Opportunity Revenue and the Cost of Intervention

Causes of variation in pig production are many and not well understood. One of the key issues arises from the spread in pig weights which begins through a kind of competitive process among the pigs beginning well before birth. Competition in the uterus and during lactation results in a sometimes widely spread distribution of potential in pigs by the time they reach weaning. Some common management procedures are implemented beginning at birth to attempt to reduce variation but their outcome is often marginal, while others, such as processing and castration introduce new challenges to subsets of pigs. Pigs of different weights require different environmental temperatures, feed types and other conditions, yet as variation increases, "average" conditions are provided which probably miss the ideal environment for all but a very small number of pigs.

Some producers are experimenting with simply euthanizing the smallest pigs either at weaning or prior to weaning. An arbitrary percentage is chosen, such as the smallest 3-5% as candidates for euthanizing. Recently published trials (Wolff, Lehe, Keffaber and Deen, "A Producer's Tool for Measuring Attrition", IPVS, 2006) suggest that the weight of the pig, relative to its cohort at both weaning and the end of nursery phase are sentinel indicators of eventual final quality with the weight at the end of the nursery phase a stronger predictor. The result was obtained with all other things held constant so it isn’t clear if targeted or more intensive individual interventions aimed at the smallest pigs at weaning and feeder pig stages would affect the outcome.

Variation introduces cost to the system all the way to the retail market and affects not just cost of production but opportunity revenue, something that normal metrics and typical accounting systems do not record. Drs. John Deen and Karen Lehe have spoken frequently about the need to measure these opportunity revenue losses yet standardized procedures for doing so are only implemented on a few farms.

My favorite example to understand this issue is the cost you could afford to incur to save a full-value or standard pig at the end of the production process if it was going to die and the intervention could guarantee with 100% certainty that it would live. This gets at the value of capturing opportunity revenue.

Think about this: Assume you had already incurred (to keep things simple) $100 in production costs and the pig was ready for market and if delivered would generate $140 in revenue. You have a $40 profit expectation. How much could you afford to rationally spend to save it if were going to die? Most people answer up to $40 since this would be the profit available for additional intervention.

If you immediately came to that answer consider the following. The loss to you if it dies is -$100, the cost of production. However, had it been sold, you would have received $140 in revenue. This indicates if you could intervene and save it with 100% certainty, you could spend up to an additional $139.99 on top of the $100 invested and still be better off financially than letting it die. If you spent this much, your loss would be -$99.99, a penny better than letting it die though you spent $239.99 on the pig. What does that tell you about the value of targeted intervention and the amount your system is currently spending to reduce culls, deads and light pigs? In real life of course we don’t have 100% efficacy in targeted treatments so the $139.99 in extra cost is not justified if there is a probability of efficacy of treatment less than 100% but between $0 and $139.99, have you selected the right level of investment in understanding and treating variation in your system?