Application of type I and II error analysis to support economic decision-making of using an immunomodulator feed additive

The use of the immunomodulator OmniGen-AF (OMN) feed supplement, where the response in milk yield, health, and reproduction is uncertain, allows for an application of type I (use the product when it is not profitable) and type II (do not use the product when it is profitable) analysis to aid decision-making regarding its profitability. This study applies a type I and II error analysis to quantify the economic risk of investing in OMN feed supplementation using data from a controlled study and a field dataset collected on dairy farms. Four prediction models were applied considering the expected value and SD of the response in milk yield; milk and health; milk and reproduction; and milk, health, and reproduction. Uncertainty in the milk response was modeled following a normal distribution with mean 0.15 kg/cow per day and SD 0.81 kg/cow per day. This distribution was left-truncated at 0 kg, which resulted in a mean (expected) response of 0.7 kg/cow per day. Based on the field dataset, the reduction in health costs and reproduction were estimated at $0.086 and $0.33/cow per day. All 3 responses were assumed to be present or not in the first 90 DIM. The increase in milk yields necessary to pay for the OMN supplementation considering a response in milk yield only; milk and health; milk and reproduction; and milk, health, and reproduction were 0.45, 0.19, -0.56, and -0.82 kg/cow per day, respectively. The break-even OMN cost per cow per day when considering the increases in milk yield; milk and health; milk and reproduction; and milk, health, and reproduction were $0.23, $0.31, $0.56, and $0.65, respectively. Production responses resulted in costs exceeding revenue with a type I error cost of $2.62 for milk and $0.47 for milk and health response for the broke even. There was no type I error cost associated when considering the responses in milk and reproduction, and the combination of milk, health, and reproduction, which implies that there is no risk of using OMN when it is not profitable (= the product is profitable for certain). Type II costs were associated with returns that are unrealized because of failing to use OMN when it is profitable with an opportunity cost of $9.92, $15.53, $37.23, and $45.08 per cow per day for the responses in milk yield; milk and health; milk and reproduction; and milk, health, and reproduction, respectively. We concluded that a type I and II error analysis applied to the use of the OMN feed additive provided additional insights beyond a break-even analysis to support economic decision-making when the response on dairy farms is uncertain. The type I and II error analysis can aid in decision-making process to evaluate the adoption of a new technology.