) = US$15.
So, in total, these costs average US$136 per dead fattening hog, or US$1.36 per percentage
of hog mortality. For the corresponding differences between the highest and the lowest
classes in Table 4.11 this implies a difference in income of 2.1% x US$1.36 = US$2.86 per
hog sold. This difference equals almost 2% of gross return and 32% of net return to labour
and management on a typical fattening farm (Appendix 4.3), ranking third after feed
conversion efficiency and daily weight gain.
References
Houben, E.H.P., 1995. Economic optimization of decisions with respect to dairy cow health
management. PhD-Thesis,Department of FarmManagement,Wageningen Agricultural University,
Wageningen, 146pp.
Huirne, R.B.M., 1990.Computerized management support for swine breeding farms. PhD-Thesis,
Department ofFarm Management, Wageningen Agricultural University, Wageningen, 165pp.
Jalvingh, A.W., 1993.Dynamic livestock modelling for on-farm decision support. PhD-Thesis,
Department ofFarm Management and Department of Animal Breeding, Wageningen Agricultural
University, Wageningen, 164pp.
55
Chapter 4
Herd size45 cows -young stock 14heifers and 16calves -annual milk yield 7000kg per
cow containing 4.35%of fat and 3.4% of protein -herd calving interval 380days -annual
culling rate30%
Grossreturn (percowperyear)
milk (7000kgxUS$0.42) US$ 2940
cattle inventory - 440
US$ 3380
Costs(percowperyear)
labour (50hrsx US$18) US$ 900
machinery costs - 460
feed costs - 672
housing (depreciation, interest and maintenance) - 540
rent for land - 203
fertilizer - 116
health care - 83
others (artif.insem., electricity, interest, etc.) - 500
US$ 3474
56
Economic impact of common health and fertility problems
Grossreturn(per sowperyear)
20.6pigs xUS$64 US$ 1318
sow inventory -/- 20
USS 1298
Costs(per sowperyear)
feed: sow (incl.repl.gilts) 1157kg atUS$0.24,
andpiglets 20.6x30kgatUS$0.40 US$ 525
housing (depreciation,interestandmaintenance) 314
labour 306
health care 45
interest (herdandfeed stock) 36
costof transportation piglets 29
others (artif.insem., water,electricity, etc.) 105
US$ 1360
57
Chapter 4
Herd size 1600hogs -2.61 deliveries per year -mortality rate 2.8%-4058 hogs sold per
year-startingweight25kg-endingweight 110kg-dailyweightgain715gr-net fattening
period 119days
Grossreturn(perhogsold)
85.3slaughter weight xUS$2.09 USS 178
Costs(perhogsold)
feed: feed conversion 2.88 and 85kgof weight
gain makes 245kgof feed atUS$0.28 US$ 69
purchase piglet - 64
housing (depreciation, interest andmaintenance) - 20
labour - 10
interest (herd andfeed stock) - 3
cost of transportation hogs - 3
health care - 2
others (water,electricity, mortality,etc.) - 8
USS 179
58
5
Critical steps in systems simulation
Objectives
Fromthischapter thereader should gainknowledge of:
• thecritical stepstobetaken insystemssimulation (ie,definition ofthesystemandstatement
of objectives, analysis of datarelevant tothe model,model construction, validation of the
model, sensitivity analysis,and application of themodel)
• how to make abetter choice from modelling types andtechniques,especially with respect
todeterministic and stochastic models
5.1 Introduction
Models are essential tools for understanding animal health economics. Mathematical
models areespecially useful in this context and generally defined as a set of equations to
describe or simulate an interrelated part (system) of the real world (Hillier & Lieberman,
1990). Three broad functions can be distinguished: (1)toprovide an objective basis for
assessing and assimilating available information about the system, (2) to detect where
essential knowledge of the system is lacking or inadequate, indicating needs for further
research, and (3)to assist inthemanagement control ofthe system.
Basically, there are two different modelling approaches to be considered: a positive
approach and a normative approach. The positive approach can best be indicated asa
description of relevant processes and characteristics by statistical/epidemiological data
analysis (theso-called empiricalmodelling).Traditionally,researchinlivestock production
has mainly been conducted inthis way.In animal health economics more attention ispaid
tothenormative approach,which includescomputer simulation techniques (the so-called
mechanistic modelling). Computer simulation is a method for analysing a problem by
creating a simplified mathematical model of the system under consideration which can
thenbe manipulated bymodification of inputs.Thismethod isespecially attractive where
real-life experimentation would be impossible, costly or disruptive (eg, with highly
contagious diseases), and for exploring strategies that have not been applied yet. Special
attention has to be paid to the correspondence between model and reality to obtain
meaningful results for real-world situations.
Inthischapterthe critical steps andbasic conceptsinsystems simulation arepresented and
discussed.
59
Chapter 5
step 1
definition ofthe
system and objectives ^
for modelling
V
step 2
analysis ofdata
relevant to the model
^'
step 3
construction of the
model
^<
step 4
\ validation of the
J model
)f
step 5
sensitivity analysis
^'
ste 6
use nf model in P W.
decision si ipport
60
Criticalsteps insystemssimulation
in defining and structuring any system, and should depend primarily on the function the
model hastofulfil (Dent &Blackie, 1979).
The term systems analysis is generally used to refer tothe process of examining complex
systems, where all major inputs and outputs are accounted for by theuse of mathematical
models. Dent &Blackie (1979) consider six critical -and interlinked -steps involved in
applying systems analysis, aspresented in Figure 5.1.The steps arecommented onone by
61
Chapter 5
• the top-down approach, which begins with a simple representation of the entire system
and iscomplete when theresolution of themodel issufficient tosatisfy theobjectives; and
• the prototyping approach, aniterative compromisebetween thefirsttwoalternatives.
Development of amodel with the prototype approach begins with simple modelling of
single subsystems. The process of development progresses by formulating more
sophisticated representationsofthemostimportantsubsystemsandaggregating,deletingor
ignoring subsystems of lesser importance. Because of its flexibility, the prototyping
approach is especially favourable for models of large and complex systems, such as
livestock production systems.Itallows experts (aswell asfinal users) tobeincluded inthe
modelling process at an early stage.Regular interaction withthesepeople maintains their
interest inthe simulation study.Itcanalsohelptoavoidthemistake (often madeby novice
modellers) to start with tooexcessive an amount ofmodel detail.
62
Criticalstepsinsystemssimulation
63
Chapter 5
distinction between (pure) deterministic models on the one hand and stochastic models
containing random elements on the other. This is not the case with respect to stochastic
modelscontaining probability distributions. Several authorsclassify these models asbeing
deterministic, which is not correct and may underestimate their value and potential
applications. Therefore, the three different types of models will further be illustrated and
discussed,by using asimplified example.
Considerthesituationwherefor amodeldealingwithsowreplacement economics,ayoung
replacement sow is taken from apopulation where the size of the first litter is normally
distributed (see Figure 5.2). Litter size in this example ranges from 6to 12pigs and most
sows (ie, 30%) fall into the class with 9pigs per litter. The expected performance of a
replacement sowtakenfrom thispopulation dependsuponthetype ofmodelunderconsider
ation. In case of adeterministic model, each replacement sow is considered to produce
exactly 9pigs in her first litter, this being the most likely litter size of the population she
comes from. All costs and returns in the calculation then are also derived from such a9-
pig sow.In astochastic model with probability distributions, each replacement sow is
expected toproduce 0.05 x6+0.10 x7+ +0.10 x 11 +0.05 x 12=9.0pigs inthe first
litter.Nowthecostsandreturnsinthecalculation arederived (ie,weighed)from thevarious
single litter-size classes under consideration. This is afundamentally different approach
from thedeterministic model andwill lead todifferent economic results aswell.Incaseof
astochasticmodelwithrandomelements,eachreplacement sowisrandomly drawn from
the specified probability distribution and will have alitter size of 6, 7, ,or 12pigs.The
costs and returns,therefore, will differ accordingly between the sows.With a sufficiently
30%
30% ,
20%
10%
0%
10 11 12
Litter size
64
Critical steps in systems simulation
large number of drawings (ie, multiple runs) the average litter size of the replacement
sowswill approximate9.0pigsagain,providingthesameaverageeconomic outcome asthe
stochastic model using probability distributions.
As illustrated in the example, deterministic models donot take into account uncertainty
(ie, variation) associated with future events, resulting in an oversimplification of the
conditionsunderwhichdecisionshavetobemadeinreality.Theapproachusing probability
distributions (ie, dynamic probabilistic or (modified) Markov chain simulation) and the
one using random numbers (ie, Monte Carlo simulation) have the advantage that, for
instance, animals with different performances can betreated differently, eg,amore liberal
insemination and replacement policy for high-producing animals. Moreover, future
performance canberelatedtocurrentperformance. Therefore, cullingofanimalswithalow
performance will influence the performance realized in later production cycles. In the
deterministic approach this is not possible; the resulting average performance per
production cycle isalways equaltothe input value.
One advantage of the approach using probability distributions is that there will be
observations in all classes, which means that the model will exactly provide the expected
value of the results and only one run is needed toobtain these results. In fact, the results
ofaverylargeherdorpopulation aresimulated,withanimalsavailableinallpossiblestates.
In the model using random numbers, the presence of observations in all classes is not
guaranteed. The larger the number of observations, the better the average result will
approach the real expected value. Replicated calculations are needed to obtain a reliable
estimate of the averageresults.
One advantage of models with random numbers and multiple runs,on the other hand, is
the available information about the expected standard deviation in the results, which
allowsfor statistical testsandnon-neutral riskanalysis.Performing thesetestsand analyses
requires a careful design and analysis of the modelling experiments, in order to obtain
reliable estimates of average results and standard deviations. By simply choosing alarge
number of replications, for instance, a difference between two strategies can always be
made significant, duetothefact that the standard errorofthemean willthen be small.
Applications of stochastic models with randomelements often focus onthe comparison of
average results only,rather than on atrade-off between expected outcome and its variation
(ie, non-neutral risk analysis). If so, then theapproach using probability distributions had
betterbeapplied.Sinceonerunsuppliestheexpected valueoftheresults,various sensitivity
analysescanbecarriedoutmucheasierthanisthecasewithmodelsusingrandomnumbers.
An overview of published models and their features in the area of reproduction and
replacement economics indairy cattle and sowswasgivenby Jalvingh (1993).
65
Chapter5
Even within specific narrow problem domains such as animal replacement decisions, diffe
rent modelling types and techniques are used. Most common combinations in the literature
are summarized in Table 5.1.
Model calculations in animal health economics often suffer from a serious lack of accurate
data, as discussed before. Since the mid-eighties much effort has been put into designing
and implementing integrated veterinary, zootechnical and economic record keeping systems
(Morris & Dijkhuizen, 1992). In the future, systematic epidemiological and economic
analyses of these databases should be given high priority. A basic question is whether -
and, if so, which - standards are available to express the frequency and severity of the
various diseases under field conditions.Further research in this field is necessary and can be
of great practical value.In this way avaluable interaction between economic research on the
one hand and veterinary and zootechnical research on the other is possible.
References
Davis, G.B. & Olson, M.H., 1985.Management information systems. Conceptual foundations,
structure and development. McGraw-Hill, New York, 693 pp.
Dent, J.B.& Blackie, M.J., 1979.Systems simulation in agriculture. Applied Science Publisher Ltd.,
London, 180 pp.
Hillier, F.S.& Lieberman, G.J., 1990. Introduction to operations research. McGraw-Hill, New York,
954 pp.
66
Critical steps in systems simulation
Houben, E.H.P., 1995. Economic optimization of decisions with respect to dairy cow health
management. PhD-Thesis,Department ofFarmManagement, Wageningen Agricultural University,
Wageningen, 146pp.
Huime, R.B.M., 1990.Computerized management support for swine breeding farms. PhD-Thesis,
Department of Farm Management, Wageningen Agricultural University,Wageningen, 165pp.
Jalvingh, A.W., 1993. Dynamic livestock modelling for on-farm decision support. PhD-Thesis,
Department of Farm Management and Department of Animal Breeding,Wageningen Agricultural
University, Wageningen, 164pp.
Marsh, W.E., 1986.Economic decision making on health and management in livestock herds:
examining complex problems through computer simulation. PhD-Thesis, University of Minnesota,
St.Paul, 304pp.
67
Linear programming to meet management targets and
restrictions
Objectives
From thischapter thereader should gain knowledge of:
• thecharacteristics of linear programming
• theformulation of alinearprogramming model
• the solving procedure
• the assumptions used
Themethodisintroducedbyasimplified exampleandfurther illustratedwithan application
tooptimizing adairy herd calving pattern.
6.1 Introduction
Being managers, farmers need toallocate limited resources tocompeting activities in the
best possible way. The allocation problem canbe solved by analysing a large number of
alternatives,usingtechniquessuchaspartialandwhole-farm budgeting.Withthebudgeting
procedure, however, each single plan has to be identified and evaluated by detailed
calculations. For complex problems, such calculations are time-consuming and become
tediousandburdensome.Moreover,itisonlybychancethattheplanschosenfor budgeting
analysisincludetheoptimalone.
Linear programming uses the same type of information as is done in the budgeting
procedure, but the mathematical technique involved guarantees that the optimal plan is
determined. Theessential characteristicsofalinearprogramming model arethat (1)there
is afunction to be maximized or minimized, (2) there are limited resources that can be
used to satisfy the objective, and (3)there areseveral ways of using the resources (Heady
& Chandler, 1958). In agriculture, linear programming is most extensively used in
determining least-cost rations and inplanning the farm business organization (Boehlje &
Eidman, 1984).In determining the least-cost ration, the objective can be to minimize the
cost of meeting the nutritional requirements of acertain type of livestock while using
particular feed ingredients. Inplanning the farm business,land, labour and machinery and
equipment resources are allocated tocompeting activities such asproduction of different
crops and different typesof livestock production inordertomaximize income.
The method of linear programming is first introduced and illustrated with an example.
69
Chapter 6
Assume that atthe start of the grazing season, allbeef cattle on afarm are treated with an
anthelmintic. For years the farmer hasused anthelmintic A. Recently, anthelmintic B has
come on the market. Anthelmintic Acosts US$2 per animal and BUS$6.The firms that
producetheanthelminticshavecarriedoutexperimentstoestimatetheeffect ofapplyingthe
anthelmintics. According tothese experiments, Aleads toan increase in liveweight of 20
kg, while Bleads to an increase of 40 kg, if compared with animals that have not been
treated. Although the veterinarian is enthusiastic about anthelmintic B,the farmer is abit
reluctant to use it because of the higher costs. The farmer decides that (s)he wants to
maximize the total effect of thetherapy,but does notwant to spend more than US$600on
anthelmintics.Furthermore,thenumber of animals tobetreated should notexceed 150.
This problem can be formulated as alinear programming problem. It refers to a situation
of allocatinglimitedresources(money,numberoftreatments) tocompeting activities (treat
mentwith anthelmintics AandB)inordertomaximize acertain objective (thetotal effect
of the treatment). To formulate the mathematical model of the problem, let Xj andX2
represent the number oftreatments with Aand Brespectively.LetZbetheresulting effect
on extra live weight gain for the herd as a whole; x^ and X2are the decision variables
(activities) for the model. The relationship between Z and xj and X2is as follows: Z=
20xj +40x2-Theobjective istochoosethevaluesofxj andX2 soastomaximizeZ, subject
totherestrictions ontheirvaluesimposedbythefarmer. Thusthemathematical formulation
oftheproblem is as follows:
It isnecessary todefine the decision variables tobe nonnegative. This small problem has
only two decision variables, and therefore only two dimensions, and hence a graphical
procedure canbeused to solve it.Thisprocedure involves constructing a two-dimensional
graphwithxj andX2 astheaxes.Thefirststepistoidentify thevaluesofxj andx2 thatare
permitted given the restrictions.This isdone by drawing the linesthat border therange of
permissible values. The graphical representation of the linear programming problem is
giveninFigure6.1.First,eachrestriction istreated separately.Resulting from therestriction
on the amount of money to be spent on the treatments (ie, US$600), 300 animals can be
treated withA, 100animalswithB,orany linear combination ofAandB.Thisisdepicted
inFigure6.1aslineCC'.Theconstraint onthetotal number ofanimals tobetreated results
in 150animals treated with A, 150animals treated with Bor any linear combination ofA
and B (line DD').If all constraints are considered simultaneously, any points inside the
area orat theboundary of OCED' are feasible combinations of treatments with A andB.
This areaisknown asthe 'feasible set'.
70
Linear programming to meet management targets and restrictions
X2(B)
150
The final step is to identify the point in this region that maximizes the value of Z. The
optimal combination of the number of treatments A and B depends on their relative
efficiency. Twoanimals treated with Awill havethe sametotal weight gain asone animal
treated with B.The line FF'in Figure 6.1 denotes those combinations of xj and x2that
generate atotal effect of 2000kg.With lineFF'moving totheright,higher levels of total
weight gain are obtained. In case of minimization the line FF' has to be moved into the
direction oflowerlevelsofZ.Thelineismovedtotherightuntilittouchesthefarmost edge
ofthefeasible setpointE).Combinations ofnumbersoftreatments arenotpossible beyond
this point because adequate quantities of the money and/or animal resources are not
available. If we draw aline from point E toeach axis of the graph, they indicate that 75
treatments with Aand 75treatments with Bwill maximize theeffect of thetotal treatment
(Z=75x20+75x40=4500kg).Whenmoreconstraints anddecisionvariables areadded,
the example becomes amultidimensional problem that will be impossible to represent
graphically.Theunderlying principleoftheoptimizationprocedure oflinearprogramming,
asillustrated in this simplified example, remainsthesame,however.
71
Chapter 6
a
l l x l + a 1 2 x 2 + " + alnxn^bl
a 2 i x 1 + a 2 2 x 2 +...+ a 2 n x n <b 2
a
m l x l + a m2 x 2 +- +a mn x n s b m
andxj >0, x 2 >0,..., x n > 0
72
Linear programming t o meet management targets and restrictions
'No time will bedevoted todiscussing thismethod indetail.Those whoareinterested may consult numerous
workswhichprovidedetaileddiscussionsonthisprocedurealongwithexamples thatcan besolved byhand(see,
for example,Heady&Chandler, 1958;Boehlje &Eidman, 1984;Dentetal, 1986;Hillier&Lieberman. 1990).
73
Chapter 6
The shadow price for resource i (denoted by yj) measures the marginal value of this
resource,thatis,therate atwhichZwouldbeincreasedby(slightly) increasingthe amount
of thisresource (bj).
The shadow pricesfor theanthelmintic problem arecalculated as follows:
y 2 =AZ=4510-4500= 10
74
Linear programming to meet management targets and restrictions
Finiteness
This assumption setsalimittothenumberofalternativeprocessesandresource restrictions
that can be included in the analysis. In fact, this number will depend on the software
packageusedtosolvethelinearprogrammingproblem.Mostpackageswillallowthousands
of activities andrestrictions.
Single-valued expectations
The single-valued expectations assumption essentially eliminates the important dimension
ofriskfrom linearprogramming analysis.Thisassumption specifies thatresource supplies,
input-output coefficients, and commodity and input prices must beknown with certainty.
Although many will arguethatthisassumption isunrealistic andmakesthe results suspect,
it should not lead torejecting linearprogramming altogether. First,thesame assumption is
75
Chapter 6
required in many other analysis procedures used in animal health economics, including
partial budgeting and gross margin analysis. Second, prices and production coefficients
caneasilybevariedinthelinearprogrammingframework, andthis 'sensitivity analysis'can
illustrate the resource allocation and income impacts of alternative sets of prices and
production efficiencies.
Theassumptions in perspective
A mathematical model is intended to be only an idealized representation of reality.
Approximations and simplifying assumptions generally are required in order tokeep the
model tractable. It is very common in real applications that almost none of the four
assumptions holdcompletely. Iftheassumptions of linearprogramming areconsidered too
restrictive, techniques are available to relax them. Nonlinear, separable and quadratic
programming techniques can beused tohandle nonlinear functions. Integer programming
canbeusedinsituationswherefractional amountsofinputsoroutputsarenotfeasible from
a technical nor from apractical point of view. Stochastic and quadratic programming
procedures canbeusedtoincorporate riskdimensions inthe analysis,replacing thesingle-
valuedexpectationsrequirement.Applyingthesetechniquesresultsinincreased complexity
of modelconstruction, reduced model sizeand highercosts of solving the model.
In Chapter 19you canfind acomputer exercisesimilar to the example given in the introduction
of this chapter. You will practise the principles of linear programming byallocating the limited
resourceslabour and grassto the competing activities sheepand cowsin order to maximize the
net returns. You have to define the restrictions to get a graphical representation of this
problem. With the objective function you can find the optimal solution. Some sensitivity
analysescanbe carried out to seethe effect of changes in net returns. Thewhole exercise takes
approximately 40 minutes.
76
Linear programming to meet management targets and restrictions
are based on biological variables on the one hand (eg, conception rate and oestrus detection
rate) and management strategies on the other (eg, insemination and replacement policy).
Input variables of performance and prices are combined with the information on herd
dynamics to obtain the technical and economic results of each SME-herd. The technical and
economic results of any herd can easily be obtained by weighing the results of the twelve
SME-herds according to the proportion of heifer calvings per month. The technical and
economic results of the twelve SME-herds and the weighing of the SME-herds form the
basic ingredients of the linear programming problem. The major results of the SME-herds
are given in Table 6.1. The major input variables used to determine the results of the SME-
herds are in Appendix 6.1.
The linear programming problem uses the number of heifers calving per month as decision
variables. The objective is to choose the number of heifer calvings per month so as to
maximize gross margin of the resulting herd, with the restriction that the annual milk
production of the herd should not exceed the available milk quota. The following linear
programming problem can be formulated:
12
Maximize Z = X gmjXj
i=l
subject to
12
X mpjXj < quota
i=l
where
Xj = number of heifers calving in month i;
girij = gross margin of the SME-herd expressed per heifer calving, in case the
heifer calves in month i (see Table 6.1); and
mpj = milk production of the SME-herd expressed per heifer calving, in case
the heifer calves in month i (see Table 6.1).
As can be seen, the coefficients of the objective function and the constraint are derived from
theresults of the SME-herds. For that reason, the results of the SME-herds are expressed per
calving heifer (Table 6.1).
The optimal solution of the linear programming problem represents the optimal heifer
calving pattern. The optimal herd calving pattern and the corresponding technical and
economic results can be derived by weighing the results of the SME-herds according to
the optimal heifer calving pattern.
The linear programming problem just presented is referred to as set I. This set can be
extended by adding other constraints. The optimal herd calving pattern was also determined
for two different sets of additional constraints.
77
Chapter6
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78
Linear programming to meet management targets and restrictions
In set II, an additional restriction is used, which specifies that all replacement heifers
entering the herd should come from heifer calves that were born in the herd 24 months
before. Thiscanbeformulated intwelveconstraints:
12
S fjXijXj ^x:, for allj
i=l
where
Vjj =number of herd calvings inmonthj in SME-herd corresponding to one
heifer calving inmonth i;and
f: =factor representing thenumber of 24-month-old replacement heifers per
calving in monthj that becomes available in monthj 2years later (f:is
setat0.4for allmonths).
All replacement heifers are assumed tocalve at the age of 24months,but this age at first
calving caneasily bechanged toinclude variation.
Aconcentration of calvings within afew months resultsin alarge variation inthe monthly
herd size.Inset III, variation in monthly herd sizeisrestricted byusing alower and upper
limitbetweenwhichmonthlyherdsizeisallowedtovary.Thelimitsareformulated interms
of aproportion of theaverage annual herd size.In formula:
12 12
S ns ij x i > Z min ahSjXj, for allj
i=l i=l
12 12
XhSjjXj< Xmax ahSjXj, for allj
i=l i=l
where
hsjj =herd sizeof SME-herd inmonth j , incase oneheifer calves inmonth i;
ahsj =average annual herdsizeinSME-herd,incaseoneheifer calvesin month
i (seeTable6.1);
min =lower limit of the variation in herd size per month, expressed as a
proportion of the average annual herd size;and
max=upper limit of thevariation inherd sizeper month.
The lower and upper limits for variation in monthly herd sizes are set at 95 and 105%of
the annual average herdsizerespectively.Theconstraints used insetIIalsohold for setIII.
6.4.2 Results
The optimal heifer and herd calving patterns for the different sets of constraints are
presented in Table 6.2, together with the technical and economic results of the herds.
79
Chapter 6
Table 6.2 Results of the optimum herd calving pattern for different sets of constraints
Set of constraints
I II III
Milk production herd (kg) 500000 500000 500000
80
Linear programming to meet management targets and restrictions
As expected, the highest gross margin per 100kg of milk is realized when only the milk
production of the herd is restricted (set I).In that case, all heifer calvings take place in
August,whichcouldbeexpected from theinformation presented inTable6.1.Theresulting
herd calvings, including heifer calvings, take place mainly from July to October. The
proportional monthly milkproductionvariesfrom 4.3% inJuneto 11.3%inSeptember.The
variation in monthly milk production is much smaller than the variation in monthly herd
calvings. The monthly herd size, expressed as apercentage of the average annual herd
size,varies from 87%inJuly to 117%in August.
If the number of heifers calving per month is restricted by the number of heifer calves
born in the herd in each month (set II), heifer calvings occur from August to October.
The resulting herd calvings are still concentrated in theperiod from August to October.
The gross margin is reduced by only US$0.07 per 100kg of milk, which is US$362 at
herd level. The reduction in gross margin is a result of the reduction in milk and calf
revenues. The milk revenues are reduced because of the reduction in average-realized
monthly deviation inthebaseprice ofmilk,whereas therevenues from calves are reduced
because of thereduction inthe number of calvings inthe herd. In set II,the monthly herd
sizevaries from 90%inJune to 113%in September of the average annual herd size (Table
6.2).
In set III,the monthly herd size isrestricted tovary between 95 and 105% of the average
annual herd size,resulting in an optimal heifer calving pattern that is spread over alonger
period than insetII.Thegrossmargin isreduced byUS$0.20per 100kgofmilk compared
with set I,which equalsUS$991atherdlevel.
Theoptimalherdcalvingpatterncanalsobedeterminedforherdswithalowerreproductive
performance, or different prices, performance etc. Only a few constraints have been
demonstrated in this chapter. However, it ispossible to include other constraints, such as
restrictions onroughage supply or available labour, aswell.The objective function of the
problem can alsobe modified. Gross margin of theherd canbemaximized while herd size
rather than the annual milk production isrestricted (ie,for asituation without amilk quota
system).
81
Chapter6
References
Boehlje, M.D. &Eidman,V.R., 1984.Farm management.John Wiley &Sons,New York, 806pp.
Dent, J.B., Harrison, S.R. &Woodford, K.B., 1986. Farm planning with linear programming:
concept and practice. Butterworths, Sydney, 209pp.
Jalvingh, A.W., 1993.Dynamic livestock modelling for on-farm decision support. PhD-Thesis,
Department of Farm Management and Department of Animal Breeding,Wageningen Agricultural
University, Wageningen, 164pp.
82
Linear programming to meet managementtargets and restrictions
Appendix 6.1
SeeJalvingh (1993) for more details on input variables and for acomplete overview. The
given input values are assumed to represent typical Dutch herds, but they can easily be
modified tosuitother farm andpriceconditions.
Performance model
In Table A6.1 the baseprices of milk, calves, replacement heifers and carcass weight are
presented, together withthemonthly deviation inprices.InTableA6.2energy content and
price of grass,silageandconcentrates arepresented. In summer (May-October) cows feed
ongrass andconcentrates. Inwintertherationconsists of silageand concentrates.
a
VEM =Dutch Feed Unit; 1000VEM=6.9MJ NE L
83
Chapter 6
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84
Dynamic programming to optimize treatment and
replacement decisions
Objectives
Fromthischapter thereader should gainknowledge of:
• themethodological aspects of treatment andreplacement decisions in livestock
• thebasicprinciples of dynamicprogramming tosupport these decisions
7.1 Introduction
Commercial livestock farms produce eitherproducts extracted from the animals over their
lives (such asmilk, eggs and wool),orthemeat harvested atthe end of the animals' lives
(such asbeef,pork and chicken), or both. Necessary inputs include feed and veterinary
treatment. Decisions have tobe made onthe quality, quantity and timing of the feed and
veterinary inputs.The product return tothese inputs changes continuously over the life of
theanimals.Typically,productivity oftheanimalsfirst increasesandthendeclineswithage.
If the livestock enterprise is tobe acontinuing one, adecision must be made on when to
replace breeding females.
Furthermore, incase of disease,farmers are frequently faced with theproblem whether to
treat or replace an affected animal.The cost-value trade-off is then important. Will the
animal recover completely and will itreach itsprevious production level? If so,how long
doesittakebefore theanimalisatitsnormallevelagain?Anotherimportantquestion inthis
respect istherepeatability ofdisease.Allthesefactors havetobebalancedbefore the farmer
can make anappropriate treatment orreplacement decision.
In section 2of this chapter some methodological aspects of treatment and replacement
decisions at the animal level are reviewed. In section 3, the technique of dynamic
programming (DP), which can be used to optimize these multi-stage decisions, is
introduced. Lastly,twoDP-applications are presented, the first onebeing an application to
dairy cows,andthe second oneinvolving sows.
85
Chapter7
production function approach asexplained in Chapter 2and depends on the shape of the
marginalnetrevenuecurve(ie,thenetrevenueineachadditionalyear,monthordayof life),
thecharacteristicsofreplacement animals,thediscountrateandwhetherornot involuntary
replacement takes place.The net revenues from not only the animals present in the herd
but rather from thepresent and all subsequent (replacement) animals are tobe maximized.
This implies that an infinite planning horizon has to be considered in the marginal net
revenue approach. For simplicity reasons assume that there is no discounting and
involuntary replacement, and that net revenue isrepresented as afunction of time (Figure
7.1).
T3 Time
Figure 7.1 Determination of the optimal time for replacement in a situation without an
alternative opportunity (T3), and in situations of identical replacement (T2) and
nonidentical replacement (T1)(derived from VanArendonk, 1985)
86
Dynamic programmingto optimizetreatment andreplacement decisions
Lastly, ifthere are nonidentical (better) animals available, theoptimal replacement time is
Tl. Tl corresponds with the time at which the marginal net revenue from the present
animal(s) equals the expected maximum average net revenue from the subsequent
nonidentical replacement animals (y'max).
When there istimepreference of net revenue, comparison of expected costs and revenues
should be made at the same point in time. This can be achieved by discounting future
costs andrevenues, asexplained inChapter 3(section 5).When discounting is applied,the
optimaltimetoreplaceisreached whenthemarginalnetrevenuefromthepresent animal(s)
isequaltothemaximum annuityofexpected netrevenuesfrom thesubsequent replacement
animal(s).Inthe latter value,themarginal netrevenues andperiods oftimeare weighed to
allow for time preference. A higher discount rate can result in both later and earlier
replacement, depending onthe shape of the marginal netrevenue curve.
Themarginalnetrevenuetechnique isexplainedbyasimplecalculationmodel(ie,identical
replacement, nodiscounting, but including involuntary disposal) for fictitious animals.In
calculating the optimal lifespan for individual animals, the opportunity costs must be
determined first. The calculation isbased on the average performance of animals present
in theherd, assuming this tobe the best estimate for expected future net revenue of young
replacement animals.Futurerevenues andcosts areweighed withtheprobability of animal
survival.Theformula is:
where
ANR: =expected average net revenue peryear;
i =decision moment of retention orreplacement (l<i<j), which is atthe
end of period i;
j =period, atthe end ofwhich an animal canbe replaced;
Pj =probability of survival until the end of period i, calculated from the
moment atwhich the young animal starts itsfirstproduction (end of
period0);
lj =length ofperiod i(inyears);and
MNRj =marginal net revenue inperiod iincluding acorrection for change in
slaughter value andfinancialloss associated with disposal.
In Table 7.1,the formula has been applied to fictitious animals. The price of a highly
pregnant replacement animal isUSS500.The average net revenueismaximal attheendof
period 5 (at decision moment 5). The optimal moment for replacement with identical
animals is also at the end of period 5:the economically optimal lifespan is the last period
with apositive difference between expected marginal net revenue of the present animal
and maximum averagenet revenue of its replacement.
87
Chapter7
Table 7.1Calculation model for identical replacement of a fictitious animal (all monetary
values in US$)
Decision Marginal Slaughter Financial Marginal Probability Marginal Average RPO
moment i net value lossat probability ofsurvival net net
(yr) revenue3 disposal ofdisposal untilyeari revenue" revenue
c
o 500 Oh
1 200 345 60 0.15 1.00 36d 36f 212'
2 285 380 85 0.20 0.85 303 e 1598 157
3 320 390 88 0.25 0.68 308 199 86
4 325 375 90 0.30 0.51 283 213 27
5 305 350 93 0.40 0.36 243 2161 —
6 250 300 — 1.00 0.21+ 200 215 —
3.61k
a
Between the end of period i-1 and i, excluding change in slaughter value and financial loss at disposal
" Between the end of period i-1 and i, including change in slaughter value and financial loss at disposal
c
Young highly pregnant animal, about to start its first production
d
200 + (345- 500) -(0.15 x 60) = 36
e
285 + (380 -345) -(0.20 x85) = 303
f
(1.00x36)/1.00 = 36
S (1.00 x 36+ 0.85 x 303) / (1.00 + 0.85) = 159
h
1.00 x(36- 216) +0.85 x(303 -216) + ..+0.36 x(243 -216)= 0
1
0.85/0.85 x (303 -216) +0.68/0.85 x(308 -216) + ..+0.36/0.85 x(243 -216) = 212
J opportunity cost
k
total herd life
After an animal's optimal lifespan has been determined, the total extra profit to be
expected from trying to keep her until that optimum, compared with immediate
replacement, can be determined taking into account the risk of premature removal of
retained animals.ThistotalextraprofitiscalledRetentionPay-Off (RPO)andiscalculated
as follows:
where
RPOj =Retention Pay-Off atdecision moment i;
r =optimal moment for replacement;
Pj =probability of survival until the end of period j , calculated from
decision momenti;
=length of periodj (inyears);
J
MNRL =marginal net revenue inperiodj;and
J
ANR m o v =expected maximum averagenetrevenue peryear.
88
Dynamic programming to optimize treatment and replacement decisions
Extension of the marginal net revenue approach to overcome these limitations results in
what is called the dynamic programming (DP) technique. DP isconsidered abetter and
moreflexibletool for determining treatment andreplacement decisions in livestock, and is
introduced inthe next sections.
7.3 Briefintroductiontodynamicprogramming
Dynamic programming (DP) is amathematical technique which is especially of value in
situationswhereasequenceofdecisionshastobemade,asisthecasewithlivestockreplace
ment decisions. DP uses the repetitiveness of the decisions to save computation time. It
dependsonadeceptively simplebutremarkably powerful principle.Itisgenerally referred
to asBellman's Principle ofOptimality (Bellman, 1957):
89
Chapter 7
ChooseX n sothat
/ n (S n ) =Opt{C n (X n ) + / n + 1 ( S n + 1 ) }
(2,1) (3,1)
(1.1)—I (4,1)
90
Dynamic programming to optimizetreatment and replacement decisions
horizon (4,1),being zero.The second rowconsists of thecost of linking nodes (3,1) -(4,1)
and (3,2) -(4,1),being 8and 6respectively. The third row consists of the cost of linking
nodes (2,1)-(3,1)being 7(stagecost)plus 8(optimal costbetween (3,1) and (4,1)),which
equals 15.The second possibility here consists of the cost of linking nodes (2,1) -(3,2),
being 2 plus 6 equals 8. The least cost of moving from (2,1) to (4,1) therefore is the
minimum value of [15,8]=8via(3,2),asdepicted inthelasttwocolumnsofthethird row.
Other rows aredetermined inthe sameway.
91
Chapter 7
include,forinstance,seasonalityandcontinuousgeneticimprovement.Inthefieldofanimal
health economics, DPhasbeen used most extensively in culling decisions in dairy cattle
(see VanArendonk, 1985;Kristensen, 1993;Houben, 1995)and insows (Huirne, 1990).
and
V N (S N ) =L N (S N ) (n=N)
where
VK n (S n ) =R n (S n ) +S[PS(S n )V n+1 (S n +l) + (PF(Sn) +PD(Sn)}
x V
{ n+l(D-C n+ 1} +PF(S n )L n + 1 (S n + l)]
92
Dynamic programmingto optimizetreatment andreplacement decisions
for the decision to replace thecow with another onethat is about tostart its first lactation.
After the optimal lifespan of acow is calculated in this way, the model can be used to
determine theRetention Pay-Off (RPO)foreachindividual cow:
RPO(Sn)=VK n (S n ) -VR n (S n )
Table 7.3Retention Pay-Off (RPO) of cows that have just become pregnant at three months
after calving (inUS$)
Lactation Relativeproductionlevelofc o w a
80 90 100 110 120
1 _b 100 350 575 825
2 50 200 500 750 1075
3 75 225 525 800 1150
4 75 200 475 750 1075
5 50 150 400 675 975
6 25 100 325 575 875
7 - 25 225 450 725
8 - - 100 325 575
a
Relative toherd average atMature Equivalent (%)
" AnRPO-valuebelow zero
93
Chapter 7
Table 7.4 Critical production levels below which it isnot profitable to inseminate empty cows
Decision Minimumcalving Production levelcowinlactation'3
moment3 interval (months) 1 2 3 4 5 6 7 8
Optimisticbreeding outlook
3 12 86 86 88 90 92 94 98 102
5 14 90 90 92 96 98 100 104 110
7 16 96 96 98 102 104 108 112 118
a
Months after calving
° Relative toherd average atMatureEquivalent(%)
The results inTable 7.4 indicate that from an economic point of view cows in their first
lactation thatproduce less than 86%of herd average should not beinseminated any more
at three months after calving. Assuming a normal distribution of production, and a
phenotypic intra-herd standard deviation of milkyield of 12%,this result implies that 12
to 13% of first lactation cows should be culled for insufficient production capacity. At five
months after calving,theproduction level shouldbeatleast 90%tojustify insemination of
non-pregnant animals, and the limit is 96% at seven months in lactation. So, from an
economic point of view young animals with ahigh production level can be inseminated
several times.For older cows, the critical production level is higher because of various
factors, including the sharply increasing probability of involuntary disposal in future
lactation and the continuous genetic increase in milk production. The critical production
levels are strongly increased when recurrent fertility problems are to be expected
(pessimistic breeding outlook),especially at moments of decision later in lactation. The
influence decreaseswithahigherageofthecowconcerned,becausetheremainingexpected
life hasdecreased, and hence theexpected number of future calvingintervals.
94
Dynamic programming to optimizetreatment andreplacement decisions
Table 7.5Retention Payoff for sowspregnant at the first moment of conception after weaning
(inUS$)
Pigs Relative production level of sow
Parity born alive3 50% 75% 100% 115% 130%
1 9.6 20 65 110 135 165
2 10.3 _b 40 110 150 190
3 10.8 - 20 90 135 180
4 11.1 - - 70 115 155
5 11.2 - - 50 90 135
6 11.1 - - 30 70 110
7 11.0 - - 15 50 90
8 10.9 - - 5 35 70
a
Parity-specific averages intheherd (= 100%)
" AnRPO-valuebelow zero
As could be expected alonger herd life is especially profitable for the better-producing
sows. Table 7.5 also shows that strong selection in theearlier parities is economically not
worthwhile. Even sowsthat produce 50%below average should not be culled on strictly
economic groundsbefore their second parity.The key factor here isthe low repeatability
of litter sizeasapredictor of future performance ofsows.
95
Chapter7
The critical production levels below which it isnot profitable to (re)breed sowsthat fail to
conceive arepresented inTable 7.6.Results consider the optimistic breeding outlook only,
assuming noexpected repeatability of fertility problems infuture parities.
