The economics of alternative feed types has to be assessed at the farm level and from a public policy point of view. Simply stated, economics is the study of resource allocation. That is, how and where resources are used and the economic rents generated by this allocation. We will assume throughout this study that resources, whether they are capital, labour, or land, must be put to the best possible use. This implies that resources must be allocated to the least cost, highest return factor of production.

This point is very important. If resources are not allocated in this manner, then the farmer would do better investing elsewhere. The rational farmer must be competitive to stay in business. Competition is derived from within and outside the farmer’s market region. He/she is constantly trying to lower costs and improve profits. The assumption throughout this analysis is that the farmer is a profit maximizer. The farmer’s behavior is strongly influenced by the desire for higher profits and his/her decisions will reflect this desire.

For a new feed type to be incorporated into the feeding regime of livestock producers the animals must perform the same or better as the product being displaced. The cost per unit of the product must be equal to or less than a comparable feedstuff. The farmer will not accept a product that results in lower profits. There must be a balance maintained between the rate of gain or output of the animal and the cost of a new feedstuff. While a feed type may be of lower cost, if the rate of gain of the animal decreases then any savings realized may be offset by lower revenues.

The cost per unit of the product includes many different variables. These include: the cost of equipment required to incorporate the feed, the labour associated with handling and storing the feed, the cost of storage space and equipment and the cost of the feed itself including transportation. The sum of these costs must be equal to or less than the costs incurred by the farmer using traditional feedstuff.

It is possible that an alternative feed may be economical in terms of the cost of the raw material. That is, the variable costs associated with using the feed might be lower than a displaced feedstuff. Fixed costs associated with the new feed could, however, make it uneconomical. If this is the case then there could be a role for government in developing the product and providing assistance as required.

It must be kept in mind that a supply of an alternative feed type(s) may mean the long term survival of the industry. Pressures on current transportation subsidies place the livestock sector in a precarious situation. As well, increased globalization through national and international trade agreements place further urgency on the development of a lower cost feed for Newfoundland livestock producers.

Given these circumstances, it may be beneficial for a government to subsidize equipment purchases rather than have an industry close. In this situation, the benefits generated from keeping the industry alive should exceed the cost of subsidization. It may be a benefit for society to subsidize the cost of a raw material thereby keeping existing operations in business and possibly creating further employment.

In conclusion, when determining the economic viability of an alternative feed, the cost has to be of equal or lesser value than the product it is displacing. For a feed to be acceptable the profits of the farm either have to be affected positively or not at all.

For further information contact the Alternative Feeds Coordinator at the Pynn’s Brook office or the Corner Brook/Headquarter’s Office.