Beef cattle production systems

Three beef cattle production systems were identified in the Sierra Norte. Most (79%) of the surveyed producers were engaged in cow-calf systems (CCS). This involves intermediate management with sufficient space for pasture rotation with an average stocking rate of 65 head. Minimal feed supplementation is used and calves are weaned at between 160 and 180 kg. A smaller proportion (13%) were using grower systems (GS). They purchase calves and finish them in intensive (6 mo), intermediate (12 mo) or slow (18 mo) systems. Finished animals are sold at 300 to 350 kg, and average general inventory was 33 head per producer. The smallest proportion (8%) were using a mixed system (MS) which combines the cow-calf and grower systems. This allows them to manage the complete lifecycle in the same production unit. It requires a good finishing plan, and can have an average of up to 90 head.

The dominant breeds in all three systems were zebu crosses with Swiss and Brahman, used in an attempt to maximize reproductive efficiency through continuous natural mating. Feed was based on grazing grass directly in pastures, with very few production units using supplementation with balanced feed and mineral salts. Consequently, most units reported low weight gain. Water was supplied from natural sources (rivers, streams and springs), was freely available to the animals and thus represented no cost to producers. Disease control depended largely on application of vaccines against rabies, brucellosis, blackleg, malignant edema, and clostridial infections. Parasites were controlled internally and externally through permanent and continuous doses of dewormers, and flea/tick baths. Producers incurred no electricity costs because they used grazing systems. Neither were there fuel costs because both weaned and grown cattle were sold at the ranch gate; purchasers directly assumed transportation costs. However, a transport cost for materials and inputs to the production unit was included.

Profitability and competitiveness

The assessment of production process profitability identified the main production costs for the resources and factors used in each system (Table 3). Tradable inputs (feed, medicine) were the highest cost item per kilogram of meat in all three production systems (CCS, GS and MS), accounting for from 56 to 60 % of total costs. Internal factors such as labor represented 25 % in the CCS, 17% in the GS and 26 % in the MS. Labor included total daily wages per hectare for pasture maintenance (i.e., hoeing, herbicide and fertilizer application), as well as daily wages for herd care and management.

Indirectly tradable inputs accounted for 18 % in the CCS, 23 % in the GS, and 14 % in the MS. This parameter considers depreciation values of breeding stock and calf values, as well as the recovery costs of equipment, assets and some implements not marketed internationally.

The highest effective income from cattle sales (47.9 %) was observed in the CCS, followed by the MS (47.1 %), and the GS (17.3 %) (Table 4). Both the CCS and MS were the most profitable systems because they sold breeding stock and controlled the complete weaning and/or finishing cycle, thus limiting and exploiting some input costs.

In the CCS, total production costs (tradable inputs and internal factors) accounted for 52 % of the budget, resulting in a 48 % profit. In the MS, these costs accounted for 53 % of the budget, resulting in a 47 % profit. However, in the GS these costs were 82.7 %, with particularly high tradable inputs costs ($568,404), resulting in less than half the profits of the other systems (17.3 %). In the private budgets, the profitability indicators showed that all three systems were profitable due mainly to the use of up-to-date technology, current market prices, and transfers or taxes generated by economic policy measures.

The prices of yellow corn and medicine (triple bacterin, amitraz, and ivermectin) were included in the social budget analysis. The best social budget among the three systems was for the CCS, which had an almost 67 % profit and just 25 % tradable inputs costs. In the GS, the tradable inputs costs (36.7 %) kept profits below 57 %, even considering price changes due to exchange rate adjustments.

The above shows that the GS exhibited negative transfers of both products (I) and inputs (J). This was due to two main distorting policies that cause divergences between observed prices and world prices. The first are taxes, subsidies and commercial policies applied to breeding or growth calves in Mexico, which affect private profitability. The second refers to the social foreign exchange rate policy which differed from the observed rate such that it was undervalued by -0.08 %, resulting in a real exchange rate of 18.57 MXP/USD. This constitutes an implicit support for producers since it generates an indirect saving on inputs. In summary, the sum of the negative incomes for the inputs (J) and internal factors (k) divergences reflect a positive net transfer (L) to the system.

This is confirmed by the PCR and RCR, as well as the EPQs. With values near zero, the PCRs of all three systems confirm that the surveyed producers were competitive (Table 5), mainly because sales of calves and breeding stock allowed them to pay the value of the production factors and still generate a profit.

Given that their PCR was the lowest (0.22), the CCS were the most competitive of the three studied systems. The higher PCR (0.45) for the GS showed that their profits were negatively affected by the extended growth time in the corral.

Both the CCS and GS had a low RCR (0.11), highlighting their social profitability. Their low RCR indicates they have comparative advantages, and that beef cattle production can be profitable in Mexico if resources are used efficiently; in other words, the value of the internal resources required for production was lower than the savings in foreign currency.