Table 7.6Critical production levels below which it isnot profitable to breed empty sows
Parity Pigsborn alive 3 Breeding 1 Breeding 2 Breeding 3 Breeding 4
1 9.6 40b 40b 66 85
2 10.3 47 57 77 98
3 10.8 58 70 93 115
4 11.1 69 88 110 134
5 11.2 82 101 125 144
6 11.1 88 110 133 150b
7 11.0 98 117 142 150b
8 10.9 100 124 147 150b
a
Parity-specific averages intheherd (= 100%)
" Lower (40%)and upper (150%)production levelused inthe model
Average-producing sows (ie, 100%) in the first and second parity can be allowed at least
three rebreedings before replacement becomes more profitable. As could be expected the
critical production level below which rebreeding is not profitable any more strongly
increases with ahigher parity number. Athird rebreeding is hardly ever optimal for sows
in parities sixtoeight (critical production levelequalling -at least - 150%).
ESJSg
In Chapter 19you can find an example on dynamic programming, in which the calculation of
the optimal time of sow replacement isshown step by step. You have to use these results to
calculate the RPOof the sows according to the explanation in this chapter. You can then
change some input values for asensitivity analysis to seehow to usesuch a model for specific
purposes. Finally, the model isextended by taking into account genetic improvement of the
sows over time. Theentire exercise takes approximately 45 minutes.
96
Dynamic programming to optimize treatment and replacement decisions
References
Bellman, R.E., 1957.Dynamic programming. Princeton University Press,Princeton, NJ, 339pp.
Houben, E.H.P., 1995. Economic optimization of decisions with respect to dairy cow health
management.PhD-Thesis,Department ofFarmManagement, Wageningen Agricultural University,
Wageningen, 146pp.
Huirne. R.B.M., 1990.Computerized management support for swine breeding farms. PhD-Thesis,
Department ofFarm Management, Wageningen Agricultural University,Wageningen, 165pp.
Kristensen, A.R., 1993. Markov decision programming techniques applied to the animal
replacement problem. Doctoral dissertation, The Royal Veterinary and Agricultural University,
Copenhagen, 183pp.
Van Arendonk, J.A.M., 1985. Studies on replacement policies in dairy cattle. PhD-Thesis,
Department of Animal Breeding and Department of Farm Management, Wageningen Agricultural
University, Wageningen, 126pp.
97
8
Markov chain simulation to evaluate user-defined
management strategies
Objectives
Fromthischapter thereader should gainknowledge of:
• thecharacteristics ofMarkov chains
• theconcepts anddefinitions of states
• thelong-run properties ofMarkov chains
The method is introduced by two simplified examples and further illustrated with an
application, simulating herd dynamics in sow herds in order to evaluate the effects of
different management strategies onthetechnical andeconomic results of the herd.
8.1 Introduction
Markovchains areusedtomodeltheevolution of systemsorprocesses overrepeated trials
orsuccessive timeperiods.Inanimalhealtheconomics,Markovchain simulation hasbeen
used most extensively toevaluatethe impact of alternative control strategies on the spread
of disease (Carpenter, 1988; Dijkhuizen, 1989). Dynamic programming is also an
application of Markov chains and is often used todetermine the optimal insemination and
replacement decisionsfor individual cows and sows (seeChapter7).
KeyissueofinterestinMarkov chain modelsisthestudy ofeventsand sequential decision
making under uncertainty. Intervals of time separate the stages at which events occur and
decisionscanbemade,andtheeffect ofadecision atany stageistoinfluence the transition
from the current and succeeding state.Central to the theory of Markov chain models are
the concepts of states andtransitions.Thedistribution of the system orprocess over states
at acertain moment can be derived from the distribution at the moment before and the
transitions possible for each state.Characteristic isthe Markovian property, implying that
a transition from state ito statej depends only on the state currently occupied (Hillier &
Lieberman, 1990).
99
Chapter 8
©
3,3
have N 2 states, each representing a
combination of two pads possible,
representing padsoccupied (see Figure
8.2).
Figure 8.2 The lily pond with memory; The distribution over states can be
(i.j); ' =7 .. 3, previous pad; j = 1 ... represented by a state vector X. A
3,present pad) convenient notation for representing
100
Markov chainsimulationtoevaluate user-defined management strategies
Sow replacement
Inthefirst example,sowherd dynamics ismodelled foraherd with aconstant numberof
sows. After weaning litter i,asowmaybeculled and replaced with ayoung sowthatis
about tohaveherfirst litter,orisretained and will produce thenext litter. IntheMarkov
chain thenumberofstatesisrestricted to3: (1)sow having litter 1,(2) sowhaving litter2,
and (3)sowhaving litter 3orhigher. The possible transitions forthe Markov chainare
from S n =itoS n + j =i+1, whenthe sowisretained after weaning.Ifthe sowisculledand
replaced, thetransition from S n =itoS n + j =1willtake place.Allother transitions have
probability zero.Thenon-zerotransition probabilities areestimated from available dataon
several herds (Table 8.1).
Thus,pj j , theprobability that asow that hadlitter 1 isculled equals 0.20. Theresulting
transition matrix isasfollows:
101
Chapter 8
0.2 0.8 0
P= 0.25 0 0.75
0.3 0 0.7
The transition matricespresented above areused toderivethe state vector at n=1,n=2 and
n=4.Intheinitialstatevector XQ, all 100animalsintheherdaresowsthatareabouttohave
thefirst litter (XQ= {100,0,0}).Thestatevectorsatdifferent timeperiodsaregiven inTable
8.2.
Another type of representation of aMarkov chain is atransition diagram, which, for this
example,is as follows:
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Markov chainsimulationto evaluate user-defined management strategies
Spread of adisease
Inthesecondexample,thespreadofacertaindisease amonganimalsinaherdis modelled.
Susceptible animals at time ncan become infected at n+1with aprobability of 0.40. The
infected animalsintimeperiod n+1become immune attimeperiod n+2(probability 0.80),
ordieowingtothediseaseintimeperiodn+2(probability 0.20).TheMarkovchain consists
of four states, (1) uninfected animals, (2) infected animals, (3) animals immune after
infection, and (4) animals that died after infection. Thetransition matrix Pis as follows:
0.6 0.4 0 0
0 0 0.8 0.2
P=
0 0 1 0
0 0 0 1
From P,P'^) andp(4)canbederived inthe same way aswasdone inthe first example.
i _r 0.2 ^ 4 ;.o
103
Chapter 8
example, state 1 is not accessible from state 2,ascaneasily bederived from thetransition
diagram. Also, inthe n-step transition matrix, element P2\ equals 0for all n. However,
state 2isaccessible from state 1.
States iandj are said tocommunicate when statej isaccessible from state i, and state iis
accessible from state j . Inthefirstexample,allstatescommunicate;inthe second example,
noneof them do.Ingeneral:
• any stateicommunicates withstate i,sincePjp ' =1;
• if state icommunicates with state j , then statej communicates with state i;and
• if state icommunicates with state j , and statej communicates with state k, then state i
communicates with statek.
The states of aMarkov chain canbe divided into oneormore disjoint classes. Two states
that communicate always belong to the same class.Aclass may consist of a single state
only.If all states inaMarkovchain communicate, asinthefirstexample,thereisonly one
class and such aMarkov chain is saidtobe irreducible.The second example contains 4
classes; all states form aseparateclass.
States differ in theprobability whether ornot aprocess,starting instate i,will ever return
to state i.This probability isdenoted by fjj. For arecurrent state,f^ equals 1.If fjj < 1,a
state iscalled transient. A special case of arecurrent state is an absorbing state. For an
absorbing state,the one-step transition probability pjjequals 1;once aprocess enters the
state,itcannot leave it again.
All states in aclass are either recurrent or transient, and therefore aclass is denoted as
recurrent or transient. Each finite-state Markov chain consists of at least one recurrent
class of states. The first example consists of one recurrent class of states. The second
example has twotransients classes (1and 2) and tworecurrent classes (3 and 4). Once a
recurrent class is entered, the process will never leave it again. Once aprocess leaves a
transient class,the process will never enter it again. This can easily be inferred from the
transition diagram in thesecond example.
Theperiod of astateisdefined tobe theinteger t(t> 1),such that Pj/n-* =0for all values
ofnotherthant,2t,3t,..., andtisthelargestintegerwiththisproperty.Inthetwoexamples,
there areno states with aperiod. In the following Markov chain, the transition diagram of
which ispresented, all states haveperiod2.
•1.0-
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Markov chain simulation to evaluate user-defined management strategies
0 1
: p(3)= p(5) e t c
1 0
1 0
P (2) = : p(4)= p(6) etc_
0 1
105
Chapter8
Solving the last four equations provides the simultaneous solutions: nj =0.263, TC2= 0.211
and 7C3 = 0.526, which are the results that appeared before in matrix p w .
When a Markov chain consists of more than one recurrent class of states, the steady-state
distribution or limiting distribution over states is no longer independent of the initial state
vector XQ. SO, lim n _ > 0 0 pj;( n ) = TCj; and is no longer independent of i. For the second
example, the transition matrix with the steady-state probabilities (P1-00-*)is as follows:
0 0 0.8 0.2
0 0 0.8 0.2
p(°°) :
0 0 1 0
0 0 0 1
If in the initial state vector all animals are susceptible (XQ = {100,0,0}), ultimately 80% of
the animals will be immune and 20% will have died. When initially 50% of the animals
are immune and 50% susceptible, then in the long run 90% of the animals will be immune
and 10% will have died owing to the disease. These figures can also be derived from the
transition diagram.
If states i and j are recurrent states belonging to different classes, then Pjp n ) = 0 for all n.
In the second example, states 3 and 4 are recurrent states belonging to different classes.
Therefore, P34*-n-' = 0 and p ^ = 0, for all n. State j is a transient state, when
lim n _^ 0 0 pjj' n ) = 0 for all i. In the second example, states 1 and 2 are transient states;
lim n _ >00 pjj(- n ) = 0 and lim n _ >00 pj 2 *- n -' = 0, for all i (see matrix above).
With the computer case on Markov chains (in Chapter 19)you canpractise the principles of
Markov chains: setting up a transition matrix and defining whether the different states are
recurrent, transient or absorbing You will also seean example of calculating the steady state
in one step, asexplained in section 8.4. After the introduction, an example with mastitis is
worked out. There are different strategies of changing the current mastitis situation in the
herd. You have to use the Markov chain approach to determine which strategy is the best.
Hereafter, the Markov chain is extended with dynamic transition rates, indicating that the
probability of infection isdependent on the number of animals infected in the previous period
(this isamore realistic, but also amore complicated way of using Markov chains). Theexercise
takes approximately 45 minutes.
106
Markov chainsimulationto evaluate user-defined management strategies
Table 8.3 Possible values of the state variables used to describe states within a cycle of the
sow (from weaning to weaning). State variables used are dependent on stage in
cycle. Time unit in the model is 1week.
State variables3
Stage incycle ib i k |b mb
m n
a
Thefollowing statevariables areused:
i:time after weaning;
j : time after insemination;
k:time after farrowing;
I:number of inseminations performed during thiscycle;
m:interval weaning -insemination;
n:pregnant ornot.
" Upper limit number of classes depends onuser-defined input values; given number is
maximum.
By adding extra state variables to the model the production history of the sows can be
taken intoaccount. Production level atlast farrowing and production level at second last
farrowing areincluded as state variables. So,when taking decisions for individual sows,
productivity ofthesowcanbetakenintoconsideration.Boththeseextrastatevariablesvary
107
Chapter8
' ~ &
— d-q)
r-s)-
- ( ! •
1 -
1 -
The transition diagram shows that all states communicate. Therefore, and when transition
probabilities are stationary, the steady-state probabilities are independent of the initial
statevector.Nomatterhowtheanimalswereinitiallydistributed overthestates,thelimiting
distribution over states isalwaysthe same.Thelimiting distribution is in fact equal tothe
distribution ofareplacement giltoverallstatesduringherlife.Thesteady-state probabilities
arerecalculatedtorepresentaherdwithacertain size.Duetotheageingofsows,only afew
transitions are possible for each state.The transition matrix has a great many rows and
columns,containingperrow,therefore, onlyacoupleofnon-zeroentries.TheMarkovchain
hasbeenprogrammed toallow for these typical characteristics.
Toevaluatetheconsequences ofchangesinherddynamics,severaltechnical andeconomic
results arederived from the distribution over states.Some variables are derived directly
from thesteady-statedistribution,suchasnumberoflitterspersowperyearandpercentage
of reinseminations. For other variables additional technical and economic variables are
needed,asinthecaseofreturns (eg,price ofpiglets andculled sow)andcosts (eg,priceof
feed andreplacement gilt).
108
Markov chainsimulationto evaluate user-defined management strategies
Table 8.4 Major technical and economical results of different steady-state herds
Herd
a
l ll a lll a
Technical results
Average number ofsows 130 130 130
Litters per sowperyear 2.32 2.17 2.30
Pigsborn aliveperlitter 10.6 10.5 10.6
Pigs sold per sow peryear 21.0 19.5 20.8
Culling rate sows (%) 49.3 69.2 51.7
Reinseminations (%) 11.5 23.7 10.0
Economicresults(USS persowperyear)
Returns
- piglets sold 1224 1138 1216
- sows and gilts culled 119 162 125
Costs
-replacement gilts 152 214 159
-feed sow 328 329 328
- feed piglets 264 246 263
Gross margin 599 511 589
a
Herd I:basic situation; Herd II:pregnancy rates at 20% lower level; Herd III: oestrus
detection afterfirstinsemination at20%lowerlevel.
Inthebasic situation (herd I),thenumberof litters per sow peryear is 2.32,the numberof
pigs sold per sow peryear is21.0 andthe annual culling rate in sows is49.3%. Resulting
gross marginper sowperyearisUS$599.Ifpregnancy ratesareat a20%lowerlevel (herd
II), percentages of reinseminations and annual culling rate increase. This results in a
reduction in number of litters per sowper year (minus 0.15) and number of pigs sold per
sow per year (minus 1.5). The reduction in gross margin is USS88 per sow per year. If
oestrus detection rate after first insemination isat a20%lower level (herd III),fewer sows
109
Chapter 8
that have been inseminated but have not become pregnant will be seen in oestrus again.
Since oestrus detection ratebeforefirstinsemination and pregnancy rate are still at ahigh
level, the effects on the results are minimal. The number of litters per sow per year has
decreased (minus 0.02). Gross margin per sow per year is US$9 lower than in the basic
situation.
The model has been used to compare different insemination strategies (when to stop
inseminating if a sow fails to conceive). Besides looking at the herd structure in its
stationary state,herd dynamics canbe studied overtime.The model can be used to study
how aherd approaches anew steady state,for instance,when sometransition probabilities
are modified.
The modelling approach developed for swine was also applied to dairy cattle. Transitions
take place at monthly intervals. Month of calving was included as an additional state
variable, and,therefore, theperiod of all states intheMarkov chain is 12.The dairy herd
modelalsofocuses ontheevaluation ofdifferent calvingpatterns,andonthecomparisonof
different strategies toactually changethecalving pattern of theherd (Jalvingh, 1993).
References
Carpenter,T.E., 1988. Microcomputerprogramsfor Markovandmodified Markov chain disease
models.PreventiveVeterinaryMedicine5:169-179.
110
Markov chainsimulationto evaluate user-defined management strategies
Howard, R.A., 1971.Dynamic Probabilistic Systems. Volume I: Markov Models. John Wiley &
Sons,New York, 577pp.
Jalvingh, A.W., 1993. Dynamic livestock modelling for on-farm decision support. PhD-Thesis.
Department of Farm Management and Department of Animal Breeding, Wageningen Agricultural
University,Wageningen, 164pp.
111
Chapter 8
Appendix 8.1
Table A8.1 Basicvalues of biological input variables that determine transition probabilities
concerning reproduction
Variable Basicvalue
112
Markov chainsimulationtoevaluate user-defined management strategies
0 10 140
1 2 9.6 13.0 140
2 8 10.3 12.0 160
3 8 10.8 13.0 175
4 7 11.1 13.0 188
5 9 11.2 14.0 196
6 11 11.1 14.0 200
7 13 11.0 14.0 200
8 15 10.9 15.0 200
9 17 10.8 15.0 200
10 18 10.7 15.0 200
1
EV/kg= 1=8786kJnet-energy for fat production.
113
Monte Carlo simulation to model spread in management
outcomes
Objectives
Fromthischapter thereader should gain knowledge of:
• the differences between information systems andsimulation models
• theprinciples of Monte Carlo simulation
• thepotential use ofageneric livestock generator
Monte Carlo simulation isfurther illustrated with an application in dairy and one in swine
farming.
9.1 Introduction
Amajor goal of livestock farmers istoconsistently maximize the short-term profitability
of the animal enterprise while maintaining the breeding livestock herd as a viable
production unit which will guarantee long-term economic success. This requires that
attention bepaid toresource use,cashflow,debt load and income tax treatment, aswell as
to the population dynamics of the herd.In order tobeconfident of delivering appropriate
and cost-effective care and advice, it is essential that farmers and advisers have a full
understanding of theramifications andpossibleoutcomes of proposed actions.
The sheer enormity of the task of manually computing the outcome of numerous possible
management strategieshasinthepastdiscouraged allbutthemostelementary analyses.The
growing availability of low-cost computing power hasput powerful analytical tools at the
fingertips ofresearchers,farmmanagersandveterinarians.Inthischapter,itisdemonstrated
how a standard personal computer can be programmed to simulate and analyse the
performance of livestock production systems, and hence topredict the likely outcome of
various management strategies asan aidtothedecision-making process,through so-called
MonteCarlo simulation.
115
Chapter 9
decision-making process for the management of an enterprise (in this case livestock
production),notonlyforthecontrolofcurrentoperations,butalsofortheplanningof future
activities. Information systems facilitate the flow and interpretation of data, whereas
simulation models extend the value of the data collected. Models can be linked to
information systems toprovide systematic procedures for the synthesis of management
options based on an analysis of the current situation. In this manner, the information
collection system serves toprovideparameter estimatesfor themodel.These estimates are
updated asnewinformation is acquired.
Modelling allows key features of a system to be defined and represented, so that the
behaviour of the system under various hypothesized conditions can be evaluated. Models
have been developed as a means of exploring the interactions of disease processes,
environment and animal production systems. Systems analysis isemployed toidentify the
important components of each subsystem, and to formulate mathematical relationships
which adequately describe the biological relationships between those components. The
relationships between pairs of variables can be established experimentally; however, the
multiple interactions of the components of each subsystem and the interactions of the
various subsystems comprising thewhole system have been difficult toconceptualize -let
alone investigate.
Theuseof computer simulation techniques provides the added dimension of time. As well
as permitting the study of these complex interrelationships from a static viewpoint, the
behaviour ofthesystemanditssubsystems maybeexplored astheychangedynamically.In
the study of animal health and production such techniques afford improved ways of
interpreting information to improve decision making, as the ramifications of veterinary
intervention or changes in management levels are often not apparent until many months
after theaction hasbeen taken.
Perhaps oneof themain advantages of usingcomputer simulation techniques asan adjunct
to the classical experimental approach is the ability to compress the passage of time.
Computer models enable the experimenter to simulate many years of activity within a
population under different conditions in afew hours.Moreover there can be total control
overexogenousvariables,afeaturewhichcanbeinvaluable -especially ifinterestliesinthe
behaviour of the system under conditions which cannot reliably be reproduced
experimentally.Forinstance,instead ofwaitingmanyyearsfor adrought tooccur,research
may be carried out under simulated drought conditions, and the technology developed to
deal with adverseconditions intimetoavert disaster.
Another application might be to simulate the potential effectiveness of some powerful
drug or vaccine which hasnot yet been evaluated underfieldconditions. If the simulation
exercise were to include an economic analysis of the benefits of employing such a drug,
thebenefits couldbeweighed againstthecostofdevelopment, testingandproduction. Only
if the cost-benefit analysis appeared favourable would the continuation of the project be
recommended. Using a Monte Carlo simulation model, Morris (1976) found that the
development of avaccine for asingle pathogen of bovine mastitis could not be justified
economically as apracticable alternative toteat dipping and dry cow treatment.
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Monte Carlosimulationto modelspread inmanagement outcomes
117
Chapter 9
118
Monte Carlosimulationto modelspread inmanagement outcomes
Parturition event
Y
Determination of
number and sex of offspring
1
Y
Commencement of
oestrus behaviour
V
Tobeculled asan yes
Culled
inferior producer?
n
Y °
Success of efforts no
toimpregnate Culled
y yes
119
Chapter 9
birth, afemale animal must first attain puberty, exhibit oestrus behaviour, mate,conceive,
and complete gestation. Given this degreeofcommonality, itisapparent thatifthecoreof
a simulation model were structured around thereproductive cycle ofthe female animal,
the generic livestock generator could be used as a starting point in modelling the
reproductive cyclesofanumber oflivestock species.
At anyconception eventanumberequal toorlessthan some finite numberoffoetuses will
be created. Between conception andparturition, notallofthese potential offspring will
survive: some orallmaybecome resorbed, aborted ormummified. Inthecaseofdeathor
saleofthepregnant female, allthepotential offspring willbelosttotheherd. Consideration
of theseandothercomponents ofreproductive inefficiency, such asbreeding-aged females
failing toconceive orhaving extended intervals between parturition events, shows that
livestock herds tend toproduce far less viable offspring than istheoretically possible.
Further losses areincurred through stillbirths, perinatal andpre-weaning mortality.The
number of females available asreplacements for thebreeding herd is further reduced
according tothesexratio ofthe litter. Young stock mortality andremoval of crossbred,
diseased, slow-developing,andinfertile females leaveareduced numberofsuitable females
from which toselect replacements forthebreeding herd. Within anydefined period,as
long as the number of animals removed does not exceed the number of available
replacement females, breeding herd size will bemaintained. However, themore surplus
replacements available,thegreater theopportunity toreplace genetically inferior animals
with potentially superior replacements,ortoincreasethesizeoftheproduction herd.
Should theremoval (culling plus death) rate exceed thereplacement rate, then notonly
will theherd sizetendtodecline,butalsotheopportunities forgenetic selection inreplace
mentdecisionswillbeforegone.Moreover,inordertomaintainherdsizeataconstantlevel,
the balance ofthe replacement females will have tobepurchased from outside theherd,
often withunknown genetic merit and/or disease status.
The generic livestock generator represents this dynamic process of maintaining a self-
replacing production herd which iscommon todairy,beef, sheepandpigherds onmodern
farms. Theconcept maybeextended toother specieskept ascommercial enterprises such
asrabbits,deerandfur-bearing mammals.Theskeletonmodelpresentsthelogical structure
underlying thereproductive andproductive processes of mammals, andonly becomes
functional when coupled withthespecies-specific parameters.These determine thescale
and variability ofsuch factors asoestrus behaviour, gestation length, litter size, timingof
puberty,productive life spanandmarketable products.
The fundamental concept underlying the structure of the model is that the status of
individual animals withinaherd changes over time according totheprobability ofcertain
events taking place. The model 'moves' individual animals forward through time,
modifying thestatus ofeach according totheoutcome of stochastic decisions basedon
certain rules andprobabilities. While there isonebasic structural framework orskeleton
model,thecriteria fordefining andtheterminology used indescribing status groupsand
events vary accordingtothespeciesbeing modelled.
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Monte Carlo simulation to model spread in management outcomes
121
Chapter9
122
Monte Carlosimulationto modelspreadin management outcomes
This method of computation isnot strictly accurate because it assumes that single-sex and
mixed-sex twin births occur in equal proportions. In reality, single-sex twins are more
common because they may either originate from a single embryo which divided
(monozygous) or from two separate embryos which were fertilized independently
(dizygous).Mixed-sextwinscanonlybedizygous.However,astheincidenceoftwinbirths
in cattle is low and with the absence of specific data on the sex ratio in twin births, the
approximation isquiteadequatefor thepurposesofthissimulation model.Onaverage,only
onetwinbirth wouldbe expected tooccureachyearina80-cow herd.
123
Chapter 9
Afurther assumption made is that only the single and twin heifer births produce suitable
offspring for rearing as replacements. All bull calves and heifer calves from mixed-sex
births are sold, as there would be a chance that those in the latter group would be
freemartins. Thispolicy iscommonly practised ondairy farms.
Calf record
Ifaheifer calf survivestoweaningatapproximately 6to8weeksofage,themodelproceeds
tosimulate herlifetime events uptothe date offirstcalving, saleordeath.
First theheifer is assigned anidentity.Identities aretypically the nexthighest numberina
consecutive sequence,suchthattheyoungest animalintheherdcarriesthehighest number.
Onceassigned,identitiesareretainedforlife,andareneverre-assignedwithin asimulation
run.These 'cownumbers' areprintedonthelactationsimulation display screentoassurethe
userthatthe model actually simulates the life-time eventsof individual animals.
Aheifer may diebefore reachingmaturity: arandom observation onauniform distribution
istaken.If theobservation is lessthan orequal totheyearly mortality level specified, then
theheifer isjudgedtohavedied.Theactualtimeofdeathisdeterminedbytakingasecond
random observation on a normal distribution with a mean of 360 days and a standard
deviation of 100days.Thusthedeatheventmayoccuratanytimebetween2monthsand22
months of age,normally distributed around 12months ofage.
Next, the date at which the heifer will conceive is determined. The gamma distribution is
usedforthisprediction asitisparticularly suitablefor simulatingtime-delayed eventsona
continuous random variable (Payne, 1982).Asingle parameter, lambda, issupplied to the
distribution representing the average number of days from the minimum breeding age to
conception. Aconvenient method for estimating lambdais:
where
IEI =average inter-oestral interval (days);and
SRV =number of servicesper conception.
124
Monte Carlosimulationto modelspreadin management outcomes
where
DUEDATE =dateduetocalve;
CONDATE =simulated conception date;
GESTCOW =average gestation lengthfor thespecies;and
RANDNORM(0.0, 3.0)
=arandom observation on anormal distribution with amean of
0.0 and astandard deviation of 3.0days.
Thus, for aGESTCOW value of 283 days,99.9%of the gestation periods will fall in the
range of 274to292days,normally distributed around amean of 283days.
In any group of replacement heifers, there will always be acertain proportion of animals
which fail toconceive, and sold ascull animals.Theuseof the gamma distribution for the
prediction of conception dates inheifers provides aconvenient method of simulating this
situation. A variable, BARREN, indicates the age at which any non-pregnant heifer is
considered to be anon-breeder. If the age of the heifer at the predicted conception date
exceeds the value of BARREN, then the model discards the conception event, and the
animal is sold.
Milk production
The equations used to generate lactation curves are adapted from those developed by
Oltenacu et al. (1981). Daily milk yield of a cow as a function of her days in milk is
predicted by:
Y =GEN(DIM)be c D I M ( D P + 1)
where
Y =dailymilkyield(kg);
GEN =genotypic production potential;
DIM =dayof lactation (daysinmilk);
DP =number of dayspregnant;and
e =thebase of thenatural logarithm.
125
Chapter9
The genotypic production potential for each cow in the starting herd is assigned at the
beginning of each simulation runbytaking the integer valueof arandom observation ona
normal distribution withameanof 100andstandard deviationof 10-RANDNORM(100.0,
10.0),togive arange of 70to 130.Heifer calves 'born' within the model are assigned
their production potential values atbirth.
Thelactationmilkproductionisderivedbyintegratingtheareaunderthecurvebetweenthe
calving date and the drying-off or culling date for each cow.Avariable CRITICAL is the
daily milk yield below which the user does not consider it worthwhile milking a cow.
Should the daily milk production fall below the level of CRITICAL, then the model will
prematurely dryoff acowtobeginanextendeddryperiod.Thissituation istypically found
where alow-yielding cowhas anextended lactation following adelayed conception.
In the case of cows that donot become pregnant and are not culled for disease reasons
during alactation,amodified algorithmisused.Thecullingdateisdeterminedbytheshape
of the lactation curve, with thecow being retained in the herd and milked until her daily
milk production falls below CRITICAL.This isthemechanism by which cows that fail to
conceive 'fall out' of themodel.
While the current version of the model uses the above formula for generating lactation
curves,itisimportant toremindthereaderthat itwasdeveloped from DairyHerd Improve
mentAssociationrecordsforherdsinNewYorkState(Oltenacucf ai, 1981),anditmaynot
be appropriate for applications ofthe model inotherparts of the world. Characteristically,
feeding programs in dairy production systems in the northern United States involve
moderatetoheavylevelsofgraincombinedwithforageprovided asconservedcorn (maize)
silage and alfalfa hay or silage.The result is a high-protein, high-energy diet with little
seasonal variation.
Inparts oftheworld wheredairy herdsaregrazed for theirforage supply andproduction is
geared toseasonal patterns of forage growth and quality,it may bemore applicable touse
other lactation curve equations, such asthose by workers of theMilk Marketing Board in
England and Wales.Themodel:y=An b e"cn, developed byWood (1967) wasthe first to
attempt todescribe anentirelactation.Theequation expresses average daily milk yield (y)
inthen m weekoflactation, whereA,b,carepositiveparameters that determine the shape
of the curve.Wood applied this model in anumber oflater studies of lactation curves in
British Friesian cattletaking into account season of calving and the 'spring hump' where
milk production is stimulatedbythechangeindietofconserved forage tofresh grass.
Cobby and Le Du (1978) expanded the model of Wood (1967), and more recently, Van
Arendonk (1985)extended the modelof Cobby andLeDu toinclude the effect of season
of milkproduction anddaysopen:
Y
tj, i,DO =( a -b t l - 13e'ctl)(l +(tp/140 )2)-lfmgi
where
Yt] j po =tne m
^ ^ production (kg) at tj days after calving for the i th
month ofcalving andDOdays open;
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Monte CarloSimulationto modelspreadinmanagement outcomes
9.5.2 Modeloutput
Asindividual animal recordsareused inthesimulation procedures,there areatremendous
number of dataproduced inthecourseofonesimulated year.Inorderthatthe performance
of the herdbe evaluated andcompared among different simulated scenarios,the data must
bedistilled downtoacomparatively few,butmeaningful, reports.Onceagain the modeller
isfaced with adilemma of deciding what toreport, and inwhat form topresent it.Report
categories are:population demographics; performance indices;reproductive performance;
monthly graphics; livestock valuation; cash flow analysis; and income statement. Twoof
these willnow further be illustrated.
127
Chapter 9
Performance indices
Theperformance indicesfilltwovideodisplayscreensoronesheetofpaper.Thefirstscreen
is mainly concerned with reproductive performance, while the second contains a mixture
of physical and financial measures. This report accumulates figures for six years of
simulated data,making itconvenient tocompareresultsbetweenyearsandtofollow trends.
The cohort used for the reproductive indices is the group of cows calving in the year
simulated, and thus is directly comparable with the DairyCHAMP annual report. The
physical andfinancialmeasures relate toevents occurring within the simulated period.
Note that although model inputs such as heat detection efficiency and first service
pregnancy rateswereheldconstantthroughoutthe6-year period simulated inthisexample,
the values shown intheannual summary values appear tofluctuate from yeartoyear. This
phenomenon istobe expected, asthe simulation model isproperly mimicking the natural
biological variation that occurs in such animalpopulations.
Financial statements
The DairyORACLE model provides both cash flow and income statements for the dairy
enterprise.Theincomestatementretains datafor allsixsimulatedyears,andenables trends
tobeseen ataglance.Thefour mainfinancial categoriesfeatured inthisreport aretotalcash
inflow, variable expenses,fixedexpenses andincometax treatment.
Totalcashinflows includethefourcategoriesofoff-farm sales,whichare:milk;calves;cull
cows, and surplus springing heifers.
Variable expenses include allexpenses which vary with thenumber of cows inthe herd or
thelevelofproduction:forage expense,dairy grain,heifer grain,calf milkreplacer, labour
expense, springing heifer purchases, breeding fees, veterinary and medical expenses,
utilities and fuel, andchemicals and supplies.
Fixed expenses are those expenses which do not vary directly with amarginal change in
the number of cowsintheherd orthelevelof production.However, it shouldbenoted that
anappreciablechangeinthemagnitude oftheenterpriseorproduction levelwill necessitate
anadjustment ofitemsinthiscategory:interestonlong-termdebt,insurancepremiums,and
repairs and maintenance tobuildings and equipment.
The cash flow statement iscomputed for twelve monthly periods for each simulated year.
Due to the size limitations of the video display terminal, results are summarized for four
quarterly periods.Afifthcolumn displays annualtotals.
Thebottompartofthestatementisthecashflow resolution calculations.Themodel willnot
permit the cash balance to fall below zero,but will automatically borrow from a line of
creditsufficient funds topreserveapositiveorzerobalance.Interest onthisloanisassessed
on amonthly basis.When apositive cash flow permits the repayment of operating loans,
interest is always paid before principal. All such interest payments are deducted from the
taxable incomeintheincome statement.
128
Monte Carlosimulationto modelspreadin management outcomes
129
Chapter 9
PigORACLE input screen dealing withbreeding herd management allows the user toedit
thevaluesforexpected averagelittersizesbyage:from first paritygiltsuptoseventhparity
and older sows. As the distribution of litter sizes is approximately normal, a random
observation on anormal distribution ismade togenerate an integer which represents the
total number of pigs born in an individual litter. Experimentation with the random
generation process has shown that for mean litter sizes between 7 and 15, a standard
deviation equal to one-fourth of the mean gives a satisfactorily realistic spread of total
littersizes.
Use of the random number generation process involves avery small chance that a litter
size greater than that which has been observed in nature being generated. Therefore, a
constant,(MAXLITTER) isusedtotruncatethedistribution,suchthatifalitter sizegreater
thanMAXLITTER ispredicted, themodel will 'throw away' the observation and generate
a new one.MAXLITTER iscurrently set at 25,but can be changed if larger total litter
sizes areobserved inswineherds.
Sows with fertility-related problems 'fall out' of the model as aconsequence of failing to
conceiveortocompleteagestation successfully, andtherefore donotrequireany additional
mechanism for timingtheirremoval.Thetime of removal for each culled sow is predicted
by taking arandom observation onaPoisson distribution. However, inthiscase the value
returned isthenumberofweekspostpartum ratherthanmonths.Arandomobservation ona
uniform distribution returns an integer between 1and 7which represents the day of the
week when theculling ispredicted totakeplace.
130
Monte Carlosimulationto modelspreadinmanagement outcomes
9.6.2 M o d e l output
Although PigORACLE hasmanybuilt-in reports (similartoDairyORACLE),both models
cangeneratebatch inputfilesfor PigCHAMP and DairyCHAMPrespectively. Oncemodel
outputhasbeen saved asaPigCHAMPdatafile,allPigCHAMPreportsandoptionsmaybe
used to analyse and present simulated data. Biological performance of astart-up herd is
shown by the Performance Monitor Report (Table 9.3). Changing patterns in breeding,
farrowing and weaning performance canbe observed as the herd develops from aflow of
purchased gilts to a mature parity distribution over the 5-year simulation period.
FARROWING PERFORMANCE
Number of sows farrowed 376 516 532 532 526 554 3036
Ave parity of sows farrowed 1.4 2.9 4.1 4.8 5.6 6.0 4.3
Average total pigsper litter 10.3 11.1 11.2 11.2 11.2 11.3 11.1
Average pigsbornalive/litter 9.3 10.1 10.1 10.0 10.0 10.0 10.0
Percentage stillborn pigs 9.5 9.2 9.9 10.7 10.3 10.9 10.1
Farrowing rate 84.7 84.2 86.1 85.1 84.8 86.3 85.2
Adj. farrowing rate 87.9 B8.4 89.7 89.0 88.7 89.2 88.8
Farrowing interval 143 145 144 144 144 144 144
Litters /mated female/year 2.57 2.43 2.48 2.46 2.48 2.46 2.48
Litters /crate /year 9.4 12.9 13.3 13.3 13.1 13.9 12.6
WEANING PERFORMANCE
Number of littersweaned 345 516 535 531 530 542 2999
Total pigs weaned 2766 4454 4644 4611 4611 4616 25702
Pigs weaned per sow 8.0 8.6 8.7 8.7 8.7 8.5 8.6
Preweaning mortality 14.1 14.3 13.6 13.7 13.4 14.8 14.0
Average ageat weaning 21.9 21.7 21.7 21.7 21.6 21.5 21.7
Pigs wnd/mated female/yr 20.6 21.0 21.5 21.4 21.5 21.0 21.2
Pigs weaned/crate/year 69.0 111.3 116.1 115.3 115.0 115.4 107.0
Pigs weaned/1ifetime female 6 20 32 39 49 47 33
POPULATION
Ending female inventory 222 215 213 208 226 244 244
Average parity 1.5 2.7 3.7 4.5 4.9 5.1 5.1
Average female inventory 184.1 211.3 217.4 218.2 216.6 223.9 211.9
AFI /Crate 4.6 5.3 5.4 5.5 5.4 5.6 5.3
Average gilt pool inventory 4.1 1.2 1.4 1.2 1.2 1.6 1.8
Gilts entered 269 87 84 76 85 95 696
Sows and giltsculled 43 90 82 74 59 70 418
Sow and giIt deaths 2 2 1 5 3 2 15
Replacement rate 145.7 41.2 38.6 34.8 39.1 42.4 54.7
Culling rate 23.3 42.6 37.7 33.9 27.2 31.3 32.8
Death rate 1.1 0.9 0.5 2.3 1.4 0.9 1.2
Avenon-productivesowdays 33.2 33.7 28.6 30.8 29.4 31.0 31.0
Ave NPD /parity record 9.5 11.8 10.1 11.1 10.4 10.7 10.6
131
Chapter 9
References
Anderson,J.R., 1974.Simulation:methodologyandapplication inagriculturaleconomics.Review
ofMarketingandAgriculturalEconomics43:3-55.
Cobby,J.M.&LeDu,Y.L.,1978.Onfittingcurvestolactationdata.JournalofAnimalProduction
26:127-133.
132
Monte Carlosimulationto modelspreadinmanagement outcomes
Marsh, W.E., 1986. Economic decision making on health and management in livestock herds:
examining complex problems through computer simulation. PhD-thesis, University of Minnesota,
St. Paul, 304pp.
Marsh, W.E., Dijkhuizen, A.A. &Morris,R.S., 1987.An economic comparison of four culling
decision rules for reproductive failure in U.S.dairy herds, using DairyORACLE. Journal of Dairy
Science 70: 1274-1280.
Morris, R.S., 1976. The use of computer modelling in epidemiological and economic studies of
animal disease.PhD-thesis, University of Reading,479pp.
Oltenacu, P.A., Rounsaville, T.R., Milligan, R.A. & Foote, R.H., 1981.Systems analysis for
designing reproductive management programs to increase production and profit in dairy herds.
Journal of Dairy Science 64:2096-2104.
Shannon, R.E., 1975. Systems simulation: the art and science. Prentice-Hall, Inc. Englewood
Cliffs, NJ, 387pp.
Van Arendonk, J.A.M., 1985.Amodel to estimate the performance, revenues, and costs of dairy
cowsunder different production and price situations.Agricultural Systems 16: 157-189.
Wood, P.D., 1967.An algebraic model ofthe lactation curve in cattle.Nature 216: 164-165.
133
10
Scope and concepts of risky decision making
Objectives
Fromthis chapter thereader should gainknowledge of:
• thebasic steps inthedecision-making process
• theconceptsofdecisiontheory,takingintoaccounttheriskattitudeofthedecision maker(s)
• the various choice criteria, such as expected utility model, stochastic efficiency criteria
and expected monetary value
• Bayes' theorem andtheeconomic value of information
10.1 Introduction
The economic success of animal health management isclosely related tothe way inwhich
decisionsaretakenandimplemented.Thedecision-makingprocessisessentially a five-step
procedure:
1.defining theproblem or opportunity;
2. identifying alternative courses of action;
3. gathering information and analyseeach of thealternative actions;
4. making thedecision andtake action;and
5.evaluating theoutcome.
