EPA-230/1-73-002
AUGUST 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
BEET SUGAR INDUSTRY
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 2046O
\
UJ
O
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This document is available in limited
quantities through the U.S. Environmental Protection Agency,
Information Center, Room W-327 Waterside Mall,
Washington, B.C. 20460
The document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151
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EPA - 230/1-73-002
ECONOMIC ANALYSIS OF
PROPOSED EFFLUENT GUIDELINES
BEET SUGAR INDUSTRY
Milton L. David
Robert J. Buzenberg
August, 1973
ENVIRONMENTAL PROTECTION AGENCZ
Library, Region V
1 North Wacker Drive £
Chicago, Illinois 60606 . .jjjji
Prepared for
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
-------
This report has been reviewed by the Office of Planning
and Evaluation, EPA, and approved for publication.
Approval does not signify that the contents necessarily
reflect the views and policies of the Environmental
Protection Agency, nor does mention of trade names or
commercial products constitute endorsement or recom-
mendation for use.
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PREFACE
The attached document is a contractor's study prepared for the Office
of Planning and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent limitation
guidelines and standards of performance to be established under sections
304(b) and 306 of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development Document")
supporting the issuance of proposed regulations under sections 304(b) and
306. The Development Document surveys existing and potential waste
treatment control methods and technology within particular industrial
source categories and supports promulgation of certain effluent limitation
guidelines and standards of performance based upon an analysis of the
feasibility of these guidelines and standards in accordance with the require-
ments of sections 3C4(b) and 306 of the Act. Presented in the Development
Document are the investment and operating costs associated with various
alternative control and treatment technologies. The attached document
supplements this analysis by estimating the broader economic effects
which might result from the required application of various control
methods and technologies. This study investigates the effect of alter-
native approaches in terms of product price increases, effects upon em-
ployment and the continued viability of affected plants, effects upon
foreign trade and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Planning and Evaluation of EPA. This report was submitted in fulfill-
ment of Contract No. 68-01-1533, Task Order No. 1 by Development
Planning and Research Associates, Inc. Work was completed as of
August, 1973.
This report is being released and circulated at approximately the same
time as publication in the Federal Register of a notice of proposed rule
making under sections 304(b) and 306 of the Act for the subject point
source category. The study has not been reviewed by EPA and is not
an official EPA publication. The study will be considered along with the
information contained in the Development Document and any comments
received by EPA on either document before or during proposed rule making
proceedings necessary to establish final regulations. Prior to final promul-
gation of regulations, the accompanying study shall have standing in any
EPA proceeding or court proceeding only to the extent that it represents
the views of the contractor who studied the subject industry. It cannot be
cited, referenced, or represented in any respect in any such proceeding
as a statement of EPA's views regarding the subject industry.
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CONTENTS
I INDUSTRY SEGMENTS 1-1
A. Types of Firms 1-1
B. Types of Plants I-11
C, Number of Employees 1-17
II FINANCIAL PROFILE II-1
A. Plants by Segment II-1
B. Ability to Finance New Investment 11-15
III PRICING III-1
A. Price Determination III-1
B. Sale Prices III-16
IV ECONOMIC IMPACT IV-1
A. Fundamental Methodology IV-1
B. Price Effects IV-10
C. Financial Effects IV-12
D. Production Effects IV-12
E. Employment Effects IV-14
F. Community Effects IV-14
G. Other Effects IV-14
V POLLUTION CONTROL REQUIREMENTS AND COSTS V-l
A. Alternative Effluent Control Levels V-l
B. Current Levels of Control V-2
C. Water Pollution Abatement Costs V-5
D. Land Availability Formula V-17
E. Comments on Cost Data V-22
VI IMPACT ANALYSIS VI-1
A. Price Effects VI-1
B. Financial Effects VI-5
C. Production Effects VI-10
D. Employment Effects VI-24
E. Community Effects VI-24
F. Balance of Payment Effects VI-26
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CONTENTS (continued)
Page
VII LIMITS TO ANALYSIS VII-1
A. General Accuracy VII-1
B. Possible Range of Error VII-1
C. New Technology VII-3
D. Critical Assumptions VII-4
E. Remaining Questions VII-5
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I. INDUSTRY SEGMENTS
The beet sugar industry is defined under SIC 2063 as establishments
primarily engaged in manufacture of sugar from sugar beets. The en-
tire industry is well-defined with only 52 J_' operating plants owned by
10 separate operating companies.
A. Types of Firms
1. Size and Number
As indicated above, the industry is composed of ten separate firms ranging
from single plant firms to a 17 plant firm as shown in Table 1-1.
In terms of sales, Great Western is largest with about $190 million annual
sales. Utah and Idaho, Amalgamated, Holly, American Crystal and
Spreckels each have sales ranging from $90 to $120 million annually.
Michigan Sugar has annual sales of about $30 to $35 million, whereas the
small single plant firms have sales of about $0.75 to $2.0 million annually.
2. Integration and Diversification
From a traditional point of view the beet sugar industry is also unique
because most of the firms in the industry are neither diversified nor
integrated, excepting Great Western and Spreckels and some minor
farming operations of firms like Utah and Idaho. The firms only process
sugar beets into sugar.
Although from the viewpoint of the processor, there is little integration;
in fact, a degree of indirect integration exists due to the nature of supply
arrangements.
All sugar beets produced in the United States are grown under processor-
producer contracts. In addition to the non-price features of these con-
tracts, the "price participation" provisions of these contracts, the pro-
ducer is not paid a fixed price for his beets, but receives a specified
share of the net returns from the sale of sugar by the processor. The
One plant, Mason City, Iowa, closed following the 1972-1973 campaign
and three new plants in the Red River Valley are under construction
and are expected to open for the 1974-75 campaign.
1-1
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Table 1-1. Tons of sugar beets processed by firms
1968 and 1972
Company
Great Western
Holly
American Crystal
Spreckels
Amalgamated
Utah and Idaho
Michigan Sugar
Union
Buckeye
Monitor
Maine
Total
No. of
plants
17
10
8
5
5
5
4
1
1
1
1
58
1968, Daily
tons sliced
44,498
29,653
23, 649
21, 400
24, 390
18,600
6,824
4,800
1,700
3,500
183,014
No. of
plants
17
9
7
5
4
4
4
1
1
1
53
1972, Daily
tons sliced
46, 800
32, 278
23, 774
21, 500
26, 950
21, 300
7, 300
4,800
1,700
4,000
190,802
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share is determined on a formula basis, generally based on sucrose con-
tent of beets delivered or actual sugar yield. Thus, the participation con-
tract results in incomes of both processors and producers being influenced
by net returns in the industry.
The relationship of the beet producer and processor is becoming even
closer with the recent movement of grower cooperatives into ownership
of processing plants. This situation is discussed below.
3. The Grower Cooperative Movement
By the beet sugar campaign of 1974-75, the structure of ownership of the
beet sugar processing companies will have changed from the start of the
1972-73 campaign (Table 1-2).
Table 1-2. Beet sugar plants, ownership status, cooperatives and
private firms (non co-op), 1973, 1974 and estimated 1975
1972-73
Ownership
Total plants
Total co-op plants
Total non co-op plants
Daily tonnage
Daily co-op tonnage
Daily non co-op tonnage
No.
53
0
53
190,802
0
190, 802
Percent
100
0
100
100
0
100
1973-74
No.
52
6
46
188,502
21,474
167,028
Percent
100
12
88
100
11
89
1974-75
No.
55
9
46
204,502
37,474
167,028
Pe rcent
100
16
84
100
18
82
The American Crystal Sugar Company was purchased in 1973 by their respec-
tive beet grower co-op. Three new co-ops have already started construction
of three new plants to be ready for processing beets at the beginning of the
1974 campaign. The Great Western Producers Cooperative negotiated with
Great Western United for the purchase of their 17 plants, but in early August,
1973 the negotiations were terminated.
The primary reason for cooperative ownership and interest apparently is
because the profitability of producing sugar beets versus other crop options
is sufficiently great that growers are willing to assume ownership of low-
return beet processing operations in order to maintain a market for the
beets they produce. And, at the same time, the bargaining power of the
1-3
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grower co-ops on one hand and the controlled sugar prices on the other
hand, have squeezed the sugar beet processing plants to a point of un-
attractive profitability (see Chapter II for further discussion of profit-
ability). Each of the cooperative situations is discussed below.
The Great Western Producers Cooperative
This cooperative is the largest grower co-op and Great Western United,
the owner of the sugar company, had offered to purchase Great Western's
17 sugar plants for approximately $90,000,000. Completion of this trans-
action had been delayed several months by law suits and requirements on
the part of the lending institution that is financing 90 percent of this project
and in early August, 1973, the offer and negotiations were terminated.
Although a number of reasons were probably involved in the termination,
it is understood that various conditions of the prospective lender could
not be satisfied by the growers association.
The proposed purchase was to be financed by equity from the growers
plus debt financing of $75 million out of a total capital structure of $105
million. (This amount includes funds for operating capital and certain
new investments.) Interest on this debt was reported to be about nine
percent for $60 million from an institutional source and 11+ percent
(a floating rate based on prime plus a predetermined number of points)
for $15 million from a bank. Additionally, a check-off against the growers
of $ 1. 00 per ton on future beet deliveries was proposed to retire debt.
Representations by the grower co-op to the lending institutions stated
that they intended to be a good neighbor , environmentally. In their
financial projections, some reserves had been set up for future capital
requirements to meet pollution abatement requirements, but discussions
with the grower cooperative suggest that these allowances did not anticipate
immediate zero discharge standards but rather were based on a . 5 pound
standard.
American Crystal Sugar Co.
On Februarly 21, 1973, a merger was completed between the American
Crystal growers co-op and the American Crystal Sugar Co. The money
from the co-op was used to retire the corporate stock so that the co-op
became the owner of the American Crystal Sugar Co. and the operations
are being continued under this name.
In July of 1973, the headquarters of American Crystal were moved to
Fargo, North Dakota temporarily pending the completion of construction
of a new headquarter's facility in nearby Moorehead, Minnesota.
1-4
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The Mason City plant was closed at the end of the 72-73 campaign. This
plant required, in addition to water pollution control equipment, con-
siderable modernization and renovation. Two and one-half million dollars
was estimated as being necessary to bring the plant up to the . 5 Ib BOD
per ton of beets sliced level. This figure included $350,000 to close
the beet transport loop which would have been necessary for the plant to
operate in the 73-74 campaign.
Last ditch efforts to raise this $350,000 through local growers were not
successful and thus the plant was closed by American Crystal before the
acquisition and the new ownership has apparently sustained this action.
Pending water pollution control guidelines were a factor but obsolescence
and high cost of modernization of this plant were also major factors.
In the continued operation of the other six plants, the growers seem to
be aware of continuing capital requirements to cover equipment needs
for water pollution control and other environmental considerations.
Red River Valley Cooperative, Inc.
This co-op has raised the initial money for the construction of a 5,000
ton-per-day of sliced beets plant to be operated at Hillsboro, North Dakota,
Beets will come from its grower members in Minnesota and North
Dakota, with 70 percent of the beets from a 40-mile radius of the new
plant and the balance within 75 miles. Fifty thousand acres have been
allocated by the Sugar Division of USDA. These acres are expected to
yield an average of 12. 5 tons of beets per acre for a total of 625 of
625,000 tons of beets annually.
The processing plant has been designed and will be built by the BMA
Machinery and Equipment Company of Denver and its parent company
Braunschweigische Maschnenbauanstalt of Braunschweig, W. Germany.
This plant is being built as a zero discharge water plant, using a water
controlling process which is a proprietary development of the German
Company.
Many U.S. sugar beet people have expressed doubt that this plant can be
operated as a truly zero discharge plant in the very humid and water
surplus area of the Red River Valley. However, the contractor is
responsible for this specification and based on a world-wide experience
in this field, believes it will be done which is, of course, a position
supported by the co-operative.
1-5
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The total capital of the project is estimated to be $36,000,000 and has
been raised through stock bank loans and a loan from the contractor.
Fifty thousand shares each of Class A $105 per share, Class B $75 per
share and Class C $76 per share have been subscribed and paid or pledged
totaling $12, 800, 000 by the growers on a beet sugar acreage ratio. The
major financing of $20, 880,000 is a loan from the St. Paul Bank for
Cooperatives.
Money for working capital and for reserves for future capital require-
ments for water and air pollution control and energy needs seem also
to have been provided for in the initial financial arrangements.
Minnesota-Dakota Co-op Inc.
This co-operative located at Wap^tun, North Dakota began its venture into
the financing and building of a 5, -')00 per ten per day processing plant after
the Hillsboro venture was started.
This co-op has raised its capital and on the same basis has contracted
with the same German firm for design and construction of the same sized
plant, and will have a duplicate allotment of 50,000 acres of beets.
Therefore, these two co-operatives, at Wapeton and Hillsboro approxi-
mately 80 miles apart, can be considered identical but separate projects.
Southern Minnesota Beet Sugar Co-op
A third new co-operative is building and will operate a processing plant
100 miles southeast of Wapeton, North Dakota which will also be on line
in 1974. This plant designed and built by H. K. Fergeson Co. of Cleve-
land, Ohio is similar to the Hereford, Texas plant of Holly Sugar also
built by Fergeson and with a 6, 000-6, 500 ton per day capacity.
This operation will basically use the sugar beet acreage of the now-closed
Chaska, Minnesota plant. It will feature a complete water control system
calling for total containment and zero discharge. However, provision
has been made to discharge excess water in a sprinkler irrigation of
alfalfa acreage (200+ acres) nearby.
All adjacent land is zoned agricultural so that an encroaching urbanization
will not threaten these plants.
This $40,000,000 project received its equity financing through the sale
of shares at $108 to the growers of 55,000 acres of beets, based on one
share for each acre of beets.
1-6
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Summa ry
Facing closure of beet sugar plants and thus outlets for sugar beets, it
is conceivable that sugar beet growers will take lower prices for their
sugar beets or assume ownership of the beet processing plants to protect
their sugar beet outlet. A conclusive answer to this proposition is difficult
to reach-without considerable research and analytical input. This con-
clusion will be based on a number of factors all reducing down to the major
issue of the perceived profitability of sugar beets relative to competing crop
and livestock enterprises.
Profitability measurements of competing crops require budgets for these
enterprises in each of the sugar beet producing areas, assessment of risk
and uncertainty factors, farmer crop preferences, investment require-
ments, distance to delivery points, soil and climatic resources and farm
management requirements. Many farm budgets are available from secondary
sources, but unfortunately few are directly comparable due to differences
in valuation of family labor, treatment of capital costs and other chart of
accounts entries. However, some insights can be obtained from a quali-
tative analysis.
Until the last six or eight months, sugar beets have been clearly more
profitable than most competitive crops in areas where beets are grown.
These crops include dry beans, corn, soybeans and small grains. Addi-
tionally, in the Red River Valley potatoes are a high value and competi-
tive crop and in North Central Colorado, vegetables and potatoes (both
high value crops) must be added to the list of competitive crops. Incor-
poration of livestock enterprises utilizing farm grown feedstuffs tend to
reduce the competitive position of sugar beets.
The dramatic and recent price increases for corn and soybeans have
greatly improved the position of these crops relative to sugar beets,
but three other factors would suggest continued sugar beet production.
These factors are:
1. Sunk investment in specialized sugar beet production equip-
ment. This equipment and its new costs are: planter (6-
row)-$l,500; thinner-$7, 000; topper-$3, 500 and harvester-
$8,000 for a total of $20,000.
2. Unwillingness of farmers to quickly switch to new crop
enterprises.
3. Use of sugar beets as an integral part of crop rotations,
particularly with shallow rooted crops.
1-7
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Although sugar beets enjoy a superior profit position (see Table 1-3),
it should be pointed out that sugar beets require more skilled cultural
management than do other crops, such as corn. Over the years the high
hand labor requirements for thinning and weeding caused some growers
to forego beet production due to the problems of securing an adequate
labor supply. With the recent introduction of mechanical and electronic
beet thinners and expanded use of herbicides, the use of hand labor is
decreasing, although hand labor is not yet completely replaced by new
technology. These factors -- labor supply problems and additional
management time -- cause some growers to discount the superior return
of sugar beets in relation to competitive crops.
The dividing line on profits and preference among sugar beets and other
crops is not readily distinguishable in published secondary data and con-
siderable farm budgeting and grower survey work would be required to
establish this boundary. Differences among producing regions should be
expected.
