Managing Feed-Related Claims

The formulation and manufacture of feed is an increasingly complex science-based process. As is the case with food products for human consumption, great care is taken by feed suppliers to ensure that a high-quality and safe product is delivered to the customer. The business of marketing feed and maintaining client relationships is also increasingly complex and competitive.

As animal agriculture consolidates, and producers generally become larger, the size of individual customer accounts and their associated feed purchases are increasing. These increasing complexities lend themselves to an increased risk for business disputes between feed suppliers and feed customers. When such disputes do arise, claims regarding the quality of the feed delivered are likely to follow.

Feed & Grain turns to Todd Langel and Jacob Bylund, of Faegre & Benson, for a discussion of such claims and their management.

F&G: How common are claims related to the quality of feed within the context of a larger business dispute with a feed customer?

Bylund: Business disputes can and do arise between feed suppliers and their customers. A dispute may arise, for example, over the price to be paid for feed. Market volatility, as has been experienced in recent years, lends itself to such disputes. Disputes are also more likely to arise when the feed customer's business is suffering generally, such as the case of a dairy producer dealing with low milk prices. When disputes of this nature arise, it is not uncommon for a feed customer to assert that the previously delivered feed was defective in some way. For example, assume that due to financial difficulties, a dairy producer is unable to pay her feed bill and the feed supplier generates a significant accounts receivable. Eventually, the parties will enter into discussions regarding the payment of the feed bill and the dairy producer may seek input from counsel.

One of the first questions counsel will ask the customer is "Was there anything wrong with the feed?" This discussion with the producer may result in the assertion of a counterclaim against the feed supplier. In some cases, the stated value of the counterclaim can exceed the value of the supplier's accounts receivable. Whether viable or not, the feed customer may assert such a claim as a tool to resolve the open account.

F&G: What are some examples of the types of claims a feed customer may assert in these instances?

Langel: There are any number of claims which a feed customer may assert. For example, a feed customer may make a simple assertion that the feed was not mixed properly and that the ingredients were not mixed uniformly through the feed. At the opposite end of the spectrum, a feed customer may assert that the feed was contaminated with mycotoxins or other substances.

F&G: Don't mycotoxins occur naturally in some types of feed ingredients?

Langel: Mycotoxins are compounds produced by molds or fungi and you are correct that they occur naturally in field crops. The presence of mold or fungi in a field crops does not always result in production of mycotoxins, but abnormal levels of mycotoxins in grains are sometimes associated with crop stress due to drought and/or heat. Mycotoxin contamination levels normally do not increase in stored grain if the grain is kept at appropriate moisture and temperature levels. There is research suggesting the presence of naturally-occurring mycotoxins at some level in many types of grains and forages.

F&G: If mycotoxins are naturally occurring, how can they form the basis of a feed related claim?

Bylund: With respect to mycotoxins, it is an issue of the quantity and type of mycotoxins and not simply whether a small amount may be present. Different species of animals react differently to different types of mycotoxins. Possible symptoms range widely, from decreased feed intake to more significant symptoms, and depend greatly on the animal and level of contamination.