The first step is probably the most important one. When problems are not recognized,
continuing losses may occur, particularly with subclinical diseases and reduced fertility.
Monitoring systemsespeciallywithinherdhealthprogramsareincreasingly usedtoregister,
and to help identify, these problems. Once aproblem has been defined, it will seldom be
the case that there are no reasonable solutions or actions to be taken (step 2). It will be
more common that the number of alternatives has to be limited, so that each can be
examined thoroughly. For documenting and examining thepotential effects of the various
alternative actions (step 3),it will notbe feasible to have only actual field data available.
Computer simulation has long been recognized as a complementary approach and is
particularly attractive when real-life experimentation would be impossible, costly or
disruptive.
135
Chapter 10
136
Scopeandconcepts of riskydecision making
When taking into account themean outcome (ie,expected monetary value) tocompare the
alternatives, program a 2 isthe preferred one.This choice, however, does not hold for the
situation shouldtheherdhealthstatusbegood,thusmakingthisaclassicalexampleofrisky
choice.
This function makes itpossible toconvert the money values for each of the alternatives in
Table 10.1toutility values(U):
U(aj) =0.2£/(US$1000)+0.6£/(US$4000)+0.2£/(US$9000)
=0.2(0.995) +0.6(3.920) +0.2(8.595) =4.270
U(a2) = 0.2i/(US$-10000)+0.6t/(US$5000)+0.2t/(US$19000)
=0.2(-10.5) +0.6(4.875) +0.2(17.195) =4.264
137
Chapter 10
138
Scope and concepts of risky decision making
regret isUS$11000 (ie,US$1000 -(-10 000), in case herd health turned out to be good),
while with program al, this isUS$10000 (ie,US$19000 -9000, if herd health wasbad).
So,program al isnowthepreferred one.
• Maximax simply amounts to scanning the outcome matrix to find its largest value and
then taking thecorresponding action. This is atotally optimistic criterion, and similar to
the approach of agambler. In Table 10.1 this would result in program a 2 being taken (ie,
US$19 000being thelargest payoff).
Asecond group of criteria includes morethan one single value of theoutcome distribution
and,therefore, dorequire probability estimates:
• Hurwicz a index rule allows for a weighed average of the minimum and maximum
outcome per action, and then selects the action with the highest weighed average. In
formula:
It assumes that the decision maker's satisfaction ismeasured by the level of profit, which
in fact is aspecial linearcase of themoregeneral expected utility model (ie,assuming risk
neutrality of the decision maker). The outcome for the two programs inthe example was
already given inTable 10.1, with program a-> being thepreferred oneinthiscase.
None of the previous criteria, however, takes account of any 'utility-based' trade-off
between the average outcome of each strategy and its variance. That is why stochastic
efficiency criteria (thethird group tobeconsidered) are proposed as auseful alternative,
atleastforcaseswhereprobabilities arereasonably welldefined. Stochastic efficiency rules
139
Chapter 10
1.0
Xl
o
3
E
3
O
JF(y)dy<jG(y)dy
140
Scopeandconceptsof riskydecision making
FSD
SSD
SDWRF (withrisk aversion assumed tobe):
- low
- considerable
-high
141
Chapter 10
consideration. At higher levels of risk aversion (ie, with higher boundaries for the risk
aversion interval), however, program aj is preferred again.
10.5 Bayes'theorem
Most farmers formulate subjective probabilities about uncertain decisions at apoint in time.
If additional information comes available, the farmer has to revise or update the
probabilities. Many farmers appear to revise their subjective probabilities in an informal
manner when they receive weather reports, national production estimates, data on domestic
use and exports, price predictions, and other data that may affect their operation. Such
probability revisions can be accomplished in a logical and mathematically correct manner
by applying Bayes' theorem. Bayes' theorem is an elementary theorem of probability
developed by the eighteenth-century English clergyman Thomas Bayes. This theorem is
normally developed in introductory courses of statistics, and its logical validity is
demonstrated in many books on decision theory (Anderson et al., 1977; Barry, 1984;
Boehlje & Eidman, 1984)
In Table 10.3 the major components that are needed to explain Bayes' theorem are
summarized, some of which have been introduced already earlier in this chapter.
Suppose that the farmer in the example of Table 10.1 can obtain a prediction from the
veterinarian of the probabilities of the events 9j. The veterinarian may give k possible
forecasts (k levels of the predictor; z^). Since predictions of uncertain phenomena such as
price and yield levels for agricultural production are less than perfect, it is important to
consider the veterinarian's accuracy of the predictions in revising the prior probability
estimates. The likelihood of obtaining a particular forecast, given the event that occurred
PCzjjIOj), can be obtained by utilizing data on previous forecasts (z) of the veterinarian and
the actual outcomes (9).Then Bayes' theorem can beused tocombine the prior probabilities
P(9j) of the farmer and the data on the accuracy of the prediction P(zjil9j) to estimate the
posterior probabilities P^jlzj,). The posterior probabilities indicate the probability that an
event will occur given the prediction that has been made. Bayes' theorem can be expressed
as:
142
Scopeandconcepts of riskydecision making
P(9ilzk)=P(0i)P(zkl6i)/Si [P(9j)P(zkl9i)]=P(9i,zk)/P(zk)
In words, the first of these formulas says that the posterior probability of the i t h state,
given that the k1*1prediction has been made, is equal to the product of (1) the prior
probability of the state,and (2) the likelihood probability of theprediction given the state,
divided by all suchproducts summed over all the states.As the second formula indicates,
thenumerator attheright-handsideis,by definition,just thejoint probability of 9jand z k ,
while the denomi-nator is the unconditional probability of occurrence of the particular
predictionz k .Ingeneral,Bayes' formula canbeconsidered aposteriorprobability (density)
beingproportionaltopriorprobability (density)timeslikelihood.Bayes' theoremhingeson
the definition of conditional probability (P(AIB)=P(A andB)/P(B)).
Now wecontinue our example on selecting thebest animal health program (Table 10.1).
Thefarmer askstheveterinarian for advice.Basedonpasthistory,thefarmer determinedthe
accuracy of the predictions of the veterinarian. They are outlined inTable 10.4.The data
indicate,for example,that ifzj (good herd health) waspredicted bytheveterinarian inthe
past,agoodherdhealthwasfound in80%ofthecases,anaverageherdhealthin 15%ofthe
cases,andabadherdhealthwasneverfound. Thevaluesinothercolumnsoftheconditional
probability matrix areinterpreted in asimilar manner.
Thefarmer nowwantstocombinethepredictionsreceivedwiththepriorprobabilitiesusing
Bayes' theorem.Thejoint probabilities required for thenumerator ofBayes' theorem have
beencalculated andrecorded inTable 10.5.Forexample,P(9 1 )P(z 1 l9 1 )=0.2x0.80 =0.16.
After completing the calculation of thejoint probabilities, the denominator of Bayes'
theoremcanbecalculatedbysummingeachcolumn.Forexample,P(z1)=X;P(9j) P(zj10j)
=0.16 +0.09 +0.00=0.25.Noticethat summing theP(zk) for allvalues of kequals 1.
143
Chapter 10
FollowingBayes' theorem,theposteriorprobabilitiescanbecalculatedbydividingthejoint
probabilities by the unconditional probability of z k . For example,P(0jlzj) =0.16 /0.25 =
0.64.Theposterior probabilities aregiven inTable 10.6.
a
Calculated asEMV(a;lzk) =I j [(XJ; -c) P(9jlzk)]
144
Scopeandconceptsof riskydecision making
The EMV of the optimal strategy based upon aperfect predictor is also determined in
Table 10.8.TheEMV of suchperfect information isUS$6800. So,theEMV of the perfect
predictorisUS$6800-4800=US$2000.Thismakestheefficiency ofourpredictorrelative
toaperfect predictor,bothassumed tocostUS$200,(1470/ 2000)x 100%=73.5%.
145
Chapter 10
Work through the example on decision analysis, a left-displaced abomasum case,in Chapter
19.For three different strategies, the payoff matrix isgiven. You have to find the best strategy
according to different criteria: the EMV, the maximin, the minimax regret and the maximax
criterion (as discussed in section 10.4).In the next part of the model you canpractise working
with a utility function and 'translating' this into risk attitude (seesection 10.3). Lastly, the
model leadsyou through the Bayes'theorem (seesection 10.5)and calculations will be made
on the value of information (see section 10.6). The time needed for this exercise is
approximately 60 minutes.
146
Scopeandconceptsof riskydecision making
References
Anderson,J.R., Dillon,J.L.& Hardaker,J.B., 1977.Agricultural decision analysis.IowaState
UniversityPress,Ames,344pp.
Goh,S.,Shih,C.C.,Cochran,M.J. &Raskin,R.,1989.Ageneralizedstochasticdominanceprogram
fortheIBMPC.SouthernJournalofAgriculturalEconomics:175-182.
147
Chapter 10
Little, I.M.D. &Mirrlees, J.A., 1974. Project appraisal and planning for developing countries.
Heinemann Educational Books,London, 388pp.
Smidts, A., 1990.Decision making under risk. Wageningen Economic Studies No. 18, Pudoc,
Wageningen, 329pp.
148
11
Application of portfolio theory for the optimal choice of
on-farm veterinary management programs
Objectives
From thischapter thereader should gainknowledge of:
• the application ofportfolio theory totheefficient selection of veterinary interventions
• theuse of mathematical programming techniques to identify the optimal combinations of
interventions which maximize expected financial returns whileminimizing risk
The chapter emphasizes the importance of including risk in addition to expected return
whenconsidering investment inon-farm veterinary services.
11.1 introduction
The health management approach to the delivery of veterinary services has expanded
greatly, providing significant economic benefits to dairy producers. Veterinarians are
becomingincreasingly awareoftheneedtoconsidertheeconomicconsequences ofplanned
interventions for the farm business when designing herd health programs for farms
(Dijkhuizen, 1992).
The decision-making process regarding investment in veterinary services is essentially
similar to other farm management decisions which allocate land, labour and capital
resources toalternative uses,theobjective being tomaximize net returns tothe manager's
owned resources.Economic conceptstraditionally used for farm planning procedures such
asthefactor-product, factor-factor andproduct-productmodelshaveassumedeither perfect
knowledge of input-output andpricerelationships ortheuseof expected values. Inreality,
managersof agriculturalbusinessesareconstantly obligedtomakedecisionswithlessthan
perfect knowledge.Typically, they have only partial information on anumber of possible
outcomes and some feeling for theprobability of each occurring over the planning period
under consideration.
Expected return on investment is acommonly utilized measure of the relative economic
worthofveterinary services(Ellis&James, 1979;Ngategize &Kaneene, 1985).The major
assumption of thisapproach isthat the variance of returns across all interventions isequal.
Thisassumption isinappropriatewhenconsidering veterinary interventions,astheinherent
149
Chapter 11
150
Application of portfoliotheoryforthe optimalchoiceof on-farmveterinary management programs
151
Chapter 11
Table 11.2Simulated five-year gross margin annuity values (US$/year) for dairy enterprise
under eachproposed intervention
Proposed interventions
Heat Conception Heifers Calf Mastitis Dairy
Run Control detection mortality nutrition
1 134993 190154 178937 137045 152446 144678 154638
2 146196 195844 188565 140752 142933 151557 165727
3 135966 190963 186326 149423 137449 145259 149000
4 132083 193430 176154 155848 137691 137238 155016
5 138449 192247 167140 147827 133477 158329 155340
The difference in the annuity values between each intervention and the control option
provides an estimate of their gross value.The Expected Return OnInvestment (EROI)
was expressed astheratio of thenet valueof theintervention divided by the annuity value
equal tothe cost of theprogram overthe five-year period. For example, theprocedure to
estimate thevalueof improving heat detection efficiency from 45% to70%is as follows:
Enterprise gross margin underintervention US$ 192528
Enterprise grossmargin for control situation US$ 137537
Increaseingross margin attributed tointervention US$ 54991
Annual cost of implementing intervention US$ 4655
152
Application of portfolio theory for the optimal choiceof on-farm veterinary management programs
will depend on the farmer's attitude towards risk. Studies have shown farmers tobe risk
averseintheirselectionofinterventions(Binswanger, 1980;Dillon&Scandizzo, 1978).For
therisk averse, anyincrease inriskmustbeoffset by anappropriateincrease inreturn:the
morerisk averse aparticular individual becomes, the greater an increase in return will be
required to counteract the extra riskiness. Regardless of the decision maker's risk
preference, itis always desirable toselectintervention combinations from theefficient set.
To find the risk-efficient (E-V) frontier (minimum variance for each expected return),
quadraticprogramming canbe applied (Schrage, 1984):
MinimizeV =x'Q
subject to:
rx >= E R O I r m m m u m
Ax <=b
X >=0
where
V =thevariance of themix;
x =thevector of solutions;
r =agiven vectorwith theexpected returnsof theinterventions;
Q =a given matrix of variances and covariances across the
interventions;
A =agivencoefficient matrix ofconstraints;
b =agivenvector of theright-hand sides of theconstraints; and
EROI. =the minimum expected return on investment that would be
minimum
acceptable.
10,81
13,44
16,35
7,16
18,75
35,81
153
Chapter11
Covariance Matrix:
1.24 0 0 0 0 0
0 9.69 0 0 0 0
0 0 267.28 0 0 0
Q=
0 0 0 411.49 0 0
0 0 0 0 293.17 0
0 0 0 0 0 209.09
Note that the covariance terms in Qare zero. This isbecause of the assumption that the
interventions considered are assumed to be independent. The objective is to find the
combination (portfolio) ofthe sixpossible interventions that minimizes thetotalvariance:
V=x'Qx
Ixn =1 n= 1,2,..6
ensuresthatx'beexpressedasapercentageofavailablefunds.Anotherconstraintmaylimit
investment in any individual intervention to some percentage of available funds. In this
case,we setthelimit at50%:
x n <0.50 n = l , 2 , ..6
The final constraint tobe imposed on thisproblem ensures that the expected return on
investment (EROI)ofthe solution is above aminimum desired level:
rx >EROI
minimum
Specifying aminimum return oninvestment of 10,theproblem iswritten as:
subject to
xj +X2 +X3 +X4 +X5 +xg= 1
0 < x j <0.50
0 <x 2 <0.50
154
Application of portfolio theory for the optimal choice of on-farm veterinary management programs
0<x 3 <0.50
0 <x 4 <0.50
0<x5<0.50
0<x6<0.50
10.81(x,)+ 13.44(x2)+ 16.28(x3)+7.16(x4)+ 18.75(x5)+35.81(x6) > 10
As the coefficients inthe solution sumto unity, they indicate the number of cents in each
available dollar that should be invested in each component of the dairy veterinary
management programfor thisherd.Ifthisisdone,thereturn andriskcharacteristics of the
program willbe:
155
Chapter 11
15
10
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Standard deviation (risk)
Figure 11.1Expected return (US$) and risk (US$) associated with alternate efficient dairy
veterinary management programs
156
Application of portfolio theoryforthe optimalchoiceof on-farm veterinary management programs
c 19 - 100% Mastitis
3
+•>
CD
"O
CD
+•"
u<D
8- I«'
17
Figure 11.2Expected return (US$)and risk of two interventionsimastitis control and heifer
rearing
References
Anderson,J.R., Dillon,J.L.& Hardaker,J.B., 1977.Agricultural decision analysis.IowaState
UniversityPress,Ames,344pp.
157
Chapter11
Dijkhuizen, A.A., 1992. Modelling animal health economics. Inaugural speech, Wageningen
Agricultural University,Wageningen, 28pp.
Dillon, J.L. &Scandizzo, P., 1978.Risk attitudes of subsistence farmers in Northeast Brazil: A
sampling approach. American Journal of Agricultural Economics 60:425-435.
Ellis, P.R. & James, A.D., 1979. The economics of animal health - (1) Major disease control
programmes.TheVeterinary Record: 504-506.
Marsh, W.E., 1986.Economic decision making on health and management in livestock herds:
examining complex problems through computer simulation.PhD-Thesis,University of Minnesota,
St.Paul, 304pp.
Marsh, W.E., Dijkhuizen, A.A. &Morris, R.S., 1987.An economic comparison of four culling
decision rulesforreproductivefailure intheUnited StatesdairyherdsusingDairyORACLE. Journal
of Dairy Science70: 1274-1280.
Schrage, L. (ed.), 1984.Linear, integer, and quadratic programming with Lindo. The Scientific
Press, Palo Alto,California, pp.206-223.
158
12
Modelling the economics of risky decision making in
highly contagious disease control
Objectives
Fromthischapterthereader should gainknowledge of:
• thebasic theory of demand and supply
• theconcept of producerandconsumer surplus
• the economic principles of quantifying the indirect losses due toexport bans incase of
contagious animal diseases
The approach isillustrated for foot-and-mouth disease outbreaks.
12.1 Introduction
In Chapter 2on 'economic decision making in animal health management' it was shown
that aproducer's optimal level of output is determined by input prices,efficiency of the
inputs used and output prices. Given sufficient data concerning afirm's production, it is
possible to construct theproduction functions, andfrom those the average and marginal
physicalproducts.Ifalsotheoutputpricesareknown,thetotal,averageandmarginal return
functions can be determined. These functions permit the location of the optimal (profit
maximization) levelofproduction for anindividual firm.
Going beyond this, it is of interest to see how the input and output prices faced by the
producer are determined. In market economies these are aresult of demand and supply.
Demand istherelationshipbetween themarketpriceof agoodorserviceand thequantity
people are willing and able to buy. Supply is the relationship between the market price
andthequantityproducersareableandwillingtosell.Thestudyofdemandandsupply,and
thewaythey interact,forms afundamental partofeconomics (Hill, 1980).
Inthischapter,thedevelopment andinteractionsofdemand andsupplyareexamined. Special
attentionisfocused ondeterminingthelossesduetomarketdisruptionsbecauseofexportbans.
Thebasicunderlyingprinciplesoftheselossesarepresentedanddiscussed,andillustrated for
foot-and-mouth disease(FMD)outbreaksintheNetherlands (Berentsen eta/.,1990).
159
Chapter 12
Price
Quantity
160
Modellingthe economicsof riskydecision making inhighlycontagious disease control
F-
Qe Quantity
Figure 12.2The change in consumer and producer surplus after reaching a new market
equilibrium
161
Chapter 12
Bythesametoken,effective controlofanimaldiseaseincreasesthe(long-term)productivity
of resources in the affected population. The outcome is to shift the supply curve for
livestock products to the right, ie, farmers are able to produce more at whatever is the
current price.Thisisillustrated inFigure 12.2
Thewelfare consequences of thechangeinFigure 12.2canbe summarized as follows:
Notice that it is not only possible toidentify the net effects on producers and consumers
respectively, but that it is also possible to summarize theconsequences for a society asa
whole,ie,forpeopleirrespectiveofwhethertheyareproducers,consumersorboth.Within
the theory of welfare economics, however, there is adiscussion about the aggregation of
benefits andcostsatthenationallevel(Justetai, 1982).Simpleaggregationofthese effects
presumes an equal weight of benefits and costs for each group and individual, which is
usually notthecase.Fromaninvestigation ofEUdairypolicyovertheyears 1980to 1987,
for instance,itemergedthatonedollarofproducerincomewasconsidered twicetheweight
ofonedollarofconsumerincome(Oskam, 1988).Itis,therefore, recommendable toreport
both the separate effects for producers and consumers, and their equally-weighed total,
leavingpolicymakers theopportunity toinclude theirownweights.
162
Modelling theeconomicsof riskydecision making in highlycontagious diseasecontrol
Price
Costs
D ]y S' s
Y
G
A
\1 \B C/
F
0
Qd Qd' Qs' Qs
Quantity
Figure 12.3Themarket situation for a country, exporting a product
163
Chapter12
V
-number of secondary outbreaks
-number of weeks with outbreaks
-extent of affected region
>r
Disease Export
control Input model
model data
i
Input
Integrating part • < —
data
I
Totalyearly national
economic losses
In the epidemiological model the spread of the disease after a primary outbreak is
simulated, taking into account the control strategy under consideration, disease specific
input values and demographic data. Relevant output tobe used for further -economic -
calculations concerns the number of secondary outbreaks that follow aprimary outbreak,
the number of weeks with outbreaks and the size of theinfected area. The disease control
modelcalculatesthedirectlossestoproducersandgovernment andasksfor additional input
data on the costs of ring vaccination, the costs of stamping out and the costs of idle
production factors for farmers andindustry.Theexportmodelcalculatestheindirect losses
164
Modellingtheeconomicsof riskydecision making in highly contagious diseasecontrol
165
Chapter 12
the storage costs is higher than the present market price. The basic principles of this
approach areillustrated inFigure 12.5.
Period 1
Domestic market Export marketA Export marketB
Price
PA1
Period2
166
Modelling the economics of risky decision making in highly contagious disease control
167
Chapter12
Table 12.2 Simulated losses from a theoretical outbreak of foot-and-mouth disease in a non-
vaccinated population in the Netherlands (US$ m)
regionallivestockdensity(herds per km2)
low (2.1) medi urn (3.3) high(4.4)
Dissem. stamp. ring stamp. ring stamp. ring
rate(i) P(i) out vac. out vac. out vac.
dr-30% 0.05 248 360 282 379 318 390
dr-15% 0.20 279 370 341 392 451 416
default 0.50 326 377 495 416 736 448
dr+15% 0.20 444 394 769 447 1658 500
dr+30% 0.05 591 411 1622 493 3154 577
a
The default values were assumed torange (ie, todecline) from 3.8 in week 1to 0.7 in
week 6and further intheregionwith alowlivestock density,from 4.5tot0.8 incaseofa
medium density,and from 5.3to0.9 inahigh-density region.
Disease spread within each area wasbased ondefault values for the dissemination rate dr
(indicating theaveragenumberoffarms towhichthevirus isspreadbyone affected farm),
aswellasonvaluesthatweresetat 15%and30%aboveandbelowdefault. Probabilities for
these5classesofdissemination ratestooccurwereassumedtobesymmetric,ie,0.05,0.20,
0.50 (default class),0.20 and 0.05 respectively. The simulated outcomes for a theoretical
outbreak of foot-and-mouth diseaseintheNetherlands aresummarized inTable 12.2.
The choice based on the most likely outcome of the deterministic simulation model
(presented under 'default') would be to apply the stamping-out strategy in case of an
outbreak in the area with the low herd density, and ring vaccination in the others. This
choice, however, does nothold for all situations considering disease spread and may lead
to aconsiderable increase of losses in some of the cases.An above-normal dissemination
rate, for instance,would makering vaccination rather than stamping out tobe the strategy
that results in the lowest losses in the area with the lower herd density. A similar (but
opposite) change occurs intheother areas withbelow-average dissemination rates.Thisis
aclassical example, therefore, of decision making under risk and uncertainty. Combining
the simulated losses from Table 12.2 and the stochastic dominance rules, as described in
Chapter 10,provides theoutcomes presented inTable12.3.
The first-degree stochastic dominance rule (FSD) cannot rank the strategies in any of the
areas,becauseeachrespectivepairof cumulative distributions intersects (asshown inTable
12.2).The morepowerful second-degree stochastic dominance rule (SSD) does providea
preference fortheareaswithmediumandhighherddensities(ie,ringvaccination),butnotfor
thelowone.Incaseofarisk-averseattitude,therefore, stamping outnolongerrankshighest
in areas with alowherd density, as was the case with, among other things, the expected
monetary valuecriterion.Stochasticdominance withrespect toafunction (SDWRF) shows,
however,that atthelowerlevelsofrisk aversion the stamping-out strategy is still preferred.
Ringvaccination becomesthedominating strategy whenrisk aversion ishigh.
168
Modellingtheeconomicsof riskydecisionmaking inhighly contagious diseasecontrol
Table 12.3Stochastic dominance rules to rank the control strategies in caseof a theoretical
outbreak of foot-and-mouth disease in a non-vaccinated population in the
Netherlands
regional livestock density (herds per km 2 )
low (2.1) medium (3.3) high (4.4)
stamp. ring stamp. ring stamp. ring
Decision rules out vac. out vac. out vac.
FSD *a * * * * *
SSD * * * *
SDWRF,with risk aversion:
-low * * *
-considerable * * * *
-high * * *
a
Indicates the dominant strategy. With FSD the two strategies turn out to be equally
dominant in all three areas under consideration. The same occurs with SSD and one of
theSWDRF-alternativesinthe areawiththelowherd density.
References
Berentsen,P.B.M.,Dijkhuizen, A.A.& Oskam,A.J., 1990.Foot-and-mouth disease andexport.
WageningenEconomicStudiesnr. 20.Pudoc,Wageningen,89pp.
Howe,K.S.&Mclnerney,J.P.(eds),1987. Diseaseinlivestock:economicsandpolicy.EUR11285
EN,CommissionoftheEuropeanCommunities,Brussels,190pp.
169
Chapter 12
Oskam, A.J., 1988.Model building for thedairy sector ofthe European Community. PhD-Thesis,
University of Amsterdam, Amsterdam (in Dutch, English summary), 225pp.
170
13
Riskanalysis andthe international trade in animals and
their products
S.C. MacDiarmid
Ministry of Agriculture <S Fisheries, Wellington, New Zealand
Objectives
Fromthischapter thereader should gain knowledge of:
• risk analysis
• risk assessment
• risk management
• risk communication
The basic principles are illustrated with some examples, focusing on the importation of
animals and animalproducts.
13.1 Introduction
The incentives to develop astructured, objective, repeatable and transparent process of
risk analysis have followed important changes inthe social and political factors governing
worldtrade.Theconclusion oftheUruguay RoundoftheGeneralAgreementonTariffs and
Trade (GATT) has led to an international agreement to remove barriers to trade in
agricultural products, except in situations where such trade can be demonstrated to
jeopardizetheanimal,humanorplanthealthoftheimportingcountry.Thediscipline ofrisk
analysis is being developed togive decision makers the means to assess whether or not
particular trade proposals do,indeed,jeopardize the animal, human orplant health of the
importing country and todemonstrate tointerested parties thebasis on which approval to
import is granted or refused1.
While acknowledging theintuitive appeal of a 'zerorisk' policy toconservative sectors of
a nation's livestock industries,thepursuit of such a 'zerorisk' policy is counterproductive
globally and domestically (Kellar, 1993).There is only one 'zero risk' policy and that is
totalexclusion ofallimports.Evenatotalprohibition onimportation ofanimalsandanimal
products would not achieve 'zero risk' becausepeople still travel and, if legal avenues are
unavailable,people willfindwaystoimport illegally.
In an important introduction to the subject of risk analysis, Kellar (1993) counters the
In this chapter risk is approached from a veterinary perspective, while in the previous two chapters this
was done from an economic point of view (ie, decision making under risk). The two approaches differ in
their objectives, but can complement each other.
171
Chapter 13
unattainable 'zero risk' with the recently established GATTprinciples that quarantine
measures appliedinthenameofprotecting animalhealthshouldbebasedonsound science
and risk assessment methods and should notbe used asdisguised barriers totrade.He also
makes the point that risk analysis, like epidemiology, must deal with situations as they
ariseandtoleratethemathematical limitations oftheanimaldiseaseprevalenceestimatesor
other suchdata onwhich itisbased.
When analysing the risks associated with aproposed importation of animals or animal
products it mustbe remembered that suchimports cannot be madewithout some element
of risk. Thebenefits of the imports often accrue to arelatively small group of people only,
usually the entrepreneurs, initial importers and distributors of the new genetic material.
Therisks,ontheotherhand,arebornebyamuchbroadergroupwhichincludesalllivestock
ownerswhoseanimalscouldbeinfected withanexoticdisease,aswellasthegeneralpublic
who maybe expected tobear thecost of containing and eradicating an outbreak of exotic
disease.Forthesereasonsariskanalysismayincludeacost-benefit analysisoftheproposed
importation. However, importation may nevertheless bepermitted even in the absence of
anydemonstrable nationalbenefit. Forexample,theNewZealand MinistryofAgriculture's
policy is that every citizen has the right toimport unless the risk to agricultural security
precludesimportation.Suchapolicypresupposesthatthequarantine serviceischargedwith
makingjudgments about the risks,and therefore the costs which may be imposed on the
agricultural community,butdoesnotsitinjudgment onwhat arecommercial decisions.
13.2 Terminology
The terminology of risk analysis has notbeen standardized and this can lead to confusion.
Sofar, attemptstostandardizetermshavenotbeen successful. Recognizing this,thejournal
RiskAnalysisrequireseacharticletodefinekeytermsinthecontextofthat particulararticle.
TheAnimal andPlant Health Inspection Service (APHIS) oftheUnited States Department
of Agriculture has proposed astandardized nomenclature for animal health risk analysis
(Ahletal., 1993)and,withoneexception,thepresentdiscussion follows the nomenclature
proposed byAPHIS.
172
Risk analysis and the international trade in animals and their products
commodity underconsideration and then identify thepossible routes by which these could
come intocontact with susceptible animals inthe importing country.
Riskassessment istheprocessofestimating,asobjectively aspossible,theprobability that
an importation would result in the entry of an exotic disease agent and that local livestock
would be exposed to that agent. Risk assessment ought to examine the effect of the
introduction ofanexotic disease.However,veryfew studiesofthisnaturehavebeencarried
out anywhere.
Inriskstudiesitiscommontouse 'risk' synonymously withthelikelihood ofoccurrenceof
ahazardousevent.Insuchinstances,themagnitude oftheevent isassumed tobe significant
(Ahle/ ai, 1993).
Riskmanagementistheprocesstoidentify andimplement measureswhich canbeapplied
to reduce the risk to an acceptable level and document the final import decision. This
process isalsocalledrisk mitigation orhazard mitigation.
Risk communication is the process by which the results of risk assessment and risk
management are communicated to decision makers and the public. Adequate risk
communication is essential in explaining official policies to stakeholders, such as
established livestock industry groups,whooften perceive that they areexposed totherisks
but notthebenefits of importations. Risk communication must alsobe atwo-way process,
with stakeholders' concerns being heard byofficials and addressed adequately.
Having identified thepossible risksposed by aproposed importation, the next stage inrisk
analysis is an assessment of therisk entailed by an unrestricted importation of animals or
animal product underconsideration. Risk assessment takes into account the prevalence of
pathogens inthesource population, theprobability ofpathogens surviving inthe animal or
product during the process of importation, the probability of the pathogen coming into
contact with local livestock after importation and the seriousness of such contact.
There is a substantial body of information on the survival of pathogens in many animal
products and,theoretically,eachoftheotherfactors shouldbeamenabletobeing quantified
in a similar objective and scientific fashion. In reality, at the present time it is often not
possible to quantify them adequately. Much of the assessment ends up being based on
guesswork andisthuspotentially controversial and opentochallenge from either domestic
interest groups oroverseas trading partners.
Risk management, onthe otherhand, isusually able tobe quantified more objectively. For
instance,thereshouldbeverylittledebateoverthesensitivityofaparticular serologicaltest,
ortheefficacy ofaparticular embryowashing regimen for aspecific pathogen onembryos
of agiven species.
173
Chapter 13
p(l-s)
P(I I N)
p(l-s) +(l-p)e
where
P(I IN) =theprobability oftheeventofananimalbeinginfected giventhat
itistest-negative;
p =thetrueprevalence;
e =the specificity ofthetest;and
s =thetest sensitivity.
Table 13.1Probability that atest-negative animal isactually infected, given atest sensitivity of
0.95 and specificity of 1
Prevalence Probability (UN)
ƒ Ü=B)Ê \n
P(c>llN) = l - \ (l-p)e+p(l-s) ƒ
The effect of increasing the size of the group destined for import is illustrated in Table
13.2.
174
Riskanalysisandthe international trade inanimalsandtheir products
Table 13.2Probability that atest-negative infected animal will be included in agroup destined
for import (prevalence =0.01,sensitivity =0.95,specificity = 1,entire group tested)
If reactor animal If asingle reactor
only excluded disqualifies group
n P(c>1IN) P of notest positives
However, with some other diseases (often OIEList Adiseases), it may be decided that a
positive test result in any one animal will disqualify the entire group intended for
importation. In such cases theprobability of disqualifying an infected group increases as
prevalence and/orthe sizeof thegroup increases.Theprobability of agiven test failing to
detect at leastonetest-positive animal inaninfected group,thusidentifying thegroup as
infected, canbecalculated thus(MacDiarmid, 1987):
ß=[l-ts/n]P n
13.5 Examples
175
Chapter 13
The annual probability (T) of anthrax introduction viathe medium of unprocessed hidesis
related to the probability (p) that a hide contains anthrax spores and to the number of
occasions(n)thatsusceptible animalsareexposed tocontactwiththose spores.Thenumber
ofoccasionsthatcontactwithsporescausesinfection follows abinomial distribution, sothat
thechanceof introduction of infection is:
T=l-(l-p)n
But when T is small, (eg, less than 0.001) the expression above approximates to the
following:
T =pn
which simplifies the interpretation of the estimate of T and is the basis of the present
estimates.
Toassess theprobability of anthrax spores being present, the following assumption is also
made:
p=ise
where
i =theprobability thatanAustralian animalwasinfected withanthraxatthetime
of slaughter. (The average number of officially confirmed cases of anthrax
during the period 1970-1981 was 19 per year [range 9-42] and, without
reference to the continuing decline in case numbers over many years, the
maximum expected incidence was calculated at 40 cases per year. Total
slaughterings of sheep and cattle in Australia in 1989/90 were about 40.23
million,afigurestablesince 1980/81[range37.2-42.3million]. Thevalueof
iwastherefore estimated at40/40.23million=0.000000994 or9.94x 10"7.)
s =theproportion of spore infectivity surviving pre-export handling. (Since the
spores of the anthrax bacillus are extremely resistant to adverse
environmental conditions survival rates are considered to be very high,s
wasestimated at90%(range 75%-95%);s=0.9.)
e=the proportion of green Australian hides among all rawstock processed in
New Zealand. (Approximately 38.4million sheep and 3.1 million cattle are
slaughtered in New Zealand annually, an estimated 31% of New Zealand
produced hides and skins are processed in the country, amounting to 13.5
million pieces annually.Theestimated annual import volume from Australia
for green skins is 0.92 million [range 0.90 - 1.40 million]. Thus e was
estimated at0.92m / 13.5m= 0.068.)
176
Riskanalysis andthe international trade inanimals andtheir products
n=gtvf
where
g=the number of Approved Tanneries inNew Zealand, (g =23; Ministry of
Agriculture andFisheries records.)
t=theproportion of Approved Tanneriesoperating with arisk of contaminating
pastureland bywastewaterduringflood periods.(Nosatisfactory information
was available at the time the assessment was made. Waste drainage is
controlled by local authorities under the appropriate legislation. Estimated
proportion presenting riskwas 10-20%sotwasassumed = 0.2.)
v=the average number of days per year on which flooding occurs on pasture
downstream of tanneries. (Estimated range was 20-30 days per annum, so
v=25.)
f=the probability of processing contaminated material during flood periods.
(Calculated as average number of days offloodingdivided by days worked,
around 25/235.Therefore f=0.11.)
The calculations therefore indicate that the probability of introducing anthrax in any one
yearis:
The risk is likely to be even lower when one considers that the probability of livestock
encountering theanthrax organism onanycontaminated pastureislessthan 1 and thatante-
andpost-mortem inspection atAustralian abattoirs ishighly effective inpreventing anthrax
casesbeingprocessed for theirhides.
A risk assessment method must include some estimation of the degree and source of
uncertainty associated with predicting thelikelihood of introducing an animal disease as
otherwise decision makers tend to focus on one singlepossible outcome, possibly at their
peril.The weakness of adeterministic model such asthe onejust described is that it does
not give thedecision maker anyestimateoftheuncertainty of theriskestimate.As mostof
thevariablesareonlyestimatesofwhatismostlikely,the 'real'riskestimatewillbeshrouded
in uncertainty. A Monte Carlo or Latin hypercube simulation model, using a personal
computer software program such as @RISK (see also Chapter 18), allows each of the
variablestoberepresented asarangeofvaluesandthen,byaseriesofiterativecalculations,
177
Chapter 13
178
Riskanalysisandthe international trade inanimalsandtheir products
Maximumprevalencetoescapedetection,p=logß/Nlog(l-ts/N) 0.0043
Number ofdonors,n 50
Averagenumber ofoffspring/donor,m 4
Probability of transmitting diseasebyET 0.01
Sensitivity of test onprogeny 0.9
179
Chapter 13
However, with abetter understanding of the epidemiology of rabies and the efficacy of
vaccination, are-examination of importpolicies wasconducted in 1994.Aspart of that an
assessment was made of the risk of releasing arabid dog from quarantine under each ofa
numberofimportpoliciesbased onquarantineperiodsofdifferent duration,withorwithout
verified vaccination status.
The PCprogram ©RISK was used toconstruct aLatin hypercube risk assessment model.
Theunrestricted risk (R)of selecting arabies-infected animal,without any safeguard being
inplace,wasestimated as:
R = (ixd)/365
where
i = incidence;and
d = incubationperiod indays.
Table 13.4Cases of rabies per year, reported and projected incidence, and the probability
that a randomly selected animal will be infected with rabies
Country or city/total Reported Most likely Maximum Riskof selecting
number of dogs cases number ofcases number ofcases aninfected animal
(minimum) (reportedx 1.5) (reported x5.0) per million"
USA
(54.6m dogs) 91a 137 455 1.6
Canada
(5m dogs) 100 150 500 20
France
(9.8m dogs) 38 57 190 3.8
Germany
(5m dogs) 192 288 960 38
Philippines
(6m dogs) 525 788 2625 86
Lima
(0.42m dogs) 3b 1260c 4200 1700
a
These are therabies cases in pet dogs, ie, 84%of the reported canine rabies cases
b
The number of cases fell to this following a vaccination program
c
The number of cases the year before the vaccination program
Mean risk of selecting an infected animal ismean incidence xmean incubation in days/days in the year
180
Riskanalysis andthe international trade inanimalsandtheir products
Asitisprobablethatthereportednumberofcasesreportedunderestimatestherealincidence
of the disease, an attempt was made to address this by creating arange of incidences. For
example, the number of cases of rabies in dogs in the United States in 1988 was 91.
In therisk assessment we considered that the 'most likely' number of cases was actually
50% higher than this (137) and had the occurrence of rabies in dogs been grossly
underreported, we considered that the actual number could havebeen five times greater
(455).Thesevalueswereusedtodescribe atriangulardistribution usedinthemodel.Table
13.4 shows the mean unrestricted risk of selecting an infected dog. In practice, the
simulation model estimated adistribution ofvalues for thisrisk.
Once the magnitude of the unrestricted risk of introducing arabies-infected dog has been
estimated, the effects of vaccination and quarantine were assessed, again using arange of
values (Table 13.5) in a simulation model. The effect of each safeguard is the product of
theunrestricted risk andtheestimate of failure of the safeguard.
Table 13.5Probability that safeguards will fail to prevent the introduction of rabies
Minimum Most likely Maximum
estimate estimate estimate
of risk of risk of risk
Safeguard - vaccination.
Probability that vaccination will
not protect the dog. 0.01 0.06 0.20
Safeguard -quarantine.
Probability that 1 monthof
quarantine will not detecta
dog incubating rabies. 0.47 0.50 0.55
181
Chapter 13
On the basis of the results of the simulation model it wasconcluded that vaccinated dogs
imported without prolonged quarantine pose no greater risk of introducing rabies than
dogsenteringthrough a6-month quarantine.
Table 13.6Estimated risks of introducing from the United States a dog incubating rabies,
expressedasthe number of dogs per 1 million. Ninety-five percent of the iterations
of the @RISKsimulation model produced estimates equal to or lessthan the value
shown.
Safeguards Risk
182
Risk analysis and the international trade in animals and their products
183
Chapter 13
single reactor results inareduced risk with larger shipments, an importer couldprotect his
or her investment by splitting alarge importation into several smaller ones. While this
would reducethe importer'sfinancialrisk itwould increase theimporting country's riskof
exposuretoexotic disease.