Another cost item of significance in assessing the competitive position
of sugar beets is the amount of net hauling and freight costs to the grower.
These costs increase with distance and at a ten mile haul probably repre-
sent 15 to 20 percent of the growers' costs. As delivery distance for
beets increases, other crops will often demonstrate improved economics
due to their lesser freight and hauling costo.
Cooperative ownership of beet sugar plants can potentially change the
economics of these plants, although much will depend upon the kinds of
financing, particularly debt financing, which the cooperative obtains and
the investment outlay which must be made for purchase of the plant.
A cooperative structure could provide certain tax advantage assuming no
or little business with non-members and the ability of the cooperative
to qualify for "exempt" status. In essence, the grower-patron would pay
income tax on his allocated share of the earnings, whether distributed or
retained in a revolving fund, at his income tax rate. In the case of a
corporation structure, about 50 percent of earnings would be paid as taxes
with dividends taxed again at the recipient's tax rate. The net savings in
taxes will depend upon the grower's average tax rate, but likely it would
be well under the 50 percent rate. Further, any dividends distributed
on (preferred) stock would be taxed only once -- payable by the grower-
pat ron.
Should a portion of the beets come from non-members, any tax advantage
is quickly lost, since the cooperative must either distribute 100 cents on
the dollar as patronage refunds to these non-members or pay taxes as a
corporation, which would be only 50 cents on the dollar.
1-8
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Table 1-3. Returns costs and profits per acre planted by regions, 1968
Region Region Region Region Region
I II III IV V U.S.
Production
Beet acres per farm
Yield per planted acres
(tons)
40.
16.
2
4
125.
13.
5
0
84.
16.
5
8
71.
17.
0
6
191-
21.
4
5
81.0
17.2
Returns
Sale of beets $216.0 $166.0 $237.0 $277.0 $315.0 $255.0
Sugar Act 43.0 29.0 38.0 45.0 48.0 42.0
Hauling allowed - 2.0 1.0 1.0 9-0 3.0
Sale & use of beet tops 3.0 1.0 14.0 15.0 4.0 9-0
Total Returns 262.0 198.0 289-0 338.0 376.0 309-0
Costs
Direct costs 139-0 96.0 148.0 219-0 210.0 164.0
Indirect Costs 37.0 22.0 35.0 42.0 45.0 36.0
Total direct & indir. 176. 0 118.0 183.0 261-0 255.0 200-0
Total Rent & Interest 57.0 27.0 54.0 14.0 58.0 53.0
Costs exclusive of
management
Management income
234. 0
28. 0
145.0
53.0
237.0
52.0
275. 0
63. 0
253.0
63.0 55.0
Source: USDA, ASCS Sugar Division.
1-9
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In practice, many farmer cooperatives choose to pay the corporate in-
come tax, rather than distribute 100 cents patronage refund to non-
members, which often make up 10 to 15 percent (the maximum allowable
for "exempt" co-ops is 15 percent) of their business volume. Thus, the
cooperative and its members as an entity probably will have an after-
tax cash proceeds equivalent to 15 to 30 cents on the dollar greater than
under the corporation structure. However, this doesn't take Into account
the total situation, that is the grower and processing functions. This
would require inclusion of the grower's financial position in the analysis.
To address properly this problem, a rather complex analysis is required.
The elements of this analysis would include:
comparative crop budget analysis by producing region (including
non-quantitative technical and management factors)
estimates of tax rates for sugar beet growers
realistic assumptions on capital structure and cost of capital
estimates on outlay for processing plants by cooperatives
analyzing the economics from grower's viewpoint (growing
and processing as a single business enterprise) which would
include beet land and equipment salvage value as well as plant
salvage value and after-tax cash proceeds to the grower.
It is reported that about ten years ago Delta, Colorado growers responded
to a potential closure of the Delta plant by approaching Holly and asking
what they could do to keep the plant open. This resulted in farmers
raising capital for plant modernization and guaranteeing a sugar beet
supply to the plant.
The current cooperative movement, purchase of American Crystal, the
Great Western Sugar producers offer to purchase Great Western and
the formation of the three cooperatives in the Red River Valley -- all
suggest grower interest in taking equity positions in processing. In the
Red River Valley cases, it seems clear that a major motivational factor
underlying the growers' actions was the profit superiority of sugar beets
as a crop. These three new plants are replacing plants closed over the
past ten years.
In summary, it appears quite possible that growers may acquire six to
eight more beet sugar plants. The Contractor suspects the odds are in
I-10
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favor of cooperative takeover as opposed to the outright taking price
cuts of sugar beets. However, in the final analysis a number of factors
will be involved, not least of which will be the sales price of the plants
being purchased. If bought cheap enough and assuming some degree of
modernization, the situation is obviously much improved. The purchase
of several plants by one cooperative is probably advantageous to single
plant purchases due to improved overhead and marketing capabilities
inherent in multi-plant operations.
4. Products
The beet sugar industry produces essentially one homogenous product -
beet sugar. Additionally, by-product recovery produces minor sales of
pulp and molasses for animal feeds and minor quantities of Steffen filtrate
for use in mono-sodium-glutamate production.
B. Types of Plants
1. Size and Number of Plants
The number of plants processing sugar beets has declined steadily since
19ZO when there were 105 plants in existence with 97 operating in that year.
The trend since 1920 has been as follows:
Year No. Operating Plants
1920 97
1930 77
1940 . 82
1950 72
I960 62
1968 58
1971 54
1972 53
1973 52
Three plants were closed in 1971 and one at the end of the 1973 campaign
due to a combination of increased costs and relatively low sugar prices.
I-11
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Capacity of sugar beet processing plants is expressed in terms of tons
of beets sliced per day. Three plant sizes were arbitrarily specified:
Large - 3,900 tons and over, Medium - 2, 300 tons to 3 , 900 tons, Small -
under 2, 300 tons per day. Number of plants in each size category was
as follows:
Size Category Plants - 1972
No. Daily Capacity
Large 19 104, l"73
Medium 17 53,413
Small 16 31,276
Total 52 188,862
The range in capacity among all plants was from 1,400 tons for the smallest
(Crosswell, Mich. ) to 10, 500 tons for the largest (Moses Lake, Wash. ).
Average capacity was 3,600 tons.
2. Age
Assets in the beet sugar industry are old with 38 of the plants being built
prior to 1933 as shown in Table 1-4. All of the small plants were originally
built prior to 1933 as were 12of the 17 medium sized plants. Contrasting
to this, 9 of the 19 large plants have been built since 1933 and five since
1950. The California - Arizona and Mountain regions are dominated by
large plants, whereas the Michigan - Ohio area is dominated by small
plants.
3. Location
The processing of sugar beets is a good example of a "supply-oriented"
industry. Beets are bulky in relation to their value and as a result,
factories are located in or adjacent to areas of production, mainly in
relatively small, rural communities. The plants are usually a major
enterprise in the communities in which they are located and the economic
health of the plant has a major impact on economic conditions in these
communitie s and their surrounding farming areas.
Production and processing of sugar beets in the United States is concentrated
in three geographic areas; Far West Region (California, Oregon, Washington,
Idaho, Arizona, Nevada), Central Region (Colorado, Iowa, Kansas, Minnesota,
Montana, Nebraska, New Mexico, North Dakota, South Dakota, Texas, Utah,
Wyoming), Eastern Region (Illinois, Indiana, Ohio, Michigan, Wisconsin,
New York, Maine). Figure 1-1 shows the location of sugar beet processing
plants in the United States. Out of the total of 5 2 plants shown, 12 are located
in counties designated as "economic development areas" by the Economic
Development Administration, U.S. Department of Commerce.
1-12
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Table 1-4. Age and size of beet sugar plants
Region
Michigan -Ohio
Red River Valley
Western Plains
Mountains
California -Arizona
Total
Year
Pre 1933
Total
Pre 1933
1948
1954
1965
Total
Pre 1933
1964
1968
Total
Pre 1933
1937
1938
1942
1953
Total
Pre 1933
1935
1937
1947
1963
1966
Total
Pre 1933
1935-1940
1941-1950
1950-1960
1960-1974
Small Medium
6 1
6 1
1
1
1
3
6 8
1
6 9
3 1
~ ~T
1 1
1
1
1 3
16 12
2
1
1
1
16 17
Large
_1_
1
1
1
1
1
5
1
1
1
_!
9
4
1
1
_J_
7
10
2
2
2
3
19
Total
8
8
1
1
1
1
4
14
1
1
16
9
1
1
1
_J_
13
6
1
1
1
1
_J_
11
38
4
3
3
4
"52
Note: Excludes Mason City, which was closed at end of 1972-73 campaign.
1-13
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REGION IV
Mounta ins
REGION II
Red River Valley
REGION I
Great Lakes
Cal - 10
Col - 10
Nebr - 4
Ida
Mich
Ohio
Wyo
Mm
REGION III
Western Plains
Existing beet sugar processing plant
* Under construction
REGION V
West Coast
Valleys
Figure I- 1. Locations of sugarbeet processing plants throughout the U. S. , 1973.
1-14
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The farm production of sugar beets, by state, is as follows:
1971
State Farm Production
(000 tons beets)
California 8,212
Colorado 2,502
Idaho 3,202
Minne s ota 1,613
Michigan 1,403
Washington 1,974
Nebraska 1,428
Montana 918
Wyoming 1, 234
Texas 461
Oregon 464
Utah 459
Ohio 906
Arizona 218
Maine N.A.
North Dakota 1, 155
Kansas 688
Iowa N.A.
Total U.S. 26,874
Source: Crop Production, Statistical Reporting Section, USDA, January 14,
1972.
4. Technology and Efficiency
Two basic beet sugar processes are used in the United States. The plants
are identified as either "Straight Houses" or "Steffen Houses," repre-
sentative of the two processes involved. The only significant change
being that "Straight Houses" (33 in number) end up with molasses as an
end-product which is sold whereas the "Steffen Houses" (20 in number)
further process the molasses to recover additional sugar and by-products
of potassium fertilizers and monosodium glutamates flavoring material.
In addition, numerous technological variances can be observed within
each of the two processes. These variances include degree of water
recycling, continuous carbonation, centrifuging and automatic control
systems.
1-15
-------
The process of extracting sugar from the beet root extends back to the
farm level and involves the following steps:
1. Contracts with growers specifying cultural practices and
growing, harvesting programs and delivery of beets to
factory or to country receiving stations.
2. Transportation and storage of beets following delivery and
prior to processing (typically beets stored 20 to 40 days
except in California where warm temperatures force pro-
cessors to process beets quickly, as storage in such
temperatures results in deterioration of sugar content).
3. Washing the beet and removal of trash, soils, stones, etc.
and slicing it into thin strips called "cossettes". (Beets
are transported and washed in water.)
4. Extraction of sugar from cossettes by diffusion (essentially
the cossettes are soaked in hot water causing the sugar to
move from the cossettes into water). The resultant liquor is
called "raw juice".
5. Exhausted cossettes (or pulp) usually pressed and dried and
sold as animal feed.
6. Raw juice is treated by adding a calcium hydroxide slurry or
calcium saccharate (from the Steffens process) and gassing
the resulting mixture with carbon dioxide.
7. The resulting lime precipitate is separated by means of
thickness and filters.
8. The purified juice is concentrated in evaporators and then
boiled under partial vacuum in a pan evaporator to crystallize
sugar.
9. The resulting mixture is separated into sugar crystals and
syrup by centrifugation.
10. Crystalline sugar is dried, sized, packaged and stored.
11. The remaining syrup is boiled and crystallized twice more
and the final syrup is called molasses.
12. Molasses is either sold as an animal feed or desugarized by
the Steffen process.
13. In the Steffen process the molasses is diluted, cooled and
treated with quick lime to precipitate sugar as a saccharate.
1-16
-------
14. The saccharate is separated by filtration and is returned to
the basic system at the initial carbonation station.
15. The Steffen filtrate is normally precipitated to remove
calcium carbonate and evaporated.
16. The concentrated Steffen filtrate is either dried as beet
pulp or processed into monosodium glutamate or potash
fertilizer salt.
Operating Season
As is characteristic of most agricultural processing industries, the beet
sugar processing season or campaign is relatively short. In the Great
Plains and Intermountain States, the campaign is typically 110 to 130 days
duration beginning around October 1. The operating season in the northern
interior regions of the United States begins in late September and early
October and typically extends for about 145 days, although in some years
weather conditions may allow the campaign to extend for a longer period.
In California, due to the extended harvest season, the campaign is some-
what longer, reaching 150 to 200 days.
C. Number of Employees
The typical sugar beet plant will have about 50 permanent employees
representing its skilled group and 200 seasonal employees that would be
semi-skilled and unskilled.
In the former group would be the managers and foremen, agriculturalists,
laboratory technicians, maintenance, and plant operators. The seasonal
group would be primarily the beet handling and product handling personnel
who would be active during the campaign only.
1-17
-------
II. FINANCIAL PROFILE
A. Plants by Segment
The beet sugar industry is well defined, with only ten firms, all of which
derive their primary sales from beet sugar. Published financial infor-
mation is useful in describing the industry, but to gain further insight
into the financial profiles by industry segment -- process, age, and
plant sizemodel plant budgets were developed. Model plant configurations
budgeted were developed to represent in place pollution control (see
Chapter V for discussion), size, process and campaign variations found
in the industry. Table II-1 summarizes the models used to represent
the industry that is still discharging effluent into surface waters.
The results of the budget analysis are reported below, along with selected
industrywide data for comparative purposes.
1. Annual Profit Before Tax
The beet sugar industry is not highly profitable, with returns on sales
in the order of 2. 0 to 3. 0 percent during the past two years. After tax
returns on sales shown in Table II-2 for the model plants ranges from
-.2 to 4. 0 percent depending upon the model. Pre-tax income in the
absolute levels are small--ranging from $-16,000 for the small.short
campaign plant to $1.5 million for the large, long campaign plant (Table
II-2). The rate of return of pre-tax income on invested capital (fixed
assets plus net working capital) ranges from -.4 percent for the small
plant up to 18.6 percent for the medium plant. After-tax rate of returns
are about one half of the pre-tax returnsthat is,-.4 percent up to 9.7
percent.
In terms of these data, it should be noted that the medium and large plants
of both configurations do not appear to be materially different in terms of
ROI. The difference between the medium and large units is explained by
the higher estimated depreciation and book value of fixed assets of the
large units which are somewhat newer plants. Excepting two plants,
all of the small and medium plants (27) were originally built prior to
1933. Of the large plants, only 10 of the 24 were originally built prior
to 1933.
II-1
-------
Table II-l. Analysis of discharging plants by region and campaign length
I/
Region
Small
(<2,300 TPD)
Medium
(2,300-3,900 TPD)
Large
(>3,900 TPD)
Michigan-Ohio
Red River Valley
Western Plains
Mountains
California-Arizona
Total
No.
4
6
3
13
Days
145
110
130
No. Days
1 145
3 175
8 115
1 180
1 145
14
No. Days
1 160
7 145
J_ 105
9
Five additional plants discharge into municipal systems. Three are located in
Michigan-Ohio, one in California-Arizona and one in the Mountain Region.
II-2
-------
Table II-2. Estimated income and cash flow for industry
segments based on model plants
Status and plant Cam- Pre-tax After-tax
configuration paign Income ROI- ROl-r ROS-' Cash flow
(days) ($1,000) (pet) (pet) (pet) ($1,000)
No recycling
1750 HO 65 1.7 .9 .5 156
1750 145 329 8.8 4.6 2.0 293
2800 145 882 16.6 8.7 3.4 581
Flume recycling only
1750 110 10 .3 .1 .1 140
1750 130 159 3.9 2.0 1.1 218
2800 115 381 6.9 3.6 1.9 409
2800 145 814 13,3 6.9 3.2 636
2800 175 1,245 18.6 9.7 4.0 862
5000 145 1,145 10.0 5.2 2.5 1,269
Flume and condenser
recycling
1750
2800
2800
5000
5000
5000
110
115
175
105
145
160
-16
344
1,211
-17
1,088
1,511
-0.4
6. 1
17.7
-0.2
9.4
12.5
-0.4
3.2
9.2
-0.2
4.9
6.5
-0.2
1.7
3.8
-0. 1
2.4
3.0
128
403
856
672
1,260
1,481
Return on investment
_' Return on sales
Note: 1. Tax rate of 48 percent used throughout on assumption of
multiple plant firms being in this category.
