An economic evaluation of recombinant bovine somatotropin approval in Japan.

A comprehensive econometric model was developed to evaluate potential impacts of recombinant bovine somatotropin (rbST) approval in Japan. Three novel features of the analyses include 1) investigation of impact of rbST on herd-size structure, 2) determination of economic feasibilities of rbST adoption by herd size, and 3) evaluation of policies to mitigate negative effects of rbST approval. Simulation analysis was conducted over a 10-yr projected period assuming rbST was approved in Japan in 2001. Nine hypothetical scenarios were simulated to examine sensitivity of simulation results. Simulation results indicate that rbST approval would accelerate structural change in Japan's dairy industry toward fewer, larger farms. Negative effects of rbST on farm income are projected to be more severe for smaller farms, because of higher costs, lower profit-earning ability, lower milk yields, and lower adoption rates of rbST. Larger farms benefit from rbST adoption if milk demand is maintained. However, if concerns about rbST induce significant milk demand decreases, even the largest farms' income and cow numbers will decrease. Thus, Japan's dairy industry could be caught in a double downward spiral of declining milk prices and production. Assuming rbST is approved, small farms would benefit by using the technology, but they fare best if rbST is not approved. Two policies could be effective in mitigating possible farm income losses. First, lost farm income can be offset if dairy cooperatives can exercise greater market power to control fluid milk marketings. Second, because generic milk advertising has positive effects on both milk demand and farm income, increasing check-off rates to fund more advertising could ease farm income losses.