The discipline of quantitative risk analysis, as it applies to theimportation of animals and
animal products, is still in its infancy and maybe regarded with grave suspicion by some
stakeholders. For example, one editorial referred torisk analysis asa fad "...related more
closelytodeveloping abureaucratic excusethatfew outsiderscanfathom thantointelligent
decision-making" (Anderson, 1994).Suchconcernscanonlybe allayedbypractitioners of
the discipline striving to harmonize approaches to risk analysis and to standardize
terminology.
While this discussion has concentrated on quantitative risk analysis, non-quantitative
methods should not be forgotten. Until recently quarantine authorities tended to base
decisionsalmostsolelyonnon-quantitative riskanalyses,andthesestillhaveavaluablerole
to play in the routine administration of imports, especially of animal products. Non-
quantitative risk analyses canbe objective, repeatable and transparent and alwaystake less
time, and thus arelessexpensive,than quantitative analyses.Nevertheless, with increasing
frequency quarantine authorities arehaving todeal with import proposals which require a
quantitative approach.While it hasbeen possible inthepast for regulators toavoid riskby
refusing access, in the post-GATT environment this option is less acceptable and so
quarantine authorities aroundtheworldarebeginningtoadoptthedisciplineofquantitative
risk analysis.
Acknowledgements
EquationsusedinTable 13.3tocalculatetheprobability oftherebeingoneormore infected
animals in a clinically normal group were provided by Mr Rob Cannon, Bureau of
Resources Science,Canberra,Australia andMrVictorBealJnr,USDA-APHIS,Hyattsville,
Maryland. Dr Kevin Corrin of the New Zealand Ministry of Agriculture and Fisheries
carried outtherabiesrisk analysis described inthischapter.
References
Acree,J.A.&Ahl,A.S.(eds), 1991.Proceedings oftheinternational seminaronanimal import
riskanalysis.August 11, 1991,CarltonUniversity,Ottawa,Canada.UnitedStatesDepartmentof
Agriculture,Animal& PlantHealthInspectionService,Hyattsville,Maryland,64 pp.
Ahl, A.S.,Acree, J.A., Gipson, P.S.,McDowell, R.M., Miller, L. &McElvaine, M.D., 1993.
Standardizationofnomenclatureforanimalhealthriskanalysis.RevueScientifiqueetTechniquede
l'Office International desEpizooties 12: 1045-1053.
184
Riskanalysisandthe international trade inanimals andtheir products
Kellar, J.A., 1993.The application of risk analysis to international trade in animals and animal
products.Revue Scientifique etTechnique del'Office International desEpizooties 12: 1023-1044.
MacDiarmid, S.C., 1987.Atheoretical basisfor theuse of askin test for brucellosis surveillance in
extensively-managed cattle herds. Revue Scientifique et Technique de l'Office International des
Epizooties 6: 1029-1035.
MacDiarmid, S.C., 1991.The importation into New Zealand of meat and meat products. A review
of the risks to animal health. NASS Publication 91-2. Ministry of Agriculture and Fisheries,
Wellington: 168-170.
MacDiarmid, S.C., 1994.The risk of introducing exotic diseases of fish intoNew Zealand through
the importation ofocean-caughtPacific salmonfrom Canada.Ministry ofAgriculture andFisheries,
Wellington, 161pp.
Morley, R.S. (coordinator), 1993.Risk analysis, animal health and trade. Revue Scientifique et
Techniquedel'Office International desEpizooties 12. Office International desEpizooties,Paris,434
pp.
185
14
Examples of integrated information systems for decision
making at farm and national level
Objectives
Fromthischapter thereader should gain knowledge of:
• thestate-of-the-art withrespectto computerized decision support systemsin animal health
management
Variousexamples aredescribed andillustrated atboth farm and national level.
14.1 Introduction
Computers are valuable tools for epidemiological investigation and for management of
animal health services atboth farm and national level.The nature of information systems
is continuing to evolve rapidly as the mobility and capacity of the computer hardware
becomes greater and greater, and asnew forms of software become readily accessible.
Earlier concepts of the objectives of information management were embodied in names
such as 'databank' and 'registry'. The analysis of datawas handled quite separately from
entry and storage,frequently notevenonthe samecomputer.
Sincethentheconceptual framework for information managementhasmatured (Thrusfield,
1983; 1986),and the capability to handle more powerful and especially more integrated
information management systems has grown and changed in the light of experience.
Currently, information management efforts aredirected towards 'decision support'. The
twokeyconceptsinthisapproacharethatthefocus isonthedecisionmakers(atbothpolicy
and implementation levels) rather than on the system itself, and that asfar aspossible the
components of the decision support system are seamlessly integrated so that a single
interface isusedtoaccess allfeatures ofthe system without regard towhichcomponent of
thesystem isactually providing theanswers.
In this chapter this trend is illustrated with examples from national disease control and
from health management systems atfarm level.EpiMAN is adecision support system for
control of major diseases which require national control or eradication procedures.
The first implementation of the approach hasbeen for exotic diseasecontrol.The system
incorporates acoredatabasewithlinkstoageographic information system(GIS),sothatall
187
Chapter 14
information about livestock herds and disease occurrence can be linked directly back to
the farm location. Expert systems process incoming data immediately and guide outbreak
managers on priorities for allocating personnel. Other components of theexpert system
answer technical questions on demand. Simulation models incorporated into the system
predict both the short-term consequences of individual outbreaks as sources of infection,
and the longer-term merits of alternative control policies which might be under
consideration. An 'epidemiologist's workbench' gives the epidemiologist access to both
standardmenu-selected reportsondemandandthecapacitytoformulate advanced analyses
using built-in software. The system is totally mobile, and can be set up anywhere in the
country. The approach embodied inEpiMAN is progressively being extended to endemic
disease control programs, other exotic diseases and quality assurance procedures such as
chemicalresiduecontrol.ThenatureofEpiMANmakesitideally suited foruseasatraining
tool, aswell asan operational tool.
A similar approach is being adopted at farm level. PigCHAMP was developed at the
University of Minnesota as a records analysis program for pig herds, and is now being
expanded to incorporate farm financial data, abattoir information, expert systems and
simulation models. Modules originating at different research centres can be incorporated
into the total system, and the user can choose which components to pay for and use,
accordingtoneed.DairyMAN isanequivalent systemfor dairyherdsdeveloped atMassey
University, which isbeing enhanced with awhole farm simulation model and with expert
systems.Itisalsointegrated with thenational dairyherdimprovement system.
These examples areusedtoillustrate thenatureandvalue of decision support systems.
188
Examples of integrated information systems for decision making at farm and national level
typically decision makers have tocope with large volumes of diverse and often imperfect
data,inadequatetimeandresourcesareavailabletodevotetocomplexproblemsolving, and
the outcomes of decisions can have far-reaching consequences. Berke & Stubbs (1989)
present athoroughargumentinfavour ofDSSforhurricanemitigationplanning. Successful
control anderadication of aFoot-and-Mouth Disease (FMD)epidemic iscontingent onthe
rapid identification and elimination of all virus sources.This involves an understanding of
the dynamics of the disease, combined with adequate procedures that identify, record and
deal with all events that may contribute to further spread of the disease. The EpiMAN
project was initiated to develop a DSS to be used by the Ministry of Agriculture and
Fisheries (MAF) should anFMDoutbreak everoccur inNew Zealand.
189
Chapter 14
/^/'::L 2J^*
management system. ^ ^ "
EPIDEMIOLOGICAL
Associated with this are the PARAMETERS
expertsystemsoperateonthese EPIDEMIOLOGISTS
WORKBENCH
spatial and textual datasets,
using a set of epidemiological STATUS MAPS V
STATISTICAL REPORTS
parameters which describe DECISION SUPPORT
190
Examplesof integrated information systemsfor decision making atfarm and national level
(at nocost). This information can then be fed into the database where it is immediately
linkedtoitsmaplocation,removingtheneedforlocatingfarms onpapermapstoentertheir
geographical locations.
191
Chapter 14
Themeteorologicalmodelisthenrun,usingstandardmethodstoproducevirusconcentrations
in each of a large square of geographical blocks or cells surrounding the source. The
concentration ofFMDvirusforeachcellisaccumulated foreachday,asitisassumed thatif
thereisinsufficient virustoinfect ananimalovera24-hourperiod,theviruswillbeinactivated.
ThegridconcentrationsarethenprocessedbytheGIStoidentify propertiesat risk.
192
Examplesof integrated information systemsfor decision making atfarm and national level
193
Chapter 14
194
Examples of integrated information systems for decision making at farm and national level
The completed system will be able to conduct management procedures and analyses
comparabletothosedescribed forFMD,buttargetedtothelonger-term needsofanendemic
diseasecontrolprogram.Work onthevariousconstituent parts of the system isunderway.
Becausethecontroleffort forTBtakesplacethroughlocalareadiseasecontrol managers,it
isenvisaged that thecomponents of the systemrequired for localcontrol program manage
mentwillbemadeavailableatdistrictoffices, includingthereduced form ofArc/Info called
ArcView,whichenablessimplerGISprocedurestobecarriedoutpurelybymenu selection,
on aPC.
Because of its large international trade in animal products, New Zealand places great
importanceonitsinternational standingas 'cleanandgreen',andhenceonthemaintenance
of quality assurance procedures for products leaving the country. Another capability of
EpiMAN is to manage data concerning such quality assurance procedures as chemical
residue testing and meat inspection findings, linking this back to the farm and area of
origin so that sound claims can be made about the status of product going to various
markets.Development ofthis aspectofthe systemisenvisaged for thenear future.
Because many of the data are common to these various systems and removable disk
cartridges are being used for system-specific data, the same equipment and purchased
software canbe applied to widely different problems over the same period, ensuring that
users are familiar with it in various applications. It will also make it possible to have the
systempermanently ready tohandle anexotic disease emergency immediately, should one
arise.
195
Chapter 14
the world. Initially it dealt only with thebreeding herd,but it has since expanded tocover
the growing herd. Moreover, an overallfinancialanalysis of theherd wasincluded, andan
interface to afarm accounting package so that accounting data can be shared between the
programs.Acomprehensive databaseevaluationmodulewithinPigCHAMPallowstheuser
to gobeyond predefined reports toproduce avariety of types of graphical and text reports
on over200variables,withuser-selected inclusion andexclusion criteria.Inthis waygreat
flexibility toproduce epidemiologically valid reports can be achieved without sacrificing
simplicity ofaccess.
There is also adirect interface through aPigCHAMP menu item to asimulation model of
the pig breeding enterprise, PigORACLE. This allows current herd productivity data and
herdcompositiontobeusedtocreateaforward prediction forthenextsixyearsofphysical
and financial performance of the herd, and then to vary the price and performance
assumptions and evaluate the sensitivity of performance to these changes. Equivalent
modelsforthegrowingherdhavebecomeavailableinrecentyears(Black&Barron, 1988),
and there are plans to link one or more of these growth models to PigCHAMP to allow
evaluations of feed formulation and management tobe conducted within the overall herd
information system. These models of growth are technically very complex, and make
available totheuser asynthesis of experimental data andfieldexperience inthe form ofa
predictive modelfor thegrowing pig.
Expert systems are alsobeing added tothe total system atpresent. CHESS (Computerized
Herd Evaluation Systemfor Sows) assesses theperformance of asinglebreeding herd in
relation toitsown previous performance and inrelation toperformance of apeer groupof
herds over asingle time period and over a series of time periods. Itreports back likely
sources of suboptimal performance, which can then be investigated further (Huirne etal.,
1992).Itisbeing interfaced directly toPigCHAMP, sothat CHESS evaluations can berun
as aPigCHAMP menu selection, using peer group data for achosen 'comparison group'
of herds. PigCHAMP is able to do comparative analyses on upto 200 herds,which will
generate the peer groupdata for such analyses.If reproductive performance in the herd is
found tobesuboptimal,thenasecondexpert systemPigFIX (FertilityInvestigation eXpert)
is being developed (Wongnarkpet etal., 1993) toautomatically run and analyse various
reproductivereportsavailablewithinPigCHAMP.Itwillthenguidetheusertoissueswhich
deserve priority in herd investigations. A third system, TACT (TActics and ConTrol)
simulates herd production, reproduction and replacement policy, and recommends an
overall policy for the herd dependent on its performance, and will assess what action is
economically optimal for individual culling decisions (Jalvingh, 1993).
The system is also being extended to incorporate other data. For example, both carcass
data and slaughter inspection data can now be returned to farm files electronically, and
used inacomparative evaluation of occurrence of lesionsin theparticular herd versus its
peers. Othercomplementary modules ofasimilarnature areplanned for the future.
Electronic identification by transponder is gradually emerging as apractical technology
for animal recognition, and is likely tobecome widely used over thenext decade. Already
in use andlikely tobecome more widely accepted isthe use of electronic identification in
196
Examplesof integrated information systemsfor decisionmaking atfarm and national level
combination withhand-helddataloggers/computers,insomecaseswithFMradioexchange
of datawith thecomputer which isstoringtheprimary records,andwhich islocated inthe
farm office. Inthiswayseamlessintegration canoccurthroughout theprocess from animal
recognition toreportproduction and evaluation.
197
Chapter 14
national disease control programs and herd management systems. In many ways these
represent the embodiment of the current state of epidemiological thinking in the form of
integrated processing and analysis systems which use the techniques of epidemiology and
economics within practical management systems. In this way current epidemiological and
economic thinking becomes accessible to decision makers without the need for them to have
direct involvement in determining how the data are analysed and presented to them.
References
Berke, P. & Stubbs, N., 1989. Automated decision support systems for hurricane mitigation
planning. Simulation 53: 101-109.
Black, J.L. &Barron, A., 1988.Application of the AUSPIG package for the management of pigs.
Proceedings Australian FarmManagement Society 15: 5-1 to 5-10.
Fourdraine, R.H., Tomaszewski, M.A. &Cannon, T.J., 1992.Dairy herd lactation expert system, a
program to analyze and evaluate lactation curves. In Prospects for Automatic Milking: 331-337,
Pudoc Publishers, Wageningen.
Houben, E.H.P., 1995. Economic optimization of decisions with respect to dairy cow health
management.PhD-Thesis,Department ofFarmManagement,Wageningen Agricultural University,
Wageningen, 146pp.
Jalvingh, A.W., 1993.Dynamic livestock modelling for on-farm decision support. PhD-Thesis,
Department of FarmManagement and Department of Animal Breeding, Wageningen Agricultural
University,Wageningen, 164pp.
Marsh, W.E., 1986. Economic decision making on health and management in livestock herds:
examining complex problems through computer simulation. PhD-Thesis, University of Minnesota,
304pp.
198
Examples of integrated information systems for decision making at farm and national level
McKay, B.,McCallum, S. &Morris, R.S., 1988.An expert system for diagnosing reproductive
problems in seasonal dairy herds.Proceedings of theFifth International Symposium on Veterinary
Epidemiology and Economics,Copenhagen: 480-482.
Morris, R.S., 1991.Information systems for animal health: objectives and components. Revue
Scientifique etTechnique del'Office International des Epizooties 10: 13-23.
Nielen, M., 1994. Detection of bovine mastitis based on milking parlour data. PhD-thesis,
Department of Herd Health and Reproduction, Utrecht University, Utrecht, 165pp.
Pfeiffer, D.U. &Morris, R.S., 1991.Alongitudinal study of bovine tuberculosis in possums and
cattle. Proceedings of Symposium on Tuberculosis, Palmerston North: 17-39. Foundation for
Continuing Education of theNew Zealand Veterinary Association.
Sprague, R.H. &Carlson, E.D., 1982.Building effective decision support systems. Prentice-Hall,
Inc.,Englewood Cliffs, NewJersey, 329pp.
Thrusfield, M.V., 1983.Application of computer technology to the collection, analysis and use of
veterinary data. Veterinary Record 112:538-543.
Wongnarkpet, S., Morris, R.S.&Stern, M., 1993.PigFIX: A software package for analysing pig
reproductive records.Massey University,Palmerston North.
199
15
Profitability of herd health control and management
information systems under field conditions
Objectives
Fromthischapter thereader should gainknowledge of:
• basicrequirementsforaneconomicanalysisoffielddataonanimalhealthand management
support
• theprofitability of herd healthcontrol programs
• theprofitability of management information systems
15.1 Introduction
As also indicated in Chapter 2,veterinary services to individual farms are increasingly
changing from the so-called first-aid practice or fire-brigade approach into planned
prevention and control programs.For asound economic analysis of such programs, data
from both the 'with' and 'without' situations shouldbe available (Dijkhuizen, 1992).This
may be realized in two ways: data from 'before' (b) and 'after' (a) application of the
program, collected on farms participating in the program (P), as well as on comparable
control farms (C).Whenavailable,these datamakeitpossibletoestimatethecausal effects
oftheprogram moreprecisely,ie,(Pa-Pt,)-(Ca-Cjj),especially whenparticular herdswith
obvioushealth andmanagementproblemstakepartintheprogram.Collection ofdatainthe
'without' situation should be doneconcisely, however. Otherwise an interference with the
program may occur,leading toanunderestimation oftheprogram effects.
Inthischaptertwofieldtrialsintheareaofanimalhealthandmanagement supportthatwere
designed and analysed alongthese lines arepresented and discussed. Thefirstapplication
includes a2-year herd health and management program in dairy cattle, carried out on 30
program and 31 control farms (Soletai, 1984).The second one focuses on the so-called
management information systems (MIS) on pig farms, designed to support the farmer's
management by providing information ontheperformances of single animals and theherd
as awhole (Verstegen etal., 1995).
201
Chapter 15
Table 15.1Comparison of program and control farms before and during the experiment
Situation 'before' Changes during | program
(1974/75) (1976/77 -197 '4/75)
30P 31C P-C 30P 31C P-C
Labour equivalents 1.7 1.6 0.1 -0.1 0.0 -0.1
Grassland area (ha) 31.1 24.7 6.4* 0.3 2.3 -2.0
Dairy cows (no) 69.3 60.9 8.4* 4.7 6.6 -1.9
Fertilizer (kg N/ha) 300 351 -51 42 -24 66*
202
Profitability of herdhealth control andmanagement information systemsunder field conditions
Table 15.2Margin over feed cost per cow per year (US$)on the program (P)and control (Q
farms
Initial groups New groups
30P 31C P-C 15P 20C P-C
1974/75 1170 1193 -23 1156 1191 -35
1976/77 - • 1974/75 256 158 98* 232 167 65
1976/77 1426 1351 75 1388 1358 30
1980/81- • 1976/77 235 414 -179*
1980/81 1623 1772 -149*
1985/86 - 1980/81 599 575 24
1985/86 2222 2347 -125
*p<0.05
During the years of program application (1975/76 to 1976/77) margin over feed cost per
cow in the initial groups increased significantly more (US$98) onthe program farms than
onthecontrolfarms,asalsoindicatedbefore inTable 15.1.Inthenewgroupstheshort-term
program effect wassmaller (US$65),and not statistically significant, but showed the same
203
Chapter 15
tendency. In the first few years after the program had finished (1976/77 to 1980/81),
margin over feed cost percow increased significantly more (US$179) onthecontrol farms
than ontheprogram farms, asaresult ofbothhigher milkproduction andlower feed costs.
In the period 1980/81to 1985/86 the increase in income for both groups was almost the
same, ie, between US$575 and US$600 per cow. So, the initial increase in income soon
had disappeared after the program had been finished. Such an outcome is not totally
unexpected, but - at least beforehand - opinions often differ on this issue. Farmers'
decisions, however, have tobe taken under continuously-changing price and production
conditions.Insuchdynamiccircumstances,therefore, itseemstobeprofitable toapplyherd
health and management programson farms onamorethan temporary basis.
204
Profitability of herd health control and management information systems under field conditions
Y
ijkl =YEARj + FARMj + FYAk + MISj+ FARMxMISjj+ eyy
(p<0.001) (p<0.001) (p=0.09) (p=0.08) (p<0.001)
where
Y =
pigletsper sowperyear;
YEARj =
yeareffect (i=1982, 1983...., 1990, 1991);
FARM; =
structural farm differences (j = 1...71);
FYA^ =
first yearadjustment (twolevels:k= 1 inthefirstyearthatan
MISismentioned; otherwise k=0);
MISj = MISeffect (1=0:noMISuse; 1=1:MISuse);
FARMxMIS;]= interaction between farm effect and MISeffect; and
ejjy = mutually independent error terms:N(0,a^).
205
Chapter 15
among farms. Anin-depth analysis onthe differences among farms was conducted, using
the sociological classification methods that were included in the survey study in 1992.
Farmers were divided into categories based on their management quality and styles of
farming. 'Styles of farming' is aself-classification method. In anearlier study, four short
descriptionsoffarming styleswereconstructedbasedon 'open-attitude interviews' withpig
farmers (Appendix 15.1).Inthe survey study, the farmers hadtoselect thedescription that
fitted inbest withtheir opinion on 'how apig farm shouldbe managed'. The management
quality classification depends on aseries of questions on farmers' training and education,
modernity of farm facilities, farm policy, tactical and operational planning and social
aspects.The survey farmers completed the questionnaire and farm management experts
rated theanswers.
Analysispercategorydemonstratedthatgreatdifferences inMISeffect existbetween styles
of farming. Moreover, the two most extreme categories of management scores are
significantly different, suggesting apositive relationship between MIS profitability and
farmers' management quality (Table 15.3).
206
Profitability of herdhealth control andmanagement information systemsunder field conditions
thisrespect (such astheMIS application inthischapter) isthat they cannot prove causality
ofrelationships found. Uncontrolledeffects mayhaveinterfered withtherelationship found.
Field experiments (such asthe herdhealth application) have greatercontrol on intervening
variables but are not frequently applied duetopractical limitations.Requirements arethat
none of the farmers already uses the program under consideration, that every farmer
participatesvoluntarily,andthatnocontamination (information exchange)between thetrue
control and program group takes place.It isnot easyto get people participate voluntarily,
especially not when they are assigned to the control group. Moreover, conducting
experiments in the field istime-consuming and expensive. Experimental economics isa
means tobenefit from the strengths of field experiments and to overcome some of their
practical limitations (Davis&Holt, 1993).Inthisapproachpeople solvedecision problems
inalaboratory environmentthatareabstractrepresentationsofthenaturaldecisionproblem
under consideration. Thebasic assumption of experimental economics is that theresults,
obtained in alaboratory environment, represent the more complex natural environment.
Experimental economicinstitutionsneedtohavesometypicalcharacteristicstoachievethis
(Smith, 1982).The key elements of thenatural decision-making environment (eg,typeof
decision problems,information supply) havetobeincorporated intotheabstract laboratory
institution. Another typical characteristic of experimental economic institutions isthat the
participants receive monetary incentives; they get paid in cash according to the
effectiveness of their decisions. Experimental economics is considered a promising
approach to gain further insight intothe profitability of animal health and management
support ingeneral, andthedifferences ineffects among farms in particular.
References
Davis,D.D.& Holt,C.A., 1993.Experimental economics.Princeton UniversityPress,Princeton,
NewJersey,572 pp.
Sol,J., Renkema, J.A.,Stelwagen, J., Dijkhuizen, A.A.& Brand, A., 1984.Athree-year herd
healthandmanagementprogramonthirtyDutchdairyherds.TheVeterinaryQuarterly6:141-169.
207
Chapter 15
Portrait 1- entrepreneur
I consider myself an entrepreneur. My aim is to follow new developments as well as
possible. Imake sure that Iamready for the future. My farm is well structured. Ihave a
good idea of what is going on on my farm because Ihave a strong work plan and many
production figures thatshowmehowIamdoingmyjob.Iconsideritachallengetohavethe
best production results. Ifind stories of other pig farmers (in farm magazines or at peer
meetings)usuallynotveryinteresting.Farmmagazinesandfarm advisershave animportant
task inkeeping meinformed. However, Idraw theconclusions myself.
Portrait 2- manager
Theeconomy goeson and,therefore, apig farm hastoexpand tokeepinpace.However,it
isnot my aimthatthe farm growsbutreachesahighadded valueperanimal.Idonotenvy
farmers havingthose giganticfacilities; theyhavetoworkhardtokeeptheirbank satisfied.
I prefer having some leisure time todo something other than pig farming. To get ahigh
addedvalueperanimal,contactswithotherpigfarmers (eg,peermeetings) arevery useful.
Farm advisers must beabletothink along themany aspects ofpig farming, and should not
betoo specialized.
Portrait 4 - withdrawer
Iam abit older and probably donothave an heir.Iregularly make some new investments
onmy farm, but Iwill notexpandmyfarm any more (even if Iwere allowed todoso).My
investments are intended to make farming easier. I do not invest in entirely new
developments such as a management information system. The farm advisers and the
veterinarian give good advice which Iusually implement. Governmental regulations give
me an awful lotof paperwork. Itisatoughjob tokeeppace with all of thesethings.
208
16
Disease control programs in developing countries:
prospects and constraints
B.D. Perry
International Livestock Research Institute (ILRI), Nairobi, Kenya
Objectives
Fromthischapter thereader shouldgainknowledge of:
• the major prospects and constraints ofproviding disease control programs in developing
countries
The examples and experience summarized inthis chapter refer tovarious types of disease
andregions.
16.1 introduction
What is so particular about the practice of disease control in developing countries?
Developing countries have received several labels over the past few years, including
'underdeveloped', 'less developed', 'third world' and 'non-industrialized'. What
characterizes them? TheWorld Bank andothers have developed systems of ranking such
countriesonthebasisofeconomiccriteria.Threeorfourmajor criteriaseemtobeimportant
in such rankings. These are (1) a 'low' gross national product per capita, (2) a 'high'
proportion of peasant and subsistence farmers, with accompanying 'low' levels of
education, and (3) a 'poor' infrastructural and communications network. Clearly, the
qualitativenatureof 'high', 'low' and 'poor' meansthatthereisawidevariation inthestage
of development within the developing world; too simplistically, distinctions are routinely
made on a purely geographical basis, between East Asia, Latin America and Africa.
However, this wide variation in the degree of development applies also within each of
these three geographical areas.Thus,although this chapter will be restricted for the most
part toconsidering Africa, they will alsohave relevancetoother parts of the developing
world.
How dothecharacteristics of developing countries relate todifferences in animal disease
control? This is best considered by examining the principles of disease control, and
exploring how the attributes ofdeveloping countries affect them.Effective disease control
has four major requirements:
• problem identification and characterization;
• availability ofeffective diseasecontrol technologies (vaccines,drugs,etc.);
• methods todeliver thetechnologies andtheknowledge astotheireffective use;and
• successful adoption anduseofcontrol measuresby farmers.
209
Chapter 16
Clearly, all of these features are constrained in developing countries toagreater or lesser
degree. Historically, the first three of them have generally been centralized under
government control, while the fourth hasbeen largely ignored; people have been expected
to do what they are told. However, the dramatic reductions in funding to government
veterinary services inmanyregions of theworld, accompanied bycallsfor newthoughton
the delivery of veterinary services (Anteneh, 1983, 1985;De Haan &Nissen, 1985;De
Haan &Bekure, 1991;Schillhorn vanVeen&DeHaan, 1994)areleading ustoreconsider
how effective disease control can still be achieved under the constraints experienced in
many developing countries. In this chapter prospects and constraints are considered for
improved disease control programs under the four features of disease control provided
above.
210
Disease control programs in developing countries: prospects and constraints
211
Chapter 16
the farmers toreduce the effect of poor animal health on livestock productivity. It is the
first two of these that willbe considered in this section (the third will be addressed in the
nextone).
Theworldstilldoesnothaveeffective meanstoprevent someoftheinfectious diseasesthat
are widely prevalent in the developing world. These diseases include trypanosomiasis,
theileriosis,cowdriosis,babesiosis,anaplasmosis anddermatophilosis among manyothers.
For all of these, drugs totreat infections exist and are widely available, but given their
high cost and the constraints to their timely delivery in the early stages of infection in
order tobe effective, they arenot asustainable option for many production systems in the
developing world. Disease prevention is thus a more sustainable approach, and this
generally meansvaccines (aswell astheexploitation of genetic resistance todiseases).For
some of the infections mentioned, vaccines are available,but thelability of many of them
(such as the blood-based and tick stabilate 'vaccines' which require strict refrigeration)
renders them difficult todeliver inmanyproduction systems of thedeveloping world, and
inappropriate inothers.Thus muchbasic strategic research remains tobe doneto develop
effective and safe vaccines for these infections which are appropriate for use in the
developing world. Within the Consultative Group on International Agricultural Research
(CGIAR) this has been the role of the International Laboratory for Research on Animal
Diseases (ILRAD), inconjunction with other animal health institutes and universities in
thedeveloped anddeveloping world.
Itmustbepointed outthatsomeverysafeandeffective vaccinesalreadydeveloped havenot
had the impact that they were intended to have, and although the cause of the failure
generally lieswiththedistribution anddelivery mechanisms,thiscanbe addressed in some
cases by research into enhancing thequalities of thevaccines themselves. Oneexample is
the rinderpest tissue culture vaccine, shown tobe highly effective, but requiring a fairly
strictcoldchaintomaintainitsefficacy. Efforts torenderthevaccinelessthermolabile while
maintaining efficacy havehadaconsiderable influence onimproving thedelivery of potent
vaccine to inaccessible and climatically inhospitable regions, thus enhancing rinderpest
prevention andcontrol inAfrica (Mariner etal., 1990).Another example israbies tissue
culture vaccines,which have effectively controlled canine rabies in those countries of the
developed worldinwhichthediseaseisendemic.Attempts arenowbeing madetodevelop
oralrabiesvaccinesfordogssimilartothosedeveloped for European fox populations (Perry
etal, 1988),toenhance theeffective immunization of dogsinAfrica and elsewhere in the
developingworldwherevaccinationprogramsusingtraditional injectable vaccineshavenot
achieved the levels of coverage and population immunity required to control the disease
(Perry &Wandeler, 1993).
Inthecaseswhere diseasecontrol technologies doexist,theirmanufacture and distribution
inAfrica isfar from optimal,andinfluenced bymanyeconomic andpolitical factors. Since
theearlydecadesofthiscentury,manyproducts,intermsofdrugsandchemicals,havebeen
importedfrom thedeveloped world,andthishaspresented problemsofirregular availability
andlowaffordability. Aslocalcurrencieshaveprogressively declined invalue,and foreign
exchange has become a scarce commodity, disease control programs based on imported
212
Disease control programs in developing countries: prospects and constraints
products,such as tick-borne disease control through the use of acaricides, have become
increasingly unsustainable economically. As far as vaccines areconcerned, there hasbeen
a serious attempt toproduce them locally, and the bacterial vaccines against blackleg,
anthrax and haemorrhagic septicaemia, for example, are produced in many African
countries.Following independence, this process oflocal production was intensified, and
Africa isnowalmost overendowed withvaccineproduction units.However,manyofthese
have suffered from technical difficulties resulting in variable or low quality products.For
example,manycountriessetupproductionofrabiesvaccines,butseveralhaveexperienced
difficulties in sustaining their output and quality control, while at the same time more
efficacious andmuchcheaper vaccineswerebecomingavailable worldwide from alimited
number of commercial producers in the developed world. On face value, these latter
products made economic sense, but the decision as to whether to buy international or
produce vaccinelocally wasoften complicated by otherissues, such asthe political desire
to enhance national capacity and create employment opportunities. This situation has
changed over thepast few years with structural adjustment programs, and local currencies
arenow freely convertible on the foreign exchange markets in many African countries.If
this trend continues, it will promote the prospect for more regional and international
cooperation in vaccine manufacture and marketing, and enhance the prospect for more
economic efficiency inthepharmaceutical industries ofthedeveloping world.
213
Chapter 16
214
Disease control programs in developing countries: prospects and constraints
215
Chapter 16
diseases in order to structure appropriately the message to the public accompanying disease
control programs. Such ethnoveterinary studies have been carried out in Kenya on cattle
diseases (Delehanty, 1991).It is likely that this subject work will become more important as
public support to and adoption of programs play a greater role, and legislation becomes
increasingly difficult to enforce.
With the decline in government veterinary services, attention has been paid to the role of
community-based disease control programs for some of Africa's infectious diseases, and
the most notable example has been control of tsetse flies and the trypanosome infections
they transmit. Some argue that tsetse fly control requires central planning and
implementation to be effective, and Zimbabwe provides an excellent example of how such
an approach can work. However, not every country has the veterinary infrastructure of
Zimbabwe, and community-based programs using odour-baited targets and traps have
been studied in many countries. Probably the most successful example has been at
Nguruman in Kenya (Dransfield et al., 1991), where a community-managed control
program based on local production, maintenance and deployment of insecticide-
impregnated targets was established, financed by the commercialization of wildlife and
handicrafts by the Maasai occupiers of group ranches. However, the sustainability of such
operations without donor support and funded technical advice is still questioned.
Nevertheless, the prospect of greater involvement of communities in disease control
programs presents yet a further opportunity for improved disease control in developing
countries.
References
Anteneh, A., 1983.Financing animal health services in some African countries. International
Livestock Centre for Africa. LPUWorking Paper No.1. Addis Ababa.
Anteneh, A., 1985.Financing livestock service in some countries of East and southern Africa.
International Livestock Centre for Africa. LPUWorking Paper No.6.Addis Ababa.
216
Diseasecontrol programs indevelopingcountries:prospectsandconstraints
Dransfield, R., Williams,B.G. &Brightwell, R., 1991.Control of tsetse flies and trypanosomiasis:
myth orreality.Parasitology Today 7: 287-291.
FAO, 1995.Report of an expert consultation on the need for information systems to strengthen
veterinary services in developing countries,Rome.
Gitau, G.K., McDermott, J.J., Waltner-Toews,D.,Lissemore, K.D., Osumo, J.M. &Muriuki, D.,
1994.Factorsinfluencing calfmorbidity andmortality insmallholderdairyfarms inKiambu District
of Kenya.Preventive Veterinary Medicine 21: 167-177.
Leonard, D.K., 1987. The supply of veterinary services: Kenyan lessons. Agricultural
Administration and Extension 26:219-236.
Mariner, J.C, House, J.A., Sollod, A.E., Stem, E., Van den Ende, M.C. &Mebus, CA., 1990.
Comparison of the effect of various chemical stabilizers and lyophilization cycles on the
thermostability of a Verocell-adapted rinderpest vaccine.Journal of Veterinary Microbiology 21:
95-209.
Perry, B.D. & Wandeler, A.I., 1993.The delivery of oral rabies vaccines to dogs: an African
perspective.Onderstepoort Journal of Veterinary Research 60:451-457.
Perry, B.D. &Young, A.S., 1993.The naming game: The changing fortunes of East Coast fever
andTheileriaparva.Veterinary Record 133: 613-616.
Perry, B.D., Kyendo, T.M., Mbugua, S.W., Price, J.E. & Varma, S., 1995. Increasing rabies
vaccination coverage inurban dogpopulations of high human population density suburbs: acase
study in Nairobi, Kenya.Preventive Veterinary Medicine 22: 137-142.
Schillhorn van Veen, T.W. &De Haan, C , 1994.New trends in the organisation and financing of
livestock and animal health services.The KenyaVeterinarian 18:24-25.
217
Chapter 16
Van Schaik, G., Perry, B.D., Mukhebi, W.A., Gitau, G.K., Dijkhuizen, A.A., 1995.An economic
analysis of smallholder dairy farms in Murang'a District, Kenya. Proceedings of the 8th
International Conference of Institutions ofTropical Veterinary Medicine, Berlin, 76.
218
17
Howdowe integrateeconomicsintothepolicy
development andimplementationprocess?
A.D. James
Veterinary Epidemiology and Economic ResearchUnit, University of Reading, Reading, UK
Objectives
Fromthischapter thereader should gainknowledge of:
• animal healthbeing only oneconstraint affecting livestock production systems
• factors that influence cost recovery for animalhealth services
• the importance of anintegrated approach inlivestock development programs
17.1 Introduction
This chapter is intended to describe applications for the various economic techniques in
the process of planning and implementing animal health programs. The most important
point is that animal health economics cannot beconsidered in isolation when it comes to
formulating and implementing development policy. Animal health is only one of the
constraints affecting livestocksystems,anditisnotusually sufficient toaddressonlyanimal
health constraints: otherproblems mayprevent potential benefits of improved health from
being realized.
It must also be emphasized that the situation is dynamic: removing an animal health
constraint may result in fundamental changes to production systems (eg,the adoption of
different livestock breeds). The new production systems will face a new range of
constraints,including newdisease problems.
These points may seem obvious, but far too many animal health (and other livestock
development) programshavefailed becausetheywerebasedoninadequatepolicy analysis,
especially in the developing world. Anotable exception is the 'Operation Flood' milk
cooperative movement in India, and it is significant that these programs have provided
interventions in milk marketing, health, breeding, nutrition, credit and management
advisory services.
Integrated livestock development programs, based on an understanding of the whole
production system,have longbeen recognized as necessary. However, such programs are
complex toplan andtomanage,andthefailure ofonecomponent canjeopardize the whole
effort. However, the standard economic methods are compatible with the systems-level
approach, andthere areencouraging signsthat theiruseisbeginning tohave an impact.
Itmust alsoberemembered that livestock have alongproduction cycle, and it takes time
fortheeffect ofimprovementstomanifest themselvesasincreasedproductivity andincomes.
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Chapter 17
The impact of many livestock development projects will notbe apparent until some years
after theend of theproject (which mayhave been terminated because nobenefits could be
demonstrated).
Many developing countries have been unable to implement livestock development
programs which have been shown to be economically justified, because they lack the
services to implement and sustain the necessary activities. The reason for the lack of
services is almost always lack of finance to operate them (lack of trained personnel is
usually only a secondary problem: even if the staff were available, they could not be
financed). Infact, acommonproblemisthat althoughbudgetsmay actuallyhaveincreased
in real terms, staff costs have steadily risen sothat nearly all of the budget is used topay
(usuallyinadequate) salaries.
There arethree approaches todealing withthis situation:
• retrenchment, inwhich staff numbers aredrastically reduced;
• privatization,inwhich services aretransferred totheprivate sector;and
• cost recovery, when producers paydirectly for government services.
These approaches are not independent of each other, and most countries adopt a policy
containing elements ofallthree.Thishasledto someconfusion inthe analysis of different
policies.Cost recovery has important economic implications, because it directly affects
the decisions and economic welfare ofproducers.There hasbeen extensive debate on the
suitability ofcostrecovery for different services,andthe subject isreviewed as follows.
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How do we integrate economics into the policy development and implementation process?
misappropriation and make financial planning more difficult. If revenues are less than
expected, aprogram financed by arevolving fund maycollapse while, in theory at least,
finance allocated from thecentralgovernmentbudgetshouldbeavailableirrespectiveofthe
success of cost recovery.
The arguments for and againstcostrecovery fall intosixmainheadings:
• Sustainability -cost recovery may be considered amore reliable source of finance for
veterinary servicesthan thecentral government budget insomecountries;
• Equity -itmay be argued that beneficiaries of aservice should meet the cost of providing
it;
• Efficiency of resourceallocation -if aservice isprovided atlessthan itseconomic costit
may be applied at alevel higher than the economic optimum; alternatively, it may be the
casethat aservice given for nothing maybe valued atnothing and ignored;
• Effectiveness of disease control -cost recovery in adisease control program would be
expectedtoreducethecoverage,whichmightexposeeventreated animalstoahigh disease
challenge,reducing theeffectiveness andeconomicbenefits of thewhole program;
• Economic cost of cost recovery -ineconomic terms,cost recovery merely transfers the
costs of adisease control program from one sector of the economy to another, and does
notgenerate anybenefit totheeconomy asawhole;onthecontrary,itaddstotheeconomic
cost of theprogram;and
• Financial efficiency -collecting fees from livestock owners can be very difficult and
expensive, especially where the treatment cannot be withheld from those unable to pay
immediately. It may bethe case that the financial cost of collecting the revenue is greater
than therevenue itself,meaning that thereisanadverseeffect ongovernment expenditure.