2. Invested capital equal to book value of assets, plus average
investment in in-place recirculation equipment plus net
working capital.
H-3
-------
Pre-tax income from the Steffen houses were estimated to be slightly
greater than from the Straight houses but the ROI is slightly less due
to the increased book value of the Steffen component. From a financial
standpoint, it was concluded that the financial differences between the
two processes are immaterial and thus all model work was done on
straight houses.
2. Annual Cash Flow
Estimated annual cash flow (after-tax income plus depreciation) is
shown in Table II-Z. The annual cash flow appears to be relatively
small, particularly when compared to the high investment requirements
ox building new plants (up to $40 million). However, the industry is
basically composed of old production facilities (although modernization
and expansion have occured). Further, depreciation schedules have
been set up on very long lives, generally 30 to 40 years, reflecting the
seasonal use pattern.
The effect of these factors plus the low profit levels, produces a low
level of cash flow in an industry which is capital intensive. The situ-
ation is particularly apparent in the small plants where cash flow is
estimated to be only $130, 000 to $160, 000 per year.
3. Market (Salvage) Value of Assets
The major factor affecting the market value of beet sugar plants lies
in the lack of utility for other purposes. Some insights can be gained
by examining the replacement investment structure, estimated book
value of fixed assets, capital and industry and plant transactions and
trends.
Estimated Plant Replacement Investment - This estimate (Table II-3)
represents the total investment required to construct an operable pro-
cessing plant. General items included are site and site preparation;
buildings, including office and warehouse space for storage; equipment,
both processing line and handling; and other, such as pallets, trucks,
etc. which are fixed resources required for operation. The estimates
exclude investment in pollution control facilities for achieving zero
discharge.
Investment in factory and related facilities in the beet sugar industry
is large as can be seen in Table II-3. The estimates, range from $16.8
million for a 1,750-ton per day Straight house up to $34. 9 million for a
5,000-ton per day Straight house. Addition of the Steffen process equip-
ment entails about $4.0 million additional investment, largely in equipment.
II-4
-------
Table n-3. Estimated replacement investment and book value of
assets for model plants - exclusive of pollution control
Straight House
Item
Steffen House
1,750 2,800 5,000 2,800 5,000
(Tons of beets sliced per day)
--1.000--
--1.000--
Plant Replacement
Factory yards and
equipment
Buildings
Processing
Temporary construction
facilities
Engineering and design
Contingencies and other
Remote receiving stations
Total plant investment
Book Value
Book Value - plant
Total working capital
Net working capital
$ 3,880 $ 5,250 $ 7,780 $ 5,250 $ 7,780
2,010 2,730 4,040 2,930 4,340
8,360 11,350 16,780 13,510 19,800
390 520 780 520 780
80 100 160
780 1,050 1,560
1,300 2,100 3,800
120
1,170
2,100
170
1,730
3,800
$16,800 $23,100 $34,900 $25,600 $38,400
$2,450 $3,200 $6,300 $3,600 $6,900
2,900 4,700 8,400 5,300 9,500
1,300 2,100 3.7QO 2,400 4,200
Source: Developed from current industry estimates, published financial data
and Young, Robert A. , An Economic Study of the Eastern Beet Sugar
Industry, RB 9, Mich. State Agric. Exper. Stat. 1965 - with DPRA
interpretations.
II-5
-------
Over 50 percent of the plant outlay is in equipment. Most of this equip-
ment represents specialized processing machinery custom built, which
means that the labor component is quite high--perhaps 50 to 60 percent.
Engineering and construction facilities represent about eight percent.
Thus, even as a new plant, fixed asset value in terms of liquidatign
is probably less than 50 percent of capital outlay.
Book Value of Fixed Assets - Due to the well defined nature of the in-
dustry, examination of company financial data can lead to estimates of
fixed asset book value by plant size. Several of the firms have all small
plants or all large plants, making this speculation possible. As shown in
Table II-3, the estimated book value of assets is estimated to be fractional
of replacement cost -- 14 percent for the small and medium sized model
and 18 percent for the large configuration. The absolute numbers of book
value range from $2.4 million to $6. 9 million versus $16.8 to $38.4 million
for replacement values. Those differences reflect the older age of small
and medium sized plants as discussed above.
Working Capital - Although total current assets and liabilities vary by
firm and year, the industry demonstrates a tendency toward current
assets being 45 percent of sales and current liabilities being 25 percent
of sales. Net working capital requirement, equivalent to 20 percent of
sales, is large, but considering the short seasonal nature of beet production
and the short processing period (3 to 6 months) of high working capital re-
quirement should be expected to reflect inventories, prepaid beet costs
plus the other normal items of receivables and cash.
Salvage - In the past four years a total of six beet sugar plants have
closed for various reasons. It has not been possible to get an exact
salvage value as each plant has had its own special problems and special
salvage value. Table II-4, however, does show some of these data as
to value, disposition of assets, -what happened to the beet acreage and
the employees.
In terms of alternative uses, the value of fixed assets would appear to
be less than book, since with the low profitability of the industry, as
shown in Table II-2 above, further shutdowns would be expected. This
suggests that the liquidation value of assets is less than 15 percent of
new investment for a similar sized plant. It is our guess that liquidation
value of assets would be about 25 percent of book value. This assumes
100 percent market value of land at $1,000 per acre, two percent of
equipment replacement and five to ten percent of buildings replacement
cost.
II-6
-------
Table II-4. Sugar beet plant closings, 1968-1973
Plant and Owner
W. Jordan, Utah
U&I Sugar
East on, Maine
Maine Sugar Indus-
tries, Inc.
Beets
sliced
(TPD)
1,600
4,000
Type
plant
Straight
Straight
When
closed
'71
68
or
1 69
Salvage or Use
Now used for sugar
terminal and for
making liquid sugar
Could be used for
potato handling
Beet acreage
utilization
50% beets now
shipped to
Garland plant
Yield for beets
was low 6 ton/ac.
May be bette» for
Employees laid
off
45 nermanent
250 seasonal
NA
L2wiston, Utah
Amalgamated
Sugar Co.
Hardin, Mont.
Holly Sugar
1,800 Steffen '72
1,700 Straight '70
Mostly land salvage
only. Charge off on
statement $800,000
Cancellation of Self
Insurance Credit
164,000. Presumably
land is major salvage
value
potatoes
Beets now go to
Mini-Casia Plant
Growers changed
to wheat and
saf flower
40 permanent
25 transferred
50 permanent
180 seasonal
12 transferred
Chaska, Minn.
American Crystal
Sugar Go.
Mason City, Iowa
American Crystal
Sugar Co.
2,000 Steffen '70
2,300 Straight
'73
Estimated to be
$2,000,000
Estimated to be
$2,000,000
One-half acreage NA
may by '74 be used
at new plant pending
Renville, Minn.
85 miles west
Part of beet acreage NA
may go to new Ren-
ville, Minn, for 1974
campaign
-------
Recovery or release of working capital on the other hand through closure
would appear to be of more significance. With an indicated net working
capital of 20 percent of sales, net working capital by plant would range
from $1.3 million for the small plants up to $ 5. 0+ million for the large
plants and would probably be recoverable on a dollar-for-dolla r basis.
Based on these relationships, we suspect that salvage value may be in
the order of magnitudes shown in Table II-5. The estimates for plants
with recirculation facilities presume a value of $1,000 acre for the land
in ponds and no direct value for the recirculation equipment.
4. Cost Structure
Fixed costs represent a very small portion of costs - representing only
10 to 12 percent of sales. The costs include property taxes, insurance,
repairs and maintenance, G&A, depreciation and interest. Although
minor economies of size are shown in indirect expenses, these differences
are obscured by variances and depreciation.
Variable or direct costs as a whole are very significant, although two
items, beet purchase and marketing, heavily influence these costs.
Beet purchase costs represent about 55 to 60 percent of total direct
costs and just over 50 percent of sales. It should be noted that under
the unique grower-processor agreements , the grower receives a fixed
percent share of net proceeds of the processor. Th.ese net proceeds
are generally the gross sugar value less marketing expenses of bagging,
storing, freight, selling, federal excise taxes, etc., although regional
and company variations exist. Another variable involved in the beet
price equation is the sugar content of the grower's beet, such that beets
with high sugar content receive more per ton than those with a low sugar
content.
The price of sugar used in the model plant analysis was $12. 15 per
hundredweight, which approximates the 1972 price as estimated by
USDA for the United States. As shown in Chapter III, prices have
trended upward in recent years. Pulp and molasses sales were esti-
mated to be 10 percent of the value of sugar, which represents the
historical relationship. However, with the recent strong demand for
animal feedstuffs, prices for these goods have drifted upward, but
probably in pace with the sugar price.
II-8
-------
Table II-5. Estimated salvage value for Straight house beet sugar plants
Slicing
Capacity
(TPD)
1,750
1,750
1,750
2,800
2,800
2,800
5,000
5,000
5,000
Campaign
(days)
110
110
110
130
145
115
115
145
175
175
105
145
145
160
Circulation
(type)
1
2
3
2
1
2
3
1
2
2
3
3
2
3
3
Fixed
Assets
- - - -
600
640
640
650
600
870
870
800
880
910
910
1,710
1,750
1,750
1,770
Net
Working
Capital
- - $1,000
1,270
1,270
1,270
1,500
1,680
2,130
2,130
2,680
2,680
3,240
3,240
3,470
4,780
4,780
5,280
Total
-----
1,870
1,910
1,910
2,150
2,280
3,000
3,000
3,480
3,560
4,150
4,150
5,180
6,530
6,530
7,050
Note: 1 - no recirculation
2 - flume recirculation
3 - flume and condenser recirculation
II-9
-------
5. Cost Estimate
The estimated costs of production shown in Table II-6 were made from
synthesized data developed from industry sources, published financial
data and the (three or four) published cost studies available.
The physical inputs and relationships for beet sugar processing are
relatively extensive and subject to considerable plant to plant variation.
The industry, due to felt competitive relationships with one another and
the need to annually negotiate contracts with beet growers which essentially
are on a return sharing basis, closely guards specific plant to plant in-
formation.
As can be seen in Table II-7, the Steffen house requires additional
production labor, limestone, fuel and other supplies. Size economies
of physical inputs are evident in production labor and fuel. It should
be noted that beet receiving and transportation cost per ton is shown as
a constant per ton. It has been our experience in agricultural processing
industries that this cost increases per ton as plant size increases due to
diseconomies associated with larger supply areas, but the extent of this
was not ascertained. Depreciation and interest relationships were de-
veloped from an analysis of company annual reports and comparing the
characteristics of plants owned by each company with other companies.
For instance, Michigan Sugar has small-old plants, while U&I and
Amalgamated tend to have large and newer plants.
The typical input-output relationships of sugar, beet pulp and molasses
are shown in the lower portion of Table II-7. The actual relationship
will vary from year to year and from factory to factory depending on the
sucrose content of the beets, the purity of the beet and factory operating
policy with reference to additional boiling of molasses. For purposes of
this analysis, typical sugar extraction rates were placed at 2.47 hundred-
weights per ton for Straight houses and 2. 78 hundredweights for Steffen
houses.
Table II-8 summarizes the cost estimates for selected plants in returns
and costs per hundredweight of sugar. These costs exclude any in-place
recirculation facilities.
11-10
-------
Table II-6. Estimated pro forma income estimate for selected plants
(straight) with flume recirculation in place
Revenue
Direct expenses
Indirect expenses
Pollution expenses
Total
Cash earnings
Depreciation
Depreciation -pollution
Interest
Total
Pre-tax income
After -tax income
Depreciation
Cash flow
Assets -book .
Pollution -book-
Net working capital
Invested capital
1,750 TPD
(110 days)
6,355
5, 514
590
42
6,146
209
122
13
64
199
10
5
135
140
2,450
153
1,270
3,873
2,800 TPD
(115 days)
-------
Table II-7. Estimated input-output requirements and costs used
model plant analysis
Straight House
Steffen House
Item
1,750 2,800 5,000 2,800
(Tons of beets sliced per day)
5, 000
Beets purchased
(Ibs /ton sliced
Beets sliced
(Ibs /ton sliced)
Beet purchase
2, 060
2, 060
2, 060
2, 060
2
. 04
.9xl06
.95
1.95
. 04
2.5xl06
. 85
1.95
. 04
2. 3xl06
.78
1.95
. 06
3. IxlO6
1.05
1.95
.06
2.9xl06
1. 00
1.95
2,000 2,000 2,000 2,000
65% on net sugar proceeds (gross price less
marketing cost)
Production & related labor
(man hours/ton sliced) .65 .50 .43 .57
Limestone
(tons/ton sliced)
Fuel I/
(BTU's/ton sliced)
Power and water
($/tons sliced)
Beet assembly
($/ton sliced)
Property taxes & insurance
Other supplies
($/ton sliced) .30
Repairs & maintenance
($/ton sliced) 1. 15
General and administra-
tive and other _'
Sugar extracted
(cwt/ton sliced) 2.47
Beet pulp and molasses
Depreciation
($/ton slicing capacity) 70
Interest
2, 060
2, 000
.50
Book value of fixed assets x 60 mills
.30 .30 .35
1. 15 1.05 1.30
3.5 percent x sales
2.47 2.47 2.78
10 percent x gross sales of sugar
70 130
1. 0 percent of total sales
78
. 35
1.20
2. 78
143
Costed at $3. 50 per hour.
?_/ Costed at $5. 00 per ton
U Costed at $.575 per 106 BTU's
4 /
Includes filters, sulfur and other minor inputs
(Cont'd)
11-12
-------
(Continued) Footnotes for Table II-7
Includes general and plant management, agricultural department, and
related expenses. Excludes depreciation and debt service.
Source: Developed by DPRA from industry discussions, published financial
data, Young, Robert A. , An Economic Study of the Eastern Beet^
Sugar Industry, RB 9, Mich. State Agric. Exp. Sta. , 1965,
"State-of-Art, Sugarbeet Processing Waste Treatment," and
Lof, G. O. G. , and Allen J. Kneese, The Economics of Water
Utilization in the Beet Sugar Industry, Resources for the Future,
Inc. ,1968 and unpublished data from the Sugar Division, ASCS,
USD A.
11-13
-------
Table H-8. Estimated sales, expenses and before tax income per
hundred weight of sugar for selected model plants
without recirculation
Straight House
Sale .?
Sugar
Pulp and molasses
Total
Direct Costs
Beet purchase
Beet assembly
Production and related
labor
Limestone
Fuel
Power and water
Other supplies
Marketing
Total
Indirect Costs
Property taxes and
insurance
Repairs and maintenance
Small
(110
days)
$12. 15
1,22
$13.37
$ 6.60
.81
.92
.08
.68
.38
. 12
2.00
$11.59
.31
.46
General and administrative .47
Subtotal
Depreciation
Interest
Subtotal
Total
Before tax income
~$1~. 24
.26
. 14
$ .40
$13.23
. 14
Medium
(115
days)
$12.15
1,22
$13.37
$ 6.60
.81
.71
.08
.58
.34
. 12
2.00
$11.24
.24
.47
.47
$1. 18
.25
. 14
$ .39
$12.81
.56
Large
(145
days)
$12. 15
1.22
$13.37
$ 6.60
.81
.61
.08
.54
.32
. 12
2.00
$11.08
.21
.43
.47
$1. 11
.36
. 14
$ . 50
$12.69
.68
Steffen
Medium
(115
days)
$12. 15
1.22
$13.37
$ 6.60
.72
.72
. 11
.64
. 38
. 13
2.00
$11.30
.24
.47
.47
$1. 18
. 24
. 14
$ .38
$12.86
.51
House
La r pe
(14-5
days)
$12. 15
1.22
$13, 37
$ 6.60
.72
.63
. 11
.60
.36
. 12
2.00
$11.14
.21
.43
.47
$1. 11
.35
. 14
$ .49
$12.74
.63
11-14
-------
B. Ability to Finance New Investment
The ability of a firm to finance new investment for pollution abatement
is a function of several critical financial and economic factors. In
general terms, new capital must come from one or more of the following
sources: (1) funds borrowed from outside sources; (2) new equity capital
through the sale of new common or preferred stock; (3) internally gener-
ated funds--retained earnings and the stream of funds attributed to de-
preciation of fixed assets.
