Advanced Herd Management Course introduction Anders Ringgaard Kristensen Slide 1 Outline Preconditions Competences: What are you supposed to learn? The framework and definition of herd management The management cycle Objectives of production, utility theory Classical production theory Classical replacement theory Limitation of classical theories Outline of the course Teachers The concept of uncertainty Slide 2 1
Preconditions Courses • ”Husdyrproduktion” • ”Matematik og modeller”/”Matematik og planlægning” • ”Statistisk dataanalyse 2” • Mandatory first year (economics etc) Slide 3 Preconditions UR 2005 Not all of you have had a chance to fulfill the preconditions defined in UR 2005. My guess is that very few have had those courses. As a consequence of this assumption, the course will start up with a brush-up course of • Probability calculus and statistics • Linear algebra Slide 4 2
Competencies I Competencies obtained within basic science: • Comprehension of advanced methods for production monitoring and analysis as well as operational and tactical planning in livestock herds. • Evaluation of various methods in relation to the solution of typical management problems in livestock herds. • Make judgements concerning the choice of appropriate methods for different herd management tasks. Slide 5 Competencies II Competencies obtained within applied science: • Apply principles and advanced methods for production monitoring based on data from specific herds. • Apply principles and advanced methods for operational and tactical planning in specific livestock herds. • Apply principles and advanced methods in development of general herd management tools. • Make judgements concerning the quality of commercially distributed general herd management tools. Competencies obtained within Ethics & Values: • Is aware of the relation between monitored production traits and the priorities defined by the farmer’s utility function. Slide 6 3
A pig (an animal) Medicine Piglets Meat Manure Feed Milk Slide 7 Pig production = N × a pig? Medicine Piglets Meat Manure Feed Milk Slide 8 4
Pig production = N × a pig? Medicine Piglets Meat Manure Feed Milk Slide 9 Pig production Pigs: •Ages •Groups •Individuals Buildings Fields Neighbors, society, consumers Owner Farm hands Feed Slide 10 5
Elements of production I The factors (input to production) • Animals • Feed • Buildings, inventory • Labor • Management • Veterinary services • Energy • … Slide 11 Elements of production II Objectives: Maximization of the farmer’s welfare: • Income (personal) • Leisure time (personal) • Animal welfare (animals) • Working conditions (farm hands) • Environmental preservation (future generations) • Prestige (personal) • Product quality (consumers) Slide 12 6
Elements of production III Constraints limiting production • Physical (land, housing capacity, storage capacity) • Economical (capital, prices) • Legal (laws) • Personal (skills, education) Slide 13 Definition of herd management Having discussed the three key elements: • Factors (input to production) • Objectives (farmer’s welfare) • Constraints (limitations) we are now able to define what we mean by Herd Management: Herd management is a discipline serving the purpose of concurrently ensuring that the factors are combined in such a way that the welfare of the individual farmer is maximized subject to the constraints imposed on his production. A dynamic optimization problem under constraints. Decisions! We decide how to combine the factors. Slide 14 7
The management cycle: A never ending story Slide 15 The management cycle: Classical theories (Scarce Utility Resources) Theory, Ch. 3. Basic Neo-classical Production Production Monitoring, Theory, Ch. 5. Ch. 4. (Animal science, Production function) Slide 16 8
Herd Management Science Basic level: • As we define the basic level, it consists of • Utility theory • Neo-classical production theory • Basic production monitoring • (Animal nutrition, animal breeding, ethology, farm buildings) • What any animal scientist should know about management • The starting level of this course • Briefly revised today Slide 17 Utility theory We need a criterion for comparison of plans (“ways” to produce). Several concerns: Animals • The farmer • The staff • Consumers Farm buildings Land Neighbors, society, consumers • The animals • Environment • … Who decides the weighting? Owner Farm hands Feed Slide 6 My answer: The farmer! Slide 18 9
