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Economic Evaluation of Feed Per Unit of Gain: Is Lower Always Better?

24 January 2013

Kansas Swine Profitability 2012

At the 2012 Kansas State University Swine Profitability Conference, Steve S. Dritz of Kansas State University explained why a lower feed conversion is not necessarily better.

As feed costs have increased over the last several years, feed per unit of gain (feed efficiency) has increased in economic value relative to other production parameters. Since feed cost typically represents the largest proportion of the costs of pork production, feed efficacy is typically assumed to be an indirect indicator of profitability. This reasoning suggests that less use of a resource (feed) leading to a lowering the numerator or increasing gain (increasing the denominator) will improve feed per unit of gain. The next step in the logic is that improved feed efficiency will then be an indirect indicator of increased profitability. Thus, the fundamental question is lower feed per unit of gain always better?

The first step is to understand how feed efficiency is calculated. As the name feed per unit of gain implies it is a simple ratio of feed divided by amount of gain or a ratio of Average Daily Feed Intake ÷ Average Daily Gain (F/G = ADFI÷ADG). Feed is typically fairly straight forward to account for in the equation. Usually, the difficulty comes in the definition of gain.

The accepted way to calculate close out feed efficiency is:

Total feed delivered ÷ (Weight sold – Weight started)

Note that dead pig weight is not included in the calculation.

In nutrition research, most trial designs that characterise nutrient requirements are designed over relatively small biological ranges that would not be expected to have a different response in mortality rates across nutritional treatments.

One accepted practice in research experiments is to include dead pig weight in the calculation of feed efficiency. For example, a market weight pig that dies of torsion in an amino acid experiment. In a 10- or 20-pig pen, if the weight gain of this pig is not accounted for in the feed per unit of gain calculation, the gain will be under accounted due to a death that is not treatment related. Accounting for the dead pig weight will result in a more precise measure of feed per unit of gain and indicator of the economic differences across treatments. On a group close-out though, accounting for dead pig weight will lead to a better feed per unit of gain. However, the improvement is not directly linked to improved economic outcome. Thus, the first answer to the question "Is lower always better?" is that it depends on how feed per unit of gain is calculated and what context the information is going to be used. In the case of close-out, information excluding dead pig weight and leading to a higher feed per unit of gain is the appropriate indicator to correlate with economic performance. In the case of the research experiment, including dead pig weight will be a more precise indicator of economic performance of the nutritional treatment.

Another factor to consider is that as the pig grows and matures the feed required per unit of gain becomes poorer. For example, in a benchmark comparison across farms, feed efficiency a higher feed per unit of gain may actually be better. The higher feed per unit of gain may be the result starting and ending weights differing significantly across the comparison. For example, when comparing Farm A with a finisher feed efficiency of 2.90 with farm B with a 2.84 feed efficiency, Farm A may actually have lower feed wastage. Farm A has a start weight of 25kg (55lb) and market weight of 127.7kg (280lb) compared to Farm B with a start weight of (23.7kg (50lb) and a market weight of 113.6kg (250lb). Thus, although Farm B has a lower feed efficiency, the starting and ending weights are also lower. Adjusting for the increased body weights from farm B results in a feed per unit of gain of 2.73 if pigs were started and sold at the same weight as Farm B. Thus, this is a case where when first evaluating the data, the 2.90 feed efficiency may actually be better than the 2.84 feed efficiency.

The next step is to link the biological efficiency of feed per unit gain with an economic measure by adding feed cost and expressing feed per unit of gain as feed cost per unit of gain. Thus, we have converted a biologic number into and economic indicator where the sensitivity of different economic scenarios can be modeled.

Feed cost per unit of gain = Feed cost / unit of gain

Example: 250kg feed × $0.25 per kg / 100kg gain = $62.50/100kg gain or $0.6250/kg gain

Alternative formula:

Feed cost per unit of gain = feed cost per unit × feed per unit gain

Example: $0.25 per kg feed × 2.5 F/G = $0.625 per kg/gain

Evaluation of the economics of feed per unit of gain can then be broken into different scenarios to assess the impact of a given feed efficiency impact on economic performance.

Scenario 1 – Lower feed cost, no difference in feed efficiency

Examples include: Reduce cost of feed ingredients or removal of ineffective additives.
Reduce the numerator cost without change in feed efficiency will lower feed cost per unit of gain. This is an example were no change in feed per unit of gain is better. The lower cost is a direct indicator of economic performance since there is no impact on any of the biologic parameters.

Scenario 2 – Higher feed cost, lower feed efficiency or the reverse of lower feed cost with higher feed efficiency resulting in no impact on ADG.

Example: Higher dietary energy with added fat in finishing pigs
Finisher pigs – Feed efficiency is lower as the result of a constant caloric intake with lower feed intake and no change in growth rate. This is a case where it depends on the cost of added fat to determine if the lower feed efficiency is a better economic return.

