Impact of genetic progress on the profits of dairy farmers.

This paper analyzes the role that genetic progress may play in improving profits of dairy farms. A novel data set of Spanish commercial dairy farms including management data and cow indices of genetic merit for production and nonproduction traits was used. In the empirical section, a frontier production function that included a farm genetic index for milk yield was estimated. To evaluate the full effect of genetics on farm profit it was necessary to consider the fact that feed intake increases with cows' genetic improvement. Results show that the increase in profits corresponding to the average genetic progress during the sample period is equivalent to a 5% increase in income from milk sales. Managerial ability plays an important role in exploiting genetics. Optimal management increases the return of genetics by 22% compared with farms with average management in the sample.