Farmer’s preferences The farmer has/defines a list of concerns: • Own direct concerns: • Income, u 1 • Leisure time, u 2 • Prestige, u 3 • ... • Indirect concerns (because he cares for others) • Animal welfare, u 4 • Working conditions, u 5 • Environment, u 6 • Product quality, u 7 • … The farmer knows/decides the weighting The “items” on the list ( u 1 , u 2 , … , u k ) are called attributes of the farmer’s utility. Slide 19 When is ”something” an attribute? When it directly influences the subjective welfare of the farmer. May NOT be an attribute: • Average milk yield of cows • Average daily gain of slaughter pigs • Animal welfare, ”because animals at a high level of welfare also produce at a higher level”. May be an attribute: • Monetary gain • Leisure time • Animal welfare, if the farmer is willing to accept that it to some extent decreases the levels of other attributes. Slide 20 10
Consequences measured by attributes Stage Attribute 1 2 … T 1 u 11 u 12 … u 1 T 2 u 11 u 22 … u 2 T … … … … … k u 11 u k2 … u kT At any stage, the attributes will depend on the production Y t and the factors x t . The relation is given by the attribute function h: u t = h( Y t , x t ) Slide 21 Aggregation of attributes: Utility function The utility function • Aggregation over time • Monetary gain • Animal welfare • … • Aggregation over attributes Expected Utility Theorem: Maximization of U is all we need to care about! Refer to Chapter 3 for details! Slide 22 11
Production function Slide 23 Production function In classical production theory, the uncertainty represented by the e’s is ignored. Slide 24 12
Neo-classical production theory Answers 3 basic questions: • What to produce. • How to produce. • How much to produce. Marginal considerations Basic principle: Continue as long as the marginal revenue, MR, exceeds marginal costs, MC. At optimum we have MR = MC. Slide 25 What to produce Two products y 1 and y 2 Prices p 1 and p 2 . Fixed factor allotment Value of production: u = p 1 y 1 + p 2 y 2 Fixed value u’: • y 2 = u’/p 2 – ( p 1 /p 2 ) y 1 The price ratio p 1 / p 2 determines the optimal combination! The general principle: Continue producing one more unit of Product 1 (reducing the output of Product 2 accordingly) as long as the marginal revenue exceeds the marginal costs. Slide 26 13
What to produce: Two products y 2 p 1 / p 2 = 2 p 1 / p 2 = 1/2 y 1 Slide 27 How to produce Two factors x 1 and x 2 Prices p 1 and p 2 . Fixed production Cost of production: c = p 1 x 1 + p 2 x 2 Fixed value c’: • x 2 = c’/p 2 – ( p 1 /p 2 ) x 1 The price ratio p 1 / p 2 determines the optimal combination! The general principle: Continue adding one more unit of Factor 1 (reducing the output of Factor 2 accordingly) as long as the marginal revenue exceeds the marginal costs. Slide 28 14
How to produce: Two factors x 2 0 x 1 Slide 29 How much to produce One factor x and one product y Prices p x and p y A production function y = f( x ). Profit u ( x ) = yp y – xp x = f(x) p y – xp x Problem: • Find the factor level that maximizes the profit Slide 30 15
How much to produce Maximum profit where u’ ( x ) = 0. u ( x ) = f(x) p y – xp x u’ ( x ) = f’( x ) p y – p x u’ ( x ) = 0 ⇔ f’( x ) p y = p x Maximum profit where: • Marginal revenue = Marginal cost! Slide 31 How much to produce 1 Total revenue, f( x ) p y 0,8 0,6 0,4 Average revenue, f( x ) p y / x 0,2 0 Marginal revenue, f’( x ) p y -0 ,2 Slide 32 16
How much to produce, logical bounds 1 Total revenue, f( x ) p y 0,8 0,6 0,4 Average revenue, f( x ) p y / x 0,2 0 Marginal revenue, f’( x ) p y -0 ,2 Slide 33 How much to produce, optimum 1 Total revenue, f( x ) p y 0,8 0,6 0,4 Average revenue, f( x ) p y / x 0,2 Price of factor p x 0 Marginal revenue, f’( x ) p y -0 ,2 Slide 34 17
Classical replacement theory The replacement problem in a broad sense is one of the most important decision problems in animal production. Dynamics: What we decide at this stage (keep/replace) may influence production in many future stages. Many other decision problems relate to the replacement problem: • Insemination • Treatment for diseases • Feeding level • … A correct handling of the other problems implies that the question of replacement must be taken into account. Slide 35 Definition Replacement: • When an existing asset is substituted by a new one with (more or less) the same function. • Examples: • Light bulbs • Cars • Sows • Milking robots Slide 36 18
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