All three system types had EPQ values lower than 1.0, confirming the disincentives originating in policy interventions and the consequent lack of protection. The negative PSE values in all three system types represent their high private costs versus social costs due to prevailing economic policies. For example, gross income taxes imposed on GS producers were 121 %, an artifact of policy distortions and market imperfections in internal production factors.

Overall, the pNPC values were less than one, confirming a lack of protection for beef cattle production in the study area and suggesting that current policies inhibit national production. For the iNPC, both CCS and MS had values greater than one, indicating protection of negative price policies; that is, they benefit from an indirect subsidy not reflected in the iNPC for the GS.

Beef cattle production systems

Beef cattle production systems in the Sierra Norte region of Puebla are similar to others reported in Mexico. In one study, full cycle and cow-calf-to-weaning systems in Tizimín municipality in the state of Yucatan³⁵ were reported to use zebu breeds and crosses with European breeds, extensive grazing and corral feeding, although the systems were stratified based on number of head and stocking rate. Another study, of small and medium production units in the southern portion of the State of Mexico³⁶, identified three systems based on livestock production surface; all the producers used zebu, Brahman and Swiss breeds and crosses between them, and, generally, grazing with complementary supplementation.

Profitability and competitiveness

The present results for the percentage participation of costs is similar to that reported in a study of corral-grown cattle production in Tejupilco and Amatepec, in the State of Mexico²⁴. In this study, costs were primarily (80 %) tradable inputs, followed by internal factors (10 %) and the remaining production costs (10 %). Feed, health and fuel costs represented more than 86% of variable costs in a study of dual-purpose cattle production systems in Jamapa municipality, in the state of Veracruz³⁷. Labor costs accounted for up to 60 % of fixed costs, meaning that these factors generated the greatest economic and productive impact. The CCS had the highest effective income compared to MS and GS. This is supported by a study on calf grazing in the state of Sonora³⁸ which observes that traditional extensive cow-calf systems better utilize natural land conditions as long as they are extensive enough. They allow for adequate management because calves are left in pastures after weaning where they can gain various kilograms per day.

Indeed, as supported in the present results, grazing is an effective way of controlling total costs. This is further supported by a study of the beef production model in Chile, in which estimates showed that in mixed systems grazing is an effective and economic source of feed³⁹. In these systems, supplementation is only needed in months of low pasture biomass production or during the finishing stage to ensure efficient weight gain and maintain producer profitability.

Among the three systems studied here, the GS had the lowest percentage of effective income. This is similar to a report on intensive, semi-intensive, and extensive cattle grower systems in Gowa, Malaysia¹⁹. In these systems, total income from cattle sales varied according to sale price, and price was influenced by growth duration. Income was consequently highest for producers using a slow growth strategy (48 %), compared to those using intermediate (33 %) and intensive (18 %) strategies; suggesting that the strategy used may affect profits.

The profitability results for the three systems studied here are similar to those reported for three types of corral grower systems in the southern portion of the State of Mexico²⁸. As observed in the present results, each producer type used efficient input management to generate additional income for each peso invested, meaning all production factors contributed to creating added value.

The present social budget results are comparable to those in a study of grower systems in Bali, Indonesia¹⁸ in which profits were generated at both the private and social levels. However, non-tradable input costs were much higher in this study due to producer dependence on internal production inputs.

The negative transfers observed here in both the products (I) and inputs (J) affecting private profitability were probably the result of changes in federal agricultural policies in Mexico after ratification of the North America Free Trade Agreement (NAFTA) in 1993. Tariffs were reduced, and support and subsidies for agricultural activity were progressively withdrawn. This treaty has prevented strengthening of beef cattle production in Mexico through public policy⁵.

Although all three studied systems were deemed economically efficient, their competitiveness results were lower than the 0.51 to 0.52 PCR reported for three types of corral cattle systems in Tejupilco²⁴.

The comparative advantages for the three studied systems were similar to the 0.31 reported in a study of ruminant systems in Malaysia²⁰; as observed in the present results, these advantages were created through efficient use of domestic inputs and resources in production, and the saving or earning of foreign currency.

The present EPQs results were similar to a study using PAM⁴⁰ to identify federal livestock policy as an example of weak governance, since, beginning in the 1980s, the Mexican government has eliminated or reduced support for livestock and agricultural production. This contrasts with the 1.71 EPQ reported for grower systems in Gowa¹⁹, a manifestation of the impact of government policies supporting domestic productive activities. In this study, the ESP was positive (0.15) indicating that government policies allowed the studied grower systems to incur lower private costs than social costs.

Overall, the present PAM results confirmed that the studied CCS, GS and MS are efficient and profitable for producers since they have a comparative advantage and are competitive. However, despite their efficiency, government policy exploits their comparative advantage to keep prices low, meaning they are relatively unprotected. This lack of protection may be due mainly to an absence of public policy support for the livestock subsector aimed at strengthening national production. The absence of support allows foreign products to at least partially substitute domestic production, negatively affecting producers in Mexico.