All of these considerations should be included when deciding whether or not cost recovery
is appropriate for aparticular program. The final decision will depend on weighing the
advantages and disadvantages, andthiswillcertainly involve adegree of subjective value
judgment. However,betterdecisionscanbeexpected if alloftheissueshavebeen taken into
account. Theissuestobeconsidered arediscussed inmoredetail inthefollowing sections.
17.2.2 Sustainability
This is usually the principal practical argument in favour of cost recovery for veterinary
services. The operational capacity of many government veterinary services has been
crippled by lack of funding. The attractions of alleviating this problem by collecting
revenuesfrom livestockownersareobvious.Totheveterinary servicesstaff itcouldprovide
a more reliable source of funding to sustain disease control operations, and to the finance
ministry itwould offer arelatively painless way of increasing government revenue and/or
reducing budget deficits. Theresult would betoprovide sustainable long-term funding for
diseasecontroloperations,withoutimposingadditionaldemandsonthecentral government
budget.
Lack of operational funding maybeduetoany combination of threecauses:
• thatbudgetary allocations areinsufficient tomaintain theservices required;
221
Chapter17
that planned budgetary allocations are not actually available for expenditure because of
economic conditions oradministrative problems;or
that an excessive proportion of the funding made available to the veterinary service is
absorbed byadministrative andoverheadcosts,particularly manpower,leaving insufficient
funding for field operations.
The last problem is avery common result of previous shortages of operational funding.
When activitieshavetobecurtailed,itisusuallyfieldoperations that arereduced, asinthe
short term this is the only feasible method of reducing expenditure. Torestructure the
veterinary service would requirereducing facilities and/orreducing staff numbers,both of
which take time to implement and have political implications. It is also the case that
decisions on the allocation of resources tend tobe made by headquarters staff, and these
arenaturally reluctant todeclare themselves redundant. However, cost-recovery programs
areunlikely toprovide asolutiontothisproblem.Ifrestructuring ofthe serviceisrequired,
this difficult problem must eventually be faced. Otherwise increased funding, from any
source,islikely tobe absorbed infurther administrative and overhead costs.
Assumingtheinstitutionalstructureoftheveterinary serviceisreasonable,thenincreasesin
funding from cost recovery have the potential to sustain field operations. However, cost
recovery may not actually result in anincrease inavailable funding. The finance ministry
maysimplyreducefunding from thecentralgovernmentbudgettooffset anyrevenues from
costrecovery.This mighthave abeneficial effect onthecentral government budget deficit,
butclearly willnotcontribute toimproving veterinary services.
If there is a problem of planned budgetary allocations not actually being available for
expenditure duetoeconomic conditions oradministrative problems,then costrecovery by
itself is unlikely to help the situation. In thesecircumstances any revenues collected are
likely to remain in the finance ministry, subject to the same financial restrictions or
administrative constraints asanyothersourceoffunding. Theestablishment ofarevolving
fund, so that revenues remain within the veterinary department and can be used to fund
programs directly, can helpto overcome administrative problems inthe disbursement of
funding. However, if the administrative barriers are in fact an instrument of government
policy intended torestrict expenditure, suchrevolving funds are likely tobe opposed by
thefinanceministry asthey tend toundermine thispolicy. It is also thecase that revolving
funds require careful administration and audit, which will add to costs and probably
duplicate systemsalready inexistence inthefinanceministry.Even if arevolving fund can
be established and successfully operated, it may not guarantee the sustainability of
programs.Ifforanyreasonshort-termrevenuesarelowerthananticipated,forexampledue
to anatural disaster suchasflooding ordrought, then programs financed by the revolving
fund may becurtailed bylackoffunds attheverymomentwhenthey aremost needed.
In summary,cost recovery doeshavethepotential toprovide funding on along-term basis
for some disease control operations. It is not,however, asubstitute for restructuring the
veterinary service where this is necessary. Where revenues are channelled through the
finance ministry there is adanger that they will beregarded simply as another source of
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How dowe integrate economics into the policy development and implementation process?
revenue from taxation. Revolving funds require considerable administrative inputs and
auditing, andmay notcompletely cushion programs from short-termfinancialadversity.
17.2.3 Equity
There is astrong argument for theprinciple that the beneficiaries of aservice should meet
the cost of providing it. It is,however, amistake to assume that livestock producers asa
group arenecessarily the primebeneficiaries of improved livestock disease control.In the
first place,control of livestock diseases maybemotivated, atleastinpart,by the objective
of protecting human health. Second, itcan be shown that technological improvements in
livestock production often enhance the economic welfare of consumers more than
producers.
The control of zoonotic diseases is frequently undertaken with aview more to protecting
publichealththantoimprovelivestockproductivity.Forexample,theprimemotivation for
the control of brucellosis is usually to protect humans from the disease. While farmers,
veterinarians and others working in the livestock industry are most exposed to zoonotic
diseases,thegeneralpublicandconsumersoflivestockproductsareusually alsoatrisk,and
their greater numbersmay mean that they account for themajority ofhumancases.
Where adisease affects livestock productivity, reducing the incidence would increase the
levelofproduction.The increased production canbe expected toreduceprices,and onthe
markets for many agricultural products thepercentageprice reduction can be greater than
the percentage increase in production. For example, a5% increase in production could
lead to a 10%fall in prices, which would mean that producers would actually suffer a
reduction of income, while consumers would receive more product for less total
expenditure. This is by no means the case for every market, but it is quite a common
situationinthemarketsfor agriculturalproduce,andisthemainjustification for agricultural
supportpolicies.Itgenerally occurswherethedemand for aproduct isrelatively insensitive
toprice,asisoften thecase for staple food products (see alsoChapter 12).
Econometric analysisisrequiredtoidentify thebeneficiaries oftechnological improvement
inanyparticularmarket.However,itisquitecommoninthemarketsforlivestock products
that consumers would be the main beneficiaries, especially as international markets for
livestock products arelimited byzoosanitary restrictions.
It should be pointed out that thelivestock owner alsoconsumes someof the production in
most livestock systems, but in the extreme case of subsistence livestock production the
low income of theowners mayconstitute anargument for government support. Itisinany
case difficult tocollect fees from subsistence producers.
Where the main beneficiaries of disease control are consumers rather than producers, it
would be equitable to impose the cost of disease control on consumers. This might be
achieved through the imposition of atax orcess onmarketed livestock production, but in
many developing countries themarkets for livestock products aredispersed and informal.
Any attempt totax the formal markets, which already have higher costs because of meat
inspection and other measures, would simply encourage more marketing through
uncontrolled channels.The practical,but less focused, policy maybe toraise the revenue
223
Chapter 17
through general taxation, which usually affects consumers oflivestock products morethan
producers.
There is a further twist to the economic welfare argument: while it may be against the
economic interest of producers as agroup to adopt improved technology, the situation is
different for individual producers. If an individual uses disease control to improve the
efficiency of production, it will make no measurable difference to the price that (s)he
receives.Therefore itwillbeinthepersonalinteresttoapplydiseasecontrol,eventhoughit
is against the interest of producers as a group. The divergence of individual and group
interests may mean that it is in theinterests of theindividual topay fees,but this does not
necessarily mean that itisequitable.
This discussion has so far omitted another aspect of equity, which is the principle that
taxation should be directed at the wealthy.This chapter isconcerned with the problems of
cost recovery rather thanthe redistribution of wealth, and therearemore efficient methods
forredistribution ofwealththanchargingfeesfor services.Thepointdoes,however,suggest
the possibility of restricting charges for services tolarge-scale livestock producers. This
group are more likely tobe able topay fees, and larger, more intensive producers benefit
more from some disease control programs than small-scale producers. The practical
difficulty with thepolicy is to identify criteria for deciding whether aparticular producer
should pay fees ornot.
In summary, it is a mistake to assume that livestock owners are always the main
beneficiaries of disease control programs. While it may be in theinterest of individual
producerstocontrollivestockdiseases,producers asagroupoften suffer alossofeconomic
welfare compared withconsumers oflivestockproducts.Whileitmaybemorepractical to
recover thecost of services from producers, itisnotnecessarily equitable.
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How do we integrate economics into the policy development and implementation process?
Thus, producers could be expected to apply disease control at the economically optimal
level,but only if four conditions weremet:
thedecision onthelevel of diseasecontrol would have tobe within their control;
they would havetobe aware of theproduction response to any particular level of disease
control;
they would havetoreceive thebenefit of any production response;and
they would have tomeet thecost of thetreatment.
If any of these assumptions fail, then producers cannot berelied upon to apply the optimal
level of disease control.Itisnotsufficient tomeet only thefourth condition, cost recovery,
toensure theoptimal allocation ofresources.
Thefirstcondition doesnot hold for all types of disease control.Many epizootic diseases
canonlyeffectively becontrolledbymassvaccination andothermeasures,suchasslaughter
andmovementcontrol,appliedonaregionalornationalbasis.Inthiscasetheproducerdoes
notmakethedecision onthelevelofcontrol.Ontheotherhand,someanimal health inputs
such asparasite control measurescanbeusedeffectively byindividual producers, whocan
make the decision onthe level of control.There is astrong case for imposing the cost of
disease control at the decision-making level, which may or may not be the individual
producer.Toreversethewell-known proverb:"hewhocallsthetuneshouldpaythe piper"!
The second condition is amatter of theexperience of individual producers and extension
workerstomakethemawareofresearchresults.However,withregardtoepizooticdiseases,
the individual producers face agreat deal of risk and uncertainty. If their herd is affected
by thediseasetheymayface very largelosses,butthey mayescape infection altogether.In
such situations theelement of risk is much less important at the regional or national level
where average losses are more predictable. Therefore it is easier to assess production
response tothecontrol of epizootic diseases attheregional or national level,and thus to
makerational decisionsontheappropriate level ofcontrol.
The third condition, that the producer receives thebenefit of any production response, is
more likely to apply atthe level of the individual producer than for producers as agroup,
as explained in the previous section. However, there are frequently external costs and
benefits, ie,costs andbenefits which apply topersons other than the individual producer,
in animal disease control.Much of thebenefit of controlling zoonotic disease may accrue
tothepublic andconsumers of livestock products, and in thiscase producers could not be
relied upon toadopttheoptimum level ofcontrol.Externalities areoften significant inthe
controlofinfectious diseases.Itcanbethecasethatdiseasescauselittlelossinthelivestock
populations which act asreservoirs of infection, but large losses when they are introduced
to other susceptible populations which cannot always be protected by vaccination. To
control such diseases it is necessary to apply control measures in the maintenance
population, where there ismuch less incentive for livestock owners to meet the costs of
control.
In summary,therefore, costrecoverycansometimesbeexpected tolead tomoreeconomic
application ofanimalhealth inputs,butonlyifthedecision isinthehandsof theproducers;
225
Chapter 17
226
How do we integrate economics into the policy development and implementation process?
Ifparticipation isvoluntary, then the service canbe withheld from owners who are unable
or unwilling to pay the fee. In this case, the costs will consist mainly of the extra
administration required tohandle and account for therevenue.In addition, some programs
carry overhead costs, eg, travelling to villages, in addition to the direct costs of the
treatment. If thecharging of fees reduces participation, then theoverhead costsper animal
treated maybe increased.
If owners cannot pay the fee at the time of treatment incompulsory programs, it will be
necessary either toextend creditby agreeing tocollect thefee later,ortoreturn totreat the
animals at some later date.Both of these options are inconvenient and expensive. In the
last resort they will require police action and recourse tocivil or criminal courts. Such
measures are unpopular with livestock owners, veterinarians and police, and extremely
expensive.
In some circumstances it maybe possible torely uponthe local administration, eg,village
headmen, tocollect fees. This can substantially reduce thecost of collection, but is very
difficult tocontrol and subject toabuse.
227
Chapter 17
I
Program monitoring
Epidemiological monitoring
Production monitoring
Financial recording
228
Howdowe integrate economicsintothe policydevelopment andimplementation process?
Many of the newer methodsin animal health economics addressthese information needs.
The assessment of existing levels of disease and productivity is an empirical process,
dependingonanalysisofdataproducedbyadhocsurveys,oron-goingmonitoringsystems.
Whileitissometimespossibletocollectuseful information onanimalhealth andproduction
through rapid appraisal 'snapshot' techniques, it is often found that the results of such
surveys arebiased.Themainreasonsfor thisarethat:
• producers' recollection of livestock production and offtake tends tobe unreliable. Unlike
mostcrops,livestock donothave asingleharvest period: offtake canoccur throughout the
year.
• mostlivestock specieshavealongproduction cycle,anditcantakealongtimefor changes
tothepattern of production toworkthrough the system.
• producers have considerable flexibility in short-term management strategies. They may
increase ordecrease offtake rates inresponse tomarket orclimaticconditions.
• many diseases follow long-term cycles (which may be related tocycles in the pattern of
production).
Predictionsoftheeffect oftheprogramonlevelsofdiseaseandofreducedlevelsofdisease
on productivity require theuse of models,which range from informal conceptual models
in the minds of decision makers tomathematical models implemented on computers (see
also Chapters 6 to 9). The models, whether conceptual (qualitative) or mathematical
(quantitative) rely ondata obtained from empirical studies.In general, the availability of
reliabledataisthemostimmediateconstrainttotheincorporation ofeconomicsintoanimal
healthpolicy atthenational level.
229
Chapter 17
Identification and
classification of
production systems
Production &
health data
collection
Analysis of
production systems
Productivity
Budgets
Linear programming
Risk analysis
recommended for general application it can be tested in field trials. The results of these
analysesbasedonempiricalstudiesaremorereliable thanthosebasedonpredictive models
(which might havebeen usedtodesign thepolicies for pre-extension trials).
Theuseofcomputer-based herdrecording andmanagement systems doesallow automated
economic analysis of policies for the individual herd. At present, these automated
analyses are based upon the results of studies in other herds,but there is atrend towards
using the records of the individual herd asabasis for theprediction of future performance
ofthat herd.
Inmanydevelopingcountries,livestockproducershaveverylimitedaccesstoanimalhealth
andproduction services,andtheprivatesectoroffers theonlyprospectofproviding services
inthe future. Economic analysis of livestock services inthese situations needs to consider
not only the effect of services for the producer, but also the financial profitability and
viability of providing theservices.
230
How do we integrate economics into the policy development and implementation process?
The economic analysis of research is complicated by the fact that the benefits depend on
results,which areby the very nature of research uncertain. It is alsonecessary totake into
account thelikelihoodthatnewtechnologieswillbeadoptedbyproducers:thereisnovalue
in producing a new technology if producers lack the services to use it, or if they find it
socially unacceptable. These problems of probability of success and uptake of results can
only bejudged subjectively, which means that different individuals will produce entirely
different rankings ofresearch priorities.
Theapproachwhichhasbeenmostwidely appliedintheeconomicprioritization ofresearch
programs hasbeen toidentify constraints toproduction systems, and then toestimate the
economic benefit that would result from the removal of the constraint. Weightings are
applied tothisfigure toadjust for probabilitiesof successanduptake,resulting inaranking
of research topics.These then have tobe reviewed in comparison tothe probable cost of
producing atechnological solution totheconstraint.
Even then,theranking isonly tentative,because other factors will alsobe significant. The
research topics are not independent: the success of one technology may depend on the
development of another. There is aneed tomaintain capacity to undertake research in a
broad rangeof disciplines tomeet future needs:if adepartment isclosed down thisyear,it
could takeyears tore-establish the facility in future.
231
18
Building aspreadsheet model
R.S.Morris1),C.W.Rougoor2) &R.B.M.Huirne2)
1)Department of Veterinary ClinicalSciences, Massey University, PalmerstonNorth, New
Zealand
2)Departmentof Farm Management, WageningenAgricultural University, Wageningen, the
Netherlands
Objectives
Bytheend ofthischapter thereader should beable:
• tounderstand thebasic principles of spreadsheets
• todesign simplespreadsheet models
• toincluderiskfeatures into spreadsheet models
18.1 Introduction
When economic analysis first gained acceptance as adecision-making aid in veterinary
science,everyanalysishadtobeconductedcompletelybyhand-frequently involvinghours
of calculations and double-checking. Since then electronic spreadsheets have made the
task relatively simple even the first time, and even easier to doif the same analysis must
bere-runwithnewdata.
Because repeated financial calculations are very commonly used in business, the
spreadsheet caught on like wildfire over adecade ago,and became amajor factor in the
growth of personal computers. Spreadsheets can bejust asuseful in veterinary work asin
other fields, and this chapter explains the application of thetechnique at various levelsof
sophistication. They offer away for thenovice tofirst develop asimplepartial budget,but
they offer theexpert apowerful shortcuttoconducting complex modelling and analyses.
18.2.1 Cells
Anelectronicspreadsheet consistsofatableofindividual 'cells',mcolumnswidebynrows
deep. Columns areusually designated by letters and rowsby numbers. Acell is therefore
uniquely designatedbyitscolumnletterandrownumber,suchascellB12,whichisthecell
attheintersection ofthesecondcolumn and 12throw.Thewidthofcolumnsmaybevaried
to suit theparticularneeds.
Cells can be allocated toparticular uses.Common uses include text fields for labels of
various kinds, data fields which expect the user to enter values when the spreadsheet is
233
Chapter 18
ran, andcalculationfields,whichcontaintheresultsofcalculationsbasedonthedatawhich
areentered.Theuniquefeature of spreadsheets which makesthemsovaluable istheability
toattach acalculation formula toacell, sothat every time anew value isentered in adata
entry field which affects acalculated field, the calculation is carried out again either on
request or(usually) automatically, sothat newvalues appearinallrelevant cellsassoon as
anumber anywhere inthe spreadsheet ischanged.
Theformula for acellcanbeviewedandeditedatwill,makingiteasytocheckitsaccuracy.
Once the formula is checked and permanently stored as part of a particular named
spreadsheet, itcan berelied ontorepeatthecalculation accurately asoften as wished.
This feature differs from adatabase management program, which allows manipulation of
data entered, but usually requires aformula tobe applied to agroup of cells by specific
decision of the user, and does not allow automatic formulae tobe attached to single cells
withcross-references toothercells.
234
Building a spreadsheet model
is not offered by your spreadsheet, you may be able to buy it and 'attach' it to the
spreadsheet.
Spreadsheets which operateunder Microsoft Windows have far greatercapacity than MS-
DOSprogramstopassinformation automatically betweendifferent programs.Thisusestwo
techniques -Object Linking and Embedding (OLE) and Dynamic DataExchange (DDE).
They are best explained by examples.Object embedding means that an 'object' (table of
analysis results, graph, etc.) is taken from one program (here the electronic spreadsheet,
which isknown asthe OLE serverbecause itprovides thedata) andembedded as an exact
copyinafileofanotherprogram(commonly awordprocessingprogram,whichisactingas
anOLEclient oruser).Thiscould alsobedonebypastingthrough theWindows clipboard,
but in that case all connection with the original program is lost. When an object is
embedded, and you then click onthe object with your mouse intheclient application, the
computer will automatically load the program in which the object wascreated and thefile
which contained theoriginal object. Youcan then edit itand closethe 'server' application,
whichwillreturnyoutotheclientapplication andthefileyouwereworkingon,butwiththe
modified object now appearing onthe screen.
When anobject islinked ratherthan embedded, thereisadirect linkagebetween thefilein
the client application and the file containing the 'object' in the server application. If you
change the source file in the spreadsheet, next time you load the client file in your client
application itwillchangetheinformation intheobject itemtomatchthedatainthesource,
without the user needing to manually make the changes or even know what the changes
are.
When DDEisused, the linking of files istwo-way. Ifachange ismadeinthefilein either
of the pair of dynamically connected programs, the 'twin' file in the other program is
automatically updated before usingitnexttime.
How does this make spreadsheets more powerful? When working on a report which
includesanumberofgraphsandtablescopiedfrom thespreadsheeteconomicanalyses,you
can then embed each of them within the document. For modifying the layout or other
features, youcangobackintothespreadsheettodoit,andkeepagreementbetween the files
inthetwoprograms,usingallthepowerofthespreadsheet from within theword processing
program. Moreover, you canembed anobject inareport andcomplete it,then later change
the spreadsheet file but the graph in thereport will stay as it was when you finished the
report. This is how embedding differs from linking. Linking can be very useful if you
periodically havetoupdateadocument (amonthlyreporttoafarmer ortoseniormanagers).
Italwayscontainsthesametablesbutthedatamustreflect newinformation, suchasincome
andexpenditure for themostrecent month.Eachtimethedocument isopened, it checks to
see if the spreadsheet hasbeen altered, and if so it will update the linked objects in the
word processing document to make them agree with the spreadsheet. By creating a
spreadsheet tostore thedata and linking themtothereport,you can automate and simplify
theprocedureofproducingthemonthlyreport.Dynamicdataexchangeisthemost complex
of these procedures to operate, but canbe very useful in selected cases - for example if
dataarecomingincontinuously intoadatabasethroughdailyentryofnewrecords,andyou
235
Chapter 18
236
Building aspreadsheet model
the right-hand side of amathematical equation, using the representation of each operator
required bytheparticular spreadsheet.
Figure 18.1 Simple spreadsheet: Benefit of 'critical' parasite control strategy over 'no
treatment'
2 1.Additional returns
3
4 Additionalfleecewool 40
5
6 Capital valueof surviving sheep
7 incritical treatment group 263
8
9 Increased value of crutchings 2
10
11 Total 305 B4+B7+B9
12
13 2. Returns foregone
14
15 Capital value of surviving
16 sheepinnotreatment group 222
17
18 Wool salvaged from dead sheep 0
19
20 Total 222 B16+B18
21
22 3. Extra costs
23
24 Extra anthelmintic and labour 13
25
26 4.Reduced costs
27
28 None relevant 0
29
30 Net return 70 (B11+B28)-(B20+B24)
31
32 Return oninvested funds 538 B30x 100/B24
237
Chapter 18
Do not try to encompass the entire calculation in a single formula, but use extra cells
somewhere in the worksheet to show critical intermediate steps in the calculation. By
scanningthese,errorsandunexpectedfindingscanbe identified.
Clearly identify thefinalresult andmakeiteasytoviewtheresultcells oncethedata items
haveallbeen entered.
Once the basics of spreadsheet design have been learned, such a spreadsheet can be
designed and implemented almost as fast asdoingthecalculations once by hand, and can
then be re-used and varied as much as required. It is also easy to prepare generic
spreadsheet 'templates' forcommonlyusedanalyses,whichcarryoutcalculationsonblocks
of cells, so that a single worksheet can be used for a variety of purposes by simply
converting thegeneric block of rows for 'extra costs' or 'benefits nolonger obtained' into
aspecific analysisbyinsertingitemidentifications anddatawithin thecellranges set aside
for thatcategory.Thiswill speed upthework considerably.
238
Buildingaspreadsheet model
Probability distribution plays animportant role in any analysis which incorporates risk.
Aprobability distribution is amathematical device for presenting the quantified risk for a
variable.Therearemany forms andtypesofprobability distributions available in ©RISK,
eachof whichdescribesarangeofpossiblevaluesandtheirlikelihoodofoccurrence.There
is awide variety of distribution types ranging from uniform and triangular distributions to
morecomplex forms such asgammaandWeibull (Figure 18.2).
In @RISK, all distribution types use asetof arguments tospecify arange of actual values
and distribution ofprobabilities,ascanbeseen inFigure 18.2.Thenormal distribution, for
example, uses amean and standard deviation asitsarguments.Themean defines thevalue
around which thebell curve willbe centred and the standard deviation defines the spread
of values around the mean. Over thirty types of distributions are available in @RISK for
describing distributions for uncertain values intheworksheets.
239
Chapter 18
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\ / @GAMMA(3,1) 0.6- -ƒ \ \
0 1
In @RISK, uncertain variables and cell values are entered as probability distribution
©functions, for example: @TRIANG(A3/2.01,A4,A5), when you are using Lotus 1-2-3.
This example is atriangular function with the minimum (actual value incell A3 divided
by 2.01),mostlikely (actual valueincellA4)andmaximum (actualvalueincellA5) value
as arguments respectively. These ©functions can be placed in the worksheet cells and
240
Building aspreadsheet model
241
Chapter18
Within blocks dedicated todata entry or calculation, subblocks should be laid out which
contain closely related material which can be handled as aunit. For example, it may be
necessary to add up rows 12to 30in column G. Instead of having torefer toeach cell in
the sequence by name ineach formula aswould be necessary if they were spread around,
theycanbehandled asaninclusiveblock SUM(G12..G30)or similar.
Intermediate calculations should be stored in columns separated from the user-accessible
ones sufficiently, sothattheuserisnever awareoftheirexistenceinnormal circumstances.
This allows for ease of use but also allows the expert to check calculations easily.
Annotation features in aspreadsheet or an add-in program allow explanatory notes to be
attachedtocellsofaspreadsheet,mainlyasanaidememoirtothelogiconwhichacomplex
cell formula isbased. This feature isextremely useful, since otherwise aformula that was
quite clear six months agobecomes incomprehensible when reviewed, and may then be
modified in away whichundermines the structure ofthe spreadsheet.
If any procedure must be carried out repeatedly in working with aspreadsheet, it is most
efficient toprogramitinadvancebywritingamacro,asmallprogramwhichmostcomputer
users can prepare. This carries out a specific set of steps within the spreadsheet, which
mayvaryfrom something assimpleaschanging afont inasinglestep,torunningacomplex
analysisby hitting onekey.
The spreadsheets supplied withthisbook all work inaccordance withthese principles as
much as possible, and use techniques such as macros. Not all features of each single
spreadsheet program could be fully used, however, because the cases were designed such
that they run inall 3programs involved (ie,Excel,Quattro andLotus).
18.7 Usingthespreadsheet
Normally awell-designed template will take the user in asequence of automated jumps
throughallthedataentrystages,andafterthelastitemhasbeenentereditwillautomatically
carry outitsrecalculation andpositionthecursoratthefirstresultscreen.Recalculationcan
however either be made automatic or be made to await a user instruction. One small
problem with automated spreadsheets isthat anerrorwhichisrecognized after adataentry
point ispast cannot becorrected without repeating therun.
For a very polished spreadsheet, this can be overcome by copying each data item to a
check screenjustbefore calculationcommences,wheretheuserisgiven achancetoreview
the items entered and to loop back to correct any specific errors. After confirming the
accuracy of thevalues,calculation will commence.
Onemajoruseofaspreadsheetistocomparetheeffect ofsomepotentialimprovementwith
a 'base' analysis representing the status quo. In simple analyses this must be done by
printing theresult screen for thebase analysisandthen running thealternative and printing
thattoallow acomparison ofthetwo.Anadvanced alternativeistoallowtheresult screens
to show two sets offigures,onefor thebase analysis andone for the alternative.The base
analysis caneitherbe repeated each time acomparison isdone,orbe processed separately
and merely stored visually in the result screens toremind the user of the baseline values
against whichthe alternative shouldbecompared.Printedcopieswillcontain bothvalues.
242
Building aspreadsheet model
243
Chapter 18
References
Anderson,N.,Morris, R.S.&McTaggart, I.K., 1976.Analysis of two schemes for the anthelmintic
control of helminthiasis inweaned lambs.Australian Veterinary Journal 52:174-180.
Carpenter, T.E., 1988b.Microcomputer programs for Markov and modified Markov chain disease
models.Preventive Veterinary Medicine 5: 169-179.
Meemark, N. &Morris, R.S., 1989.Economic analysis of thebenefits of the Basic Animal Health
Service.Proceedings International Seminar on animal health and production services for village
livestock, Khon Kaen,Thailand, August 1989:465-477.
Palisade, 1992. @RISKUsersGuide,Risk analysis and simulation add-in for Lotus 1-2-3,Palisade
Corporation, 31 DeckerRd,Newfield, NY 14867,374pp.
244
19
Computer excercises on animal health economics
Design:
C.W. Rougoor &A.W. Jalvingh
Supervision:
A.A. Dijkhuizen, R.S.Morris & R.B.M. Huirne
This chapter includes a printout of the computer excercises developed for use in the
spreadsheet programs Lotus 1-2-3 andQuattroProfor DosandExcel for Windows.
Tostart theexcercises follow theinstructions supplied withthediskette.
© Copyright 1995:
Wageningen Agricultural University
Department of Farm Management
theNetherlands
245
Chapter19
246
Computer excercises on animal health economics
B
1
2 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 - September 1995
5
6
7 INTRODUCTION (Current file: INTROAHE.WK1)
8
9 This introductory worksheet provides information on the computer
10 exercises in general and onthe different cases inparticular.
11
12
13 Design: C.W. Rougoor SA.W. Jalvingh
14 Supervisors: A.A. Dijkhuizen, R.S.Morris & R.B.M. Huirne
15 (c)Copyright:
16 Wageningen Agricultural University
17 Department of Farm Management
18 Hollandseweg 1
19 NL-6706 KN Wageningen
20 Press PgDn
21 About the computer exercises on animal health economics
22
23
24 Each exercise is available as a separate file (worksheet format)
25 that can be opened inthe spreadsheet of your choice.
26
27 The fileswith the exercises can be found inthe directory C:\AHE
28 when you have used the automatic installation procedure. In case of
29 manual installation,the files are inthe directory of your choice.
30
31 The exercises have beenmade up in away that onepage has 20 lines.
32 In case you seemore or fewer than 20 lines on your screen,you should
33 change the settings of your spreadsheet. How this can be done depends
34 on the spreadsheet you are using.
35
36 In certain spreadsheets you can open more than one worksheet at a
37 time. Inthat case you can easily switch between the exercises and
38 this introductory text.
39
40 Press PgDn
41 Available files
42
43 Basicmethods:
44 PRFUNCT1.WK1 Production Function
45 PRFUNCT2.WK1 Production Function (extra exercise)
46 PARTBUD.WK1 Partial Budgeting
47 COSTBEN.WK1 Cost-Benefit Analysis
48
49 Advanced methods:
50 LINPROG.WK1 Linear Programming
51 DYNPROG.WK1 Dynamic Programming
52 MARKOV.WK1 Markov Chain Simulation
53
54 Decision analysis of risky choices:
55 MONTCAR.WK1 Monte Carlo Simulation
56 DECANAL.WK1 Decision Analysis
57 DECTREE Decision-Tree Analysis (not a spreadsheet exercise!)
58
59 Continue by opening the file of your choice, Below you can find more
60 information on each exercise. Press PgDn
247
Chapter19
A I B I C I
61 More information on exercises
62
63 Name of file: PRFUNCT1.WK1 Production Function
64 Title of case: Farm advisory case
65 Purpose: 1. Understanding the principles of aproduction function.
66 2. Determining the optimal level of veterinary services
67 at a sow farm.
68 Keywords: Variable costs, fixed costs,production function,
69 marginal and average costs and returns.
70 Time: Approximately 30min necessary forthe main exercise.
71 Another 15min for the (optional) sensitivity analysis.
72
73 Name of file: PRFUNCT2.WK1 Production Function
74 Title of case: Helminthic case:an experimental example
75 Purpose: 1. Understanding the principles of aproduction function.
76 2. Example of aproduction function with real data.
77 Keywords: Variable costs, fixed costs,production function,
78 marginal and average costs and returns.
79 Time: 30min for the entire case.
80 Press PgDn
81 Name of file: PARTBUD.WK1 Partial Budgeting
82 Title of case: Caesarean section in dairy cattle
83 Purpose: 1. Understanding the principles of partial budgeting.
84 2. Calculating the costs of caesarean section in cattle.
85 Keywords: Static, additional returns,reduced costs,returns foregone,
86 extracosts.
87 Time: Approximately 20min necessary forthemain exercise.
88 Another 10min for the (optional) sensitivity analysis.
89
90 Name of file: COSTBEN.WK1 Cost-Benefit Analysis
91 Title of case: Enzootic bovine leucosis
92 Purpose: 1. Understanding the principles of cost-benefit analysis.
93 2. Comparing 2 strategies to eradicate enzootic bovine
94 leucosis.
95 Keywords: Dynamic, real interest rate,net present value, benefit-cost
96 ratio, internal rate of return.
97 Time: Approximately 30min for themain exercise, including 10
98 min for the optional calculations with real interest rate.
99
100 Press PgDn
101 Name of file: LINPROG.WK1 Linear Programming
102 Title of case: Cows and/or sheep
103 Purpose: 1. Understanding the principles of linear programming.
104 2. Finding the economically best combination of keeping cows
105 and/or sheep,taking two constraints into account.
106 Keywords: Static, constraints, objective function, optimization.
107 Time: Approximately 30min for thebasic principles. Another
108 10min for carrying out the (optional) sensitivity analysis.
109
110 Name of file: DYNPROG.WK1 Dynamic Programming
111 Title of case: Sow replacement
112 Purpose: 1. Understanding the principles of dynamic programming.
113 2. Finding the economically best moment of replacing a sow.
114 Keywords: Dynamic, stage,state,optimization, retention pay-off (RPO)
115 Time: Approximately 30min for the basic principles, after that
116 another 5min for calculating the RPO and/or 10min for a
117 sensitivity analysis.
118
119
120 Press PgDn
248
Computerexcercisesonanimalhealtheconomics
B 1 C | D | E | F |
121 Name of file: MARKOV.WK1 Markov Chain Simulation
122 Title of case: (A)Pneumonia in sheep
123 (B)Mastitis indairy cattle
124 Purpose: 1. (adA) Understanding the principles of aMarkov chain.
125 2. (ad B)Comparing different strategies for treating mastitis
126 to find the economically bestone.
127 Keywords: Dynamic, transition matrix, state,vector, stable situation.
128 Time: (A)will take about 15min. The first part of (B)takes
129 15min. The second part (optional;dynamic transition rates)
130 takes another 15min.
131
132 Name of file: MONTCAR.WK1 Monte Carlo Simulation
133 Title of case: Aujeszky's disease in swine
134 Purpose: 1.Understanding Monte Carlo simulation.
135 2. Simulating the number of animals infected with Aujeszky's
136 disease in aherd and its financial effect over time.
137 Keywords: Dynamic, random sampling, simulation.
138 Time: Approximately 30min for themain exercise.Another 10min
139 forthe optional exercise (different initial situation).
140 Press PgDn
141 Name of file: DECANAL.WK1 Decision Analysis
142 Title of case: Left-displaced abomasum in cattle
143 Purpose: Comparing different strategies to treat displaced
144 abomasum, taking risk into account.
145 Keywords: Static,expected monetary value,maximin, minimax, maximax,
146 utility, Bayes'theorem, value of information.
147 Time: Total time necessary 60min, including 15min for utility,
148 and 20min forvalue of information. Both areoptional.
149
150 Name of file: DECTREE Decision-Tree Analysis
151 Title of case: Left-displaced abomasum in cattle
152 Purpose: 1.Understanding the principles of building adecision tree.
153 2. Comparing strategies,taking into account probabilities of
154 success and failure.
155 Keywords: Decision tree,probabilities,expected monetary value
156 Time: Total time necessary about 40min.
157 NOTE: This exercise does nottakeplace in a spreadsheet,but uses the
158 program SMLTREE. Ifyou have theprogram available, start it and use
159 the fileDECTREE forthe exercise. The questions that gowith the
160 exercise can be found inthebook. Press PgDn
161
162
163 END OF INTRODUCTION
164
165 Continue by opening the exercise (= file)of your choice in
166 the spreadsheet.
167
168
169 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
170 = Principles andApplications =
171 Version 2.0 -September 1995
172
173 Design: C.W. Rougoor &A.W. Jalvingh
174 Supervisors: A.A. Dijkhuizen,R.S.Morris &R.B.M. Huirne
175 (c)Copyright:
176 Wageningen Agricultural University
177 Department of Farm Management
178 Hollandseweg 1
179 NL-6706 KN Wageningen
180
249
Chapter19
B E F
1
2 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 -September 1995
5
6 Current exercise: PRFUNCT1.WK1 Production Function
7 Title of case: Farm advisory case
8
9 Purpose: 1.Understanding theprinciples of aproduction function.
10 2. Determining the optimal level of veterinary services
11 at a sow farm.
12 Keywords:Variable costs,fixed costs,production function,
13 marginal and average costs and returns.
14 Time: Approximately 30min necessary forthe main exercise.
15 Another 15min forthe (optional) sensitivity analysis.
16
17
18
19
20 Press PgDn
21
22 PRODUCTION FUNCTION
23
24 "FarmAdvisory Case"
25
26
27 A pig farmerwants to increasethe number of pigsweaned per
28 sowper year. (S)he asks aveterinarian for help.The veterinarian
29 tells him/her that it is possibleto participate in aherd health
30 program,which includes that the veterinarian will visit the farm
31 regularly to check the herd and to give advice.The results depend
32 on the number of visits peryear.The farmer can choose howmany
33 veterinary visits (s)heprefers.
34
35
36
37 After you have finished apage,you can continue by pressing PgDn.
38
39
40
41
42 Experience inthe past showed an effect on pigsweaned per sow per
43 year as stated below:
44 no. of visits pigs weaned per
45 per year sow per year
46
47 0 18.00
48 5 18.30
49 10 18.80
50 15 19.50
51 20 20.10
52 25 20.50
53 30 20.80
54 35 21.00
55 40 21.10
56
57 The above scheme isusually called production function. Inthe graphical
58 representation of this function,the input of visits isplaced on the
59 X-axis and the piglet output ontheY-axis.
60 Press PgDn
250
Computer excercises on animal health economics
B E
61
62 Let us have a look atthis graph.Excel-user: Press <CTRL> G;Lotus-
63 user: Press <ALT> G and Quattro Pro-user: Press <ALT> P. Pressing any
64 keywill bring you backtothis screen.
65
66 The costs of the herd health program, of course,depend on the number
67 of visits per year (thevariable costs). There are also some fixed
68 veterinary costs, independent ofwhether or not the farm participates
69 inthe herd health program: medicine costs etc.
70
71 Variable costs pervisit (US$) 120
72 Fixed veterinary costs per year (US$) 1500
73
74 The counterbalance of these costs isthe net returns from more pigs
75 weaned per sowper year.
76
77 Net returns from 1extra piglet (US$) 30
78 Number of sowsonthe farm 100
79
80 Press PgDn
81
82 All these additional costs and returns have to be taken into account to
83 calculate the net revenue of the herd health program.
84
85 Calculatethe total returns fromthe extra piglets and the totalveteri-
86 nary costs ifthe veterinarian visits the farm 20 times per year.
87
88 (Ifnecessary, goback to the previous screen by pressing "PgUp")
89
90
91 You can fill inthe answer after positioning the cursor inthe right
92 cell (CellE94 and E95;usethe arrow keys or the mouse):
93 US$
94 Total veterinary costs: (1)
95 Total returns extrapiglets: (2)
96
97
98
99 Press PgDn
100
101
102 Thetable below gives thetotal extra piglets per farm, the total
103 variable costs (TVC), thetotal returns (TR) from these extra piglets,
104 and themarginal returns(MR).
105
106 no. of extra TVC MC ($/ TR MR
107 visits piglets ($/farm) piglet) ($/farm) ($/piglet)
108
109 0 0 0
110 5 30 600 900 30
111 10 80 1200 2400 30
112 15 150 1800 4500 30
113 20 210 2400 6300 30
114 25 250 3000 7500 30
115 30 280 3600 8400 30
116 35 300 4200 9000 30
117 40 310 4800 9300 30
118
119 Press PgDn
120
251
Chapter 19
A | B | C | D | E | F | G | H
121
122 The farmer now has to decide what to do:does (s)hewant to participate
123 inthe herd health program? And if so:howmany visits per year should
124 be opted for?
125
126 Tomakethis decision,we need to calculate themarginal costs(MC).
127 Themarginal costs are the additional costs made to get one extra
128 piglet per farm.
