Technologies like this always reward the best managers,” says Kevin Dhuyvetter, an agricultural economist with Kansas State University (KSU). “They continue to drive a wider gap between the top managers and the average ones.”

Dhuyvetter is referring to radio-frequency identification (RFID) and electronic data capture. And he's relating to the vexing challenge producers face justifying the cost of such a system within their operations.

On one hand, some early adopters have already proven to themselves and the industry that they can more than pay for the technology through the management decisions it enables them to make. Rather than manage groups of cattle on the average, these producers have found economic benefit in identifying and managing cattle as individuals.

Total Annual RFID System Cost, $/head (Examples)
Size of Herd, Number of Head
Description 62 125 187 250 625 937 1250
eID Transponder (tag)
Electronic tag $2.34 $2.34 $2.34 $2.34 $2.34 $2.34 $2.34
Tags for cows (one-time purchase) $0.56 $0.56 $0.56 $0.56 $0.56 $0.56 $0.56
Electronic reader
Wand/stick reader $2.48 $1.24 $0.83 $0.62 $0.25 $0.17 $0.12
Data accumulator
Laptop computer $1.99 $1.00 $0.66 $0.50 $0.20 $0.13 $0.10
Software/ web-based analysis and storage
Computer software $2.81 $1.40 $0.94 $0.70 $0.28 $0.19 $0.14
Other
Internet access $2.00 $1.00 $0.67 $0.50 $0.20 $0.13 $0.10
Subscriptions/upgrade fees $4.16 $2.08 $1.39 $1.04 $0.42 $0.28 $0.21
Labor $8.32 $4.16 $2.77 $2.08 $0.83 $0.55 $0.42
Total annual cost for these examples $24.66 $13.78 $10.16 $8.34 $5.08 $4.35 $3.99

Currently, that seems especially true within vertically coordinated systems and in situations where producers own cattle through at least two production enterprises. Using RFID and electronic data capture makes it possible for them to gather data quickly and accurately enough to make individual management possible.

On the other hand, if desire or resources don't lend themselves to individual animal management, there is little or no economic incentive thus far for producers to invest in the technology that automates the front end of such management.

“For some producers, the most profitable thing they can do relative to RFID is the bare minimum,” says Dhuyvetter.

After all, while the cost is not necessarily prohibitive on a per-head basis, even at a buck a head, across enough numbers, it adds up to real money.

The Cost Of Doing RFID Business

As an example, Dhuyvetter and KSU colleague Dale Blasi developed a Web-based spreadsheet that can be used to calculate RFID costs (available free at www.beefstockerusa.org, a cooperative venture between KSU and BEEF magazine). The spreadsheet allows producers to input their own RFID costs or considerations to quickly determine an estimate of what an RFID system will cost annually on a per-head basis.

Dhuyvetter is quick to point out that the calculator traverses new ground. Thus, he says it's intended to offer users a general perspective, not a perfect decision-making tool. Incidentally, Dhuyvetter also developed a calculator for feedlots to estimate similar costs for their operations.

To demonstrate the calculator (see Tables), we'll use 250 cows as the base. Along with median costs for the RFID components that would allow tagging cows with a transponder, reading the numbers and transferring the information to a data accumulator (see “Mix and Match” p. 18), the calculator yields an annual cost of $8.34/head.

Obviously, the number of cattle levied against the cost of hardware drives the cost equation. Thus, sharing the hardware with other producers can lessen it dramatically. After hardware, though, labor is the most significant cost driver, at least until you're running through substantially more cows than 250.

“Labor is a cost that will vary tremendously between producers as some will have the ability to do things themselves and others will need to hire consultants to do everything for them,” explains Dhuyvetter. For that matter, he points out various systems and combinations of RFID components yield different levels of user friendliness, which also impacts labor cost.

On both hardware and labor costs, Dhuyvetter cautions producers to make sure they're counting costs against the correct enterprise. As an example, you can't accurately dilute the annual RFID cow cost by adding on the stocker calves you also apply the technology to; that's a different enterprise. And, as you increase the number of cows in our example, the total cost of labor goes up, although the unit cost decreases.

Consequently, unless use of the technology is mandated by the market or by government — via something like a national animal ID program, for instance — Dhuyvetter believes many producers may find it difficult to justify the cost of the technology unless they can exploit large scales of economy.

Even if mandates push producers in the direction of RFID, Dhuyvetter believes the current lack of economic incentive for employing the technology likely means most cow-calf producers with fewer than several hundred head will do what they must and no more. In the case of mandatory ID, as an example, many smaller producers may very well put an RFID tag in their cattle but stop there because they can't justify the expense of other RFID components.

“It will be extremely management-dependent,” emphasizes Dhuyvetter. That's unless the industry can demonstrate economic incentive beyond buyers requiring the technology as a condition of sale.

With all of this in mind, Dhuyvetter suggests that any producer contemplating an RFID system spend time to scale it against his or her individual needs. What components are required to achieve the purposes a producer plans to use RFID for? What is the minimum cost of putting together such a system? On a per-head basis, can you justify the cost?

“There is tremendous variability in the costs and capabilities of various RFID systems,” says Dhuyvetter. “Producers will be able to get as much or as little as they want. How much individual producers can benefit from an RFID system will depend on their unique situations.”

Keep in mind, utilizing an RFID system doesn't necessitate owning it from end to end. As alluded to earlier, Dhuyvetter says some companies offer reader and data management services to producers utilizing RFID tags.

Plus, Dhuyvetter explains, “Similar to other technologies, prices will likely come down rather rapidly as adoption increases. That doesn't necessarily mean that producers should wait because there will always be a better, cheaper version in the future. If you did that, you'd be waiting forever.”

Estimated Costs for an RFID System
Example is on 250 head at 8% interest RFID Components1
Initial cost, $2 Useful
life, yrs
Salvage
value, $
Annual
Cost, $
Percent
to RFID
RFID Cost
Total Per Head Total Per Head
Description
eID Transponder (tag)
Electronic tag --- $2.25 --- --- $585 100% $585 $2.34
--- --- ---
Tags for cows (one-time purchase) --- $2.25 5 0 $141 100% $141 $0.56
Electronic reader
Wand/stick reader $400 3 0 $155 100% $155 $0.62
Data accumulator
Laptop computer $800 3 200 $249 50% $124 $0.50
Software / web-based analysis and storage
Computer software $700 5 0 $175 100% $175 $0.70
Other
Internet access $480 --- --- $499 25% $125 $0.50
Subscriptions/upgrade fees $250 --- --- $260 100% $260 $1.04
Labor $500 --- --- $520 100% $520 $2.08
--- ---
Total annual cost for this example $2,086 $8.34
1See the RFID components tab for a brief discussion of the different components of the RFID system.