Why “Least Cost” Is the “Best Value”

Traditional animal feed formulation is premised on finding the lowest-cost ration that obtains the desired level of performance. Increasingly, computer software programs that formulate animal feed employ what is often referred to as a “least cost” formulation system. This has been the case for quite some time. To the average person engaged in the animal feed industry, least-cost formulation is not controversial. But to those unfamiliar with production agriculture, least cost formulation may require some explanation.

Before delving too deeply into this subject, let’s first get our terminology defined. By “least cost,” we mean computer formulation software that will choose the lowest cost solution to satisfy a particular nutrient profile needed by the animals in question to support commercially viable weight gain or milk production. Least cost does not mean buying the least expensive ingredient available. In fact, good least-cost formulation systems will often choose a more expensive ingredient that more than makes up for its higher price by having greater nutritional value than a less expensive ingredient. Thus, this technology may be better expressed as a “best value” system.

In this era of high and volatile feed prices and thin margins, it is more important than ever for producers and their suppliers and vendors to employ efficient strategies. Least-cost formulation programs have helped producers improve efficiency and profitability by not overpaying for feed, or feeding a more expensive ration than necessary to achieve the desired level of production. In today’s marketplace, a producer not using least-cost formulation is putting itself at a significant competitive disadvantage.

Despite this commercial reality, the potential negative connotation some people associate with the least-cost concept contributes to the risk of disputes and lawsuits by farmers claiming product liability and allegedly negligent nutrition services. As is often the case, what is straightforward in the office and laboratory may not be as clear-cut in a courtroom, where a handful of jurors decides disputes that may have significant impacts on the parties’ bottom lines. To at least some of those potential jurors, feed ingredients pulled through a least-cost system may sound like “cheap” or “inferior” ingredients, and your company and its counsel could face an uphill battle convincing them otherwise. Fortunately, there are steps companies can take to reduce such risk.

Reliable inputs and documentation

A vigorous defense of a least-cost formulation system will rely on the science behind the assumptions and algorithms being used in the program. For example, if your company’s dairy formulation tool assumes a higher amount of methionine in soybean meal than do competitors’ systems, that distinction must be based on sound science. Otherwise, the system will tend to underfeed methionine and the nutrition the animals receive will be less than optimal.

Almost as important for product liability purposes is the need to document that sound science. You should be able to provide your counsel the documentation that will permit them to explain how the best available research supports the assumptions made in the program. While this science may not be enough by itself to win your case, without it your company is likely to lose.

Study and track performance

If your company’s formulation system works to provide good feed to your customers at a good price, jurors might expect your company to have evidence supporting that assertion. Such evidence might include, for example, a study comparing performance and price of a least-cost system with a system in which decisions are made without regard to price. Such evidence might also include “testimonials” from satisfied customers. Happy customers can create powerful evidence that your system works and may lead an objective observer to conclude that a customer allegedly experiencing poor results may be making excuses.