For each of the three major sources of new investment, the most critical
set of factors is the financial condition of the individual firm. For debt
financing, the firm's credit rating, earnings record over a period of years,
stability of earnings, existing debt-equity ratio and the lender's confidence
in management will be major considerations. New equity funds through the
sale of securities will depend upon the firm's future earnings as anticipated
by investors, which in turn will reflect past earnings records. The firm's
record, compared to others in its own industry and to firms in other similar
industries, will be a major determinant of the ease with which new equity
capital can be acquired. In the comparisons, the investor will probably
look at the trend of earnings for the past five or so years.
Internally generated funds depend upon the margin of profitability and
the cash flow from operations. Also, in publicly held corporations,
stockholders must be willing to forego dividends in order to make earnings
available for reinvestment.
The condition of the firm's industry and the general economy are also
major limiting factors in attracting new capital. The industry will be
compared to other similar industries (other manufacturing industries)
in terms of net profits on sales and on net worth, supply-demand relation-
ships, trends in production and consumption, the state of technology, im-
pact of government regulation, foreign trade and other significant variables.
Declining or depressed industries are not good prospects for attracting new
capital. At the same time, the overall condition of the domestic and inter-
national economy can influence capital markets. A firm is more likely to
attract new capital during a boom period than during a recession. On the
other hand, the cost of new capital will usually be higher during an expan-
sionary period. Furthermore, the money markets play a determining role
in new financing; the 1973 year has been viewed as especially difficult for
new equity issues.
11-15
-------
These general guidelines can be applied to the sugar beet industry by
looking at general economic data, industry performance and available
corporate records.
The general economic outlook for the next few years is for continued
economic expansion at the historic 3.5 percent annual rate, expressed
in constant dollars. The 1973 rapid growth shows evidence of slowing
in the latter part of the year. In spite of cyclical fluctuations, the
American economy should sustain its long-term growth through the
1974-77 period. Inflation and unemployment will undoubtedly continue
as major problems and international economic affairs will exert signi-
ficant pressures on the domestic economy. Demand for capital will re-
main high in relationship to supply and interest rates will probably stay
high by historic stands. The cost of financing new investment will be
high compared to the 1950's and early 1960's.
Although there are substantial variations by firm in profits, profits
overall have been drifting downward in the beet sugar industry. As
shown in Figure II-1, after-tax returns on sales have declined to a cur-
rent level of about 2.0 to 3.0 percent, although Amalgamated demonstrates
a much stronger position with profits on sales of about 5.0 percent. Even
in this case, returns are down significantly from 1965 levels.
A similar picture emerges when the return on networth is examined
(Figure II-2). Presently return on net worth appears to be 4.0 to 9.0
percent. This places the beet sugar industry well below the manufacturing
average of 12 percent and among the lowest of all industry segments. This
same low return situation is shown with the model plants discussed above.
Long term debt in the industry varies widely ranging from .07 of equity for
Amalgamated to . 13 for Utah and Idaho and to . 45 for Michigan Sugar, . 35
for American Crystal and .45 for Holly. Excepting Amalgamated and U&I,
the fixed debt to equity ratio appears to be at the upper limit when compared
to typical manufacturing debt-equity ratios of 35 to 40 percent. Reports on
the cooperative movement suggest that the debt ratio will likely be higher
for the cooperatives than for existing corporate ownerships. For instance,
the proposed Grest Western acquisition was based on a 75 percent debt ratio.
The Red River Valley cooperatives, Inc. has about a 58 percent debt
ratio and the Southern Minnesota Beet Sugar cooperative is reported
to have a debt ratio in excess of 80 percent.
Considering the rule of thumb of 2:1 for an adequate current ratio, the
beet sugar industry would appear to be a bit weak, although not serious.
For instance, Michigan Sugar has a current ratio of about 2. 5 (1971)
11-16
-------
Figure II-1. Return on sales selected beet sugar companies
1965
-------
Figure II-2. Return on investment selected beet sugar companies
Over 22%
i
00
-------
and Holly Sugar, Great Western, American Crystal and U&I are some-
what lower, with a ratio of about 1.6, depending on valuation of inven-
tories. Amalgamated, on the other hand, had a current ratio of 3.2
during the past two years - 1972 and 1972.
In terms of total asset relationships, the industry is estimated to have
an equity to total asset ratio of . 56 and debt to total asset ratio of .44.
Amalgamated on this basis has a .75 equity to total asset ratio, while
U&I, Michigan and Holly have a .48 equity to asset ratio. American
Crystal has a .60 equity ratio. The profit-earnings ratio for the in-
dustry is estimated to be about 12 over the last two years. Most pub-
lically traded firms fall close to this average, excepting Michigan Sugar
which had a P/E ratio of 28, indicating a very low cost of equity.
The combination of very low and declining earnings with a high debt-
equity ratio suggests that the beet sugar industry is hard pressed in
its ability to attract capital.
This situation would appear to be borne out by the recent grower co-op
acquisition movement, at a time when normal risk capital is not entering
the industry. As described in Chapter I, the grower co-op movement
appears to be motivated by a desire to protect outlets for raw sugar
beets, an attractive farm enterprise and not primary interest in income
from processing and marketing. Conversely, it would also appear
that beet sugar management is going this direction as a means of
raising capital, since the growers are pledging capital in proportion to
their beet acreage.
With the high debt-ratio and the relatively low cash flow {see above)
imposition of new capital requirements, particularly non-productive
pollution control equipment and facilities, raises serious questions
regarding the ability of a large component of the corporate industry
to raise the required funds. The picture regarding the co-op (or pros-
pective) sector is less clear, since if required, it seems likely that the
grower members will raise capital to protect their beet market. The
limits of this source are not known.
11-19
-------
III. PRICING
Beet sugar processors are only one component of the sugar industry,
which in turn is a member of the sweetener sector of the U. S. food
system. Sugar (sucrose) can be either beet sugar or cane sugar with
cane sugar accounting for more of the domestic market (see Figure III-l).
Sugar beet processors contract with beet growers to buy the growers'
production. The beets are processed producing refined sugar and by-
products such as molasses, monosodium glutamate, and beet pulp. Sugar
cane, raised in more tropical climates, is first milled to produce raw
sugar. This is the form of most imported sugar. Sugar refiners use
domestically produced and imported raw sugar to produce refined sugar.
Refined beet sugar and cane sugar compete as perfect substitutes in the
wholesale market. Through a quota system the government regulates
the production and importation of sugar so as to stabilize and maintain
prices at specified levels. Refined sugar is marketed by refiners and
processors under a system of base point pricing. It will be shown that
the structure of the sugar industry and policy provides possible limitations
on the sugar processors ability to shift the cost of additional pollution
abatement to the consumers in the long run.
A. Price Determination
1. Demand
All but a small fraction of domestic sugar consumption is for human food.
U. S. per capita sugar consumption (Table III-l)has been fairly stable
since the 1930's, ranging between 90 and 100 pounds. Recent increases
above 100 pounds are attributed to the Food and Drug Administration
restrictions on use of cyclamates. Sugar and corn sweeteners (corn
syrup and dextrose) are known as nutritive sweeteners while cyclamates
and saccharine are called noncaloric sweeteners. About two-thirds of
all sugar is consumed in industrial uses, especially by food processing
industries. Only one-fourth is purchased for home use--kitchen and
table. The remainder is used in restaurant and institutional meal pre-
paration.
Industrial uses for sugar are mainly in food processing with minor other
industrial uses (Table III-2 ). The beverage industry is the largest user
of sugar and has made little use of corn sweeteners as a substitute for
sugar. The beverage industry is the highest user of noncaloric sweeten-
ers. Baking, the next largest user, has dropped its use of sugar from
III-l
-------
PRODUCERS
World
Acres
Domestic
Acres
31 Export Countries 7%
r i T
35% 1 40% 25% 1
1
3% j 5%
PRODUCTS
Raw Sugar
PROCESSORS
I
Cane Mills
I
Raw Sugar
Refineries
CONSUMERS
PRODUCTS
Sugar
Market
Sweetenei
Market
I I
Refined Sugar
Beet Sugar
Factories
Wet Corn
Mills
Beet Sugar Corn SweetenerB
4
4
7% | 2
1
0% , 1
2%
9%
1
1
1
1
31% [ ,
26% [ 1
i
3% ]
I
ts>
Figure IH-1. Structure of the domestic sweetener industry.
-------
Table UI-1. Trends in per capita distribution of nutritive sweeteners and the
share that each sweetener represents of the total distribution,
1956-71
Calendar
year
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1956-67
trend
1968-71
trend
1956-71
trend
!Nutr1t1ve
i sweeteners
110.8
106.4
109.8
109.9
110.9
111.6
113.1
113.7
113.3
113.6
115.3
114.5
117.7
118.1
121.0
122.3
+ .61
+1.67
+ .84
Sugar
:Corn sirup:
Dextrose
Percent
nutritive
of total
sweeteners
: : Sugar :Corn sirup
Pounds
98.7
94.6
96.9
96.4
97.5
97.7
98.0
97.6
96.2
96.6
98.1
97.2
100.2
100.3
102.5
102.9
+ .04
+1.03
+ .34
per capita refined
8.3
8.2
8.7
9.1
9.3
9.7
10.7
11.1
12.2
12.2
12.5
12.6
12.8
13.0
13.1
13.7
+ .46
+ .28
+ .39
3.7
3.6
4.1
4.3
4.1
4.2
4.4
5.0
4.9
4.8
4.7
4.6
4.7
4.8
5.4
5.7
+ .11
+ .36
+ .11
Percent
89.1 7.5
88.9
88.3
87.7
87.9
87.5
86.6
85.8
84.9
84.9
85.1
84.9
85.1
84.9
84.7
84.1
-.44
-.32
-.34
7.7
8.0
8.2
8.4'
8.7
9.5
9.8
10.8
10.8
10.9
11.0
10.9
11.0
10.8
11.2
+ .37
+ .07
+ .28
Dextrose
3.4
3.4
3.7
3.9
3.7
3.8
3.9
4.4
4.3
4.3
4.0
4.1
4.0
4.1
4.5
4.7
+ .08
+ .25
+ .06
Source: USDA, ASCS, Sugar Report.
Ill-3
-------
Table III-2. Sugar deliveries, by type of sugar and by type of product or
business of buyer, calendar year 1971.
Product or business of buyer
Industrial
Bakery, cereal and allied
Confectionery and related
Ice cream and dairy products.
Canned, bottled, frozen
foods, Jams, jellies and
Multiple and all other food
Non-Industrial
Hotels, restaurants.
Wholesale grocers, Jobbers,
Retail grocers, chain stores,
All other deliveries , in-
cluding deliveries to
Government agendas
Included in totals;
Deliveries in consumer-site
packages (leas than 50 Ibs)
Deliveries in bulk (unpack-
Beet :
Cane :
Imported :
direct
consumption :
Total ;
Liquid
included
Beet
sugar
In totals
: Cane
9,847,388
6,653,051
4,074,342
11,926,601
9,458,478
4,003,454
282,603
46,245,919
98,375
12,522,604
4,799,114
591.438
18 L0 11,531
64,257,450
9,591,717
25,318,587
17,115,774
14,236,521
7,001,147
35,310,248
11,004,504
5,855,062
L.537 700
92,061,856
1,455,605
30,132,194
21,031,042
1,309,258
53.928,099
145,989,955
41,954,005
34,622,624
161,348
156,920
49,445
50,103
111,587
58,025
40.276
627,704
33.566
542,662
750,163
2.588
1.323,979
1,956,683
652,985
144,527
27,124.510
21,046,492
11.124,934
47.286,952
20,574,569
9,917,441
1,860.581
138,935,479
1,587,546
43,197,460
26,580,319
1,903,284
7^3,268,609
212,204,088
52,198,707
60,085,738
292,403
167,552
2,150,928
5,831,266
3,564,693
269,138
54,002
12,329,982
12,86(1
345,371
116,83:)
100.841
575,913
12,905,895
2,377,746
3,269,348
4,783,993
22,768,934
5,325,399
1.585.445
561,339
40,692,204
100,862
311,983
227,642
81,350
721,837
41.414.041
I/ Represents approximately 100.0 percent of deliveries by primary distributors in continental United States.
2J Reported as produced or imported and delivered except liquid sugar which is on a sugar solids content basl*.
Source: USDA-ASCS, Sugar Reports. No. 238 (March, 1972), p. 14.
Ill-4
-------
80 percent of total nutritive sweeteners in 1956 to less than 74 percent
in 1972. Sugar's share of confectionary demand for nutritive sweeteners
has been more stable, declining from 70 percent in 1956 to 68 percent in
1972. Although sugar's share of canning demand has fallen from 87 per-
cent in 1956 to 82 percent in 1972, its share has risen since hitting a low
in 1967. During the period from 1956 to 1972 the price of corn sweeteners
has fallen relative to sugar and new production techniques have improved
the quality of corn syrup.
As shown above, some substitution among sweeteners exists. Noncaloric
sweeteners are used to meet the demands of those consumers seeking to
limit sugar intake. Some substitution of noncaloric sweeteners for sugar
is associated with relative price changes. However, for noncaloric
sweeteners quality considerations appear to be more important. Corn
sweeteners are sugar's major price competitor. Technical improvements
in corn syrup manufacture have produced a range of syrups of different
qualities. Thus, corn syrup is better able to meet the different specifica-
tions of users. A limiting factor is corn syrup's sweetness which is less
than sugar. However, research in improving corn syrup's sweetness is
promising.
The development of high levulose (fructose) corn syrups by new processes
from Japan show great promise of having a significant impact on U.S.
sweetener in the future. These syrups produced by partial isomeri-
sation of dextrose (corn sugar) into levulose are said to be comparable
to sucrose (cane and beet sugar) in sweetening power and unlike other
corn syrups can be used as complete substitutes for sucrose. An im-
proved product and lower relative prices has made corn syrup a stronger
competitor for sugar.
The substitution of corn syrup is a gradual process and the market reacts
to long-run changes in prices. Substitution of corn syrups may require
changes in manufacturing techniques and alter the quality of the final
product. Firms making the substitution must invest in new techniques
and develop promotional programs to "educate" the consumer to prefer
the new product. Such difficulties mean that the food processor will shift
from one source to another slowly and when the processor can justify the
change for a long period. In some instances, the level of use of corn syrup
is restricted by the Food and Drug Administration. In other cases, corn
syrup may not be an acceptable substitute thus limiting the extent of
substitutibility.
A price war beginning in December of 1971 among the corn syrup producers
dropped the equivalent cost ratio of corn syrup to sugar from 70 percent to
36 percent. Even now as corn syrup prices come up to 5. 59 cents per pound
in New York as of April, 1973, this is only 44 percent of the sugar equivalent
in the Northeast (Table III-3).
Ill-5
-------
Table IH-3. Wholesale prices of sugar, corn syrup, and dextrose.
Refined sugar Dextrose Corn Syrup
Northeast N.Y. N. Y.
Year
1956
1957
1958
1959
196C
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973 (April)
8.77
9. 15
9- 27
9.33
9.43
9-40
9.60
11.94
10.68
10. 22
10.36
10.62
10. 84
11.44
11.97
12.48
13.09
13. 30
cents per pound,
7.91
8.32
8.33
8. 13
8.13
8.10
8.04
9-10
8. 85
8.70
8. 87
9-49
9.49
9.96
10. 20
10.71
10.07
10.65
dry basis
8.90
9.17
9.18
9. 10
9.12
9.00
8.73
9.19
8.36
8.27
8.34
8.40
7. 85
8.01
8.45
8.77
5.78
7.25
Dextrose
relative
to sugar
90
91
90
87
86
86
84
76
83
85
86
86
86
85
85
86
77
80
Corn syrup
relative
to sugar
101
100
99
98
97
96
91
77
78
81
81
79
72
68
71
70
44
55
Source: Sugar Reports, USDA-ASCS, selected issues.
Ill-6
-------
Production of corn syrup is up and production facilities are fully utilized.
A new entry into corn syrup production is Amstar, a cane sugar producer
of "Domino" sugar and an owner of Spreckels beet sugar division.
Demand and Price Elasticity
Estimates of price elasticity and cross elasticity demand for sugar in
industrial uses do not exist. Price consciousness increases as the cost
of sugar, as a proportion of total food costs increases. The above de-
velopment is evidence that substitution is occurring. The gradual ad-
justments indicate that demand is much more price elastic in the long
run as time of adjustment is increased.