129
130
131 Calculate these costs (or:fill in a formula that calculates them
132 for you!) for 5and 10visits per year. You can fill them in the
133 table onthe previous screen.
134
135
136 Return to that screen by pressing PgUp
137
138
139
140
141
142
143
144 Did you calculate and fill inthemarginal costs already?
145
146
147 No? Press PgUptwice to goto the table where you can
148 enter themarginal costs for 5and 10visits.
149
150 Yes? Press PgDn
151
152
153
154
155
156
157
158
159
160
161
162 Ifyou have done itcorrectly you will have found the following values.
163 The average variable costs (AVC) are also given. These values are used
164 tomake agraph of themarginal and average costs and returns (Excel-
165 user: press <CTRL> M, Lotus-user: <ALT> M, QPRO-user: <ALT>N ) .
166 Look at the graph and decide what the farmer should do.
167
168 no. of extra TVC AVC ($ MC ($ TR MR
169 visits piqlets (S/farm) /piglet) /piglet) (S/farm) $/piglet)
170 0 0 0
171 5 30 600 20.00 20.00 900 30
172 10 80 1200 15.00 12.00 2400 30
173 15 150 1800 12.00 8.57 4500 30
174 20 210 2400 11.43 10.00 6300 30
175 25 250 3000 12.00 15.00 7500 30
176 30 280 3600 12.86 20.00 8400 30
177 35 300 4200 14.00 30.00 9000 30
178 40 310 4800 15.48 60.00 9300 30
179
180 Press PgDn
252
Computer excercises on animal health economics
181
182 How many visits per year are optimal?
183 You can enter your answer inP183:
184
185
186
187
188
189 SENSITIVITY ANALYSES (optional,15min)
190
191 What isthe optimal decision when thevariable costs of a veterinary
192 visit areUS$180 instead of US$120? You can answer this question by
193 changing the value in cell F71.The results will be recalculated
194 automatically. Walk through thepages by pressing "PgUp" and "PgDn".
195
196 Number of visits per year (fill in F196): | |
197
198
199 Press PgDn
200
201
202 Because of adecreasing demand forpiglets,the price the farmer can
203 make for apiglet next year isexpected to be lower than this year.
204 The farmer iswondering whether it is still profitable next year to
205 participate in the herd health program. We are interested inthe break-
206 even point.The break-even point isthepoint where participating in
207 the program is neither favourable nor unfavourable. Thismeans that
208 themarginal returns of the program will always be lower than, or
209 equal to the average costs.Find the value for the net returns from 1
210 extra piglet where this istrue (You first have to change the price
211 of aveterinary visit back to US$120).
212 Answer in cell F212 (2decimal places): | I
213
214
215
216
217
218 Press PgDn
219
220
221
222
223 Change the net returns from 1extra piglet (in cell F77) to the value
224 you have just calculated and have a look atthe marginal and average
225 cost functions (bypressing <CTRL> M, <ALT> M or <ALT>N ) .
226
227
228 If you have done this correctly, you can see that inthis situation the
229 average costs are always higher than,or equal to,themarginal returns!
230
231
232
233
234
235
236
237
238
239 Press PgDn
240
253
Chapter19
E
241
242 You have finished the current exercise.
243 You can now chooseto:
244 - continue with an extra exercise on production function by opening
245 the file 'PRFUNCT2.WK1'
246 - return to the introductory fileby opening the file 'INTR0AHE.WK1•
247 - quit the computer exercises by closing the spreadsheet
248
249
250 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
251 = Principles andApplications =
252 Version 2.0 - September 1995
253
254 Design: C.W. Rougoor SA.W. Jalvingh
255 Supervisors: A.A. Dijkhuizen,R.S.Morris £R.B.M. Huirne
256 (c)Copyright:
257 Wageningen Agricultural University
258 Department of Farm Management
259 Hollandseweg 1
260 NL-6706 KN Wageninqen
254
Computer excercisesonanimalhealtheconomics
1
2 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 -September 1995
5
6 Current exercise:PRFÜNCT2.WK1 Production Function
7 Title of case: Helminthic case: an experimental example
8
9 Purpose: 1.Understanding the principles of aproduction function.
10 2. Example of aproduction function with real data.
11 Keywords:Variable costs,fixed costs,production function,
12 marginal and average costs and returns.
13 Time: 30min for the entirecase.
14
15
16
17
18
19
20 Press PgDn
21
22 HELMINTHIC CASE:AN EXPERIMENTAL EXAMPLE
23
24 In reality it isdifficult to get all data for adetailed description
25 of aproduction function,because you need data from many input levels.
26 Inthis case the financial returns from three anthelmintic schemes were
27 compared with 'notreatment' (treatment 0) in groups of Corriedale ewes
28 using real data from a field experiment.
29
30 Thethree treatment schemeswere:
31 1.Pre-and post-lambing treatment (treatmentI ) ;
32 2. Critical treatment: onetreatment in early summer and a second
33 one inmid-summer (treatmentI I ) ;
34 3.Biweekly treatment:treatment each fortnight to ensure minimum
35 levels of infection (treatmentIII).
36
37
38 Press PgDn
39
40
41
42 Although the treatments do not represent an evenly graded series
43 of steps in investment,they do represent agraded set of levels of
44 parasite control from zero to extremely effective.
45
46 Among other things,thewool cut per ewe (kg)and themean weight of
47 the lambs (kg)weremeasured, which gave the following results:
48
49 Treatment Wool Weight
50
51 0 3.00 19 80 'Wool cut per ewe' is
52 I 3.06 21 80 used tomake a graph
53 II 3.60 22 70 of the production
54 III 3.78 22 70 function. The treatment
55 input isplaced on the
56 X-axis and thewool output on the Y-axis. There isno line drawn
57 between the points,because a linewould suggest acontinuous scale
58 on theX-axis. Excel-user: Press <CTRL> G, Lotus-user: Press <ALT> G,
59 and Quattro Pro-user: Press <ALT> F. You can return to this screen
60 just by pressing any key. Press PgDn
255
Chapter19
61 I E H
62 The difference in the amount ofwool, from the lambs and from the
63 ewes, results in adifference in returns from the four helminth control
64 schemes. The following table shows costs and returns (inUS$) adjusted
65 to a standard flock of 100 sheep:
66 TREATMENT
67 EWES and LAMBS 0 I II III
68
69 Returns: Wool 774 815 969 1006
70 Ewes 353 412 360 380
71 Lambs 215 239 288 266
72
73 RETURNS 1342 1466 1617 1652
74
75 Costs: Anthelmintic and
76 labour 0 21 21 220
77
78 RETURNS - COSTS 1342 1445 1596 1432
79
80 Press PgDn
81
82 To find the optimal treatment,we have to calculate themarginal costs
83 and returns.
84
85 What are themarginal costs of treatment Iand themarginal returns
86 from treatment III?We already calculated the other marginal costs and
87 returns for you. Fill in themissing two numbers (as avalue or as a
88 difference between spreadsheet cells):
89
90 II III
91
92 Marginal Costs 0 199
93 Marginal Returns 124 151 Q
94
95
96
97
98
99 Press PgDn
100
101
102 The X-axis of the production functionyoumadebefore isnot a
103 continuous scale.Therefore it isnot possible to find an optimal
104 point onthe X-axis where themarginal costs are equal tothe marginal
105 returns. But we can find outwhich treatment is 'one step too far',
106 ie, where the marginal costs exceed themarginal returns.
107
108 Which treatment isthe best from an economic point of view?
109
110 0, I, II or III?Enter your answer in cellG110: | |
111
112
113
114
115
116 Press PgDn for a sensitivity analysis on these results.
117
118
119
120
256
Computer excercises on animal health economics
121
T^
122 SENSITIVITY ANALYSIS
123
124 Prices used tovalue woolwere those ruling at auction. These values
125 were the highest values obtained over 5years.Theminimum price level
126 of wool inthe past 5yearswas only 27%of the present level.
127
128 Calculate the returns fromwool with thisminimum price level (Cells
129 D69 toG69).Does this change your conclusion about the economically
130 best treatment?
131 Which treatment isthe best:0, I, IIor III?
132 Answer in cellG132: I I
133
134
135
136
137
138
139 Press PgDn
140
141
142
143 You have finished the current exercise.
144 You can now chooseto:
145 - return tothe introductory fileby opening the file 'INTR0AHE.WK1'
146 - quit the computer exercises by closing the spreadsheet
147
148
149 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
150 = Principles andApplications =
151 Version 2.0 - September 1995
152
153 Design: C.W. Rougoor &A.W. Jalvingh
154 Supervisors: A.A. Dijkhuizen, R.S.Morris SR.B.M. Huirne
155 (c)Copyright:
156 Wageningen Agricultural University
157 Department of Farm Management
158 Hollandseweg 1
159 NL-6706 KN Wageningen
160
257
Chapter 19
A | B | C | D | E | F | O | H
1
2 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 - September 1995
5
6 Current exercise: PARTBUD.WK1 Partial Budgeting
7 Title of case: Caesarean section indairy cattle
8
9 Purpose: 1.Understanding theprinciples of partial budgeting.
10 2. Calculating the costs of caesarean section in cattle.
11 Keywords: Static,additional returns,reduced costs,returns foregone,
12 extracosts.
13 Time: Approximately 20min necessary for themain exercise.
14 Another 10min for the (optional) sensitivity analysis.
15
16
17
18
19
20 Press PgDn
21
22 PARTIAL BUDGETING: CAESAREAN SECTION CASE
23
24 To determine the additional costs of and returns from caesarean sections
25 indairy cattle,apartial budgeting approach was used.
26
27 A partial budgeting model divides the costs and benefits into
28 different groups:
29 1.Additional Returns
30 2. Reduced Costs
31 3.Returns Foregone
32 4. Extra Costs
33
34
35 The costs and benefits of a caesarean section include the effects
36 as stated on the next page.
37
38 Press PgDn
39
40
41
42 Effects of caesarean section:
43
44 1. costs of surgery
45 2. drop inmilk production
46 A. less milk
47 B. less feed necessary
48 3.heavier weights of calves
49 4. 20%increase in culling rate
50
51 Enter inrows F44 and F46 to F49 1,2,3,or 4to indicate to which
52 partial budgeting category, asdefined on the previous page,you think
53 that effectbelongs.
54
55
56
57 Nowwewill dealwith the different categories one by one.
58
59 Press PgDn
60
258
Computer excercises on animal health economics
61
62 1.ADDITIONAL RETURNS
63
64 The averageweight for female calves is40kg, formale calves 43kg.
65 Calves delivered by caesarean section are on average 3.5 kg heavier.
66 82% of the calves born by caesarean section aremale calves.Calf
67 mortality increases to 12%,compared with 5% in a normal situation.
68 The prices per kg of body weight for calvesare:
69 female calves (US$) 4
70 male calves (US$) 6
71
72 Calculate the average returns from acalf born by caesarean section.
73
74 Enter your answer incell E74: | I
75
76
77
78
79 Press PgDn
80
81
82 Thistable gives the average returns for caesarean section calves
83 and for calves from anormal delivery:
84
85 Normal Caesarean section
86 female male female male
87
88 Weight 40 43 43.5 46.5
89 Price 4 6 4 6
90 % animals 50 50 18 82
91 % mortality 5 5 12 12
92
93 Returns 76 .00 122.55 7.56 201.33
94 Sum 198.55 228.89
95
96 The additional returns are the difference between thesetwo:
97 Additional returns: sum(C-section)- sum(Normal)= 30.34
98
99 Press "PgDn" forthe calculation of the reduced costs.
100
101
102 2. REDUCED COSTS
103
104 After a caesarean sectionthere isadrop inmilk production,
105 resulting ina saving in concentrates:
106 Decrease inmilk production: 70 kg
107 Decrease inconcentrates: 0.5 kg/kg of milk
108 The price of concentrates: 0.20 US$/kg
109
110 Calculate the reduced costs dueto caesarean section.
111
112 Enter your answer incellG112 (2decimal places): |
113
114
115
116
117
118
119 Press PgDn
120
259
Chapter19
121
122 RETURNS FOREGONE
123
124 Wewill give you the value of 'returns foregone':
125 Milk losses after caesarean section are 70 kgon average.
126 The price of one kilogram of milk: 0.40 US$
127 Returns foregone: kgmilk xmilk price = 28.00
128
129 EXTRA COSTS
130 US$
131 Cost of surgery: 150.00
132 Culling:Assume the costs of one animal culled
133 tobe US$340.The culling rate increases by
134 20percentage points (e.g. from 30to5 0 % ) .
135 What are the costs? (answer in F135) | |
136
137
138 Extra costs:surgery + culling = 150.00
139 Press PgDn
140
141
142 Nowwe have calculated the values for the different categories:
143
144 1.ADDITIONAL RETURNS 30.34
145 2. REDUCED COSTS
146 3. RETURNS FOREGONE 28.00
147 4. EXTRA COSTS 150.00
148
149 NET RETURNS (1.)+ (2.)- (3.)- (4.) -147.66
150
151 Iscaesarean section profitable from an economic point of view?
152 Y(es) or N(o)? (cell D152): | |
153
154 SENSITIVITY ANALYSIS (optional, 10min)
155
156 Assume that owing to a change in agricultural policy in the
157 country, the price a farmer canmake for themilk decreases to
158 US$0.15.However,the demand for calves increases.This results
159 in aprice per kg of body weight that istwicethe present price.
160 Press PgDn
161
162 Does this change your conclusion about the profitability of
163 caesarean section? Y(es)orN(o)? (Changethe values of cells E126,
164 D69 and D70,answer in cell G164): | |
165
166
167
168 Will caesarean section ever bemore profitable than anormal delivery
169 (with the given price levels), when we assume that caesarean section
170 does not have any negative effects on calf survival rate, percentage
171 of animals kept inthe herd, and milk production?
172
173 Enter your answer inG173 (Y(es)or N(o)):
174
175
176
177
178
179 Press PgDn
180
260
Computer excercisesonanimal health economics
181
182
183 You have finished the current exercise.
184 You can now chooseto:
185 - return to the introductory fileby opening the file 'INTROAHE.WK1'
186 - quit the computer exercises by closing the spreadsheet
187
188
189 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
190 = Principles andApplications =
191 Version 2.0 -September 1995
192
193 Design: C.W. Rougoor &A.W. Jalvingh
194 Supervisors: A.A. Dijkhuizen,R.S.Morris & R.B.M. Huirne
195 (c)Copyright:
196 Wageningen Agricultural University
197 Department of Farm Management
198 Hollandseweg 1
199 NL-6706 KN Wageningen
200
261
Chapter19
I
COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 - September 1995
5
6 Current exercise:COSTBEN.WK1 Cost-Benefit Analysis
7 Title of case: Enzootic bovine leucosis
8
9 Purpose: 1.Understanding theprinciples of cost-benefit analysis.
10 2. Comparing 2 strategies to eradicate enzootic bovine
11 leucosis.
12 Keywords: Dynamic, real interest rate,net present value, benefit-cost
13 ratio, internal rate of return.
14 Time: Approximately 30min for themain exercise, including 10
15 min for the optional calculations with real interest rate.
16
17
18
19
20 Press PgDn
21
22
23 COST-BENEFIT ANALYSIS: ENZOOTIC BOVINE LEUCOSIS CASE
24
25 Suppose 2 strategies A and B are available to eradicate enzootic
26 bovine leucosis in cattle in aparticular area.Costs due to the
27 disease areproduction losses.
28 The benefits of an eradication program are the total of expected
29 losses that are avoided. The costs are those invested inthe program.
30 We suppose that the costs and benefits occur at the end of each
31 year.
32
33 A calculation isnecessary to know which strategy isthe most
34 favourable from an economic point of view.
35
36
37
38
39 Press PgDn
40
41
42 The costs and benefits of the 2 strategies are:
43
44 Strategy A Strategy B
45 Year Costs Benefits Costs Benefits
46
47 20 0 2 1
48 10 8 2 3
49 7 14 4 6
50 4 18 5 7
51 0 23 6 14
52
53 Real interest rate 5 %
54
55 The real interest rate is used to calculate the discount factor,
56 which isneeded to determine the present value of future costs and
57 benefits.
58
59 Press PgDn
60
262
Computer excercisesonanimal health economics
B
61
62 Calculate the discount factor that isnecessary to calculate the
63 present value of the costs and benefits of years 1and 2.Use the
64 given interest rate (Give your answer in 2decimal places):
65
66 Discount factor year 1 (cellF66): (1)
67 Discount factor year 2 (cellF67): (2)
68
69
70
71
72
73 If you want to practise calculating the discount factor abitmore,
74 press F5.Excel-user: type "Q21", Lotus-and Quattro Pro-user:
75 type "K21"and press Enter.
76 The table on the next page gives the discount factors and the net
77 present value of the costs and benefits for years 1to 5for both
78 strategies.
79 Press PgDn
80
81 PRESENT VALUES
82 Discount Strategy A Strategy B
83 Year factor Costs Benefi Costs Benefits
84
85 1 0.95 19.05 0.00 1.90 0.95
86 2 0.91 9.07 7.26 1.81 2.72
87 3 0.86 6.05 12.09 3.46 5.18
88 4 0.82 3.29 14.81 4.11 5.76
89 5 0.78 0.00 18.02 4.70 10.97
90
91 Total 37.46 52.18 15.99 25.58
92
93 These values are used to calculate the different criteria. Calculate
94 the Net Present Value (NPV)of strategy B and the B/C ratio of
95 strategy A.Answer in cell F97 and cell C98 (2decimal places):
96
97 Net Present Value 14.72 :
98 Benefit-Cost Ratio| 1.60
99 IRR approximation 23.90 >=80
100 Press PgDn
101
102 Which strategy would you advise based on the NPV?
103 Strategy A or B? (cell F103) Q
104
105
106
107 Which strategy would you advise based onthe B/C ratio?
108 Strategy A or B? (cell F108) |
109
110
111
112 Consider the following statement and say whether it isT(rue) or
113 F(alse) (answer in F116):
114 When the objective of the eradication program isto get as much
115 money back for every dollar invested in it,the Net Present
116 Value isthe best selection criterion. I I
117
118
119
120 Press PgDn
263
Chapter19
B I C I D I E
121
122 At what real interest rate arethe benefits equal to the costs for
123 strategy A? You can check your answer by filling inthat real
124 interest rate inthe previous calculation!
125
126
127 SENSITIVITY ANALYSIS
128
129 The real interest rate increases.Thiswill have adifferent effect
130 on the NPV and the B/C-ratio of both strategies.
131
132 You can see this effect by using areal interest rate of14%.
133 Which strategy would you advise now?
134 Strategy A or B? (cell F134) | |
135
136
137
138
139 Press PgDn
140
141
142
143 You have finished the current exercise.
144 You can now chooseto:
145 - return to the introductory file by opening the file 'INTROAHE.WK1'
146 - quit the computer exercises by closing the spreadsheet
147
148
149 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
150 = Principles and Applications =
151 Version 2.0 - September 1995
152
153 Design: C.W. Rougoor &A.W. Jalvingh
154 Supervisors: A.A. Dijkhuizen,R.S.Morris &R.B.M. Huirne
155 (c)Copyright:
156 Wageningen Agricultural University
157 Department of Farm Management
158 Hollandseweg 1
159 NL-6706 KN Wageningen
160
264
Computer excercises on animal health economics
21
^ZZL
22 CALCULATIONS WITH THEREAL INTEREST RATE
23
24 A benefit of US$100 to be obtained inone year has lessvalue today
25 than abenefit of US$100 received immediately, because of interest
26 yields. Future costs and benefits,therefore, should be discounted,
27 resulting intheir present value.
28 In the estimated costs and benefits over the different years, inflation
29 isusually not taken into account.Therefore, inflation should not be
30 included inthe interest rate either. Thisvalue,the real interest
31 rate, is lower than the normal interest rate,and often more stable.
32 For every year and real interest rate a discount factor can be
33 calculated. This factor is l/(l+real interest rate/100) for costs
34 and benefits received inyear 1.
35
36 Calculate the discount factor for areal interest ate of 9% for
37 year 1. (Answer in cell P37,with 2 decimals) | |
38
39
40 Press PgDn formore examples.
41
42 Use the calculated discount factor to calculate the present value of
43 US$725 to be obtained inyear 1.
44 (Answer in cell P44,nodecimals) | |
45
46
47
48 The formula for calculating the discount factor for more than one
49 year iswhen 'n'isthe number of years and 'i'isthe real interest
50 rate: discount factor = 1/(1 + i/100)"n.
51
52 Calculate the present value of receiving (for sure)US$200 each
53 year over the first 4years,when the real interest rate is 6%.
54 (Start with calculating the discount factors for years 1to4 ) .
55
56 Present value (cell P56, no decimals): | |
57
58
59
60 Press PgDn
61
62
63 Let us try it the other way around:
64 The present value of US$25 you will get intwo years isUS$ 23.11.
65
66 What isthe real interest rate? (cell P66)
67
68
69
70
71
72
73
74
75 Return to themain exercise by pressing F5 and:
76
77 Excel-user: type "A80"
78 Lotus- and Quattro Pro-user: type "A61".
79
80
265
Chapter19
1
B
I E
266
Computer excercisesonanimal health economics
I C 1 D I E I
61
62 This is aproblem with two variables (Xand Y) sothe problem can
63 be represented graphically. Any 'action' (X,Y) isequivalent to a
64 point with these coordinates ina standard two-dimensional plane.
65 The constraints restrict the feasible actions to aregion within
66 thisplane.
67
68 Have a look at the graph by pressing <CTRL> G (Excel), <ALT> G (Lotus)
69 or <ALT> C (Quattro Pro).The lines you see are simply the constraint
70 expressions replacing the inequality by an equality. Note that the
71 constraints (1)restrict the region tothe positive quadrant. Pressing
72 any key will bring you back tothis screen.
73 Which area shows the solutions that are feasible forthese constraints?
74 A, B, C or D?Answer in cell F74. | |
75
76
77
78
79 Press PgDn
80
81
82 Till nowwe have forgotten one limitation: the barn for the cows has
83 space for only 40 cows. Does this influence the feasible area of the
84 graph? Y(es)or N(o)? Answer in cell F84: | |
85
86
87
88 The farmer wants tomaximize the total net returns (R).The net returns
89 from cows and sheep are given inthe following table:
90
91 Net returns (US$/year)
92
93 Cows 600
94 Sheep 100
95
96 So, one cowyields the same net returns as six sheep. Ina
97 mathematical formulation:
98 max R =max 600xX + 100x Y.
99 Press PgDn
100
101 The lines for R = 12000and R = 14000 are plotted inthe diagram of
102 feasible actions.These lines give the relationship denoting equal
103 net returns.Press <CTRL> R (Excel), <ALT> R (Lotus)or<ALT> D
104 (Quattro Pro)to have a look atthe graph.
105
106 Isthe following statement T(rue)or F(alse)?
107
108 If an optimal solution exists,an optimal solution can always be
109 found at an angular point of the feasible region of the problem.
110 Answer in cell D U O : | |
111
112
113
114
115 The next stepwe have to take iscalculating the (X,Y)values of
116 these angular points.The feasible area has,inour situation, 4
117 angular points.One of them is (0,0), which is not interesting.
118 Another one isthe point where the 2 constraint lines cross. Besides
119 these there are (0,Y)and (X,0). Here one of the constraints crosses
120 the Y- and the X-axis respectively. Press PgDn
267
Chapter19
B I C I D I E
121 The following table gives theX and Y values of the points where con-
122 straints cross each other or the Y- or X-axis. X(L) and Y(L) and X(G)
123 and Y(G) arethe values of X and Y for the labour and grass
124 constraint respectively:
125 Angular Point X Y
126
127 Y(L)=Y(G) 20 100
128 (0,Y(L)) 0 267
129 (0,Y(G)) 0 150
130 (X(L),0) 32 0
131 (X(G),0) 60 0
132
133 Calculate thetotal net returns of the 3 feasible angular points.
134 (You can have another look atthe graph to find the 3points). What
135 number of cows and sheep isthebest from an economic point of view?
136 Optimal number of cows (cell E136):
137 Optimal number of sheep (cell E137):
138
139
140 Press PgDn
141
142 The value of the objective function forthe 3 feasible angular points:
143
144 Angular points Returns
145
146 X=0 15000
147 Y=0 19200
148 Y(L)=Y(G) 22000
149
150
151 This results inthe following optimal situation:
152
153 X= 20 cows
154 Y= 100 sheep
155
156
157 Thebasic situation isready now.Let us usethe model todo some
158 sensitivity analyses.
159 Press PgDn
160
161
162 SENSITIVITY ANALYSES (optional, 10min)
163
164 The farmer knows quitewell the specific results of the cows on the
165 farm. Butthe estimate of thenet returns fromthe sheep is rather
166 uncertain. Below what value should the farmer change the optimal
167 strategy? The slope of the objective function line is determined
168 by the ratio of the net returns.This ratio also determines which
169 angular point isthe optimal strategy.
170
171 Atwhich slope isthe objective function equal for (20 cows, 100
172 sheep) and (32 cows, no sheep)? A, B, C orD?
173 A. 2.50
174 B. 8.33 Answer in cell F174: | ~|
175 C. -2.50
176 D. -8.33
177
178
179
180 Press PgDn
268
Computer excercisesonanimal healtheconomics
B
181
182 Use this value to calculate the break-even point for the net returns
183 from sheep: Forwhich value of the net return from sheep does the
184 optimal situation change to 'only cows' instead of 'sheep and cows'?
Answer in cell D185: I 1
187
188
189
190 Also calculate the value of the net returns from sheepwhere the optimal
191 situation changes to 'only sheep' instead of 'sheep and cows'. (You
192 first have to find outwhat the slope of the objective function should
193 be inthis situation.)
194 Answer in cell D194: I I
195
196
197
198
199 Press PgDn
200
201
202
203 You have finished the current exercise.
204 You can now chooseto:
205 - return to the introductory fileby opening the file 'INTROAHE.WK1'
206 - quit the computer exercises by closing the spreadsheet
207
208
209 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
210 = Principles andApplications =
211 Version 2.0 - September 1995
212
213 Design: C.W. Rougoor &A.W. Jalvingh
214 Supervisors: A.A. Dijkhuizen, R.S.Morris &R.B.M. Huirne
215 (c)Copyright:
216 Wageningen Agricultural University
217 Department of Farm Management
218 Hollandseweg 1
219 NL-6706 KN Wageningen
220
269
Chapter19
270
Computer excercises on animal health economics
61
B
T E R
271
Chapter19
A | B | C | D | E | F | 0 [ H | ]
121
122 We first have to decide what the value of the sows is at the end
123 of our planning horizon (stage 2 0 ) .The best estimation we have
124 till now isthe slaughter value:
125
126 Stage 20
127 State Value
128
129 4 195
130 3 210
131 2 190
132 1 180
133
134 Nowwe go back to decision stage 19:what is optimal,to keep or to
135 replace the sow? The profit of, for instance, keeping a sow in parity
136 2 (=state 2) isthe profit from the sow inthe following parity and the
137 profit from the optimal decision taken at stage 20 for a sow inparity 3
138 (=state 3 ) .Themodel calculates this as:cell E108 + cellC130.
139 Press PgDn
140
141
142 Which cells dowe have to sum to get the profit from replacing a
143 sow inparity 2 (state 2) in stage 19? Choose one of the following
144 options: A. Only cell C108
145 B. Cell E108 + cell C131
146 C. Cell C108 + cell C132
147
148 Answer inD148:
149
150 Compare theprofits from keeping and replacing a sow inparity 2 (state
151 2) at stage 19.What should the farmer decide? K(eep)or R(eplace)?
152
153 Answer inD153:
154
155
156
157 The following tables showtheprofits from replacing and keeping at
158 stage 19 and stages 4to 1and the optimal solution for the different
159 stages. Stages 18to 5are also calculated, but hidden:they have been
160 calculated in the sameway asthe stages shown. Press PgDn
161
162 K indicates keeping tobe optimal,R indicates replacing,K/R
163 indicates keeping and replacing to be indifferent.
164
165
166 Stage 19: State Replace Keep Max K/R?
167
168 4 390 390 R
169 3 405 535 535 K
170 2 385 610 610 K
171 1 375 510 510 K
172
173 Isthe following statement T(rue) or F(alse)? (answer in 1175)
174
175 The output of stage k isthe input for stage k-1. [^
176
177
178
179 Press PgDn
180
272
Computer excercisesonanimal health economics
A | B | C | D | E | F | O 1 H | I | J
181
182
183 Stage 4: State Replace Keep Max K/R?
184
185 4 5275 5275 R
186 3 5290 5290 5290 K/R
187 2 5270 5365 5365 K
188 1 5260 5360 5360 K
189
190
191
192 Stage 3: State Replace Keep Max K/R?
193
194 4 5570 5570 R
195 3 5585 5615 5615 K
196 2 5565 5690 5690 K
197 1 5555 5685 5685 K
198
199 Press PgDn
200
201
202 Stage 2: State Replace Keep Max K/R?
203
204 4 5895 5895 R
205 3 5910 5910 5910 K/R
206 2 5890 6015 6015 K
207 1 5880 6010 6010 K
208
209 Stage 1: State Replace Keep Max K/R?
210
211 4 6220 6220 R
212 3 6235 6235 6235 K/R
213 2 6215 6310 6310 K
214 1 6205 6335 6335 K
215
216 We assume that at the beginning of the planning hori zon (stage 1)
217 all the animals are in state 1.What i s the optimal decision in stages
218 1 to 4? (Keepthe sowwhen 'keep'and 'replace' are equal).
219 Compare your answer with the figure on the following page.
220 Press PqDn
221
222 TheOptimal Path is:
223
224 State
225 4 R
226 3 K
227 2 K
228 1 K
229
230 Stage 1 2 3 4
231
232
233 RETENTION PAY-OFF (optional, 5min, sk ip itby press ing PgDn twice)
234
235 The outcome of the model can be used t o estimate the Retention
236 Pay-off (RPO). The RPO isthe total ex tra profit fro m keeping a sow
237 compared with immediate replacement.
238
239 Press PgDn
240
273
Chapter19
I F I G I H I
241
242 Use the values of stage 1to calculate the RPO for sows inparity 1,
243 inparity 2 and inparity 3. (Because all animals are replaced after
244 4 parities,we cannot calculate an RPO for sows inparity 4.)
245
246
Enter your answers inthe following table:
247
248
249
Parity 1 2 3
250
251 RPO:
252
253
254
255
256
257 Press PgDn for some sensitivity analyseswith the DP-model.
258
259
260
261
262 SENSITIVITY ANALYSES (optional, 10min)
263
264 The farmer does not believe that theprevious calculations are suitable
265 for his/her situation. Thepurchaseprice of a sowmay be US$225 on
266 average,but (s)hehas got thebarn and labour available to rear sows
267 himself/herself. The rearing costs thereforewill not exceed US$175 per
268 sow.
269 What isthe optimal path inthis specific situation? Inwhich parity
270 does the farmer have to replace the animals? 1,2, 3or 4?
271
272 Enter your answer in cell F272:
273
274
275
276
277
278
279 Press PgDn
280
281
282 In reality a replacement sowmay be a little better than the older
283 sows, because of genetic improvement.Assume that every replacement
284 sowwill yield net returns that areUS$8 higher than the net
285 returns from areplacement sow in aprevious stage.
286
287 What isthe optimal replacement policy for this farmer (including
288 the lower purchase price)? Parity 1,2, 3or 4? (Change cell H116)
289
290 Enter your answer in cell F290:
291
292
293
294
295
296
297
298 Press PgDn
299
300
274
Computer excercisesonanimal healtheconomics
301
302
303 You have finished the current exercise.
304 You can now chooseto:
305 - return tothe introductory fileby opening the file 'INTROAHE.WK1'
306 - quit the computer exercises by closing the spreadsheet
307
308
309 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
310 = Principles and Applications =
311 Version 2.0 -September 1995
312
313 Design: C.W. Rougoor SA.W. Jalvingh
314 Supervisors: A.A. Dijkhuizen,R.S.Morris &R.B.M. Huirne
315 (c)Copyright:
316 Wageningen Agricultural University
317 Department of Farm Management
318 Hollandseweg 1
319 NL-6706 KN Wageningen
320
275
Chapter19
276
Computer excercisesonanimal health economics
C | D | E | F | G | H |
61
62 As you can see,after acouple ofyears,the number of uninfected
63 animals does not change any more;a steady state hasbeen reached.
64
65 Determine the steady statewhen atthe start 75 animals are
66 infected. Change the value in cellB47.
67
68 Enter your answers in F70 andF71:
69
70 Number of infected animals:
71 Number of uninfected animals:
72
73
74
75
76
77 More about the steady state on thenextpage.
78
79 Press PgDn
80
81
82 The steady state seems to be independent of the initial situation.
83 Now we have found a steady state after somemultiplications. It
84 is also possible to calculate the steady state at onceby solving
85 the following equations:
86 0.75 x (% Uninf.) + 0.5 x (% Inf.)= % Uninf.
87 0.25 x (% Uninf.) + 0.5 x (% Inf.)= % Inf.
88 % Uninf. + % Inf. =100%
89
90 Solving this problem results in: 33.33 % Infected
91 66.67 % Uninfected
92
93 Thetwo states in this model are called recurrent.Another possi-
94 bility isthat one of the states is absorbing: letus assume that
95 an animal that has been infected once,will never be freeof the
96 disease again.
97
98 Goto the nextpage to complete thetransitionmatrix for this
99 situation.
100 Press PgDn
101
102 Enter the correct values inthe transition matrix:
103
104
105 FROM/TO Uninf. Inf.
106
107 Uninf.
108 Inf.
109
110
111 Inthis case 'infected' is an absorbing state:once an animal has
112 reached this state, itwill never leave it again.
113 The state 'uninfected' isnow atransient state: a sheep that
114 passes this state,will never come back to it again. In this
115 situation all sheep will be infected eventually, independent
116 of the initial situation. Sothe steady statewill be:0unin-
117 fected and 90 infected.
118 Now we extend the model with an extra state: immune.
119
120 Press PgDn
277
Chapter 19
121
122 The transition matrix isgiven:
123
124 FROM/TO Uninf. Inf. Immune
125 Are the different
126 Uninf. 0.5 0.25 0.25 states absorbing(A),
127 Inf. 0 a 0 transient (T)or
128 Immune 0 o 1 recurrent (R)?
129
130 (NB: drawing atransition diagram might be useful and illustrative).
131 A, T, R?
132 Uninf.
133 Inf. :
134 Immune:
135
136 How many animals (from atotal of 90)will eventually be infected when
137 atthe start all sheep are uninfected? (cell H137): | ~|
138
139
140 Press PgDn
141 Isthis steady state independent ofthe initial situation? Y(es) or
142 N(o)? (answer in E142): | "|
143
144
145
146 The next case isan example of amatrix with only recurrent states:
147
148 MARKOV CHAIN EXAMPLE: MASTITIS
149
150 A dairy farmer has someproblems with the animals: a lot of them
151 suffer frommastitis,so (s)he asksyou for advice.At the moment the
152 herd consists of the following animals:
153
154 Initial herd: Uninfected 240
155 Strep, agalactia 15
156 Strep, spp. 15
157 Staphylococcus 22
158 Other infections 8
159 TOTAL 300 Press PgDn
160
161
162 A Markov Chain transition matrix isgiven.Each cell represents the
163 annual probability of transition from different states on the left-
164 hand side of thematrix to states appearing over the matrix.
165
166 Strep, Strep, Other
167 FROM/TO Uninf. ag. spp. Staph. Inf. Culled SUM
168
169 Uninfec. 0.52 03 .02 0.12 .02 0.29 1.00
170 Strept ag. 0.70 01 0 0 0 0.29 1.00
171 Strept spp. 0.70 0 .01 0 0 0.29 1.00
172 Staph. 0.10 0 0 0.40 0 0.50 1.00
173 Other infec. 0.71 0 0 0 0 0.29 1.00
174 Culled 1.00 0 0 0 0 0 1.00
175
176 Calculate the number of Staphylococcus infections inyear 1.
177 Enter your answer in cell G177: |
178
179
180
278
Computer excercisesonanimal health economics
B
181
182 The transition matrix isused to calculate the situation on
183 the farm over a couple of years.The results are given in the
184 STATE MATRIX:
185
186 Strep. Strep. Other
187 Time Uninfec. ag spp. Staph, infect. Culled TOTAL
188
189 0 240 15 15 22 0 300
190 1 154 7 5 38 92 300
191 2 187 5 3 33 68 300
192 3 177 6 4 36 74 300
193 4 179 5 4 36 73 300
194 5 178 5 4 36 73 300
195 6 178 5 4 36 73 300
196 7 178 5 4 36 73 300
197
198 As you can see,quite a lot of animals suffer from Staphylococcus.
199 After a couple of years a steady state is reached.
200 Press PgDn
201
202 There are different options of changing the present situation:
203
204 1. Using antibiotics for dry-period treatment of the animals.
205 25% of the animals with Staphylococcus will be clean the next
206 year, instead of 10%.25% instead of 40%remain infected with
207 Staphylococcus.
208 2. Bringing the number of new Staphylococcus infections down by some
209 extra care for hygiene. Instead of 12%new infections, 4% of the
210 clean cowswill suffer from Staphylococcus the next year.
211
212 Create the transition matrix for the first strategy. You can do
213 this by changing the values inthe original transition matrix.
214 Check the last column inthe matrix: the summation of all proba-
215 bility ratesmust equal 1!
216
217 The STATE MATRIX gives you the new situation.Make sure you write
218 down the steady state situation, because you need it later.
219 Make the probabilities equal again tothe default values and
220 recalculate strategy 2. Press PgDn
221
222 The losses due tomastitis are:
223 Streptococcus ag. 260 (US$per infected cowper year)
224 Streptococcus spp. 260
225 Staphylococcus 300
226 Other infections 210
227
228 Cost of Culling 340 (US$per culled cow)
229
230 The costs of the different strategies are:
231 Strategy 1 (US$per year) 1900
232 Strategy 2 (US$per year) 2500
233
234
235 These values can beused to calculate the costs for the different
236 strategies. You can fill inthe number of animals suffering from
237 the different bacteria (inthe steady state) inthe scheme on the
238 next page.You also have to fill inthe number of animals culled.
239
240 Press PgDn
279
Chapter 19
A | B | C | D | E | F | O | H | I
241
242 Number of animals suffering from:
243 Costs Total
244 Strategy: Str ag. Str spp. Staph. Other Culled Strat. Costs
245
246 Notreatment 0 0
247 Strategy 1 1900 1900
248 Strategy 2 2500 2500
249
250 Themodelmultiplies thesevalues by the costs as defined
251 previously, and calculates the total costs.
252
253 What would you advise the farmer?
254
255 Best strategy (Fill inNo or 1or 2 in cell H255): | |
256
257
258
259
260
261
262
263 DYNAMIC TRANSITION RATES (optional, 15 min)
264
265 Nowwe assume that the number of animals infected with Streptococcus
266 agalactia depends on the number of animals uninfected or infected with
267 Streptococcus agalactia during the previous year. The probability of
268 anuninfected animal becoming a new Streptococcus agalactia case was
269 calculated astheprobability of anuninfected animal not avoiding
270 effective contact with all cases present inthat year.
271
272 Inthis situation a fixed (static)transition matrix is insuf-
273 ficient.A second transition matrix is constructed.
274
275 Have a look at thismatrix on the nextpage.
276
277
278
279 Press PgDn
280
281
282 TRANSITION MATRIX:
283 Strep. Strep. Other
284 FROM/TO Uninf. ag. spp. Staph. Inf. Culled SUM
285 Uninfec. X Y 0.02 0.12 0.02 0.29 1.00
286 Strept. ag. 0.70 0.01 0 0 0 0.29 1.00
287 Strept. spp. 0.70 0 0.01 0 0 0.29 1.00
288 Staph. 0.10 0 0 0.40 0 0.50 1.00
289 Other inf. 0.71 0 0 0 0 0.29 1.00
290 Culled 1.00 0 0 0 0 0 1.00
291
292
293 X = 1- summation (D285 to H285)
294 Y = 1-0.995tothe power of(no. of strep, ag. inprevious year)
295
296 These values can change over time,making the transition probabilities
297 dynamic. Inthe statematrix the values are given per year.
