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Aggar Alexandra Frías Luna A hedonic model of Canadian dairy farmer Holstein-semen purchases by Aggar Alexandra Frías Luna A thesis submitted in partial fulfillment of the requirements for the degree of Master of Science in Agricultural and Resource Economics Department of Resource Economics and Environmental Sociology University of Alberta © Aggar Alexandra Frías Luna, 2021 ABSTRACT The dairy industry in Canada has undergone huge changes in the last few decades. While the average annual milk production per cow grew over three times by 2015 (average rose to 8.65 Hectolitres per and reached 9.5 Hectolitres in 2018) from 1995 levels (2.5 Hectolitres a year per cow on average), the number of farms across the country continues to shrink. One key element of change may concern the genetic makeup of the cow herds: Canadian farmers have succeeded in producing higher-yielding cows through their breeding choices. Moreover, the incorporation of genomics into the toolset of sire selection in 2008 brought new possibilities to attain genetic gains in cattle herds. Semen selection decisions are hence critical to dairy operations’ efficiency and productivity levels. Characterizing farmers’ preferences towards the different sire traits during sire selection can help describe the importance of particular traits in the industry and ultimately, continue to move the dairy sector towards sustainable efficient production. Canadian dairy farmers’ preferences for sire attributes before and after the increased use of genomic technology are studied to help understand producers’ breeding decision-making process. This research is aimed at evaluating trait importance in sire selection decisions and if a shift in trait valuation is observable with the use of genomics from 2008, when genomic tools became more widely used in Canada, to 2016. Following Richard and Jeffrey’s (1996) last analysis of dairy farmers’ valuation of sire traits in Canada, this study expands the application of econometric estimations on market transactions of Holstein semen to examine dairy farmers’ preferences for the different production and type traits. The hedonic price modeling performed in this study offers an update of Holstein sire trait valuation for the average Canadian dairy farmer over the course of eight years, those immediate to the introduction of genomics. A variety of econometric functional forms will be used to characterize demand for sire traits. These models will allow the industry to better understand the demand for specific traits, predict future trait demands and ensure that genomic analysis focuses on traits of significant interest to producers. Key words: genomics, sire selection, farmer behaviour, dairy industry, Holstein cows, livestock, cattle, Canada, Lifetime Profit Index, LPI, Production economics, agriculture economics, resource economics, Hedonic Price Model, Semen Cost model, MLE, Tobit I, Cragg Double Hurdle, corner solution model, two- part model, Unbalanced panel data series, pooled data series, Stata. Page ii Acknowledgements I would like to thank Genome Canada for funding this research (namely, via Genome Canada LSARP, Increasing Feed Efficiency and Reducing Methane Emissions through Genomics: A new Promising Goal for the Canadian Dairy Industry, University of Alberta, RES0030198), as well as the support from the Co- operative Program in Agricultural Marketing and Business. This study would not have been possible without Dr. Filippo Miglior sourcing the database of Canadian semen transactions from the Canadian Dairy Network, in Guelph, ON, on which I was able to apply the econometric modeling and pursue our research objectives. I would also like to thank my supervisor, Dr. Ellen Goddard, for guiding and encouraging me throughout this degree and instilling me with a passion for cows and agriculture economics. I also want to thank Dr. James Rude for his advice in the editing of this thesis as well as Dr. Albert Boaitey, Dr. Violet Muringai and Dr. Frank Leenders for lending a hand on the troubleshooting of the programming in the code. In addition, I thank my colleague, Merlin Uwalaka and my fellow student friends who studied alongside me and shared this journey with me. Finally, I would like to thank my family for their love and support, as well as the International Friendship Group for their constant prayers and motivation through my studies. Lastly, none of this would have been possible without God’s providence, so I would like to acknowledge His hand in this as an additional invisible hand beyond the market’s. Page iii Table of Contents Chapter 1 . INTRODUCTION .................................................................................................... 1 A. INTRODUCTION ............................................................................................................... 1 B. BREEDING PROCESS: CANADIAN BREEDING SERVICES AND DECISION-MAKING 3 1. Breeding beyond the farm gate: Semen and embryo sales internationally ...................... 4 2. Genomics: The changing landscape of bull breeding ...................................................... 5 3. Bridging trends in current productivity volumes with results from economic analysis ....... 8 4. Market Pressures on Canadian farmers that differentiate their production problems from the rest of the dairy market scenario ...............................................................................11 C. INDUSTRY AT A GLANCE: OVERVIEW OF CANADIAN AGRICULTURAL PRODUCTION .................................................................................................................12 1. The Dairy sector in the Canadian Economy ...................................................................12 2. Canadian dairy: Milk markets, classification system and sales .......................................13 3. Production trends ..........................................................................................................15 4. Canadian herd size structure ........................................................................................17 D. PROBLEM STATEMENT .................................................................................................18 E. STUDY SCOPE AND OBJECTIVES ................................................................................19 F. ORGANIZATION OF THESIS ..........................................................................................20 Page iv Chapter 2 . LITERATURE REVIEW .........................................................................................21 A. OUTLINE OF CHAPTER .................................................................................................21 B. MODELLING BEHAVIOUR FROM FIRM THEORY: THE CASE FOR PROFIT MAXIMIZATION/ ECONOMIC EFFICIENCY IN A PERFECTLY COMPETITIVE MARKET ..…………………………………………………………………………………………………….22 1. Perfectly Competitive Market -implications and Associated Assumptions .......................22 2. Supply Management: Adjusting for the Canadian Context..............................................23 C. IDENTIFYING THE KEY ATTRIBUTES USED BY PRODUCERS DURING BREEDING DECISIONS: ELICITATION METHODS IN THE LITERATURE .......................................24 1. Managing Breeding: Prioritizing attributes to pass on ......................................................25 1.1Traits to improve ............................................................................................................................ 25 1.2 Weighted-average indicators in Canada: The Lifetime Profit Index (LPI) .................................... 27 2. Quantitative and Qualitative Analysis: Modelling Approaches .........................................32 2.1 Primal approaches: Production function based models ............................................................... 32 2.2 Dual Approaches: Derived demand function based models ......................................................... 34 2.3 Extending on the Hedonic Price Model ......................................................................................... 36 D. ADOPTION OF INNOVATION: FACTORS AFFECTING THE RATE OF TECHNOLOGY UPTAKE AND DIFFUSION ..............................................................................................41 1. Individual-specific Characteristics ...................................................................................41 1.1 Supply Side Factors affecting the effectiveness of Breeding and technology adoption ............... 43 1.2 Demand Side Factors: Farmers’ sociodemographic and operation-specific observable factors . 46 1.3 Demand side factors: Unobservable characteristics differentiating farmers ................................ 48 2. Technology Adoption models ..........................................................................................51 2.1 Rogers’ Diffusion of Innovation Model .......................................................................................... 51 2.2 TAM Model .................................................................................................................................... 53 2.3 Case Study: Australian Dairy Farmers ......................................................................................... 53 E. THESIS OBJECTIVES: RELEVANCE OF STUDY IN LIGHT OF BODY OF LITERATURE AND CANADIAN DAIRY MARKET .................................................................................55 Page v Chapter 3 . DATA DESCRIPTION AND ECONOMETRIC METHODOLOGY ..........................56 A. DATA AND SUMMARY STATISTICS ..............................................................................56
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