Household use accounts for about one quarter of total consumption. Sugar
is a minor item in the household budget. Households do not make sub-
stitution for sugar when price changes. Estimates of price elasticity of
demand for household use of sugar confirm this inelasticity with estimates
ranging from -0.16 to -0.24. _' Likewise, income has little influence
with income elasticity estimates ranging from ,03 to 0. 15. _' The corn
syrup price cross elasticity is also small at 0.05. _' Thus households
will make little change in sugar consumption in response to changes or
prices or incomes.
21
2. Government Sugar Policy ~
The U. S. sugar industry has been protected and regulated by the Federal
Government since 1789. A quota system of control was initiated in 1934
and has been amended and extended periodically since then. The current
legislation governing the industry is the Sugar Act of 1948 as amended in
1971. This legislation became effective January 1, 1972, and extended
the Act through December 31, 1974.
LI Thomas H. Bates and Andrew Schmitz, "A Spatial Equilibrium Analysis
of the World Sugar Economy, " Giannini Foundation Monograph No. 24,
Univ. of Calif. , Berkeley, 1969, and P. S. George and G. A. King,
"Consumer Demand for Food Commodities in the U.S. with Projections
for 1980, " Giannini Foundation, Monograph #26, Univ. of Calif. , Berkeley,
1971.
2/
~ Adapted from "Initial Analysis of the Economic Impact of Water Pollution
Control Costs upon the U. S. Cane Sugar Industry, " Bruce J. Walter and
Peter M. Emerson, ERS, USDA.
Ill-7
-------
The principal provisions of the U. S. Sugar Act are (a) limitation of the
total supply of sugar available to U. S. consumers, (b) Government sub-
sidy payments to U. S. sugar cane and sugar beet growers, (c) an excise
tax on all sugar marketed within the U. S. , and (d) a tariff on sugar imports.
Under the supply limitation provision of the Sugar Act, the Secretary of
Agriculture each year (a) determines the quantity of sugar needed to meet
the requirements of domestic consumers and to attain the price objective
specified in the Sugar Act, (b) divides, by means of quotas, this total
supply requirement among specified domestic and foreign production
areas, (c) assigns, when necessary for orderly production, "proportion-
ate shares" of each domestic production area quota to individual farms
within that production area, and (d) imposes, when necessary for orderly
marketing, a refined sugar "marketing allotment" upon each refining and
importing firm. (See Table III-4 for the 1970, 1971, and 1972 quotas
assigned to each domestic production area and foreign country. ) Through
these strong supply limitation powers granted by the Sugar Act, the
Secretary of Agriculture is able to control the price of raw sugar.
The price objective specified in the Sugar Act is to maintain the same
ratio between (a) the price of raw sugar, as registered in the New York
market, and (b) the average of (i) the parity index (the index of prices
paid by all farmers for commodities and services, including interest,
taxes, and farm wages, 1967 = 100) and (ii) the wholesale price index
(1967 = 100) as the ratio that existed during the period September 1, 1970,
through August 31, 1971. The Secretary of Agriculture is required to
make appropriate adjustments in his determination of national consump-
tion requirements whenever the average price of raw sugar varies from
the objective by 4 percent or more for 7 consecutive days (3 percent or
more during November, December, January and February).
Sugar marketing is controlled under the provisions of the U. S. Sugar
Act and numerous changes in the law since 1934 have permitted signifi-
cant increases in the output of domestically produced raw sugar. Even
larger increases have been granted to domestic refiners. Over time,
the increases granted to each of the domestic sugarcane producing areas
have been markedly different. This has affected the degree of moderniza-
tion and the average size of the mills producing raw sugar in each area.
The Sugar Act provedes for subsidy payments to U. S. sugarcane and
sugar beet growers. These payments are made only to growers who meet
the following conditions:
a. That the grower has not marketed cane or beets in excess
of the proportionate share for the farm, as determined by
the Secretary of Agriculture;
b. That no child labor (except family members) has been
employed on the farm;
III-8
-------
Table III-4. U.S. Sugar quotas: 1970, 1971 and 1972 basic and adjusted quotas by domestic production
area and foreign country
1970
Production area
Basic
Quota
Adjusted
Quota 1'
(short tons, raw value)
Domestic
Domestic beet
Mainland cane
Hawaii
Puerto Rico
Virgin Islands
Total domestic
Foreign
Total Foreign
Grand Total
3,597,000
1,308,000
1, 145,486
1, 140,000
15,000
7,205,486
4,394,514
11,600,000
3,597,000
1,308,000
1, 145,486
360,000
--
6,410,486
5.189,514
11,600,000
1971
Basic
Quota
Adjusted
Quota '
(short tons, raw value)
3,454,000
1,256,000
1, 110,000
1, 140,000
15,000
6,975,000
4,325,000
11,300,000
3,406,333
1,256,000
1, 110,000
150,000
--
5,922,333
5,377,667
11,300,000
1972
Basic
Quota
Adjusted
Quota 1'
(short tons, raw value)
3,692,000
1,643,000
1,218,238
855,000
--
7,408,238
4,391,762
11,800,000
3,400,000
1,643,000
1,218,238
175,000
--
6,436,238
5,363,762
11,800,000
deficit prorations.
Source: USDA-ASCS, Sugar Reports, No. 243 (August 1972), pp. 22-24.
-------
c. That all employed labor has been paid in full at not less
than the minimum wage determined by the Secretary;
d. That growers who are also processors have paid other
growers for purchased cane or beets at prices not less
than those set by the Secretary.
Subsidy payments provide a powerful financial incentive for growers
to observe the conditions imposed by the Sugar Act. If a grower fails
to meet these conditions--for example, attempts to market beets or
cane in excess of his assigned proportionate share--his payments are
reduced or withheld entirely. Thus, subsidy payments are the principal
legal device for obtaining compliance by domestic growers, just as
import licenses are the means for obtaining compliance for foreign
suppliers.
Conditional payments are made at the basic rate of 80 cents per 100
pounds of sugar recoverable from the cane or beets grown on farms pro-
ducing less than 350 tons of sugar, raw value. The rate declines by
stages to 30 cents per 100 pounds for all sugar in excess of 30, 000 tons
produced on a farm. In addition, growers may receive payments for
abandoned acreage at the rate of one-third the normal yield for the farm;
payments may also be received for crop deficiencies resulting from
drought, flood, storm, freezing, disease, or insects which result in
yields below 80 percent of normal. Generally, the payments for aban-
donment and deficiency are much smaller than the conditional payments
made for sugar cane and sugar beets which are harvested and marketed.
The 1970 and 1946-69 average return to sugar beet growers, including
government payments, are presented in Table III-5 by production area
and revenue source.
An excise tax is levied on sugar at the rate of 50 cents per 100 pounds,
raw value. This tax is collected on all sugar marketed in the United
States, regardless of source. Receipts from the tax in recent years have
averaged more than $100 million per year, but payments to sugar cane
and sugar beet growers have averaged about 15 percent less than the tax.
Thus, the U. S. sugar program generates revenue which is deposited in
the general funds of the U. S. treasury. However, it should be noted that
the subsidy payments made under the Sugar Act and the sugar excise tax
are legally separate. Thus, either one could be amended or repealed
without affecting the other.
The equitable distribution of the benefits which the Sugar Act created was
provided in addition to controlling the supply of sugar, imposing a tax on
sugar sales and subsidizing sugar cane and sugar beet growers.
Ill-10
-------
Table III-5. Sugar beet growers' returns per ton of sugar beets, United States, 1965-1970 average
Crop
Year
1965
1966
1967
1968
1969
1970
Basis of payment *'
Net returns per
cwt. sugar
($)
7.75
8.26
8.54
8.57
8.94
9.57
Processor payments
for sugar beets
produced '
per ton
($)
11.93
12.87
13.64
13.70
12.86
10.85
Total
($1,000)
244,207
263,535
267,330
351,679
369,468
372,002
Sugar act payments
per ton of sugar beets
produced
Sugar
beets
($)
2. 17
2. 16
2. 16
2. 15
2.01
2.00
A band onme nt
and
deficiency
($)
.11
.37
.08
.06
.09
.06
Total
payments
per ton Total
($)
14.21
15. 10
15.88
15.91
14.96
16.99
($1,000)
290,933
309,071
311,199
408,444
429,835
430, 157
2/
defined in the beet purchase contract. Excludes returns from by-products.
Basic payment. Includes grower share is by-products where purchase contract provides for such sharing,
but excludes allowances for hauling, pitting, siloing, etc.
-------
Imported sugar is at the same level of prices paid for domestically pro-
duced sugar. Sugar prices in the United States generally have been much
higher than those prevailing in the world market (Table III-6). During
the past two decades, world prices have exceeded the U. S. price only in
1950-51, 1957, 1963-64, and 1972. High U. S. sugar prices make this
country a very desirable market for sugar exporting nations, especially
those which do not have other preferred markets such as the United
Kingdom or France. The value of the U. S. sugar market to an exporting
nation is also affected by the importance of sugar exports to that nation's
economy and the share of its sugar exports which can be sold in the United
States. In addition to being the dominant factor in determining domestic
sugar prices, the U. S. sugar program is, at times, also an important
factor influencing world sugar prices. Each time that world sugar prices
have risen sharply, U. S. prices have also risen, but more moderately.
When world prices have increased, the Secretary of Agriculture has
increased the U. S. sugar consumption requirement so as to make more
sugar available to consumers here. In 1950, the increase was from 7.5
million to 8. 7 million tons; in 1957, from 8. 8 million to 9. 3 million tons;
in 1963, from 9.8 million to 10.4 million tons; and in 1972 from 11.2
million to 11. 8 million tons. In each case, the increased supply of sugar
for U. S. consumers moderated the price rise here but, by decreasing
supplies available for other importing countries, caused world prices to
rise even further than expected. Since the United States is by far the
world's largest importer of sugartaking 20 to 25 percent of the total
in world trade--unexpected changes in the volume of this country's im-
ports have an appreciable effect on all other sugar importing and export-
ing countries.
Although U. S. sugar prices since the end of World War II have usually
been maintained above the world market level, it does not follow that
U. S. prices would have declined to the world level if quotas had not
existed and import duties were unchanged. Without quotas, U. S. p>rices
would have declined and those in the world market would have risen until
they balanced at some intermediate level. No estimates of changes in
U. S. and world prices, based on various assumptions regarding changes
in quotas and tax policies, are available.
The U. S. sugar program has both benefited the domestic sugar industry
and increased the average price paid by sugar users. The disadvantage
to consumers of higher sugar prices has been partially offset by the
benefit of extreme price stability relative to the prices of other agricul-
tural products.
Ill-12
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Table III-6. Raw sugar prices in New York and the world market,
1948-72
Year
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Raw sugar in
New York
5.54
..: 5.81
. . : 5 . 93
. .: 6.06
..: 6.26
..: 6.29
..: 6.09
5.95
6.09
..: 6.24
. . : 6.27
..: 6.24
. .: 6.30
..: 6.30
. .: 6.45
. . : 8 . 18
.. : 6.90
. . : 6 75
..: 6.99
7.28
. . : 7.52
. . : 7.75
..: 8.07
. . : 852
..: 9.09
\ World sugar I/
5.13
5.03
5 82
6 66
5 08
4 27
4.14
4 19
4 47
6 10
4 36
3 86
4 09
3 85
3 87
9 41
6 79
3 07
2 81
2 95
2 96
4 37
4 88
5 65
8 53
Difference;
New York
over
world
0 41
0 78
0 11
-0 60
1 1R
2 02
1 95
i -je.
1 69
Q 1A
1 1 Q
2 TR
3 ?1
9 AS
t .Hj
) CO
-1 91
01 1
3Aa
A 1ft
L "\"\
L <;A
) -la
) I Q
9 H7
£ ,Ol
OZf.
I/ Adjusted to the New York delivery base.
Source: USDA-ASCS, Sugar Reports.
HI- 13
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The Secretary of Agriculture also must adjust quotas for domestic
areas. For example, should the effluent limitation guideline costs
close plants in Michigan or Colorado and production is abandoned,
the Secretary of Agriculture is required by law to distribute these
acreages to other quota areas. The Secretary is directed to set quota
for the coming year such that the price objective for raw sugar as de-
fined in the law is satisfied. If abandoned production was not reallocated,
there would be a short run shortage of sugar forcing wholesale prices
up causing refiners to bid up the price of raw sugar, and thus causing
divergence away from the price.
3. Base Point Pricing
Base point pricing developed because large refineries found it economical
to locate close to ports of entry or adjacent to major population centers.
This gave them ready access to off-shore sugar from which the bulk of
refined cane sugar is manufactured. Because these refineries became
the major sellers in their respective areas, they established base point
pricing. Eight points of origin are used in this base point pricing.
Within a region the price at any point is the origin sugar price plus the
freight cost from base point to the buyer's location. ~J The principal
seller in a region sets the price so as to maximize his profit in the region.
All sellers of sugar compete to sell their excess sugar in the Chicaigo
market. The Chicago market has been used because many food pro-
cessors are located there and because the nation's rail system tends to
come together at Chicago. The result of base point pricing is lower
prices in Chicago as can be seen in Table III-7. Obviously, the whole-
sale market for sugar is not one of perfect competition.
4. Supplies
Sugar imports play an important role in the U.S. supply with about 45
percent of the U.S. supply being imported as shown in Table III-4.
Domestic cane sugar represented about 26 percent of the U.S. sugair
supply in 1972. In recent years cane sugar supplies have been relcitively
constant.
IE-14
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Table M-7,. Wholesale prices for refined sugar, March 1973.
Location
Northeast
Midcentral
Western Ohio-Lower Michigan
Southeast
Gulf
Chicago - West
Intermountain North
Pacific Coast
100 Ib. bag
cents per
13.31
12.85
12.20
12.95
12.40
11.75
12.05
11.85
bulk
ib.
12.70
12.25
12.05
12.45
12.05
11.55
11. 80
11.70
Source: Sugar Reports, USDA-ASCS, April 1973.
Ill-15
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B. Sale Prices
Reported sale prices for sugar and by-products are estimated from
time to time by the U.S. Department of Agriculture, based on special
industry cost studies carried out by USDA for use in their administration
of the Sugar Act. The last detailed study covered the years 1966, 1967
and 1968. Estimates since that time are based on USDA and industry
data sources. These sale prices to the companies are as follows:
Year Beet Sugar By-Products
($/cwt) ($/cwt sugar) Percent
1966 10.21 1.15 11
1967 10.45 1.11 11
1968 10.56 1.03 10
1969 NA NA NA
1970 NA NA NA
1971 11.95E NA 10 E
1972 12.15E NA 10 E
These prices represent U.S. averages, with regional prices varying
H-$.25 per hundredweight. These prices represent gross price received
by the processors, from which he must cover his marketing, distribution
and processing costs. This price 'should not be confused with the net pro-
ceeds price series sometimes reported. This series purports to be net
of marketing and distribution costs paid by the processor. Also it should
be noted that under the basing point pricing systems, the processors must
pay freight to the wholesale market. Most grower contracts specify that
the grower shares in the proceeds remaining after deduction of marketing
and distribution costs.
HI-16
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IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The following economic impact analysis utilizes the basic industry infor-
mation developed in Chapters I-III plus the pollution abatement technology
and costs provided by Environmental Protection Agency. The impacts
examined include:
Price effects
Financial effects
Production effects
Employment effects
Community effects
Other effects
Due to the crucial nature of potential plant shutdowns (financial and
production effects) to the other impacts, a disproportionate amount of
time will be devoted to the financial and plant closure analysis.
In general, the approach taken in the impact analysis is the same as that
normally done for any feasibility capital budgeting study of new invest-
ments. In the simplest of terms, it is the problem of deciding whether
a commitment of time or money to a project is worthwhile in terms of
the expected benefits derived. This decision process is complicated by
the fact that benefits will accrue over a. period of time and that in prac-
tice the analyst is not sufficiently clairvoyant nor physically able to re-
flect all of the required information, which by definition must deal with
projections of the future, in the cost and benefit analysis. In the face
of imperfect and incomplete information and time constraints, the industry
segments were reduced to money relationships insofar as possible and the
key non-quantifiable factors were incorporated into the analytical thought
process to modify the quantified data. The latter process is particularly
important in view of the use of model plants in the financial analysis. In
practice, actual plants will deviate from the model and these variances
will be considered in interpreting financial results based on model plants.