298
299 We first need todefine the initial herd. Press PgDn
300
280
Computer excercises on animal health economics
A | B | C | D | E | F | G | H | I
301
302 Initial herd: Uninfected 240
303 Strept. ag. 15
304 Strept. spp. 15
305 Staphylococcus 22
306 Other infections 8
307
308 Calculate X and Y foryear 1 (giveyour answer intwo decimal places
309 inD310 and D311):
310 X=
311 Y=
312
313 Consider the following statement:
314
315 Y isalwayshigher in aherd with ahigh percentage of animals
316 suffering from Streptococcus agalactia than in a herd with a smaller
317 percentage suffering from Streptococcus agalactia.
318
319 T(rue)or F(alse) (inF31Ï »)? 1 1
320
321
322
323
324
325 In the STATE MATRIX the situation isgiven over some years. X and
326 Y are calculated and given for every year first:
327
328 Strept. Strept. Other
S
329 Time X Y Uninf. ag. PP- Staph. inf. Culled
330
331 0 ** ** 240 15 15 22 8 0
332 1 0.48 0.07 143.50 17.53 4.95 37.60 4.80 91.62
333 2 0.47 0.08 181.38 12.25 2.92 32.26 2.87 68.33
334 3 0.49 0.06 173.16 10.92 3.66 34.67 3.63 73.96
335 4 0.50 0.05 176.22 9.34 3.50 34.65 3.46 72.83
336 5 0.50 0.05 176.61 8.15 3.56 35.01 3.52 73.15
337 6 0.51 0.04 177.42 7.15 3.57 35.19 3.53 73.14
338 7 0.51 0.04 178.00 6.32 3.58 35.37 3.55 73.18
339
340 Press PgDn
341
342 Assume that not 15but 65 animals are infected with Strept.ag. in
343 the initial situation.Will Y be higher or lower inyear 1than
344 intheprevious situation?
345
346 Enter your answer in cell H346; H( igher)or L(ower): | |
347
348
349
350
351
352 What doyou think will happen over a7-yearperiod:will Y remain
353 completely different fromthe Y inthe previous situation or not?
354 Check your answer by filling inthe new situation inthe defined
355 initial situation (cellsE302 to E306). (Theherd size has not
356 changed, soyou havetobring the number of uninfected animals
357 down.)
358
359 Press PgDn
360
281
Chapter19
361
362
363 You have finished the current exercise.
364 You can now chooseto:
365 - return to the introductory fileby opening the file 'INTROAHE.WK1'
366 - quit the computer exercises by closing the spreadsheet
367
368
369 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
370 = Principles and Applications =
371 Version 2.0 - September 1995
372
373 Design: C.W. Rougoor £A.W. Jalvingh
374 Supervisors: A.A. Dijkhuizen, R.S.Morris &R.B.M. Huirne
375 (c)Copyright:
376 Wageningen Agricultural University
377 Department of Farm Management
378 Hollandseweg 1
379 NL-6706 KN Wageningen
380
282
Computer excercisesonanimal health economics
B E
1
2 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
3 = Principles and Applications =
4 Version 2.0 -September 1995
5
6 Current exercise: MONTCAR.WK1 Monte Carlo Simulation
7 Title of case: Aujeszky's disease in swine
8
9 Purpose: 1.Understanding Monte Carlo simulation.
10 2. Simulating the number of animals infected with Aujeszky's
11 disease in a herd and its financial effect over time.
12 Keywords:Dynamic, random sampling, simulation.
13 Time: Approximately 30min for themain exercise.Another 10min
14 for the optional exercise (different initial situation).
IS
16
17
18
19
20 Press PgDn
21
22 MONTE CARLO SIMULATION: AUJESZKY'S DISEASE
23
24
25 Assumethe following transition matrix with 3possible states an
26 animal canbe in:
27
28 From/to| SUM
29
30 0.60 0.38 0.02
31 0.05 0.85 0.10
32 0.03 0.87 0.10
33
34 where: A =hogs are healthy
35 B =hogs are infected with Aujeszky
36 C = hogs infected with Aujeszky and secondary infections
37
38 Number of hogs of a farmer: 40
39 Press PgDn
40
41
42 A Markov chain demands an initial herd.Assume that inperiod 0 all
43 animals are healthy.
44 A Markov chain calculates the situation inthe next period as:
45
46 A B C
47
48 Period 1 24.00 15.20 0.80
49 Period 2 15.18 22.74 2.08
50
51 A Markov chain can also be used to calculate a stationary situation.
52 In thiscase:
53 A B C
54
55 Stationary: 4.28 32.06 3.66
56
57 Monte Carlo simulation determines the situation in the next period
58 by random sampling for each hog.Let us simulate the situation in
59 period 1.
60 Press PgDn
283
Chapter 19
B l C D E F O B
61
62 Themodel will draw arandom number between 0 and 1.When the number
63 is lower than or equal to 0.60, the hog will be in stateA.When the
64 number is higher than 0.60 but lower than or equal to 0.98, the hog
65 will be in state B, etc.This corresponds with the first row of the
66 transition matrix. Cell B71 shows the number drawn,cell C71 the
67 corresponding state.
68
69 Random State
70
71 0.4382 A
72
73 The farmer has 40 hogs, sowe have tomake 40 iterations:
74
75 Number of iterations: 40
76
77 Now you can press <CTRL> S (Excel-user) or <ALT> S (Lotus-andQuat-
78 tro Pro-user)to start the simulation.Lotus and Excel-user: look at
79 cells B71 and C71:you will see the changing of number and text
80 depending on the state the hog is in. Press PgDn
81
82 Quattro Pro does not update these cells after each iteration. The
83 outcome appears in the following table.To see the effect of the
84 random sampling,we can domore replicates.
85 Press <CTRL> or<ALT> S again: cell C88will change to 2;the second
86 replicate. Go ontill the table is completely filled.
87
88 Replicate number 0
89 REPLICATE
90 State 1 2 3 4 5 Avg % SD of %
91
92 Ä Ö (5 Ö Ö 0 0.00 0.00
93 B 0 0 0 0 0 0.00 0.00
94 C 0 0 0 0 0 0.00 0.00
95
96 To get a clear view of the differences between the replicates, you
97 can have a look at agraph with the 5replicates.Press <CTRL> G
98 (Excel),<ALT>G (Lotus)or<ALT> Q (Quattro Pro).The 5 replicates
99 may differ considerably. Pressing any key will bring you back to
100 this screen. Press PgDn
101
102 What ifthere are 250hogs instead of 40?
103
104 Let us repeat the simulation with 250 hogs: change cell D75 to250.
105 Press <CTRL> R (Excel-user) or <ALT> R (Lotus-and Quattro Pro-user).
106
107 Replicate number 0
108
109 REPLICATE
110 State 1 2 3 4 5 Avg % SD o f %
111
112 Ä Ö Ö Ö 5 0 0.00 0.00
113 B 0 0 0 0 0 0.00 0.00
114 C 0 0 0 0 0 0.00 0.00
115
116 Themodel calculates the average percentage of animals inthe different
117 states and also the standard deviation of this percentage (last columns
118 of the tables;these values are only meaningful when all replicates are
119 done). Compare the standard deviations for 40 and 250 iterations.
120 Press PgDn
284
Computer excercises on animal health economics
121
I I I E I
122 Let us return tothe farmerwith only 40 hogs. Till now,we have only
123 looked at period 1.We alsowant to knowwhat happens over time,
124 for instance 7periods.Let us start with an average situation.
125 The situation inperiod 0 is sampled from the stationary situation
126 calculated with theMarkov Chain (cells C55 toE55):
127
128 Situation hog
129
130 Period Change cell D75 again to 40
131 Period iterations. Press <CTRL> P (Excel)
132 Period or<ALT> P (Lotus and Quattro
133 Period Pro)to simulate the 7periods.
134 Period
135 Period
136 Period
137
138 The results of this simulation appear on the next page.
139
140 Press PgDn
141
142 Replicate number
143
144 Period
145 State 1 2 3 4 5
146
147
148
149
150
151 The model has simulated the situation over 7periods foreach hog.
152 The situation inperiod idepends on the situation in period i-1.
153 We use the probabilities from thetransition matrix defined at the
154 beginning of this exercise. Therefore,when inperiod 2 ahog is
155 in state B,the probabilities belonging to state Bwill beused in
156 period 3.
157 (Remember:this isdifferent from theprevious situation: there we
158 did 5 independent simulations for 1period, herewe only do 1
159 simulation,but for 7different periods).
160 Press PgDn
161
162 Have a look at the graph that shows the distribution over time of your
163 last simulation: Press<CTRL> F (Excel) ,<ALT> F (Lotus)or <ALT> W
164 (QuattroPro).
165
166 What would the situation over time be ifwe had used aMarkov Chain
167 instead of aMonte Carlo simulation and the stationary situation was
168 the initial situation? A, B or C?
169 A. Exactly the same situation inperiod 0 aswith Monte Carlo, but
170 a smooth line to the situation inperiod 6.
171 The graph would show 3horizontal, stable lines.
172 The situation over timewould be exactly the same as with
173 Monte Carlo.
174
175 Answer in cellD175: JPress<F9> after you have given the
176 answer.
177
178
179
180 Press PgDn
285
Chapter19
I D I E
181
182 FINANCIAL LOSS
183
184 Let us assume that the financial loss from Aujeszky's disease can be
185 quite high,especially when owing to the disease,other infections occur.
186 Assume that the costs of the disease are:
187
188 US$per hog per period
189
190 Aujeszky only: 20
191 Aujeszky and sec. inf.: 150
192
193 Calculate the costsof the disease inperiod 6 for this farmer.
194 Answer in cell D194: | |us$.Press <F9> after you have
195 given the answer.
196
197
198 Repeat the simulation 4times by changing the replicate number to
199 zero (cell C142), press <ENTER> and <F9>. Thetable is cleared now.
200 Press PgDn
201
202 You canpress <CTRL> or <ALT> P again for a replicate.
203 For every replicate you can look atthe graph by pressing <CTRL> F
204 (Excel),<ALT> F (Lotus)or<ALT> W (QuattroPro).
205
206 Calculate the costs of the disease for all replicates and compare
207 thecosts.
208
209 OPTIONAL EXERCISE (10min)
210
211 Inthe calculations over time,the situation in period 0was sampled
212 from the stationary situation.Assume that the farmer is sure that
213 the farm istotally free of the disease at themoment.All animals
214 are then in state A.
215
216 Simulate the situation for periods 1to 6. You can do this by
217 changing cell C130 in 'A' (all animals are in stateA inperiod0 ) .
218
219 Press PgDn
220
221
222 Have a look atthegraph bypressing <CTRL> F (Excel), <ALT> F (Lotus),
223 or <ALT> W (QuattroPro).
224 What graph doyou expect when the number of animals ismuch higher?
225
226 You can see the effect of an increasing number of animals as follows:
227
228 Change after a simulation the replicate number to zero but do not
229 press <F9>. Thetable isnot cleared. Press <CTRL> or <ALT> P: the
230 simulation will be repeated and the number of animals inthe 3 states
231 arethetotal number of 2 simulations.Have a look atthe graph.
232 You can repeat this asoften asyou like: atthe end you get a very
233 smooth graph.
234
235
236
237
238 Press PgDn
239
240
286
Computer excercisesonanimalhealth economics
241
242
243 You have finished the current exercise.
244 You can now chooseto:
245 - return tothe introductory fileby opening the file 'INTROAHE.WK1'
246 - quit the computer exercises by closing the spreadsheet
247
248
249 COMPUTER EXERCISES ON ANIMAL HEALTH ECONOMICS
250 = Principles andApplications =
251 Version 2.0 - September 1995
252
253 Design: C.W. Rougoor &A.W. Jalvingh
254 Supervisors: A.A. Dijkhuizen,R.S.Morris &R.B.M. Huirne
255 (c)Copyright:
256 Wageningen Agricultural University
257 Department of Farm Management
258 Hollandseweg 1
259 NL-6706 KN Wageningen
260
287
Chapter19
288
Computer excerciseson animal health economics
61
62 The following table shows the payoff of the different strategies:
63
64 Strategy
65 States P(state) al a2 a3
66
67 Success 0.8 985 1100 800
68 Failure 0.2 505 60 800
69
70 One criterion most often used to verify which strategy isthebest,
71 istheExpected Monetary Value (EMV). The EMV istheweighed average
72 of the payoffs.Calculate the EMV for allthe strategies.
73
74 What isthe optimal strategy according to theEMV? al,a2 or a3?
75
76 Answer in cell D76: | |
77
78
79
80 Press PgDn
81
82 TheEMV is summarized inthe following table:
83
84 Strategy
85 al a2 a3
86
87 EMV 889 892 800
88
89 The outcomes of the 2 surgery strategies are uncertain. TheEMV impli-
90 citly assumes decision makers to be risk neutral.Thismeans that the
91 EMV does not differentiate, for instance,between US$100 for sure,and
92 US$200 or 0with a 50/50% probability. There are different criteria
93 available that do take risk attitude into account.
94
95 Themaximin criterion arises from avery pessimistic risk attitude.
96 Each action is judged on itsworst payoff.What isthe optimal
97 strategy according to this criterion? (Cell G97) |
98
99 Press PgDn
100
101
102 Theminimax regret criterion compares the amount bywhich the payoff
103 could have been increased had the decision maker known what the
104 result of surgery would be. What isthe optimal strategy according
105 to this criterion? Answer in cell F105: | |
106
107
108
109 A third criterion is atotally optimistic one:Themaximax criterion
110 simply amounts to scanning the payoff matrix to find its largest
111 value. This criterion totally ignores all other payoffs. It is
112 very much the approach of the desperate gambler.What is in our
113 example the optimal strategy according to themaximax criterion?
114 al, a2or a3?Answer in F114: | |
115
116
117 The difference in outcome of these 3 criteria arises from a different
118 risk attitude.A very important thing these criteria do not take into
119 account is any difference inprobability of the outcome.
120 Press PgDn
289
Chapter19
A | B | C | D | E | F | G
121 UTILITY (optional,15min, skip itby pressing PgDn 4 times)
122
123 Amethod that includes both probability of the outcome and risk
124 attitude isthe expected utilitymodel.The choice criterion is
125 maximization of the utility. Theutility integrates information about
126 a decision maker's preference and subjective expectation in order
127 to identify preferred choices underuncertainty. Themost direct way
128 tomeasure preferences isto estimate a decisionmaker's utility
129 function. This function relatesthepossible outcomes of a choice
130 to a single-valued index of desirability.
131
132 Assume in a lottery the chance of winning US$20000 or winning
133 nothing is 50/50. Ifthedecisionmaker preferred apayment of
134 US$7000 for surethen:
135 A. The decision maker is foolish.
136 B. The decision maker isriskaverse.
137 C. The decision maker isrisk taking.
138
139 Answer inC139:
140
141
142 A utility function makes itpossible to convert themoney values for
143 each of the alternatives into utility values.
144 Suppose that a farmer's utility function for gains and losses is
145 adequately represented by:
146 Utility function: U(x)=x - (x"2)/4000
147
148 Calculate theutility ofUS$100,500 and 900 forthis farmer. Enter
149 your answer inthe following table:
150
151 100 500 900
152
153 Utility
154
155 Does this farmer prefer US$500 for sure (a)or does (s)heprefer the
156 uncertainty of 50%/50% probability of US$100 /US$900 (b)? Use
157 the values calculated above and answerwith aorb incellA158.
158
159
160 Press PgDn
161
162 Isthis farmer risk averse (a)or risk taking (t)?
163 Answer in cell D163: | |
164
165 Read the following statements.
166 Which answer iscorrect:A or B (orC or D)?
167
168 1.A risk-neutral decision maker:
169 A. Cannot haveautility function.
170 B.Will come to the same conclusion by utility asby EMV.
171 Answer in cell D171: | |
172
173 2. Utility:
174 A. Reflects the attitude of the decisionmaker.
175 B. Is anumber.
176 C. Isuseful to givemeaning to extreme monetary values.
177 D. All of the above answers are correct.
178 Answer in cell D178: | |
179
180 Press PgDn
290
Computerexcercisesonanimalhealtheconomics
181
182 The utility function isused to calculate the utility for the
183 3 strategies inthe abomasumcase:
184
185 Utility
186 S(i) U(allsi) U(a2|si) U(a3|si)
187
188 Success 742.44 797.50 640.00
189 Failure 441.24 59.10 640.00
190
191 Exp. U 682.20 649.82 640.00
192
193 Which strategy isthe best option forthis farmer? al, a2 or a3?
194 Answer in cell D194: | 1
195
196
197
198 So fartheuse of utility; let us return to themonetary value:
199
200 Press PgDn
201
202 EXTRAOPTION:VALUEOF INFORMATION (optional,20 min)
203
204 The farmer askstheveterinarian to predict the result of
205 surgery.Theveterinarian warnsthe farmer that the predictions
206 are not always correct,but correct or not,the farmer hasyet to
207 pay for it.
208
209 Price prediction: 15 (US$)
210
211 The next table showsthe total profit with theprice of a
212 prediction included:
213 Strategy
214 States P(state) al a2 a3
215
216 Success 0.8 970 1085 785
217 Failure 0.2 490 45 785
218
219 EMV 874 877 785
220 Press PgDn
221
222
223 The prediction canbe z(l),which means that most probably surgery
224 will be successful,or z(2),which indicates failure of surgery.
225 On the next page youwill find atable with the likelihoods of the
226 various signals of theprediction (z(l)and z(2)) relative to the
227 possible states (successor failure).
228
229
230 Thesevalues areused to calculate the joint probability, this is
231 the probability ofboth being in a certain state and getting a certain
232 prediction: P(z(i) and S i ) .Thisvalue isnecessary to calculate
233 the posterior probability: thechance of a specific state,given a
234 specific prediction.
235
236
237 Press PgDn to have a look atthistable.
238
239
240
291
Chapter 19
241 I
242 P{z(k)|state(i)} Joint Probabilities
243 States P(state) z(l) z(2) z(l) z(2)
244
245 Success 0.8 0.8 0.2 0.64 0.16
246 Failure 0.2 0.4 0.6 0.08 0.12
247
248 P{z(k)} 0.72 0.28
249
250 Post. Probabilities
251 States P(Si|zl) P(Si|z2)
252
253 Success 0.89 0.57
254 Failure 0.11 0.43
255
256 What isthe probability of success when the veterinarian predicts
257 that surgery will fail (z(2))? (Cell G257): [ ~
258
259
260
261
262 With theseposterior probabilities and themonetarypayoffs,we can
263 calculate themonetary value of each action, just by multiplying the
264 payoffs by the posterior probabilities and summing them.
265
266 What isthemonetary value of alwhen the result of the prediction is
267 z ( D ?
268 Answer incell D268: I
269
270
271
272
273 The table on the next page lists the EMVs of the different strategies
274 for thedifferent predictions (NB:dueto the posterior probabilities
275 being rounded off,your hand-calculation might be slightly different
276 from these values).
277
278
279 Press PgDn
280
281 z(l) z(2)
282
283 E[a(j)|z(k))i al 916.67 764.29
284 a2 969.44 639.29
285 a3 785.00 785.00
286
287 Optimal strategy: a2 a3
288
289 What isthe expected monetary value of the strategy of asking for a
290 prediction? To answer this question you have totake the probability
291 of the different predictions into account (you can find them in cells
292 F248 and G248), and multiply them by the EMVs of the optimal
293 strategy. So:EMV of Bayes' strategy = 917.80
294
295 This value has to be compared with the value of the optimal decision
296 without aprediction (cells C87 to E87).Was the prediction worth its
297 money? Y(es) or N(o)? Answer in cell F297: | |
298
299
300 Press PgDn
292
Computer excercisesonanimal healtheconomics
B I C I D I E
301
302 Theveterinarian has got the ideathat thepredictions are very
303 useful: (s)hebelieves a farmer iswilling to pay US$50.
304 Do you agree? Y(es)or N(o)? Cell F304: | |
305
306
307
308 Till nowwe have assumed that strategies al and a2both have aproba-
309 bility of 0.2 of failure. In fact,the probability of failure is 0.25
310 for strategy a2 and 0.15 for strategy al.Besides surgery or culling,
311 there is a fourth strategy not taken into account yet:rolling the
312 cow to effect physical abomasum replacement. Thismethod has a high
313 rate of recurrence of the condition and a lower rate of recovery (0.30),
314 but itmay be preferred because it isnoninvasive and inexpensive.
315 Decision-tree analysis is amethod that candealwith different
316 probabilities, and itgives a clear overview of thepossibilities.
317
318 There is an exercise available on decision-tree analysis. Instructions
319 can be found inthe introductory file INTR0AHE.WK1.
320 Press PgDn
321
322
323 You have finished the current exercise.
324 You can now chooseto:
325 - return to the introductory file by opening the file 'INTROAHE.WK1'
326 - quit the computer exercises by closing the spreadsheet
327
328
329 COMPUTER EXERCISES ONANIMAL HEALTH ECONOMICS
330 = Principles and Applications =
331 Version 2.0 -September 1995
332
333 Design: C.W. Rougoor &A.W. Jalvingh
334 Supervisors: A.A. Dijkhuizen,R.S.Morris SR.B.M. Huirne
335 (c)Copyright:
336 Wageningen Agricultural University
337 Department of Farm Management
338 Hollandseweg 1
339 NL-6706 KN Wageningen
340
293
Chapter 19
keep faill.2n
-Q sv-cost4-costl
' If you do not have the program SMLTREE available, you can draw the tree by hand and calculate the
answers by hand. However, questions 5to 8cannot be answered without SMLTREE.
294
Computer excercises on animal health economics
coc =costsofculling
sv =slaughter value
costl =thecostsof strategy al
1.2 =strategy al willbeused asasecond option
Let us have alook atthe tree.Westart with strategy al (move through the tree by using
thebackspace key,Ctrl PgUp,Ctrl PgDn,TAB,arrow keys andby typing numbers.If you
move from left toright,typing 1 andpressing Enterwillbring youtothefirstbranchetc.):
The probability of success is0.85.Themonetary value of thisbranch isthecost of culling
(coc)+theslaughtervalue(sv)-costsofstrategyal (costl).SMLTREEhasthepossibility
of entering the monetary value as alogical expression of variables.Before analysing the
tree, the model will ask you to assign values tothese variables.As you can see, we now
distinguish between condemned and not-condemned meat. The probability of meat being
condemned is 10%,theprobability of failure is 15%.Therefore, theprobability of failure
andcondemnedmeatis0.10x0.15.Aprobability of#meansthattheprogramwillcalculate
theprobability for you (= 1 -otherprobabilities).
Strategy a4:
When strategy a4issuccessful, thefarmer candecidetokeepthecowbutcanalsodecideto
replace her when (s)he does not want to take the risk of recurrence of the displaced
abomasum.Whenthecowiskept,thereisaprobability of50%thatthedisplacement inthat
particularcowwillrecur.Weassumethatthefarmerchoosesstrategyal thesecondtimethe
displacement occurs ((s)he has lost faith in strategy a4).The last part of the tree is the
same asfor strategy al. Theonlydifference isthemonetary value:thecostsof strategy a4
are alsotaken into account.
1. Analyse what the farmer should decide after (s)hehaschosen strategy 4 and the 'rolling'
being successful: keep or replace? Youcan dothis by highlighting 'success4' with your
cursor (youalwayshavetobeonabranchnametoworkwiththemodel),type 7','Analyze',
choose theoption 'Foldback'. Givethevaluesof coc,sv,cost4 andcostl (incase youhave
forgotten: coc=400,sv=800,cost4=60,costl =215).
2. Add strategies a2 anda3tothetree.Putyourcursoron 'choose',type 7', 'Edit tree', 'Add
node', 'After current node', use the arrow keys toput the branch in the right place in
between the otherbranches,press <INS>. Give aname tothe branch (give every branch a
unique name of maximum 8characters). Define the node type. Be aware of the fact that
thenodetypeasked foristhenodetypefollowing thisbranch('1' isachancenodebecause
after you have chosen 1,there is achance of success and achance of failure). There are
different possibilities:
D=decision node
T =terminal node
C=chance node
The other possible nodetypes aremore advanced andnot necessary for thistree.
295
Chapter 19
3. Determinetheoptimaldecisionbyanalysingthecompletemodel(thewayyouanalysedpart
ofthemodel before).
What istheExpected Monetary Valueof strategies al, a2,a3anda4?
6. Enter 'costl', enter 0500 10for min,max and step.PressEnter (wedonot want to dothe
3-wayanalysis).Giveacharacterforthegraph,forexample '#'.Type 'g' toviewthegraph.
Canyouexplain what yousee?
'Rolling' (strategy a4)isnotprofitable becauseofthelowrateofsuccess.How greatisthe
effect of the rate of success ontheprofitability? Sensitivity analysis can give an answer to
this question.Wefirsthavetochangetheprobability valuetoavariable:
7. Putthecursoron 'success4'.Thenpress 7', 'edittree',and 'probability'.Nowyoucanenter
aname for this new variable (for instance:prob4),delete theexisting value and save with
'Y'.
8. First clear the old graph by pressing 'C'. Move the cursor back to 'choose', press 7',
296
Computer excercises on animal health economics
'analyze', 'sensitivity analysis' and the name of the variable. Now you have to give a
minimumandmaximumvalueforthevariableandthesizeofthestep;presstheEscapekey
toclear andthen entersomereasonablevalues.PressEnter.
Scrollthroughthe screen toseeatwhat level ofthevariable 'rolling' youcanfindthemost
optimal decision.Press Gtohave alook atthegraph.
Canyouexplain whatyou see?
19.5 Answers
Production function (filename:PRFUNCT1.WK1)
E94 Totalveterinary costs=20visits xvariablecostspervisit + fixed costsperyear= 20xF71
+F72=20x 120+ 1500=3900.
E95 20visitsresult in 20.10- 18.00=2.1extrapigletsper sow.The return from 1 extra piglet
isUS$30. Sothetotalreturnsfrom extrapiglets are2.1x30x(100sows)- 6300(incell
formulation: F77xF78x(E51-E47).
DUO Themarginal costs are:ATVC/AY(whereY=pigletsperfarm). Inthiscase:
(C110 -C109)/ (B110-B109)=600/ 30=20.
D i l l Marginal costs =(Clll -CI10)/ (Bill -B110) =600/50=12.
F183 Youhavetocheckthegraph orthetable tofind thepoint where themarginal returns are
equaltothemarginalcosts.Thisiswith 300extrapiglets.Checkthetable:300extrapiglets
correspond with35visits.
F196 Now the marginal returns are equal to the marginal costs with 280 extra piglets. This
corresponds with 30visits.
F212 'Novisit'shouldbepreferred whenthemarginalreturnsneverexceedtheaveragecosts.So,
thebreak-even point isthepoint where the marginal returns are,at one stage,equal tothe
average costs but neverexceed them.The lowest value ofthe AVCis 11.43.So,when the
MR(=netreturnsfrom 1 extrapiglet)is11.43itwillalwaysbesmallerthan,orequalto,the
averagecosts.
Production function(filename:PRFUNCT2.WK1)
D92 MarginalcostsofIcomparedwith0are21-0=US$21(E76-D76).
F93 Marginalreturnsof IIIcompared withHare 1652- 1617=US$35 (G73-F73).
Gl10 Fortreatment IIthe marginal returns are stillhigher than the marginal costs (US$151and
0respectively),butfortreatmentIIIthemarginalreturnsaresmallerthanthemarginalcosts
(US$35 and 199 respectively). So,treatment III is 'one step too far' and the treatment
previoustothisone(treatmentII)isthebest.
G132 Thereturnsfrom wool arenowfor treatment 0toIIIrespectively (27%of US$774=)209,
220,262and272.Thereturnsfrom ewesandlambsremainthesame.Sothetotalreturnsare
now:US$777, 871, 910and918.
This givesthe following marginal costs andreturns:
297
Chapter 19
0 I II III
Marginal costs 0 21 0 199
Marginalreturns 0 94 39 8
Partialbudgeting (filename:PARTBUD.WK1)
F44 Thecosts of surgery areextracosts:4.
F46 Lessmilkisreturnsforegone: 3.
F47 Less feed necessary isreduced costs:2.
F48 The heavier weights of calves areadditional returns:1.
F49 Theincrease incullingrateis extracosts orreturnsforegone: 4aswell as3 arecorrect.
E74 Thereturns from acalfare:
malecalf :(43+3.5)kg xUS$6x0.88 survival = US$245.52
female calf:(40+3.5)kg xUS$4 x0.88 survival =US$153.12
82% ismale,sothe average returns are0.82 x245.52+0.18 x 153.12=US$229.
Gl12 Thereduced costs arethecosts nolonger obtained because less feed isnecessary: 70kgof
milk less saves70x0.5 =35kgofconcentrates xUS$0.20 =US$7.00.
F135 20%of US$340=US$68.
D152 No:thenet return from acaesarean section isnegative (US$-208.66).
G164 No:inthis situation thenet return =USS-92.82,sostill negative.
F173 No:theadditional returns are US$30.34,therearenoreduced costs,norevenues foregone,
butyetthecosts of surgery being US$150.Thesecosts arehigherthan thereturns.
Cost-benefitanalysis(filename:COSTBEN.WK1)
F66 Discount factor year 1 = 1/ (1+0.05) =0.95.
F67 Discount factor year 2 = 1 / ( 1+0.05)A2=0.91.
N37 Discount factor year 1 = 1/ (1+0.09)=0.92.
N44 0.92 xUS$725=US$667.
N56 Discount factors arefor years 1 to4: (1/ 1.06 =)0.94, (1/(1.06)A2=)0.89,0.84 and0.79.
Thepresent valueofUS$200everyyearis(0.94+0.89 +0.84+0.79) x200=US$692.
N66 Discountfactor x25=23.11,sothediscount factoris0.9244.Nowwehavetosolve:0.9244
= l/(l+i) A 2.
=>(l+i) A 2= 1/(0.9244)
=>i = 4%.
F97 NPV isthe total benefit minus total cost =G91 -F91=US$25.58 -US$15.99 =US$9.59.
C98 B/C-ratio isthe totalbenefit divided bytotalcost=
D91/C91 =US$52.18/US$37.46= 1.39.
F103 The NPV of strategy Ais higher than the NPV of strategy B(US$14.72 compared with
US$9.59),sostrategyAisthebest.
F108 The B/C-ratio of strategy A is lower than the B/C-ratio of strategy B(1.39 and 1.60), so
strategy Bisthe best.
298
Computer excercises on animal health economics
Fl16 False: the NPV shows what your net result is from your total investment. The B/C-ratio
showswhatyourreturnsareforeverydollaryouhaveinvested. So,whenyouwanttogetas
much money back for every dollaryouinvest,theB/C-ratio isthebest criterion.
A122 Thereal interest ratethatmakes thebenefits equaltothecostsiscalled the internal rateof
return!Anestimation of thisvalueisgiven incell C99:23.9%.
F134 B: When the real interest rate increases, the present value of future costs or benefits
decreases. Strategy Aentails many costs inyears 1 and 2and the benefits appear at the
end,soahighrealinterestrateisnegativeforthisstrategy andhasagreateffect ontheNPV
and the B/C-ratio. Strategy Bhas costs and benefits both at the end, so the real interest
rate will nothave agreatinfluence ontheNPV andthe B/C-ratio.
299
Chapter 19
returns(sheep) = US$240. (Have a look at the 2previous answers for a more detailed
explanation.)
300
Computer excercisesonanimal health economics
F70+F71
Change cell B47 to75 (A47 automatically changes to 15).Now you can see that in year4
thenumber ofuninfected animals is60again,and thenumber of infected animals is30.
C107 0.75. This value hasnot changed
D107 0.25.This value hasnot changed
C108 0.Once animals areinfected they will neverbecomeuninfected again.
D108 1.All animalsthat areinfected once remain infected.
CI32 Transient: onceasheephaspassed this state itwill never comebacktothis state again.
Thetransition diagrambelonging tothis situation clarifies this:
0.25 0.25
Infected Uninfected "Immune-
1 t 0.5 1
J I I L
301
Chapter 19
C246toG248
Fill inallthe valuesthemodelcalculated. After that thetable will looklike:
Strategy Str. ag. Str. spp Staph. Other. Culled Costs str. Total
No 5 4 36 4 73 0 38 800
Strategy 1 6 4 30 4 72 1900 38 820
Strategy 2 6 4 14 4 70 2500 33 940
H255 2:Thisisthestrategythatresultsinthelowesttotalcosts(asyoucanseeinthetableabove).
D310 Youfirst havetocalculate Ybefore youcancalculate X.Y= 1 -0.995A(15)=0.07.
X= 1 -(0.07+0.02 +0.12+0.02 +0.29) =0.48
D311 Y= 1-0.995A(15)=0.07.
F319 False: Y= 1 -0.995A(no. of ag.in previous year),so the number of animals with ag. is
important, not the percentage! (A farm with 50 animals where 40% of the animals are
suffering from Strep,ag.willhavethesamevaluefor Yasafarm with 200animals where
10% of the animals are suffering from Strep, ag. In both situations Y= 1-0.995A(20)=
0.095.)
H346 Higher:whenmoreanimalsareinfected, theriskofeffective contactwithasickanimalwill
be higher.
(When 65animals areinfected: Y= 1 -0.995A(65)=0.28.)
A352 Change cellE302 to 190and cell E303to 65and have alook atthe state matrix. Y starts
high (0.28)but decreases overtime.After 6yearsYis equal totheYwecalculated in the
default situation.
MonteCarlosimulation (filename:MONTCAR.WK1)
A119 Most probably the standard deviations will be higher when only 40 replicates are made
compared with 250replicates.
D165 B:Theinitialsituationisthestablesituation,andonecharacteristicofaMarkovchainisthat
when thestable situation isreached,the situation doesnotchange anymore.
D194 The costs inperiod 6are(number of animals suffering from Aujeszky's disease) x US$20
+ (number of animals suffering from Aujeszky's disease and a secondary infection) x
USS150=(cellH148)x20+(cellH149)x 150.Duetotherandomelementsofthemodel,
this valuewill differ betweenusers.
A224 When thenumber of animals ismuchhigher, the standard deviation willbe smaller, sothe
line willbe smoother.
302
Computer excercisesonanimal health economics
When 'surgery' fails, the value of the cow decreases to SV (when the meat is not
condemned) or even to 0 (when the meat is condemned). There is also the cost of the
surgery, sothe payoff of an unsuccessful surgery is 'proportion not condemned' xSV-
SCa(i).
D76 TheEMV ofal isUS$889,of a2US$892andtheEMV of a3isUS$800.Strategy a2 has
thehighestEMV andistheoptimal strategy according tothis strategy.
G97 The maximin criterionjudges astrategy onitsworst payoff:
Strategy al: US$505
Strategy a2:US$60
Strategy a3:US$800.
a3 has the highest 'worst payoff' and isthe optimal strategy according to the maximin
criterion.
F105 Minimax regret:
Strategy al: US$295
Strategy a2:US$740
Strategy a3:US$300.
a l has the lowest 'maximal regret' and isthe optimal strategy according tothe minimax
regret criterion.
Fl14 Themaximaxcriterionjudges astrategy onitsbest payoff:
Strategy al: US$985
Strategy a2:US$1100
Strategy a3:US$800.
a2 has the highest 'best payoff' and is the optimal strategy according to the maximax
criterion.
C139 B:thedecisionmakerisriskaverse.
C153 U(x)= 100-(100A2)/4000= 97.5
D153 U(x) =500-(500A2)/4000=437.5
E153 U(x)=900-(900A2)/4000=697.5
A158 Option (a) gives autility of 437.5.Option (b) gives autility of 0.5 x97.5 +0.5 x697.5=
397.5.Optiona hasthehighestutility,soa willbe preferred.
D163 The farmer is risk averse,because (s)he prefers US$500 for sure to the uncertainty of
50/50%probability of US$100/US$900.
D171 B:EMVisarisk-neutral criterion.
D178 D:alltheanswers arecorrect.
D194 al: thisstrategy hasthehighestutility.
G257 The probability of success when theveterinarian gives the forecast that the surgery will
fail =P(Successlz2).Thisvalueisgiven inthetable (in cell G253):0.57.
D268 Themonetary valueofa1,given forecast z(1),isthePosterior Probability for this situation
multipliedby theprofit from the strategy,summed for success andfailure. Thisis:
C216xF253+C217xF254=US$970x0.89+US$490x0.11=US$917.20.
F297 Yes:theEMVwithforecast ishigherthanwithoutone:US$917.80 (cellE293)andUS$892
(cell D87) respectively, sotheforecast isworthitsmoney.
