September 04, 2012 | By Mark J. Carpenter and Todd P. Langel
print-button

Why Least Cost Is the Best Value

Tips for avoiding undue controversy and litigation with computer-optimized feed formulation systems

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 decide 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.

Require reliable inputs and document them

A vigorous defense of a least-cost formulation system will rely on the science behind the assumptions and algorithms being used in the program. To use a crude 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 as sound science 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 counsel 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 who are willing to praise your company’s system and credit it for positive results achieved on their farms. 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 merely making excuses.

Because agricultural producers are typically reluctant to get involved in litigation to which they are not a party, particularly when to do so they will have to take sides against another producer, the task of identifying satisfied customers should take place before a claim is brought against your company. Having already made a public commitment to support your company’s system, such customers are more likely to follow through with a willingness to repeat that opinion in the context of litigation.    

Stay flexible

Your company’s formulation system should allow your formulation employees to override the system’s recommendations, whether for reasons of customer preference, palatability or pelletability (where applicable). This is not only a good business approach but also a good legal approach. Such flexibility will help demonstrate that your company was looking out for its customers and empowering its employees to make individual decisions instead of relying purely on a computer. 

Communicate with customers

If your company’s customers understand, even in very general terms, the formulation system your company is employing, they will be less likely to sue and claim surprise that least-cost formulation was being used. Open communication tends to make customers feel like trusted partners. While not removing the economic pressures today’s livestock producers are under, customers who feel a sense of partnership with your company and believe it has been open and forthcoming with them are less likely to sue than those who do not feel this way.

Similar to the point above about sound science, here too, documentation is important. Of course, the “gold standard” would be a written acknowledgement of least-cost formulation signed by the producer. For many reasons, a signed acknowledgement may not be realistic, but short of that there are still steps your company can take to improve its position in any subsequent litigation. Such steps can include promotional materials in writing and/or on the company website, and training manuals to help your company’s employees communicate with customers. If these materials suggest a dialogue with customers about ingredient choices being made for economic reasons, your company will appear more credible when asking a jury to conclude that the producer already knew about the system and is now just pointing fingers and seeking a windfall.

More Articles

Hola Havana

Hola Havana

May 17, 2015 | Editors Note | Elise Schafer

We’ve all seen the headlines across social media about the potential for Cuban Cigars to be legalized. That’s because in December 2014, President Obama said the U.S. would soon re-establish relations with Cuba nearly 55 years after the trade embargo was enacted

[Read More]
Brush Up on Rail Safety

Brush Up on Rail Safety

May 12, 2015 | From The Field |

Industrial facilities that use rail as a part of their operation move railcars by a variety of motive power types. No matter what type of motive power is used, applicable rail operating safety rules and procedures should be followed. Applying up-to-date rules and procedures to rail operations will enhance employee safety and facility efficiencies. 

[Read More]
Facility on the Go

Facility on the Go

May 07, 2015 | Focus On | Steven Kilger

Having automated technology running operations in facilities has been an industry standard in the feed industry for years, and the grain industry is rapidly catching up. The advantages of the technology are numerous and evolving. Automation improves equipment life expectancy, employee safety and productivity, facility efficiency and ultimately profitability.  

[Read More]
Feed & Grain Announces Photo Contest Winners

Feed & Grain Announces Photo Contest Winners

April 30, 2015 | | Elise Schafer

Feed & Grain is proud to announce the winners of its 2014 Harvest Photo Contest. Entries poured in from December 2014 until this February showcasing our readers’ ability to manage a record crop — some with limited access to rail or other shipping options. Congratulations to all the winners and honorable mentions! 

[Read More]
U.S. Invests in Key Rail and River Infrastructure
Photo by Union Pacific Railroad

U.S. Invests in Key Rail and River Infrastructure

April 27, 2015 | Cover Story | Elise Schafer

The year 2014 ended as a mixed bag on the transportation front. Historically poor railroad performance in the Northern Plains and record-high costs for railcars were detrimental to many grain shippers. But on the bright side, Congress’ passage of the Waterways Resources Reform and Development Act recognized the importance of maintaining vital waterways like the Mississippi River.

[Read More]