A. Fundamental Methodology
Much of the underlying analysis regarding prices, financial and produc-
tion effects is common to each kind of impact. Consequently, this case
methodology is described here as a unit with the specific impact interpre-
tations being discussed under the appropriate heading followinc this
section.
IV-1
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The core analysis for this inquiry was based upon synthesizing physical
and financial characteristics of the various industry segments through
model or representative plants. The estimated cashflows for these
model plants are summarized in Chapter II. The primary factors involved
in assessing the financial and production impact of pollution control are
profitability changes, which are a function of the cost of pollution control
and the ability to pass along these costs in higher prices. Admittedly,
in reality, closure decisions are seldom made on a set of well defined
common economic rules, but also include a wide range of personal values,
external forces such as the ability to obtain financing or considering the
production unit as an integrated part of a larger cost center where total
costs must be considered.
Such circumstances include but are not limited to the following factors:
1. There is a lack of knowledge on the part of the owner-
operator concerning the actual financial condition of the
operation due to faulty or inadequate accounting systems
or procedures. This is especially likely to occur among
small, independent operators who do not have effective
cost accounting systems.
2. Plant and equipment are old and fully depreciated and the
owner has no intention of replacing or modernizing them.
He can continue in production as long as he can cover labor
and materials costs and/or until the equipment deteriorates
to an irrepairable and inoperative condition.
3. Opportunitites for changes in the ownership structure of the
plants (or firms) exist through the acquisition of the plants
by grower cooperatives where the principal incentive is that
of maintaining sugar beet acreages in a situation where
grower returns from sugar beet production are substantially
above returns from alternative cropping opportunities. In
this situation, which presently exists in the sugar beet in-
dustry, growers may elect to form producer-processor
cooperatives and acquire ownership of processing plants
which they would continue to operate at levels of return which
would be unattractive to private owners.
4. Personal values and goals associated with business ownership
that override or ameliorate rational economic rules is this
complex of factors commonly referred to as a value of psychic
income.
IV-2
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5. The plant is a part of a larger integrated entity and it either
uses raw materials being produced profitably in another of
the firm's operating units wherein an assured market is
critical or, alternatively, it supplies raw materials to
another of the firm's operations wherein the source of supply
is critical. When the profitability of the second operation
offsets the losses in the first plant, the unprofitable oper-
ation may continue indefinitely because the total enterprise
is profitable.
6. The owner-opera tor expects that losses are temporary and
that adverse conditions will dissipate in the future. His
ability to absorb short-term losses depends upon his access
to funds, through credit or personal resources not presently
utilized in this particular operation.
7. There are very low (approaching zero) opportunity costs for
the fixed assets and for the owner-operator's managerial
skills and/or labor. As long as the operator can meet labor
and materials costs, he will continue to operate. He may
even operate with gross revenues below variable costs until
he has exhausted his working capital and credit.
8. The value of the land on which the plant is located is appreci-
ating at a rate sufficient to offset short-term losses, funds
are available to meet operating needs and opportunity costs
of the owner-opera tor's managerial skills are low.
The above factors, which may be at variance with common economic
decision rules, are generally associated with proprietorships and
closely held enterprises rather than publicly held corporations.
While the above factors are present in and relevant to business decisions,
it is argued that common economic rules are sufficiently universal. To
provide an useful and reliable insight into potential business responses
to new investment decisions, as represented by required investment in
pollution control facilities thus, economic analysis will be used as the
core analytical procedure. Given the pricing conditions, the impact on
profitability (and possible closure) can be determined by simply computing
the ROI (or any other profitability measure) under conditions of the new
price and incremental investment in pollution control. The primary con-
sequence of profitability changes is the impact on the plant regarding
plant shutdown rather than making the required investment in meeting
pollution control requirements.
IV-3
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In the most fundamental case, a plant will be closed when variable ex-
penses (Vc) are greater than revenues (R) since by closing the plant,
losses can be avoided. However, in practice plants continue to operate
where apparently Vc > R. Reasons for this include:
lack of cost accounting detail to determine when Vc>R.
opportunity cost of labor or some other resource is less
than market values. This would be particularly prevalent
in proprietorships where the owner considers his labor as
fixed.
* other personal and external financial factors.
* expectations that revenues will shortly increase to cover
variable expenses.
A more probable situation is the case where Vc ^, R but revenues are
less than variable costs plus cash overhead expenses (TCc) which are
fixed in the short run. In this situation a plant would likely continue
to operate as contributions are being made toward covering a portion of
these fixed cash overhead expenses. The firm cannot operate indefinitely
under this condition, but the length of this period is uncertain. Basic to
this strategy of continuing operations is the firm's expectation that re-
venues will increase to cover cash outlay. Factors involved in closure
decisions include:
extent of capital resources. If the owner has other business
interests or debt sources that will supply capital input, the
plant will continue.
lack of cost accounting detail or procedures to know that TCc>R,
particularly in multiplant or business situation.
" labor or other resources may be considered fixed and the
opportunity cost for these items is less than market value.
Identification of plants where TCc > R, but Vc < R leads to an estimate
of plants that should be closed over some period of time if revenues do
not increase. However, the timing of such closures is difficult to predict.
The next level of analysis, where TCc ^ R, involves estimating the
earnings before and after investment in pollution abatement. So long
as TCc<£-R it seems likely that investment in pollution control will be
made and plant operations continued 30 long as the capitalized value
IV-4
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of earnings (CV), at the firms (industry) cost of capital, is greater
than the scrap or salvage value (S) of the sunk plant investment. If
S > CV, the firm could realize S in cash and reinvest and be financially
better off. This presumes reinvesting at least at the firms (industry)
cost of capital.
Computation of CV involves discounting the future earnings flow to
present worth through the general discounting function:
t
J\ A
n=l
where
V = present value
An = a future value in n*" year
i = discount rate as target ROI rate
n = number of conversion products, i. e. ,
1 year, 2 years, etc.
It should be noted that a more common measure of rate of return is
the book rate, which measures the after-tax profits as a ratio of in-
vested capital, is net worth or sales. These ratios should not be
viewed as a different estimate of profitability as opposed to DCF
measures (discounted cash flow) but rather an entirely different
profitability concept. The reader is cautioned not to directly compare
the DCF rates with book rates. Although both measures will be reported
in the analyses, the book rate is reported for informational purposes only.
The two primary types of DCF measures of profitability are used. One
is called the internal rate of return or yield and is the computed discount
rate (yield) which produces a zero present value of the cash flow. The
yield is the highest rate of interest the investor could pay if all funds
were borrowed and the loan was returned from cash proceeds of the
investment. The second DCF measure is the net present value concept.
Rather than solve for the yield, a discount rate equivalent to the firms
cost of capital is used. Independent investments with net present values
of above zero are accepted; those below zero are rejected. The concept
of comparing capitalized earnings with the sunk investment value is
a variation of the net present value method.
IV-5
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The data input requirements for book and DCF measures are derived,
to a large extent, from the same basic information although the final
inputs are handled differently for each.
1. Benefits
For purposes of this analysis, benefits for the book analysis have been
called after-tax income and for the DCF analysis after-tax cash proceeds,
The computation of each is shown below:
After tax income = (l-T)x(R-E-I-D)
After tax cash proceeds = (1 - T)x(R - E - D) + D
where
T = tax rate
R = revenues
E = expenses other than depreciation and interest
I = = interest expense
D = depreciation- charges
Interest in the cash proceeds computation is omitted since it is reflected
in the discount rate, which is the after-tax cost of capital, and will be
described below. Depreciation is included in the DCF measure only in
terms of its tax effect and is then added back so that a cash flow over
time is obtained.
A tax rate of 48 percent was used throughout the analysis. Accelerated
depreciation methods, investment credits, carry forward and carry back
provisions were not used due to their complexity and special limitations.
It is recognized that in some instances the effective tax rate maybe lower
in a single plant situation, but with the dominance of multiplant firms, the
firm's tax rate will be close to the 48 percent rate.
Revenue, expenses, interest and depreciation charges used were those
discussed in Chapter II and Chapter V for pollution control facilities.
These items were assumed to constant over the period of analysis.
IV-6
r
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2. Investment
Investment is normally thought of as outlays for fixed assets and working
capital. However, in evaluating closure of an on-going plant where the
basic investment is sunk, the value of that investment must be made in
terms of its liquidation or salvage.value, that is, its opportunity cost or
shadow price. ' For purposes of this analysis, sunk investment was
taken as the sum of equipment salvage value plus land at current market
value plus the value of the net working capital (current assets less current
liabilities) tied up by the plant (see Chapter II for values). This same
amount was taken as a negative investment in the terminal year.
The following impact analysis was based on total salvage value as de-
fined above. The rationale for this -was that the cash flows did not in-
clude any interest charges but rather brought interest charges into the
analysis in the weighted cost of capital. This procedure required the
use of total capital (salvage value) regardless of source. An alternative
procedure would be to use as capital, net cash realization (total less debt
retirement) upon liquidation of the plant. (In the single plant firm debt
retirement would be clearly defined. In the case of the multi-plant firm,
delineation of debt by plant would likely not be clear. Presumably this
could be reflected in proportioning total debt to the individual plant on
some plant parameter such as capacity or sales.) Under this latter
procedure of using net realization, interest and debt retirement costs
would have to be included in the cash flows.
The two procedures will yield similar results if the cost of capital and
interest charges are estimated on a similar basis. The former procedure,
total salvage value, was used as it gives reasonable answers and simplifies
both computation and explanation of the cash flows and salvage values.
Replacement investment for plant maintenance was taken as equal to
annual depreciation, which corresponds to operating policies of some
managements and serves as a good proxy for replacement in an on-going
bu s ine s s.
Investment in pollution control facilities was taken as the estimates
provided by EPA and shown in Chapter V. Only incremental values
were used, to reflect in-place facilities. Only the value of the involved
land was taken as a negative investment in the terminal year.
This should not be confused with a simple buy sell situation which
merely involves a transfer of ownership from one firm to another.
In this instance, the opportunity cost (shadow price) of the invest-
ment may take on a different value.
IV-7
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The above discussion refers primarily to the DCF analysis. Investment
used in estimating book rates was taken as invested capital - book value
of assets plus net working capital. In the case of new investment, its
book rate was estimated as 50 percent of the original value.
3. Cost of Capital - After Tax
Return on invested capital is a fundamental notion in U.S. business.
It provides both a measure of actual performance of a firm as well
expected performance. In this latter case, it is also called the cost
of capital. The cost of capital is defined as the weighted average of
the cost of each type of capital employed by the firm, in general terms
equities and interest bearing liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.
The cost of equities was estimated by two methods -- the dividend yield
method and the earnings stock price (E/P ratio) method. Both are
simplifications of the more complex DCF methodology. The dividend
method is:
k -!-+
where
k = cost of capital
D = dividend yield
P = stock price
g = growth
and the E/P method is simply
k = E/P
where
E = earnings
P = stock price
and is a further simplication of the first. The latter assumes future
earnings as a level, perpetual stream.
IV-8
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The after tax cost of debt capital was estimated by using estimated 7. 5
percent cost of debt and multiplying by . 52 -- assuming a 48 percent
tax rate. These values were weighted by the respective equity to total
asset and total liabilities to total asset ratios.
The average cost of capital for the beet sugar industry was estimated
using the equity and debt data from Chapter II as follows:
Dividend Yield Plus Growth
Capital Weight Cost Growth Cost
Equity .56 .058 .04
Debt .44 .039
Average cost of capital .072
E/P
Equity .56 .081
Debt .44 .039
Average cost of capital . 062
As snown in the above computations, the estimated after-tax cost is 6. 2
to 7. 2 percent. The subsequent analysis was based on 6. 0 and 7. 5 percent.
The upper estimate presumes a four percent growth factor which is roughly
equal to inflation expectations.
Some beet sugar firms report that they use a pre-tax cost of capital of
15 percent for evaluating new projects. This is only slightly higher than
the above estimated after-tax costs.
It is recognized that liabilities contain non interest bearing liabilities,
but its weight is believed to be an adequate proxy for the weight of debt.
IV-9
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4. Construction of the Cash Flow
A twenty-two period cash flow was used in this analysis and was
constructed as follows:
1. Sunk investment (salvage market value of fixed assets plus
net working capital) taken in year to.
2. After tax cash proceeds taken for years tj to t^Q
3. Annual replacement investment, equal to annual current
depreciation taken for years tj to ^2Q-
4. Terminal value equal to sunk investment taken in year t^i'.
5. Incremental pollution control investment taken in year tQ
for 1977 standards and year t, for 1983 standards.
6. Incremental pollution expenses taken for years tj to t^Q
for 1977 standards and years t^ to t£Q for 1983 standards,
if additive to the 1977 standards.
7. No replacement investment taken on incremental pollution
investment on assumption of 20 year as provided by EPA.
8. Terminal value of pollution facilities equal to market land
value taken in year t-%1'
B. Price Effects
At the outset, it must be recognized that price effects and production
effects are intertwined with one effect having an impact upon the other.
In fact, the very basis of price analysis is the premise that prices and
supplies (production) are functionally related variables which are simul-
taneously resolved.
Solution of this requires knowledge of demand growth, price elasticities,
supply elasticities, the degree to which regional markets exist, the degree
IV-10
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of dominance experienced by large firms in the industry, market concen-
tration exhibited by both the industry's suppliers of inputs and purchasers
of outputs, organization and coordination within the industry, relation-
ship of domestic output with the world market, existence and nature of
complementary goods, cyclical trends in the industry, current utilization
of capacity and, exogenous influences upon price determination (e. g. ,
governmental regulation).
In view of the complexity and diversity of factors involved in determin-
ation of the market price, a purely quantitative approach to the problem
of price effects is not feasible. Hence, the simultaneous considerations
suggested above will be made. The judgment factor will be heavily em-
ployed in determining the supply response to a price change and altern-
ative price changes to be employed.
Asa guide to the analysis of price effects, the estimated price required
to leave the model plant segment as well off will be computed. The re-
quired price increase at the firm level will be evaluated in light of the
relationship of the model plant to the industry and the understanding of
the competitive position of the industry. The required price increase can
be readily computed using the DCF analysis described above, but dealing
only with the incremental pollution investment and cash proceeds.
Application of the above DCF procedure to these costs will yield the present
value of pollution control costs (i.e. , investment plus operating cost less
tax savings). If this is known, the price increase required to pay for
pollution control can readily be calculated by the 'formula
_ JPVP).(IOO)
A ~ (1-T) (PVR)
where:
X = required percentage increase in price
PVP = present value of pollution control costs
PVR = present value of gross revenue starting in the year
pollution control is imposed
Note that this formula implies that incremental profits resulting from
the price increase will be taxed at a rate of 48 percent.
IV-11
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C. Financial Effects
In Chapter II, the financial characteristics of model plants were presented.
These data will serve as the base point for the analysis of financial effects
of pollution control. The primary focus of analysis will be upon profit-
ability in the industry and the ability of the firms to secure external
capital. Hence, it is obvious that this portion of the analysis cannot
be divorced from production effects since profit levels and the ability
to finance pollution abatement facilities will have a direct influence on
supply responses -- utilization of capacity and plant closures.
The measures of profitability utilized will include after-tax book rate
of return on invested capital and cash flow (after-tax profit plus deprec-
iation) will be measured. After-tax profit as a percent of sales will
also be reported to assist in comparing financial data with standard
industrial measures.
In addition to these factors, two additional measures of economic profita-
bility will also be examined: (1) capitalized value of earnings and (2)
present values estimated by the procedures described in Section A above.
Both of these measures will be calculated on pre- and post-pollution control
bases.
Given these financial measurements, the ability of the industry to
finance the required pollution control expenditures will be reexamined
in light of the financial results and the information shown in Chapter II.
This ability will vary from one industry subsector to another due to
differential financial structures, profitability and abatement requirements^
Hence, capital availability and cost will probably have to be examined on
a model plant by model plant basis.
D. Production Effects
Potential production effects include reductions of capacity utilization
rates, plant closures and stagnation of industry growth. It is antici-
pated that reductions in capacity utilization will be estimated via quali-
tative techniques given the analysts' knowledge of the industry. The
same is true for assessing the extent to which plant closures may be
offset by increases in capacity utilization on the part of plants remaining
in operation. Data limitations and time constraints are expected to re-
quire that the impact of pollution control standards upon future arowth
of the industry also be estimated via qualitative methods.