303
Chapter 19
304
Computer excercisesonanimalhealtheconomics
success1 icoc+sv-costl
~Ö85
faille
-O0.015 -costl
faillnc i sv-costl
#
0 = Chancenode
success2 icoc+sv-cost2 | =Decisionnode
0.75 • =Terminalnode
fail2c - • -cost2
O 0.2
fail2nc i sv-cost2
#
Choose-flj sued.2 icoc+sv-cost4-costl
0.85
isv
recur -1.2 fail1.2c
Q 0.015 i-cost4-costl
"05 "
keep faill.2n
-0 #
isv-cost4-costl
305
306
Index
a.Index Rule Hurwicz - 139 Average Profitability of Herd Life in Sows Table 4.10 -
Absorbing State Markov Chain - 104 53
Accounting Systems Farm The Need for - 25 Average Total Cost - 20
Analysis Cost-Benefit - 30 Average Variable Cost - 20
Analysis Cost-Effectiveness - 31
Analysis Decision - 32 Bacteriologically Negative Mastitis Losses from - 48
Analysis Decision Tree - 34 Bans Export Determining the Indirect Effects - 162
Analysis Economic Basic Methods of - 25 Bayes' Theorem - 142
Analysis Neutral Net - 197 Bayes' Theorem Calculation of the Posterior Probabilities
Analysis of Data Relevant to Model - 61 Table 10.6 - 144
Analysis of Risk - 172 Bellmen's Principle of Optimality - 89
Analysis Parametric - 155 Benefit-Cost Ratio - 31
Analysis Sensitivity - 23, 61,63, 74 & 243 Budgeting in Partial - 28
Analysis Systems - 60 Budgeting Whole-Farm - 69
Animal Disease Direct Effects of - 14 Budgets Enterprise in Gross Margin Form - 27
Animal Disease Indirect Effects of - 14 Byproduct Reduction by Disease - 6
Animal Disease Losses Due to Table 2.1 - 16
Animal Health Economics Computer Exercises on - 245 Caesarean Section Case Partial Budgeting: Computer
Animal Health Management Economic Decision Making Exercise - 258
in- 13 Calculated Annual Losses Due to Mastitis Table 4.6 - 48
Animal Health Management Further Applications of Calving Interval Effect - 42
Economic Decision Making in - 22 Calving Interval Effect on Milk Receipts Table 4.2 - 44
Animal Health Programs Economic Analysis of Producer- Calving Interval Optimal Length of in Calculated Losses
Finance - 229 Per Cow Per Year Table 4.3 - 45
Animal Health Programs Economic Analysis of Research Calving Intervals & Production Data of Cows with
Priorities - 230 Clinical Digital Diseases Table 4.7 - 49
Animal Health Programs Economic Cost of Cost Calving Pattern Herd Results of the Optimum for
Recovery in - 226 Different Sets of Constraints Table 6.2 - 80
Animal Health Programs Efficiency of Resource Capacity for Work Reduction of By Disease - 6
Allocation - 224 Cattle Growing Production Cost Derived from the
Animal Health Programs Equity of - 223 Production Function on the Hypothetical Response to
Animal Health Programs Financial Efficiency of - 226 Anthelmintic Dosing of Table 2.3 - 22
Animal Health Programs National Extension of EpiMAN CE Certainty Equivalent - 138
for - 194 Certainty Equivalent CE - 138
Animal Health Programs Resolving the Cost Recovery Chance Nodes - 35
Issue - 227 CHESS Computerised Herd Evaluation System for Sows -
Animal Health Programs Sustainability of - 221 196
Animal Simulation Individual - 121 Classes Disjoint States Markov Chain - 104
Animal Welfare - 9 Classical Production Function Figure 2.3 - 18
Animals & their Products Risk Analysis & International Coliform Mastitis Losses from - 48
Trade in - 171 Common Combinations of Modelling Type & Technique
Annuity Values Simulated Five-Year Gross Margin for Table 5.1 - 66
Dairy Enterprise Intervention Table 11.2 - 152 Common Diseases Economic Effects - 15
Anthelmintic Dosing in Growing Cattle Hypothetical Community Development Effects of Animal Disease on -
Response to Table 2.2 - 19 9
Anthelmintic Dosing in Growing Cattle Production Cost Computer Exercise Cost-Benefit Analysis: Enzootic
Derived from the Production Function on the Bovine Leucosis Case - 262
Hypothetical Response to Table 2.3 - 22 Computer Exercise Decision Analysis Displaced
Anthrax Risk of Introducing by Importing Green Hides - Abomasum Case - 288
175 Computer Exercise Decision-tree Analysis: The Program
Approach Normative - 59 SMLTREE - 294
Approach Positive - 59 Computer Exercise Farm Advisory Case - 250
Aujeszky's Disease Monte Carlo Simulation: Computer Computer Exercise Helminthic Case - 255
Exercise - 283 Computer Exercise Linear Programming: Cows and/or
Average & Marginal Cost Functions Figure 2 . 5 - 2 1 Sheep Case - 266
Average Annual Losses Owing to Clinical Digital Computer Exercise Monte Carlo Simulation: Aujeszky's
Diseases Table 4.8 - 50 Disease - 283
Average Fixed Cost - 20 Computer Exercise Partial Budgeting: Caesarean Section
Average Physical Product - 17 Case - 258
Computer Exercise Sensitivity Analysis - 253
Computer Exercises on Animal Health Economics - 245 Decision Analysis Displaced Abomasum Case Computer
Computer Modelling & Information Systems - 115 Exercise - 288
Computer Modelling Advantages of - 116 Decision Criteria Various Outcome According to Table
Computer Programs Risk Analysis - 177 10.2- 141
Computer Simulation - 59 Decision Making Multiperson - 146
Consumer Surplus - 161 Decision Making Risky Scope & Concepts of - 135
Contagious Disease Control Payoff Matrix Example Table Decision Nodes - 34
3.4 - 34 Decision Problem Risky Components of - 136
Contagious Diseases Economic Effects - 15 Decision Risky Components of - 136
Control Programs Disease in Developing Countries - 209 Decision Support - 187
Comer Point Linear Programming - 73 Decision Support Dairy Herd - 197
Corynebacterium pyogenes Mastitis Losses from - 48 Decision Support Pig Herds - 195
Cost Average Fixed - 20 Decision Support Systems - 188
Cost Average Total - 20 Decision Support Systems for Farm Use - 195
Cost Average Variable - 20 Decision Support Use of Model in - 63
Cost Estimated Annual of Simulated Veterinary Decision Tree Hypothetical Representing Action Choices
Interventions Table 11.1 - 151 Figure 3.4 - 36
Cost Fixed - 27 Decision Tree Left-Displaced Abomasum Figure 3.5 - 37
Cost Functions & Economic Choice - 19 Decision-tree Analysis: The Program SMLTREE - 294
Cost Functions Average & Marginal Figure 2.5 - 21 Decision-Tree Analysis - 34
Cost Functions Total Figure 2.4 - 20 Demand & Supply Curves Figure 12.1 - 160
Cost Marginal - 20 Demand & Supply in a Market Economy - 160
Cost of Productivity - 17 Deterministic Model - 61, 63 & 64
Cost Recovery Issue Resolving in Animal Health Developing Countries Disease Control Problem
Programs - 227 Identification - 210
Cost-Benefit Analysis - 30 Developing Countries Disease Control Programs in - 209
Cost-Benefit Analysis Application of Table 3.2-31 Developing Countries Effective Disease Control
Cost-Benefit Analysis: Enzootic Bovine Leucosis Case Technologies - 211
Computer Exercise - 262 Developing Countries Methods to Deliver Technologies &
Cost-Effectiveness Analysis - 31 Knowledge - 213
Costs & Revenues Future Discounting of - 87 Developing Countries Successful Adoption & Use of
Costs Variable & Fixed Examples of Table 3.1 - 27 Disease Control Measures by Farmers - 215
Costs Variable - 27 Deviation Standard - 65
Cows and/or Sheep Case Linear Programming: Computer Differences in Performance among Dutch Pig Fattening
Exercise - 266 Herds Table 4.11 - 54
Cows Empty Critical Production Levels Below Which it Differences in Performance Among Dutch Sow Herds
is not Profitable to Inseminate Table 7.4 - 94 Table 4.9- 51
Cows Individual RPO-Values for - 97 Digestibility of Feed Effects of Disease On - 3
Culling Reasons For - 7 Digital Diseases Average Annual Losses from Table 4.8 -
Cultural Significance of Animals - 9 50
Digital Diseases Clinical Economic Impact of - 49
Dairy Cattle Herd Health & Management Control - 202 Digital Diseases Economic Impact of - 49
Dairy Cows Replacement Decisions Application of Digital Diseases Production Data & Calving Intervals of
Dynamic Programming to - 92 Cows with Table 4.7 - 49
Dairy Farms Dutch Typical Results for Appendix 4.1 - 56 Diminishing Productivity - 17
Dairy Herd Decision Support - 197 Discount Rate - 30
Dairy Herds Linear Programming Model for - 76 Discounting Future Costs & Revenues - 87
Dairy Herds Reproductive Failure in - 42 Disease Animal Direct Effects of - 14
Dairy ORACLE A Dairy Herd Simulation Model - 123 Disease Animal Indirect Effects of - 14
Dairy ORACLE Financial Statement Report Table 9.2 - Disease Control Developing Countries Successful
129 Adoption & Use by Farmers - 215
Dairy ORACLE Model Output - 127 Disease Control Example Payoff Matrix for Table 3.4 -
Dairy ORACLE Prediction of Events Examples of 34
Functions Used in - 123 Disease Control Highly Contagious Modelling the
Dairy ORACLE Reproductive Performance Indices Report Economics of Risky Decision Making in - 159
Table 9.1-127 Disease Control in Developing Countries Effective
DairyMAN - 197 Technologies - 211
Data Relevant to Model Analysis of - 61 Disease Control in Developing Countries Methods to
Database Spatial in EpiMAN - 191 Deliver Technologies & Knowledge - 213
Database Technical Information FMD Model - 193 Disease Control Programs Economic Analysis of
Days Open Effect - 42 Government Finance - 228
Death Premature & Livestock Productivity - 5 Disease Control Programs Effectiveness of - 226
Decision Analysis - 32 Disease Control Programs in Developing Countries - 209
Disease Control Programs in Developing Countries Economic Losses Resulting from a Primary Outbreak
Problem Identification - 209 FMD (Table 12.1) - 167
Disease Spread of - 103 Economic System Wider in Livestock Production Figure
Disease Treatment v Health Management - 10 2.2 - 14
Displaced Abomasum Case Decision Analysis Computer Economic Techniques in Economic Studies - 10
Exercise - 288 Economics Animal Health Computer Exercises on - 245
Dogs Risk of Introducing Rabies through Importation of - Economics Experimental - 207
179 Economics Integration of Into the Policy Development &
DP Advantages of - 96 Implementation of Disease Control Animal Health
DP Dynamic Programming Services Cost Recovery for - 220
DP Stochastic - 91 Economics Module for EpiMAN - 194
DP-Algorithm - 96 Economics of Risky Decision Making in Highly
DP-Solution Procedure for Least-Cost Network Problem Contagious Disease Control Modelling - 159
Table 7 . 2 - 9 1 Economy Market Demand & Supply in - 160
DSS Decision Support Systems Efficiency Criteria Stochastic - 139
Dynamic Models - 61 ELCE-Method of' Risk Assessment - 138
Dynamic Programming & Markov Chains - 99 Embryo Transfer Program Risk of Disease Being
Dynamic Programming - 89 Introduced by Table 13.3-179
Dynamic Programming Application of to Replacement Embryo Transfer Program Risk of Disease Being
Decision in Sows - 95 Introduced by Table 13.3 - 179
Dynamic Programming Application of to Replacement Embryo Transfers OIE List A Diseases - 178
Decisions in Dairy Cows - 92 Empirical Model - 59
Dynamic Programming: Sow Replacement Case Computer EMV Definition of - 136
Exercise - 270 EMV Expected Monetary Value
Dynamic Programming to Optimize Treatment & EMV Expected Monetary Value - 138
Replacement Decisions - 85 EMV of a Perfect Predictor - 145
EMV of Perfect Information - 145
Economic Analysis Basic Methods of - 25 EMVs Based on Posterior Probability Table 10.7 - 144
Economic Analysis of Government Financed Disease Energy Intake Effects of Disease On - 1
Control Programs - 228 Energy Metabolism Effects of Disease On - 5
Economic Analysis of Producer-Financed Animal Health Enterprise Budgets in Gross Margin Form - 27
Programs - 229 Enzootic Bovine Leucosis Case Cost-Benefit Analysis:
Economic Analysis of Research Priorities in Animal Computer Exercise - 262
Health Programs - 230 Epidemiologist's Workbench FMD Model - 193
Economic Analysis Simple Formulating Spreadsheet EpiMAN Description of - 189
Model - 236 EpiMAN Economics Module for - 194
Economic Analysis The Basic Model Figure 2 . 1 - 1 4 EpiMAN Extension to Other National Animal Health
Economic Benefit of Animal Disease Control Methods of Programs - 194
Measuring - 9 EpiMAN Spatial Database in - 191
Economic Choice & Cost Functions - 19 EpiMAN The Structure of Figure 14.1 - 190
Economic Cost of Cost Recovery in Animal Health Equimarginal Principle - 23 & 25
Programs - 226 Equity in Animal Health Programs - 223
Economic Decision Making in Animal Health Equivalent Certainty CE - 138
Management - 13 EROI Expected Return On Investment
Economic Decision Making in Animal Health Expected Monetary Value - 139
Management Further Applications of - 22 Expected Monetary Value - 32
Economic Impact of Clinical Digital Diseases - 49 Expected Monetary Value EMV - 138
Economic Impact of Common Health & Fertility Expected Monetary Values of Different Action Choices
Problems - 41 Table 3.6 - 38
Economic Impact of Daily Weight Gain Pigs - 54 Expected Return On Investment - 151
Economic Impact of Digital Diseases - 49 Expected Value Markov Chain Providing - 110
Economic Impact of Feed Conversion Efficiency in Pigs - Experimental Economics - 207
54 Expert Systems FMD Model - 192
Economic Impact of Litters per Sow Per Year - 51 Export Bans Determining the Indirect Effects - 162
Economic Impact of Mastitis - 47 Export Model Assumptions Underlying - 165
Economic Impact of Mortality Rate in Pigs - 55 Export Model Basic Principles of Figure 12.5 - 166
Economic Impact of Mortality Rate in Pigs - 55 Exporting a Product Market Situation for a Country
Economic Impact of Pig Fattening Performance - 53 Figure 12.3 - 163
Economic Impact of Premature Disposal of Sows - 53 External Validation of the Model - 62
Economic Impact of Reproductive Failure - 42
Economic Impact of Sow Performance - 50 Factor Product Relationship - 17
Economic Importance of Animal Disease - 1 Farm Accounting Systems The Need for - 25
Economic Input Factor Veterinary Services as - 15 Farm Advisory Case Computer Exercise - 250
Farm Decision Making Integrated Information Systems Generic Livestock Generator - 119
for- 187 Genetic Selection Accuracy Effects of Disease on - 7
Farm ORACLE - 197 GIS Geographic Information System - 189
Farm Use Decision Support Systems for - 195 GIS in EpiMAN - 189
Farm Virus Production Model FMD - 191 Green Hides Risk of Introducing Anthrax by Importing of
Farmer's Attitude towards Risk - 153 - 175
Farming Portraits of Styles - 208 Gross Margin Form Enterprise Budgets in - 27
Farms At-Risk Rating FMD Model - 193 Gross Margin Form Profit Budget in Figure 3.2 - 28
Fattening Farms Dutch Pig Typical Results for Appendix
4.3 - 58 Health & Fertility Problems Economic Impact of - 41
Fattening Herds Dutch Pig Differences in Performance Health Herd Programs Payoff Matrix for Two Table 10.1
among Table 4.11 - 54 - 137
Fattening Performance Pig Economic Impact of - 53 Health Management Approach to Optimising Production -
Feasible Set - 70 7
Feasible Solution in Linear Programming - 72 Health Management v Disease Treatment - 10
Feed Conversion Efficiency Altered by Disease - 3 Heifer Rearing & Mastitis Control Expected Return &
Feed Conversion Efficiency in Pigs Economic Impact of - Risk Figure 11.2- 157
54 Helminthic Case Computer Exercise - 255
Feed Conversion Efficiency Reduction by Disease - 7 Herd Calving Pattern for Different Sets of Constraints
Feed Digestibility Effects of Disease On - 3 Results of the Optimum Table 6.2 - 80
Feed Intake Alterations by Disease - 3 Herd Decision Support Pigs - 195
Feed Requirements Alterations by Disease - 3 Herd Dynamics Model - 83
Fertility & Health Problems Economic Impact of - 41 Herd Dynamics Simulation of - 107
Fertility & Premature Disposal - 46 Herd Health & Management Control in Dairy Cattle - 202
Fertility Loss Month of Calving Effect on - 45 Herd Health Control & Management System Information
Fertility Investigation Expert PigFIX - 196 Systems Profitability of - 201
Financial Efficiency of Animal Health Programs - 226 Herd Health Program Total Return & Risk Attributes -
Financial Losses Factors Involved - 42 152
Financial Losses In Case of Disposal Table 3.5 - 37 Herd Health Programs Efficient Percentage Composition
Financial Statement Report Dairy ORACLE Table 9.2 - from Results of Parametric Analysis (Table 11.4) - 156
129 Herd Health Programs Payoff Matrix for Two Table 10.1
Finiteness in Linear Programming - 75 - 137
Fish Diseases Risk of Introducing in Salmon Flesh - 182 Herd Improvement Capacity Effects of Disease on - 8
Fixed Cost - 27 Herd Productivity Effects of Disease on - 7
Fixed Cost Examples of Table 3.1 - 27 Herd Whole Simulation - 121
Flow Chart - 34 Herds Steady-State Major Technical & Economical
Flow Chart Example of Figure 3.3 - 35 Results of Table 8.4 - 109
FMD Foot and Mouth Disease Hierarchic Markov Process - 96
FMD Economic Losses Resulting from a Primary HMP Hierarchic Markov Process
Outbreak Table 12.1-167 Hurwicz a Index Rule - 139
FMD Inter-farm Spread Model - 192 Hypothetical Decision Tree Representing Action Choices
FMD Model Epidemiologist's Workbench - 193 Figure 3.4 - 36
FMD Model Expert Systems - 192
FMD Model Farm Virus Production - 191 Increasing Productivity - 17
FMD Model Meterological Spread - 191 Individual Animal Simulation - 121
FMD Model Rating of At-Risk Farms & Patrol Information Systems & Computer Modelling - 115
Requirements - 193 Information Systems Integrated for Decision Making at
FMD Model Technical Information Database - 193 Farm & National Level - 187
FMD Models - 191 Information Systems Management Pigs - 204
FMD Risky Decision Making in Control Strategies - 167 Information Value of - 144
FMD Simulated Losses from a Theoretical Outbreak in a Information Value of Table 10.8 - 145
Non-Vaccinated Population in the Netherlands (Table Input Output Relationship - 17
12.2) - 168 Input Variables Economic & their Basic Values Table
FMD Stochastic Dominance Rules to Rank Control A8.3 - 113
Strategies in Non-Vaccinated Population Table 12.3 - Institutional Arrangments for Livestock Policy Analysis -
169 231
FMD-Modelling Approach An Overview Figure 12.4 - Integer Programming - 76
164 Integrated Decision Support System - 63
Food-And-Mouth Disease Outbreak Model - 163 Integrated Information Systems for Decision Making at
FSD First-Degree Stochastic Dominance - 140 Farm & National Level - 187
Function Objective - 89 Integration Seamless - 195
Inter-farm Spread Model FMD - 192
Generator Generic Livestock - 119 Internal Rate of Return - 31
Internal Validation of the Model - 62 Figure 12.3 - 163
Market Value Lowered Disease Effect - 5
Lameness, Reproductive Failure & Mastitis Table Losses Markov Chain Model Description of - 107
from - 50 Markov Chain Model Results - 109
Laplace Principle of Insufficient Reason - 139 Markov Chain Period of State - 104
Least-Cost Network Problem Figure 7.2 - 90 Markov Chain Providing Expected Value - 110
Left-Displaced Abomasum Decision Tree Figure 3.5 - 37 Markov Chain Recurrent State - 104
Lily Pond Figure 8.1 - 100 Markov Chain Simplify Representation - 108
Lily Pond with Memory Figure 8.2 - 100 Markov Chain Simulation - 99
Linear Program in General Formulation - 72 Markov Chain Simulation: Pneumonia in Sheep - 276
Linear Program in Models in General - 72 Markov Chain States & Disjoint Classes - 104
Linear Programming - 69 Markov Chain Steady-State Probabilities - 105
Linear Programming Additivity & Linearity in Input & Markov Chain Transient State - 104
Output Coefficients - 75 Markov Chain Transition Diagram - 102
Linear Programming Assumptions - 75 Markov Chains & Dynamic Programming - 99
Linear Programming Assumptions in Perspective - 76 Markov Chains General - 100
Linear Programming Conclusions - 81 Markov Chains Long-Run Properties of - 105
Linear Programming Constraints - 72 Markov Chains States & Transitions - 100
Linear Programming Comer Point - 73 Markov Hierarchic Process - 96
Linear Programming: Cows and/or Sheep Case Computer Markovian Property - 100
Exercise - 266 Mastitis Calculated Annual Losses Due to Table 4.6 - 48
Linear Programming Divisibility in Resources & Products Mastitis Coliform Losses from - 48
-75 Mastitis Control & Heifer Rearing Expected Return &
Linear Programming Feasible Solution - 72 Risk Figure 11.2 - 157
Linear Programming Finiteness - 75 Mastitis Corynebacteriumpyogenes Losses from - 48
Linear Programming Model for Dairy Herds - 76 Mastitis Economic Impact of - 47
Linear Programming Objective Function - 72 Mastitis Infections with Clinical Signs Major Input Data
Linear Programming Optimal Solution - 72 for Table 4.5 - 47
Linear Programming Shadow Prices - 73 Mastitis Losses from Bacteriologically Negative Sample -
Linear Programming Simplex Method - 73 48
Linear Programming Single-Valued Expectations - 75 Mastitis, Reproductive Failure & Lameness Table Losses
Linear Programming Software Packages - 74 from - 50
Linear Programming Solving Procedure - 73 Mastitis Staphylococcal Losses from - 48
Linear Programming to Meet Management Targets & Mastitis Streptococcal Losses from - 48
Restrictions - 69 Mathematical Model - 59
Livestock Production The Wider Economic System Figure Matrix Payoff - 33
2.2 - 14 Maximax - 139
Livestock Productivity Effects of Disease & Disease Maximin - 138
Control Measures On - 1 Mechanistic Model - 59
Livestock Productivity Measurable Effects of Disease On Meterological Spread Model FMD - 191
-5 Milk Receipts Per Cow Per Year Losses in Table 4.2 - 44
Long-Run Properties of Markov Chains - 105 Milk Yield for Third Lactation Cows Table 4 . 1 - 4 3
Losses Financial In Case of Disposal Table 3.5 - 37 Mineral Status Effects of Parasitism On - 5
Losses in Net Milk Receipts Per Cow Per Year Table 4.2 Minimax - 138
-44 MIS Management Information System
Losses Table from Reproductive Failure, Mastitis & MIS Effect in Relation With Sociological Classification
Lameness - 50 Methods Table 15.3 - 206
MIS Future Outlook - 206
Major Input Data for Mastitis Infections with Clinical MIS Management Information Systems Pigs - 205
Signs Table 4.5 - 47 Model Analysis of Data Relevant to - 61
Management & Information Systems for Herd Health Model Calculation for Identical Replacement of a
Control Profitability of - 201 Fictitious Animal Table 7.1 - 88
Management Control & Herd Health in Dairy Cattle - 202 Model Construction of - 61
Management Cycle Figure 3.1 - 26 Model Deterministic - 61 & 64
Management Information Systems Pigs - 204 Model Empirical - 59
Management Targets & Restrictions Linear Programming Model Export Assumptions Underlying - 165
to Meet - 69 Model Export Basic Principles of Figure 12.5 - 166
Marginal & Average Cost Functions Figure 2 . 5 - 2 1 Model External Validation of - 62
Marginal Cost - 20 Model FMD Epidemiologist's Workbench - 193
Marginal Physical Product - 17 Model FMD Expert Systems - 192
Market Economy Demand & Supply in - 160 Model FMD Rating of At-Risk Farms & Patrol
Requirements - 193
Market Situation for a Country Exporting a Product Model FMD Technical Information Database - 193
Model Food-and-Mouth Disease (FMD) Outbreak - 163 Multiple Simulation Runs Pig ORACLE - 132
Model Herd Dynamics - 83
Model Inter-farm Spread of FMD - 192 National Animal Health Programs Extension of EpiMAN
Model Internal Validation of - 62 for - 194
Model Mathematical Model - 59 National Level Decision Making Integrated Information
Model Mechanistic - 59 Systems for - 187
Model Meterological Spread FMD - 191 Net Present Value - 30
Model of Livestock Reproduction & Production ORACLE Net Return Per Unit of Time - 42
- 118 Neutral Net Analysis - 197
Model on Farm Virus Production FMD - 191 Nitrogen Retention - 4
Model Optimization - 61 Nodes Decision - 34
Model Output Dairy ORACLE - 127 Normative Approach - 59
Model Output Pig ORACLE - 131 Nutrient Metabolisms Effect of Disease On - 1
Model Performance - 83 Nutrition Human Effects of Animal Disease on - 8
Model Prototype Approach for Development of - 62
Model Simulation - 61 Objective Function - 89
Model Simulation Dairy Herd Dairy ORACLE - 123 Objective Function in Linear Programming - 72
Model Speadsheet Choice of Program - 236 OIE Office International Epizootic
Model Spreadsheet Advance Calculation Procedures - 234 OIE List A Diseases & Embryo Transfers - 178
Model Spreadsheet Building of - 233 Operational Planning - 26
Model Spreadsheet Formulating a Simple Economic Opportunity Cost - 15
Analysis - 236 Optimal Length of Calving Interval & Calculated Losses
Model Spreadsheet Linking to Other Functions - 234 Per Cow Per Year Table 4.3 - 45
Model Spreadsheet Partial Budgeting as an Example - 236 Optimal Solution in Linear Programming - 72
Model Static - 61 Optimality Bellmen's Principle of - 89
Model Stochastic - 61 Optimization Model - 61
Model Stochastic - 64 Optimization Principle of - 71
Model Use in Decision Support - 63 ORACLE A Generic Model of Livestock Reproduction &
Model Utility Subjective Expected - 137 Production - 118
Model Validation of - 62 ORACLE Dairy A Dairy Herd Simulation Model - 123
Modelling Approach FMD An Overview Figure 12.4 - ORACLE Dairy Financial Statement Report Table 9.2 -
164 129
Modelling Computer Advantages of - 116 ORACLE Dairy Model Output - 127
Modelling Computer Information Systems - 115 ORACLE Dairy Prediction of Events Examples of
Modelling Deterministic - 63 Functions Used in - 123
Modelling Monte Carlo Basic Principles - 117 ORACLE Dairy Reproductive Performance Indices Report
Modelling Monte Carlo Multiple Runs in - 118 Table 9.1 - 127
Modelling Monte Carlo Random Numbers in - 117 ORACLE pig Model Output - 131
Modelling Monte Carlo Simulation Spread in ORACLE Pig A Pig Herd Simulation Model - 129
Management Outcomes - 115 ORACLE Pig Examples of Functions Used in Prediction
Modelling Objectives for - 61 of Events - 129
Modelling Stochastic - 63 ORACLE Pig Simulated Data from Table 9.3 - 131
Modelling the Economics Risky Decision Making in ORACLE Pig Multiple Simulation Runs - 132
Highly Contagious Disease Control - 159 Outcome According to Various Decision Criteria Table
Modelling Type & Technique Common Combinations - 10.2- 141
65
Modelling Type & Technique Common Combinations of Parametric Analysis - 155
Table 5.1 - 66 Parametric Programming - 74
Models Dynamic - 61 Parasites Effects of Mineral & Vitamin Status - 5
Models Pig Herd Simulation Pig ORACLE - 129 Partial Budgeting - 28
Monetary Value Expected (EMV) - 32, 138 Partial Budgeting as an Example of Spreadsheet
Monetary Incentives - 207 Modelling - 236
Monte Carlo Modelling Basic Principles - 117 Partial Budgeting: Caesarean Section Case Computer
Monte Carlo Modelling Multiple Runs in - 118 Exercise - 258
Monte Carlo Modelling Random Numbers in - 117 Patrol Requirements FMD Model - 193
Monte Carlo Simulation: Aujeszk/s Disease Computer Pay-Off Retention - 88
Exercise - 283 Payoff Matrix - 33
Monte Carlo Simulation Modelling Spread in Payoff Matrix for Two Herd Health Programs Table 10.1
Management Outcomes - 115 - 137
Month of Calving Effect on Fertility Losses - 45 Payoff Matrix Table 3.3 - 34
Mortality Rate in Pigs Economic Impact of - 54 Performance Model - 83
Multiperson Decision Making - 146 Physiological Processes Effects of Disease On - 4
Multiple Runs in Monte Carlo Modelling - 118 PigCHAMP - 195
PigCHAMP PigORACLE Interface - 196 Approach - 7
Pig Fattening Farms Dutch Typical Results for Appendix Productive Value of Animals Disease Effect On Figure
4.3 - 58 1.1 - 2
Pig Fattening Herds Dutch Differences in Performance Productivity Animal Alterations by Disease - 2
among Table 4.11-54 Productivity Constant - 17
Pig Fattening Performance Economic Impact of - 53 Productivity Diminishing - 17
PigFIX Fertility Investigation Expert - 196 Productivity Effect of Disease On - 4
Pig Herd Decision Support - 195 Productivity Effect of Respiratory Function On - 5
Pig Herd Simulation Model Pig ORACLE - 129 Productivity Herd Effects of Disease on - 7
Pig ORACLE A Pig Herd Simulation Model - 129 Productivity Increasing - 17
Pig ORACLE Examples of Functions Used in Prediction Productivity Livestock Effects of Disease & Disease
of Events - 129 Control Measures On - 1
Pig ORACLE Model Output - 131 Productivity of Animals Effects of Disease Control on - 8
Pig ORACLE Simulated Data from Table 9.3 - 131 Profit Budget in Gross Margin Form Figure 3.2 - 28
Pig ORACLES Multiple Simulation Runs - 132 Program in Linear General Formulation - 72
PigORACLE PigCHAMP Interface - 196 Programming Dynamic - 89
Pigs Daily Weight Gain Economic Impact of - 54 Programming Dynamic - 96
Pigs Feed Conversion Efficiency Economic Impact of - Programming Dynamic Application of to Replacement
54 Decision in Sows - 95
Pigs Management Information Systems - 204 Programming Dynamic to Optimize Treatment &
Pigs Mortality Rate Economic Impact of - 55 Replacement Decisions - 85
Planning Strategic, Tactical & Operational - 26 Programming Integer - 76
Pneumonia in Sheep Markov Chain Simulation Computer Programming Linear - 69
Exercise - 276 Programming Linear Additivity & Linearity in Input &
Policy Analysis Livestock Institutional Arrangements for - Output Coefficients - 75
231 Programming Linear Assumptions - 75
Portfolio Theory in Choice of Veterinary Management Programming Linear Assumptions in Perspective - 76
Programs - 149 Programming Linear Conclusions - 81
Positive Approach - 59 Programming Linear Divisibility in Resources & Products
Posterior Probabilities Bayes' Theorem Calculation of -75
Table 10.6 - 144 Programming Linear Finiteness - 75
Posterior Probability EMVs Based on Table 10.7 - 144 Programming Linear Model for Dairy Herds - 76
Premature Death & Livestock Productivity - 5 Programming Linear Single-Valued Expectations - 75
Present Value - 30 Programming Parametric - 74
Principle Equimarginal - 23 & 25 Programming Quadratic - 155
Principle Optimization - 71 Programs Computer Risk Analysis - 177
Probability Distributions - 64 Protein Intake Effects of Disease On - 1
Probability that a Test-Negative Animal is Actually Protein Loss Effect of Disease On - 4
Infected, Given a Test Sensitivity of 0.95 & Specificity Protein Metabolism Effects of Disease On - 5
of 1Table 13.1 - 174 Prototype Approach for Development of the Model - 62
Probability that a Test-Negative Infected Animal will be
Included in a Group Destined for Import Table 13.2 - Quadratic Programming - 155
175
Process Diagram - 34 Rabies Cases Per Year Reported & Projected Incidence
Producer Surplus - 161 Probability that Randomly Selected Animal will be
Product Average Physical - 17 infected Table 13.4 - 180
Product Marginal Physical - 17 Rabies Estimated Risks of Introducing from the United
Product Quality Reduction of By Disease - 6 States by a Dog Incubating Table 13.6 - 182
Product Total Physical - 17 Rabies Probability that Safeguards will Fail to Prevent the
Product Yield Reduction by Disease - 6 Introduction of Table 13.5 - 181
Production Cost Derived from the Production Function on Rabies Risk of Introducing through Importation of Dogs -
the Hypothetical Response to Anthelmintic Dosing in 179
Growing Cattle Table 2.3 - 22 Random Numbers in Monte Carlo Modelling - 117
Production Data & Calving Intervals of Cows with Real Cost - 15
Clinical Digital Diseases Table 4.7 - 49 Real Value - 15
Production Function Approach - 86 Replacement Decisions Dynamic Programming for - 85
Production Function The Classical Figure 2.3 - 18 Replacement Decisions in Dairy Cows Application of
Production Levels Critical Below Which it is not Dynamic Programming to - 92
Profitable to Breed Empty Sows Table 7.6 - 96 Replacement of Sows - 101
Production Livestock ORACLE A Generic Model of - Replacement Optimal Time Determination Figure 7.1 - 86
118 Reproduction Livestock ORACLE A Generic Model of -
Productive Life of Animals Reduction by Disease - 7 118
Productive Optimisation for Health Management Reproductive Failure Economic Impact of - 42
Reproductive Failure in Dairy Herds - 42 Selection Genetic Effects of Disease on Accuracy of - 7
Reproductive Failure in Premature Disposal - 46 Sensitivity Analysis - 23, 61,63, 74 & 243
Reproductive Failure, Mastitis & Lameness Table Losses Sensitivity Analysis Computer Exercise - 253
from - 50 SEU Subjective Expected Utility - 137
Reproductive Losses Total Per Farm - 46 Shadow Prices Linear Programming - 73
Reproductive Performance Indices Report Dairy ORACLE Simplex Method Linear Programming - 73
Table 9.1-127 Simulated Losses from a Theoretical Outbreak of Foot-
Resource Allocation Efficiency of in Animal Health and-Mouth Disease in a Non-Vaccinated Population in
Programs - 224 the Netherlands Table 12.2 - 168
Resources Allocation of - 69 Simulation Computer - 59
Respiratory Function Effect on Productivity - 5 Simulation Individual Animal - 121
Retention Pay-Off - 88 Simulation Model - 61
Retention Pay-Off Cows Just Become Pregnant at Three Simulation Model Dairy Herd Dairy ORACLE - 123
Months after Calving Table 7.3 - 93 Simulation Model Pig Herd Pig ORACLE - 129
Retention Payoff for Sows Pregnant at the First Moment Simulation Monte Carlo Modelling Spread in
of Conception after Weaning Table 7.5-95 Management Outcomes - 115
Return & Risk Attributes of a Total Herd Health Program Simulation Multiple Runs Pig ORACLE - 132
- 152 Simulation of Herd Dynamics - 107
Revenues & Costs Future Discounting of - 87 Simulation Systems Critical Steps in - 59
Risk A Definition - 136 Simulation Systems the Basic Steps of Figure 5.1 - 60
Risk Analysis & International Trade in Animals & their Simulation Whole Herd - 121
Products - 171 Simulations Computer - 59
Risk Analysis - 172 Single-Month Equilibrium Herds Results of Table 6.1 - 78
Risk Analysis Computer Programs - 177 SME Single Month Equilibrium
Risk Analysis Standardized Terminology in - 172 SME-Herd - 76
Risk Assessment - 173 SME-Herd Single-Month Equilibrium Herd
Risk Assessment ELCE-Method - 138 SMLTREE Program Decision-tree Analysis Computer
Risk Attributes & Return of a Total Herd Health Program Exercise - 294
- 152 Sociological Classification Methods in Relation With MIS
Risk Communication - 173 Effect Table 15.3 - 206
Risk Considerations Spreadsheet Models With - 239 Software Packages Linear Programming - 74
Risk Farmer's Attitude towards - 153 Solving Procedure Linear Programming - 73
Risk Identification - 172 Sow Cycle of Possible Values of the State Variables Used
Risk Management - 173 to Describe Table 8.3 - 107
Risk of Disease Being Introduced by an Embryo Transfer Sow Farms Dutch Typical Results for Appendix 4.2 - 57
Program with a Policy of a Single Test-Positive Sow Herds Dutch Differences in Performance Among
Disqualifying the Entire Shipment (Table 13.3) - 179 Table 4.9- 51
Risk of Disease Being Introduced by an Embryo Transfer Sow Litters Per Year Economic Impact of - 51
Program with a Policy of a Single Test-Positive Sow performance Economic Impact of - 50
Disqualifying the Entire Shipment (Table 13.3) - 179 Sow Replacement - 101
Risk of Introducing Anthrax by Importing Green Hides - Sow Replacement Case Dynamic Programming: Computer
175 Exercise - 270
Risk of Introducing Fish Diseases in Salmon Flesh - 182 Sows Application of Dynamic Programming to
Risk of Introducing Rabies through Importation of Dogs - Replacement Decision - 95
179 Sows Average Profitability of Herd Life in Table 4.10 -
Risky Decision Components of - 136 53
Risky Decision Making Calculation of the Joint Sows Culled & Retained Data on Number of Table 8.1 -
Probabilities Table 10.5 - 143 101
Risky Decision Making Economics of in Highly Sows Economic Impact of Premature Disposal of - 53
Contagious Disease Control Modelling - 159 Sows Empty Critical Production Levels Below Which it is
Risky Decision Making in Control Strategies FMD - 167 not Profitable to Breed Table 7.6 - 96
Risky Decision Making Veterinarian Likelihood Sows Individual RPO-Values for - 97
Probabilities of Table 10.4 - 143 Sows Pregnant Retention Payoff for at the First Moment
Risky Decision Problem Summary of the Major of Conception after Weaning Table 7.5 - 95
Components of Table 10.3 - 142 Spatial Database in EpiMAN - 191
RPO Retention Pay-Off Speadsheet Model Choice of Program - 236
RPO-Value of an Animal - 97 Spreadsheet Model Advance Calculation Procedures - 234
RPO-Values Individual Cows & Sows - 97 Spreadsheet Model Building of - 233
Spreadsheet Model Formulating a Simple Economic
Salmon Flesh Risk of Introducing Fish Diseases in- 182 Analysis - 236
SDWRF Stochastic Dominance with Respect to a Spreadsheet Model Linking to Other Functions - 234
Function - 141 Spreadsheet Model Partial Budgeting as an Example - 236
Seamless Integration - 195 Spreadsheet Models With Risk Considerations - 239
Spreadsheet Notebooks & Three-dimensional Spreadsheets Transition Probabilities & Technical & Economic Results
- 238 Cycle-Specific Input Values Concerning Table A8.2 -
Spreadsheet Structure of - 233 113
Spreadsheet Using The - 242 Transition Probabilities Concerning Reproduction Basic
Spreadsheets in Practice Examples of the Use of - 243 Values of Biological Input Variables that Determine
Spreadsheets Multi-column - 238 Table A8.1 - 112
Spreadsheets Three-dimensional & Spreadsheet Notebooks Transitions & States Markov Chains - 100
- 238 Treatment Optimization Dynamic Programming for - 85
Spreadsheets User-friendly - 241 Typical Results for Commercial Dutch Dairy Farms
SSD Second-Degree Stochastic Dominance - 140 Appendix 4.1 - 56
Standard Deviation - 65 Typical Results for Commercial Dutch Sow Farms
Staphylococcal Mastitis Losses from - 48 Appendix 4.2 - 57
State Absorbing Markov Chain - 104
State Period of Markov Chain - 104 Uncertainty a Definition - 136
State Recurrent Markov Chain - 104 Utility Function Utility Value - 137
State Transient Markov Chain - 104 Utility Value Utility Function - 137
States & Disjoint Classes Markov Chain - 104 Utility Value Utility Function - 137
States & Transitions Markov Chains - 100
States Concepts & Definitions of - 103 Validation of the Model - 62
Static Models - 61 Value Expected Monetary - 32
Statistical Tests - 65 Value of Information - 144
Steady-State Probabilities Markov Chain - 105 Value of Information Table 10.8 - 145
Stochastic Dominance First-Degree FSD - 140 Value Utility Utility Function - 137
Stochastic Dominance Rules to Rank Control Strategies Variable Cost Examples of Table 3.1 - 27
for FMD in Non-Vaccinated Population Table 12.3 - Variable Costs - 27
169 Veterinarian Risky Decision Making Likelihood
Stochastic Dominance Second-Degree SSD - 140 Probabilities Table 10.4 - 143
Stochastic Dominance with Respect to a Function Veterinary Interventions Expected Return & Risk
SDWRF - 141 Attributes of Table 11.3 - 152
Stochastic DP - 91 Veterinary Interventions Simulated Estimated Annual Cost
Stochastic Efficiency Criteria - 139 of Table 11.1 - 151
Stochastic Model - 61 & 64 Veterinary Management Programs Efficient Dairy
Stochastic Modelling - 63 Expected Return & Risk Figure 11.1 - 156
Strategic Planning - 26 Veterinary Management Programs Portfolio Therory in
Streptococcal Mastitis Losses from - 48 the Choice of - 149
Subjective Expected Utility SEU - 137 Veterinary Services as an Economic Input Factor - 15
Supply & Demand Curves Figure 12.1 - 160 Vitamin Status Effects of Parasitism On - 5
Supply & Demand in a Market Economy - 160
Support System Integrated Decision - 63 Weight Gain Daily Economic Impact in Pigs - 54
Surplus Consumer - 161 Weight Gain Reduction by Disease - 6
Surplus Producer- 161 Whole-Farm Budgeting - 69
Sustainability of Animal Health Programs - 221 Work Capacity Reduction of By Disease - 6
Systems Analysis - 60
Systems Decision Support - 188
Systems Definition of - 61
Systems Expert FMD Model - 192
Systems Integrated Information for Decision Making at
Farm & National Level - 187
Systems Simulation Critical Steps in - 59
Systems Simulation the Basic Steps of Figure 5.1 - 60