Producing higher value wool through a transition from Romney to Merino crossbred ii: Cashflow and profit
Introduction
The majority of wool produced in New Zealand is coarse wool (fibre diameter > 30 μm), for which the nominal price has fluctuated but remained between $2.501 and $6.00 per kg clean between 1980 and 2018 (Beef + Lamb New Zealand Economic Service, 2019a). Coarse wool has had a reduction in real value during a period when shearing costs have increased, resulting in a decreasing proportion of farm income being derived from wool sales (Beef + Lamb New Zealand Economic Service, 2019b). In the last 30 years there has been an increasing price premium for medium wool (fibre diameter between 25 and 29 μm) over coarse wool, and even higher prices for fine wool (fibre diameter < 24 μm). Between 1980 and 2019, nominal medium wool prices increased from $3.50 to a range of $9.00–13.25 per kg clean, and nominal fine wool prices increased from $5.00 to a range of $14.60−24.45 per kg clean (Beef + Lamb New Zealand Economic Service, 2019a; Carrfields Primary Wool, 2019). Fine wool makes up approximately 8% of New Zealand wool exports, with medium wool accounting for 15 % (Beef + Lamb New Zealand Economic Service, 2019a). New Zealand farmers producing fine wool derive, on average, 28 % of gross income from wool sales, while coarse wool producers only obtain 1–11% of gross income from wool sales (Beef + Lamb New Zealand Economic Service, 2019b).
Breeding a Merino ram with Romney ewes to produce offspring yielding wool with a lower fibre diameter than their dam has been identified as a potential strategy to increase wool income while retaining the higher lamb production of the established Romney flock (Rae, 1967; BakerAg, 2019). A flock breed transition from Romney to a ¾Merino-¼Romney (¾M¼R) crossbred would reduce wool fibre diameter (Farrell et al., 2020), taking advantage of increasing medium wool prices and multi-year supply contracts. Changes in sheep enterprise production, cashflow, and profit implications during such a breed transition period from purebred Romney to ¾M¼R crossbred have not previously been quantified. Bio-economic models can simulate bio-physical farm elements and interactions with the economic component of the farm system (Bohan et al., 2016; Farrell et al., 2019), e.g. modelling dynamic changes to sheep enterprise profitability as a result of changes in flock breed and production. This study extended and applied an existing bio-economic system-dynamics sheep farm model (Farrell et al., 2019). The first paper in this series (Farrell et al., 2020) quantified changes in sheep numbers, production (of wool of various fibre diameters and lambs), and sheep feed demand during transition, as well as establishing appropriate crossbred lamb selection intensities and identified the time taken to replace the base Romney flock with an approximately equivalent ¾M¼R flock. This study quantifies annual cashflow pre-, during, and post-transition, then compares the profitability of various breed transition scenarios.
Section snippets
Methods
Recent research has revealed the efficacy of system dynamics approaches in agricultural and livestock systems modelling to test ex ante dynamic impacts of feedbacks from different scenarios and technical interventions (Hamza and Rich, 2015; Shane et al., 2017; Lie et al., 2018) including New Zealand pastoral farm systems (García, 2000; Farrell et al., 2019). The present study has further developed an existing bio-economic system-dynamics model from Farrell et al., (2019). Detail around the
Results and discussion
The Romney flock was replaced with an equivalent ¾M¼R flock with either an average fibre diameter of 26 μm after seven years or an average fibre diameter of 24 μm after ten years of transition with low or high crossbred ewe lamb selection intensity, respectively. Changes in sheep enterprise COS, and farm cash flow during the transition period are discussed in the following subsections. ‘Merino-Romney crossbred’ refers to both ½M½R and ¾M¼R sheep. Results are presented for thirty years from the
Conclusion
It appears the greatest economic benefit of breed transition compared with maintenance of the status quo Romney flock occurred with high lamb selection intensity (35 % of crossbred ewe lambs not retained at each of two selection events) and higher lambing rates (132 % for all flocks), with production of higher value wool and more lambs by the ¾M¼R flock. Where Merino-Romney selection intensity was lower, the total value of cashflow during the transition period had little or no advantage over
Declaration of Competing Interest
The authors report no declarations of interest.
Acknowledgements
Funding: Wool Unleashed Primary Growth Partnership Programme, jointly funded by the Ministry for Primary Industries and The New Zealand Merino Company; and Callaghan Innovation.
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