A technique is described for assessing the profitability of selecting sheep for wool production. A model of the breeding system incorporating three submodels is developed: one to represent the flock from which the selection intensities for rams andewes are calculated; a second to determine gains made in wool production and the year in which they accrue; and the third uses discounting procedures to examine the economics of selecting for wool production.

Flock and genetic parameters were set at ‘average’ values for an Australian Merino wool producer and gains were determined for a range of lambing percentages. Three measures were used to evaluate profitability; the net present value of the programme which shows overall profits, the internal rate of return, which gives the earning rate of the programme, and the payback period, which identifies the number of years before early costs are repaid.

sensitivity analysis was used to examine changes in the three measures of profitability resulting from changes in interest rate, wool price, costs for labour and computer analysis, wool testing costs and lambing percentage. Profitability was sensitive to changes in all parameters except wool testing charges, and of the remainder the producer has a degree of control only over labour costs. A programme can be profitable, however, if wool price and lambing percentage are adequate and costs can be kept at reasonably low levels. Simple breeding programmes should be studied in which labour inputs are kept to a minimum or where costs are confined to studs (nuclei) and genetic gain disseminated by the sale (migration) of rams.