Ok, let’s see if we can spark some lively discussion within theCWTgroup. As I speak with dairy farmers, feed mill operators, premixers, and consulting nutritionists there are a variety of methods that we (the nutritional consultants) earn a living. The list looks something like this:
- Consulting fee retainer paid monthly or pcpd and billed monthly to the dairy.
- Consulting fee per hour paid for hours on farm and in the office billed to the dairy.
- Commission per ton of feed delivered to the farm, billed to the feed mill and paid by the feed mill. Obviously the feed mill builds this cost into their margin on feed delivered.
- VTM pacs manufactured by a premixing facility, purchased by the nutritionist, sold to a feed mill with an up charge and then formulated into mixed feeds by the nutritionist. No nutrition fees billed to the dairy.
- VTM pacs manufactured by a premixing facility, purchased by the feed mill at the request of the nutritionist, formulated into mixed feeds by the nutritionist, and then a commission paid to the nutritionist by the feed mill based on VTM utilized. No nutrition fees billed to the dairy.
There are probably 5 more versions of a similar story. We all need to make a living but I have concern for the lack of transparency in our business. In the times of VERY tight margins in the dairy business should our clients have a clearer understanding about the cost of our services?
Looking forward to your feedback.
I have always conducted my business according to #1 on your list and made it a point to tell my clients that I work for them. I have always stayed away from selling a product. That promotes transparency.
It’s been my opinion that the nutritionist is the single most important professional that steps onto a dairy farm. Their work impacts profitability in so many ways – milk production, reproduction, and herd health, not mention they influence the largest single line item on the income statement. When benchmarking, we always include nutrition consulting fees as part of the purchased feed line item to make a fair comparison between farms that pay their nutritionist independently and farms that pay their nutritionist thru their feed or mineral bill.
Regarding transparency, I don’t know how the independent nutritionist is going to compare their fees to other nutritionists’ costs, especially those working for feed companies such as Cargill or Land O’ Lakes who will never reveal the cost of the nutritionist (if they even know it). Furthermore, the cost of the nutritionist relative to the entire feed bill is probably small on large farms.
IMHO, transparency is less of an issue than overall performance of the nutritionist and their impact on the farms’s bottom line. I understand that nutritionists cannot control many of the variables that make farms more profitable, but they can be a big influence on those factors. The bigger the influence, the bigger their value. And, they should be compensated for providing that value. These are not accurately accounted for simply by Feed Cost/Cwt or Component Efficiency measurements.
If you’re looking for transparency, I would use measures such a the 60-day cull rate, milk income over feed cost, milk production of first lactation relative to mature milk production, dry matter conversion to component efficiency, heifer non-completion rates, forage quality, reproductive performance, and other measurements of production efficiency. I’m not saying that feed cost/cwt is unimportant, but if nutritionist can’t influence the producer to improve these production parameters, the best diet in the world will have little impact on the farm’s ability to compete.
Dr. Fry, this should definitely lead to some lively discussions!
I will share my humble opinion developed from my short time in the industry. At my first nutritionist role, we used option #4. It seemed to work well for both parties. The justifications for that business model where: 1. That as long as feed costs were in line with competitors that it didn’t really matter if the consulting fees were completely transparent and 2. That the clients in our region would not be willing to pay for services using the 1st and 2nd options. What I began to notice over the course of the 5 years I was there, was that there was the small but constant push to develop and sell more products that could all have a small margin attached to them. Bypass fats, amino acid packs, heat stress pack, probiotics, etc. Again, as long as we could get those products to the farm at the same or lower price as the other products in the market, it was considered a win-win. Overtime it was not uncommon for rations to have 3-5 commission carrying products on top of the original VTM that was supposed to pay for all of the consulting service.
In my current position, I am a salaried employee of one dairy operation and the primary metrics my performance is judged on are: feed cost / cwt of revenue correct milk (RCM), total cost / cwt of RCM, and RCM shipped per site per day. Though my current situation is a different model than what most dairy nutritionists operate within, I need to make decisions on what outside nutrition consultants we work with for additional ration help, advice, and service that I need, especially for regionally specific problems. Our company makes a concerted effort to work with consultants that charge for their services through both options #1 and #2 for both veterinary and nutritional needs. We prefer to know exactly what we are paying for and receiving in return. If possible, we even prefer to separate product costs and service costs with manufacturers of medicines and feed ingredients when we can. That way if a company provides a valuable service to us but the product is not a fit we can use the part that we find most valuable and visa versa.
We also feel that any nutritional service that charges on a per cow per day model eventually breaks down at some level of head numbers. After all, how much more time and effort does it take to balance a high cow ration that will feed 8,000 cows versus one that feeds 80 cows?
Please take my opinion for what it’s worth, I have only a fraction of the knowledge and experience of most others on this forum.
Daryl
Daryl,
You make some excellent points and clearly have been in the position to get the feel for various ways nutritionists are compensated. The challenge I have with the options #4 and #5 where nutritional services are tied to a margin on VTM pacs, AAs, Fats, Yeast, etc. is the conflict of interest that is inherent with that model. In your current situation when your neck is on the line for feed cost / cwt of revenue correct milk the best interest of the dairyman is the same as yours. You would be unlikely to feed a product that was not pretty sure about improving the RCM or decreasing feed cost or both. On the other hand if compensation to the nutritionist can be improved by more margined products being included grain mix then he/she is conflicted. Improve my commissions at the expense of the dairy farmer OR watch my commission shrink and hopefully do what is best for the producer.
In the current dairy economic climate it is paramount that we do what is best for the producer. (or they will be out and us too) To garner the same or even more commission with hidden fees buried in a product as part of the grain mix does not provide the necessary transparency for the producer to have adequate details to make proper feed related decisions… my 2 cents
The ones I see most often in our market area are 1,2, 4 and 5. It seems to depend on the relationship the producer has with the consultant. Some producers are fine writing a check to the consultant, some are not and want to see everything in the feed. I do see more of 4/5 than I do of 1/2. In my opinion this is likely a part of the dairy culture in Michigan.