As an example based on the diet costs and expected feed per unit of gain the higher energy diet results in the higher feed cost per unit of gain. In this scenario, lower feed per unit of gain fails to result in better economic performance.

Scenario 2: Economic evaluation of increased dietary caloric density in grower pigs

Therefore, the economics of this scenario result depend on accurate values for the expected feed per unit of gain (FG) and the assumption that changing energy density will not impact other parameters such growth rate and carcass composition. In this case, the lower feed per unit of gain results in higher feed cost per unit of gain. Under different economic conditions where the cost of added fat is lower the increased diet cost may be offset by the improvement in feed per unit of gain and actually lower feed cost per unit of gain. Thus, determination if lower is better from an economic perspective depends on the cost of added dietary energy.

Scenario 3: Higher feed cost, lower feed efficiency and higher ADG or the reverse of lower feed cost with higher feed efficiency and lower ADG.

Example: Higher dietary energy with added fat in grower pigs
Grower Pigs - Feed efficiency is lower based on no change in feed intake, resulting in a higher caloric intake that drives a higher growth rate.

This becomes a more complicated scenario to evaluate economically. The value of ADG varies depending on type of production system (fixed weight or fixed time) and the ability to achieve optimum market weight. In order to evaluate the economics we use a calculation of income over feed cost in fixed time or growing pig space short systems. This calculation assumes that fixed amount of time is spent in the growing pig period so the all other costs beside feed and revenue are fixed and equivalent. Thus, the comparison of the difference across scenarios will be an indicator in differences in profitability. For the fixed weight comparison facility cost becomes another variable cost and thus facility cost is added to the cost side of the equation.

Scenario 3: Economic evaluation of increased dietary caloric density in grower pigs

Certainly, there are other scenarios to consider when changing feed per unit of gain and growth rate which will alter rates of protein and fat deposition. These alterations can in turn influence carcass yield and composition. Also, the question on how to calculate revenue numbers will be highly dependent on the payment scheme for the purchaser or if an integrated operation the value of products produced.

Therefore, the clear objective is to develop models and sensitivity based on performance to indirectly predict an influence on profitability. Feed per unit of gain provides a gross indicator interference levels but more sophisticated modeling is needed to determine if lower is better.

Some general observations about and the correlation between feed per unit and gain and economic performance include two categories where marginal cost is minimal to obtain improvements and cases where a more detailed analysis is needed.

Examples of minimal marginal cost

Reduced feed wastage – Consider that a feeder providing for two 25-pig pens will deliver almost $12,000 of feed per year per feeder the return for replacing feeders can easily be less than one year. Another way to look at things is that in a 40,000-sow farrow-to-finish system wasting one hand full (0.5kg or 1.1lb) per feeder results in about $1,200 of wasted feed per day. This is a major reason for the considerable effort on evaluating feeder adjustment and feeder design strategies over the last several years.

Grain particle size reduction – Research data indicates that reductions in grain particle size improve digestibility down to at least 300 to 400 microns. The accepted standard is an improvement of in feed per unit of gain of 1.2 per cent for each 100-micron reduction. Thus, each reduction by 100 microns can be worth $0.75 to $1.00 per pig. Other considerations include feed mill throughput and feed handling characteristics. However, over the last several years, many of our progressive producers have figured out how to handle feed with 500- to 600-micron average grain compared to 750- to 800-micron averages in the past.

Examples where marginal cost needs to be evaluated

Genetics – Again we need good predictive models of what will be the relative difference and trade off with improvements in feed efficiency compared to other traits. Growth rate, feed efficiency and carcass composition are relatively easy to predict impact. More difficult traits that will impact profitability include meat quality and survivability. Our general observation though is that investment in genetics to improve feed per unit of gain is a high return investment.

Nutrient Requirements - In general in the past era of relatively low corn and feed cost, feeding for maximum biologic performance was almost always a direct indicator of profitability in the US. However, as illustrated with dietary energy this is not the case anymore. Biologic optimum does not always correlate with economic optimum. This certainly is not news to our colleagues around the world have had to deal with higher feed costs on a continuous basis but is now the reality in the US.

Feed processing techniques such as pelleting and extrusion – This is an example where trials done with good pellet quality show great response but with poorer pellet quality there is little improvement in feed efficiency. Pelleting has other advantage such as allowing use of a lower particle size and still maintain flow ability. Unfortunately, this is a case where the results depend on the location. Also, these are the classic example where these processes require the expenditure of capital up front. Thus, different entities may come up with different economic answers based on the same biological data.

Therefore, in answer to the question from an economic perspective "Is lower always better?", as with most things, the correct answer is "It depends".

Further Reading

You can view other papers presented at the 2012 Kansas State University Swine Profitability Conference by clicking here.

January 2013

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