IV-12
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The remaining effect, plant closures, is very difficult to estimate as
discussed above in Section A. As a starting point in the plant closure
analysis, the economic shutdown model will be employed to indicate
which model plants might close. These conclusions will be based upon
the decision rule that a plant will be closed when the net present value
of the cash flow is less than zero.
It is recognized that the use of models to represent an industry is
imperfect and that not all of the relevant values or factors can be
included in the models. Hence, in this industry, the appropriate
model plant results will be equated with each beet sugar plant and
the variances to the model plant parameters will be subjectively eval-
uated to arrive at an estimate of the probability of closure. Three
levels will be estimated -- high, medium and low. In Chapter VI a
list of 26 model parameters are shown against which each plant in the
industry was compared.
The above analysis will be done under a without pollution control con-
dition and a with pollution control condition. The former (and including
historical trends) will establish a baseline against which total closures
after pollution control will be compared, to arrive at an estimate of
closures due to pollution control.
As discussed under fundamental methodology above, plants may continue
to operate in face of more worthwhile uses of capital tied up by the plant.
In such cases the plant, particularly single or few plant firms and closely
held firms would at least have to meet cash flow requirements, where
cashflow is defined as sales less operating expenses, depreciation,
interest, and taxes plus depreciation less debt amortization. Although
the model plant data is not of sufficient quality for a plant by plant analysis,
the plants judged to have the greatest likelihood of closure from the above
DCF analysis were examined on a cash flow basis. (The model plant cost
and sales data were adjusted by plant size and type).
This analysis indicated that about one-half of the plants with positive
cash flows before pollution control would forego investment in additional
water pollution abatement facilities, since such investment would create
negative cashflows. Because the Contractor strongly believes this appli-
cation of the model plant data and this concept are inappropriate, detailed
results will not be reported.
IV-13
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E. Employment Effects
Given the production effects of estimated production curtailments,
potential plant closings and changes in industry growth, a major con-
sideration arises in the implications of these factors upon employment
in the industry. The employment effects stemming from each of these
production impacts will be estimated. To the extent possible, the
major employee classifications involved will be examined as will the
potential for re-employment.
F. Community Effects
The direct impacts of job losses upon a community are immediately ap-
parent. However, in many cases, plant closures and cutbacks have a
far greater impact than just the employment loss. Multiplier effects
may result in even more unemployment. Badly needed taxes for vital
community services may dwindle. Community pride and spirit may be
dampened. However, in some cases, the negative community aspects
of production effects may be very short-term in nature with the total
impact barely visible from the viewpoint of the overall community. In
a few cases, the closure of a plant may actually be viewed as a positive
net community effect (e. g. , a small plant with a high effluent load in an
area with a labor shortage).
In the beet sugar industry, another serious community impact will be
the effect on beet growers through losses of outlets, should plants close
These impact factors will be qualitively analyzed as appropriate.
G. Other Effects
Other impacts such as direct balance of payments effects will also be
included in the analysis. This too will involve qualitative analyses.
IV-14
-------
V. POLLUTION CONTROL REQUIREMENTS AND COSTS
Water pollution control standards, technology and costs used in this
analysis were provided by the Environmental Protection Agency.
The contractor was asked in his Terms of Reference to review and
comment upon this information and these comments are contained in
the last section of this Chapter. Although several potentially important
and significant cost influencing factors are pointed out in the review,
the basic cost estimates shown below and elsewhere are based upon
the parameters provided by the Agency.
A. Alternative Effluent Control Levels
The general levels of pollution control in the beet sugar industry can
be summarized into four conditions as follows:
1. Alternative A - No waste treatment or control with effluent waste
load of about 11.7 pounds BOD^/ton beets processed (22 Ibs. BOD^
ton beets processed including Steffen wastes) for the selected typical
plant at this minimal control level. Disposal of Steffen waste as
dried pulp, by-product recovery or land disposal is assumed, as
this is universally practiced in the industry. No control of lime
mud slurry, flume water discharge, or condenser water flow is
assumed.
2. Alternative B - Complete retention of lime cake slurry in earthern
holding ponds (no discharge to receiving streams). The effluent
waste load is estimated at 5. 1 pounds BOD_/ton beets processed
55 percent control for the selected typical plant at this control
level.
3. Alternative C - Complete recycle of flume water with land disposal
incorporating treatment of flume -water by screening, settling, with
mud drawoff to holding ponds for complete retention. The effluent
waste load is estimated at 0.7 pounds BOD^/ton beets processed (94
percent control for the selected typical plant at this control level.
4. Alternative D - Complete recycling of condenser water with excess
condenser water disposal on land. Extensive water re-use within
the factory process is assumed. The effluent waste load is estimated
at zero pounds BOD5/ton beets processed (100 percent control)
for the selected typical plant at this control level.
_L' "Development Document for Effluent Limitations Guidelines and New
Source Performance Standards, Beet Sugar Processing Industry, " and
"Supplement A, " April, 1973, EPA, Washington, D. C.
V-l
-------
Within the above context and the water pollution abatement requirements
under the Federal Water Pollution Control Amendments of 1972, three
specific control alternatives were evaluated. These alternatives were:
1. Limitation of discharges to surface waters of . 5 to .7
pounds BOD5 per ton of beets processed for all beet
sugar plants beginning in 1977 and zero discharges to
surface waters beginning in 1983.
2. Limitation of all discharges to surface water beginning in
1977 for all beet sugar plants with sufficient contiguous
and owned land to build control facilities (according to EPA
land requirement formulas) and limitation of all discharges
for plants without contiguous owned land beginning in 1983).
3. Limitation of all discharges to surface waters beginning
in 1977 for all beet sugar plants.
B. Current Levels of Control
The beet sugar industry has historically used large quantities of water
in processing beets. Where there was no recycling of water, water use
amounted to:
Maximum
(gal/ton beets sliced)
Flume water 4,000
Diffuse water 390
Lime mud 100
Condenser water 4,500
Miscellaneous 300
Total 9,200
In recent years the sugar beet industry, through extensive programs of
recycling and water use control, has succeeded in bringing total residual
water in some instances down to as low as 200 gallons per ton of beets
sliced. This is a remarkable achievement considering that each ton of
beets being processed brings into the system 75 percent of total weight
or 180 gallons of water in the new beet. Figure V-l shows a flow dia-
gram for a theoretical beet sugar factory water flow with complete water
use and the potential sources of effluents from the processing system.
V-2
-------
With Beets - 75
Condensate
Diffuser
Pulp Water - 60
Sweet Water & Milk of Lime
(C
Condensate
Vents &
Evaporation
j Garb Stn. , j Raw Juice
jEvaps & Pans j
Water in
Pressed Pulp
ho-
Vapor Ci/ Water in Sugar & Molasses
Beet Fluming
Washing
Sundry Cooling
To Holding Pond &
Further Evaporation
Figure V-1. Theoretical beet sugar factory water flow with complete water reuse.
Note: All figures are percent on beets.
V-3
-------
The average plant, however, still is using over 2,000 gal of water per
ton of beets sliced and thus huge quantities of water are involved.
With the extensive programs of water recycling, there has been an
associated reduction in effluent discharges. The industry universally
disposes of beet pulp, molasses and Steffen wastes through commercial
by-product recovery or land disposal. Also, essentially all plants con-
tain lime cake slurry in earthern holding ponds, with any associated blow-
down restricted to percolation and/or evaporation.
Although not all of the 53 beet sugar plants operating during the 1972-73
campaign achieved a . 5 pound BODc per ton of sliced beets (94%) level of
control, the industry, on the average, exceeded this level. The current
level of pollution abatement in the beet sugar industry can be described
on a plant by plant basis by the degree of flume and condenser water
recycling or municipal hookup as follows:
1. No flume or condenser water recycling where the effluent
waste load is about 3.0 pounds BOD,, per ton.
2. Flume water recycling only where the effluent waste load
is about . 5 to .7 pounds BOD^ per ton from condenser water
discharge.
3. Flume and condenser water recycling with blowdown disposal
into surace waters where the effluent waste load is about ,. 5
to .7 pounds BOD5 per ton.
4. Flume and condenser water recycling with blowdown disposal
on land. This procedure yields a zero discharge level into
surface waters.
5. Disposal of blowdown into municipal sewer systems.
The plants in each of the categories are enumerated below as Table V-l.
Five of the six plants without water recycling are located in Michigan.
The only other such plant is located in Nebraska. These plants, representing
seven percent of the daily slicing capacity are the smaller and older units.
The average capacity is 2,250 tons of daily slicing capacity. The 20 plants
with flume recycling only are predominately located in the Red River Valley
and the Western Plains. Their average slicing capacity is about 3, 300 tons
which compares to the industry average of 3,600 tons and they compose 35
percent of daily slicing capacity. These plants tend to be slightly newer than
V-4
-------
those without recycle facilities. Ten plants presently have flume and con-
denser recycling with discharge to surface waters. Their average size is
3,750 tons. These ten plants have 20 percent of the daily industry slicing
capacity. Presently 11 plants report zero discharge. These plants are
large (average daily slicing capacity of 4, 950 tons) and tend to be the newer
plants. These plants are located in low rainfall areas, with seven of the
eleven in California and Arizona. Excepting the Nampa, Idaho plant, the
plants on municipal hookups are small relative to industry average. Three
are located in Michigan - Ohio, one in Montana and one in California. Only
nine percent of the industry capacity is on municipal hookups.
As shown in Table V-l, nearly 30 percent of the industry presently are
achieving zero discharges to surface waters. Based on the technical con-
siderations shown above relating recycling to waste load, another 55
percent of the beet sugar industries daily slicing capacity is at the .5 to
.7 pound BOD5 per ton beets sliced level. Thus, excepting the Great
Lakes geographic segment, the focus of the zero discharge standard will
be on obtaining the last six percent of pollution abatement in terms of
BOD.
C. Water Pollution Abatement Costs
Water Pollution abatement costs used in this study were based on cost
data performance parameters and estimating equations provided by the
Environmental Protection Agency. L'
'"Development Document for Effluent Limitations Guidelines and New
Source Performance Standards, Beet Sugar Processing Industry,"
Apri], 1973, EPA and correspondence.
V-5
-------
Table V-l. Current status of water pollution control in
beet sugar industry
Plant Location
Status Town
1. No recycling
Caro
Bay City
Carrolton
Croswell
Sebewaing
Mitchell
Total 6
2. Flume recycle
Crooks ton
Rocky Ford
Greeley
Sterling
Fort Morgan
Scotts Bluff
Gering
Bayard
Ovid
Torrington
Ga rland
Billings
Love 11
Worland
Twin Falls
Mini Cassia
Delta
Toppenish
Nyssa
Clarksburg
Total 20
Region
I
I
I
I
I
III
-
II
III
III
in
ni
in
HI
in
in
in
IV
IV
IV
IV
IV
IV
IV
IV
IV
V
-
Date
built
(year)
1890
1901
1902
1902
1902
1920
-
1954
1900
1902
1905
1906
1910
1916
1917
1926
1926
1903
1906
1916
1917
1916
1917
1920
1937
1938
1935
-
Size
(TPD)
1,900
4,000
2,000
1,400
2,000
2,240
13,540
3,900
3,024
2, 180
2,440
3,445
3,300
2,215
2,285
2,760
3,034
2,550
4,280
2,235
1,900
4,600
6,725
1,500
4,050
6,575
3, 100
65,898
Campaign
(days)
145
145
145
145
145
114
-
176
100
100
114
124
125
124
117
119
110
180
166
165
145
115
110
80
185
125
142
-
V-6
-------
Table V-l (continued)
Plant Location
Status
3. Flume and con-
denser recycle
and discharge
Total
4. Zero discharge
Total
5. Municipal
hookup
Total
Grand Total
Town
Region
East Grand Forks II
Moorehead
D ra yton
Loveland
Eaton
Longmont
Brighton
Idaho Falls
Sidney
B rawle y
10
Hereford
Goodland
Moses Lake
Betterovia
Spreckles
Hamilton City
Tracy
Monte ga
Woodland
Mendota
Chandler
11
Fremont
Finlay
Ottawa
Nampa
Santa Anna
5
52
Source: Development Planning and
Note: Region I
Region II
Region III
Region IV
Region V
II
II
III
III
III
III
IV
IV
V
-
Ill
III
IV
V
V
V
V
V
V
V
V
-
I
I
I
IV
V
-
-
Date
built
(year)
1926
1948
1965
1901
1902
1903
1917
1903
1925
1947
-
1964
1968
1953
1897
1899
1906
1917
1917
1937
1963
1966
-
1900
1911
1912
1942
1912
-
-
Research Associates,
Size
(TPD)
2,750
3,900
5,000
3,670
2, 145
3, 190
2,190
4,200
4,000
6,500
37,545
6,493
3,400
10,500
4,800
5,500
2,500
4,500
4,500
3,300
4,400
4,500
54,393
3,050
1,535
1,700
9,050
1,851
17, 186
188,562
Inc.
Campaign
(days)
164
182
161
110
100
107
100
170
140
105
-
85
129
185
200
200
145
236
200
200
200
200
-
157
153
150
120
125
-
_
Michigan and Ohio
Minnesota -
North Dakota
Western Plains
Montana
California -
Arizona
V-7
-------
1. Investment
Investment for lime slurry ponds was estimated as:
IL = (1.75 x 10"5) ^- Cj
where
IL = Investment in lime slurry pond
C = Capacity in tons of beets sliced per day
L = Length of campaign in days
S = Seepage or percolation of water from the pond in
inches per day
Cj = Cost of land plus cost of construction per acre.
The constant, 1.75, is a function of the conversion factors of the amount
of water and mud blowdown to the pond, conversion of gallons of water
to acre feet and acre inches together with the time factor of days per
year and the maximum depth to which ponding will occur.
Two options for flume recycling investment were provided. Option C-l
was based upon a mechanical clarifier with a flume water recirculation
system. Option C-2 was based upon an earthen pond clarifier with a
flume recirculation system. The investment estimating equations for
each are as follows:
+(5.26x irr5)
K2 + (5.26x 10'5) CL_
V-8
-------
where
-1 = Investment in option C-l flume recycle system
-1 = Investment in option C-2 flume recycle system
K = Equipment investment
C = Capacity in tons of beets sliced per day
L = Campaign length in days
S = Seepage rate in inches per day
Ci = Cost of land and pond construction cost per acre
Investment in equipment for each option is made up as follows:
Flume water screen
Clarifier
Piping Changes
Pumps (3 @ $2,200)
Motors (3 @ $1,000)
Mud Panel
Total Equipment Cost
Option C-l
$16,000
89,000
51,000
6,600
3,000
--
Option C-2
$16,000
51,000
6,600
3,000
7,000
$165,.600
$83,600
The constant, 5.26, is similar to the lime slurry pond constant except
it takes into account a blowdown (20%) of the flume water.
Three investment options were provided for condenser recycle equipment
and ponds. Option D-l was based on a cooling tower, D-2 on a cooling pond
and D-3 on a spray pond. The estimating equations were as follows:
V-9
-------
ZCD-1 = K3 + 56C + (2.02 x 10"5) - C1
> c CL
ICD-2 = K3 + <8-34 x 10 ) + 2.02 x 10'15
JCD-3 = K3 + 52C + (2.02 x 10'5) -
where
1 = Investment Option D-l
2 = Investment for Option D-2
I(-;£)_3 = Investment for Option D-3
K, = Condenser system recycle equipment
C = Capacity in tons of beets sliced per day
L = Campaign length in days
S = Seepage in inches per day
GI = Cost of land and pond construction
In Option D-l, the 56C estimates the cost of a cooling tower as a function
of plant capacity in tons per day. In D-2 the (8.34 x 10" ) estimates the size
in acres of a cooling pond. In D-3 the (52C) estimates the cost of spra y
pond as a function of plant capacity.
Condenser recycle equipment included the following:
Piping changes $51,000
Pumps (3 @ $2,200) 6,600
Motors (3 @ $1,000) 3,000
Total $60,600
V-10
-------
All basic land and pond cost estimates were based upon an assumed
average of $1, 000 per acre land purchase price and $2, 000 per acre
pond construction costs. Land requirements were computed on the
basis of one-quarter inch seepage per day. As will be discussed sub-
sequently in this report, significant variances to these values are likely
to occur in some locations.
