The effect of farm genetics expenses on dynamic productivity growth

Genetic improvement of animals has been an important source of productivity growth in dairy farming. Studying the effect of genetic progress on productivity growth of farms requires a long-term dynamic perspective due to the long generation interval of dairy animals, and the slow, persistent and cumulative effects of genetics. It is also essential from a farm decision-making perspective to disentangle overall productivity growth in relation to each variable input and investment in quasi-fixed input while accounting for adjustment costs associated with the slow changes in quasi-fixed inputs. This paper contributes to the literature by combining input- and investment-specific dynamic productivity growth analysis with impulse response analysis. The application focuses on panel data of Dutch specialized dairy farms over 2007–2013. The results show that farms that adopt improved genetic materials, as proxied by farm expenses on artificial insemination and breeding stock investment spike, achieved higher input- and investment-specific productivity growth in the first two years after the year of the expenses/spike. That is, farms that produce more efficiently after adopting quality genetics are also those farms that utilise their resources efficiently. The positive relationships suggest a potential positive spill-over effect from using high quality genetics on managerial efficiencies.