The above equipment and pond construction costs are purportedly on a
1971 basis. These estimates were adjusted to a 1972 basis by use of the
sewage treatment plant construction cost index provided by EPA. With
1957-59, equal to 100, the index in 1971 was 159.83 and 171.98 in 1972.
Thus, the 1971 estimates were expanded by 1.076 to obtain a 1972 level.
Z. Operating and Ownership Costs
Annual operating and maintenance costs, excluding interest and de-
preciation, were estimated by EPA to be 10 percent of equipment
and pond construction (excluding land costs) investment. Additionally,
a constant annual expense of $15,000 for dredging the flume water pond
was used.
Annual depreciation charges of five percent were taken on equipment
and pond construction investment. This presumes a twenty year life
and no salvage value.
3. Estimated Costs
Based upon the data and equations described above, cost estimates were
developed for model plants representative of the various segments and
pollution status currently found in the industry. Because some segments
of the industry have made significant progress toward zero discharge
levels, it was necessary to develop incremental control costs to reflect
already in place pollution abatement facilities.
Using the data presented in Table V-l, plants were grouped into three
plant sizes and classified by campaign length and recirculation status
as shown in Table V-2. This distribution of the 36 plants not yet at
zero discharge or on municipal hookups served as a basis for formulating
costs for the model plant analysis. For purposes of the subsequent impact
analysis, it was assumed that all plants had lime slurry ponds in place
and that these costs were reflected in the base case. Thus, the incre-
mental costs for pollution abatement included combination flume and/or
condenser recycling and containment as appropriate.
The added abatement facilities configurations associated with the alter-
native standards being evaluated were as follows:
V-ll
-------
Table V-2. Summary of beet sugar plants by size, campaign length analysis and recirculation status
Campaign
(days)
105
110
115
130
145
160
175
Total
Small (<2,300 TPD)
Recirculation status
All
0
2
0
0
0
0
0
2
Flume
0
3
0
3
0
0
0
6
None
0
1
0
0
4
0
0
5
Medium (2,300-3,900 TPD)
Recirculation status
All
0
0
2
0
0
0
2
4
Flume
0
0
6
0
1
0
2
9
None
0
0
0
0
1
0
0
1
Large (> 3, 900 TPD)
Recirculation status
All
1
0
0
0
2
1
0
4
Flume
0
0
0
0
5
0
0
5
None
0
0
0
0
0
0
0
0
-------
Alternative
Plants without recycle facilities
To . 5 pounds BOD5 per
to ton processed
From .5 pounds to zero
Directly to zero discharge
Added Facilities Configuration
Flume pond, mechanical clarifier,
piping, pumps and motors
Additional ponding, cooling tower,
piping, pumps and motors
All of the above
Plants with flume recycle only
To zero discharge
Ponding, cooling tower, condenser,
piping, pumps and motors
Plants with flume and condenser
recycling
To zero discharge
Ponding only
In the model plant analysis, plants with flume re circulation only were
assumed to have flume ponds and equipment currently in place. Plants
with flume and condenser recirculation were assumed to have flume
ponds and associated equipment and condenser piping, pumps, motors
and cooling towers in place. It is recognized that actual plants may have
a portion of the ponding in place or not have cooling towers in place
which would alter the incremental costs for these plants. However, these
configurations are believed to reasonably approximate the various industry
conditions.
The estimated in place and incremental investment and annual costs for
the three basic types of pollution conditions (excepting zero discharge
and municipal hookups) used in the model plant analysis are shown in
Table V- 3 to V-5.
In the following model plant, financial analysis investment was assumed
to occur in 1976 or 1982 as appropriate with annual costs beginning in the
following year. The salvage value for in place facilities was limited to the
value only for both the current shadow priced investment and the terminal
value of assets - assumed to be in year 21.
V-13
-------
Table V-3. Estimated current and incremental costs for pollution control in beet sugar model plants without recycling
Incremental cost to reach zero
Incremental cost to reach .5 level level from . 5 level Incremental cost to reach zero level from current level
Investment Investment Investment
Cons. Annual Costs Cons. Annual Costs Cons. Annual Costs
Plant Cam- Seep- and Deprec- and Deprec- and Deprec-
size paign age Land equip. Dredging O&M Total iation Land equip. OfaM iation Land equip. Dredging O&M Total iation
(TPD) (days) (in/day) $1.000
1750 110 1/4 41 265 15 26 41 13 16 204 20 10 57 469 15 47 62 24
1750 145 1/4 59 304 15 30 45 15 21 215 22 11 80 519 15 52 67 26
2800 145 1/4 85 361 15 36 51 18 33 305 30 15 118 666 15 67 82 34
-------
Table V-4. Estimated in-place and incremental costs for pollution control on beet sugar
model plants with flume recycling only and discharges
Plant
size
(TPD)
1,750
1, 750
1, 750
2,800
2,800
2,800
5, 000
5, 000
5, 000
Investment
Campaign
(days)
110
130
145
115
145
175
105
145
160
Seepage
(In. /day)
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
Construction
Land & equipment
41
47
59
68
85
106
110
153
169
265
279
304
325
361 '
406
415
507
542
In-place
Incremental Cost to Reach
Annual Costs
Dredging O & M
15
15
15
15
15
15
15
15
15
27
28
30
32
36
41
42
51
54
Depreci-
ation
$1, 000 --
13
14
15
16
18
20
21
24
25
Investment
Zero
Annual Costs
Construction
Land & equipment O & M
16
19
21
26
33
40
44
59
65
204
210
215
290
305
319
460
493
505
20
21
22
29
30
32
46
49
50
Depreci-
ation
10
10
11
14
15
16
23
24
25
-------
Table V-5. Estimated in-place and incremental costs for pollution control on beet sugar
model plants with flume and condenser recycling and discharges
In-place
Investment
Plant
size
(TPD)
1,750
1,750
1,750
2,800
2,800
2,800
5, 000
5,000
5,000
Campaign
(days)
110
130
145
115
145
175
105
145
160
Seepage
(in. /day)
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
Construction
Land & equipment
41
47
59
68
85
106
110
153
169
436
450
475
558
595
640
781
874
908
Annual costs
Dredging
15
15
15
15
15
15
15
15
15
O & M
44
45
48
56
60
64
78
87
91
Depreci-
ation
22
23
24
28
30
32
39
44
45
Incremenatal cost to reach zero level
Investment
Land
16
19
21
26
33
40
44
59
65
Annual costs
Pond
construction O & M
33
40
44
56
71
80
94
127
139"
3
4
4
6
7
8
9
13
14
Depreci-
ation
2
2
2
3
4
4
5
6
7
-------
D. Land Availability Formula
In determining the land availability condition of a beet sugar factory
regarding meeting its zero discharge in 1977, a definition was estab-
lished by EPA. A plant was said to "have land available" if the sums
of the net acreages need lime, flume and condenser ponds as deter-
mined by EPA formulae shown below, plus allowance for plant site
and beet storage were less than the total owned acreage contiguous
to each beet sugar factory. Plants were said to "not have land
available" if the needed net acreages for lime, flume and condenser
water ponds plus plant site and beet storage acreages were greater
than the total owned acreages contiguous to the beet sugar factory.
The land requirements were computed as follows:
Plant and beet
per 1, 000 tons
Plant and beet storage acreage - 29.5 - . 0055C + (. 3749 x 10* ) C
Lime PondAcreage - 1.75xlO~5
O
Flume Water Pond Acreage = 5.26xlO~5
Condenser Water Acreage - 2.02xlO~5 CL
o
where
C = Capacity in tons beets sliced per day
L - Length of campaign in days
S = Seepage in inches of water per day
The plant and beet storage equation was estimated by DPRA from aerial
photographs of eight beet sugar factories of various sizes and location.
After establishing a scale of measurement for each photograph, the plant
area itself and the beet storage area were scaled and set forth in Table V-6.
V-17
-------
Table V-6. Selected plant site and storage acreages from
aerial photographs
Plant Location
E. Grand Forks
Crookston
Moorehead
Bay City
Twin Falls
Drayton
Mini Cassia
Nyssa
Total
Acres
550
493
386
90
237
800
211
219
Plant Site
and
Storage
Acres
40
72
80
55
44
80
50
61
Plant Site
and
Storage Acres
Capacity
(TPD)
2,750
3,700
3,900
4,000
4,600
5,000
6,725
9,050
per 1,000
TPD
Beets Sliced
14.6
19.5
20. .5
13, .7
9., 5
16. .0
7.5
6.7
Each of the pond constants -- 1.75, 5.26 and 2.02 -- are EPA calculated
constraints that convert the various units of the above formulae to common
denominator of days, feet, inches, gallons and areas and also take into
account the water blowdown per ton of beets sliced for each type of effluent
as well as the depth of ponding.
The calculated acres needed for ponds by the above formulae for each beet
sugar plant is shown in Table V-7.
V-18
-------
Table V-7. Land availability by EPA formula
Region and
Plant Location
Region I
Caro
Freemont
Bay City
Carrollton
Croswell
Sebewaing
Findlay
Ottawa
Region II
Mason City
.E. Grand Forks
Moore head
Crookston
Dray ton
Region III
Rockyford
Loveland
Eaton
Greeley
Longmont
Sterling
Ft. Morgan
Scottsbluff
Gering
Date
Started
1890
1900
1901
1902
1902
1902
1911
1912
1917
1926
1948
1954
1965
1900
1901
1902
1902
1903
1905
1906
1910
1916
Seepage
Capacity Campaign Rate
(TPD)
1,900
3,350
4,000
2,000
1,400
2,000
1,535
1,700
2,300
2,750
3,900
3,700
5,000
3,024
3,670
2, 145
2, 180
3, 190
2,440
3,445
3,300
2,215
EPA
Formula
Acres
Plant
Site Total
Acres Acres
Land
Owned Avail-
Acres able
Zero
Now
(days) (in/ day)
145
157
145
145
145
145
153
150
(73-closed)
164
182
176
161
100
110
100
100
107
114
124
125
124
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/16
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
424
888
444
308
444
--
--
--
692
1,088
1,000
1,232
116
155
82
84
257
107
164
158
105
38
--
55
40
34
40
--
--
--
40
80
72
80
54
49
41
41
50
43
51
52
42
462
943
484
342
484
--
--
738
1,168
1,072
1,312
170
204
123
124
307
150
215
210
147
100
60
90
130
80
150
82
100
_.
550
386
493
800
523 X
134
62
74
248
327 X
249 X
467 X
230 X
__
X
_ -
_
«.
-_
X
X
__
w _
__
__
--
_ _
.. _
_ _
_ _
__
__
__
.. _
--
continued. . .
-------
Table V-7. Land availability by EPA formula (continued)
t-o
o
Region and
Plant Location
Region III (con't.)
Brighton
Bayard
Mitchell
Ovid
Torrington
Hereford
Good land
Region IV
Idaho Falls
Garland
Billings
Twin Falls
Lovel
Worland
Mini Cassia
Delta
Sidney
Toppenish
Nyssa
Nampa
Moses Lake
Date
Started
1917
1917
1920
1926
1926
1964
1968
1903
1903
1906
1916
1916
1917
1917
1920
1925
1937
1938
1942
1953
Capacity '
(TPD)
2,190
2,285
2,240
2,760
3,034
6,493
3,400
4,200
2,550
4,280
4,600
2,235
1,900
6,725
1,500
4,000
4,050
6,575
9,050
10,500
Campaign
(days)
100
117
114
119
110
85
129
170
180
166
115
165
145
110
80
140
185
125
120
185
Seepage
Rate
(in/ day)
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4 .
1/4
1/4
1/4
1/4
1/4
EPA
Formula
Acres
84
102
98
126
233
--
--
273
176
273
203
141
106
283
46
215
287
315
--
--
Plant
Site
Acres
42
43
43
46
49
--
--
55
45
55
44
42
39
50
36
54
54
61
--
--
Total
Acres
126
145
141
172
282
__
--
328
221
328
245
183
145
333
82
269
341
376
--
--
Owned
Acres
122
428
402
127
200
1,000
740
200
80
164
237
246
200
211
100
250
200
219
375
1,000
Land
Avail-
able
- .
X
X
_ _
.
_ .
__
-_
_
_ _
_ -
X
X
_ _
X
_ _
_ _
-_
_ _
__
Zero
Now
« _
_ f
mi
__
X
X
. M
w
m. _
_ _
_ _
_ «
_ _
. »
- _
. _
__
X
X
continued
-------
Table V-7. Land availability by EPA formula (continued)
Region and
Plant Location
Region V
Bettoravia
Spreckels
Hamilton City
Santa Anna
Tracy
Monte ca
Clarksburg
Woodland
Brawley
Mendota
Candle r
Date
Started
1897
1899
1906
1912
1917
1917
1935
1937
1947
1963
1966
Capacity
(TPD)
4,800
5,500
2,500
1,851
4,500
4,500
3, 100
3,300
6,500
4,400
4,500
Campaign
(days)
200
200
145
175
236
200
200
200
105
200
200
Seepage
Rate
(in/ day)
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
0
1/4
1/4
EPA
Formula
Acres
--
--
--
--
--
--
238
--
262
--
~ ~
Plant
Site
Acres
--
--
--
--
--
--
50
--
58
--
~
Land
Total Owned Avail- Zero
Acres Acres able Now
x
x
x
x
x
x
280 175
x
320 640 X
x
x
A' Capacities developed from contacts with each beet sugar firm.
-------
E. Comments on Cost Data
The Terms of Reference, under which this report was prepared, asked
for review and comment on the cost data and parameters provided by
EPA for use in the impact analysis. Comments are made below on
seepage and land values.
1. Seepage or Percolation Rates
Inasmuch as the technology and costs of water treatment provided by
EPA use seepage of impounded water as a means of water disposal,
seepage rates become important. Water in unsealed earthern ponds
seeps from the bottom of the pond and percolates through the subsoil
at various rates depending on the soil and its condition. Generally
the standard of 1/4 inch seepage per day chosen by EPA is practical
for most soils in the United States, but in some cases this rate may be
inappropriate.
Some states (a complete list was not available) limit seepage at a rate
less than 1/4 inch per day. Also some areas have soils where the
seepage capacity is less than one-fourth inch per day.
Two areas of significance to the beet sugar industry are the "thumb"
area of Eastern Michigan and the Red River Valley on the Minnesota-
North Dakota border. Here the soil type, precipitation amount, severity
of winter and lack of evaporation all contribute to a very low seepage or
percolation rate.
For Michigan, Dr. Earl Erickson , a soil physicist at Michigan State
University, reports that in the clay-loam to loam soil of the "thumb"
district, clear water may have a percolation rate of .02 inches per hour
in clay loam. He also states that the addition of .5 percent solids would
reduce, through organic matter, percolation to a trace within one year.
The tight soil condition of Eastern Michigan, where the beet plants are
located, is in direct contrast to the high percolation sandy soils of
Western Michigan, where waste water irrigation systems are being used.
In the northern part of the Red River Valley, North Dakota State has found
the infiltration rate of beet sugar processing effluent through storage la-
goons on the Fargo silty clay to be very low. For instance one column of
soil allowed passage of only 433 ml in 7 1/2 days and another only 83 ml ,
_' Personal communication
?L< "Disposal of Sugar Refining Lagoon Effluents on Fargo Silty Clay
Soil," Dr. B. R. Funke and Fred W. Schroer, North Dakota State
University Experiment Station Bulletin.
V-22
-------
These figures represent about .066 and .013 inches per day, respectively.
There was no evidence from these experiments that the effluents were
causing any soil clogging as compared to distilled water.
Contacts with Soil Conservation Service offices at Denver, Lincoln and
Fort Collins confirm the tight soil characteristics of the Red River Valley
and Michigan as compared to the other three regions of beet sugar plant
locations.
A reduction of the seepage rate from one-fourth inch to one-sixteenth
inch would increase the required pond area by four times and increase
investment and costs in almost the same proportion. The reduced
seepage rate due to soil characteristics was recognized and reflected
in the following impact analysis.
2 Land Values
Land values of beet plant sites and adjacent land range from valuation as
rural farm land to valuation as prime industrial property. Reported land
values on beet plants run from a low of $500 per acre to a high of $6, 000
per acre, based on the Contractor's survey of the industry.
For purposes of financial analysis, present and incremental pollution
control costs, $1,000 per acre suggested by EPA was used. However,
in evaluating the potential management decision for individual plant
operation or closure, the estimated land value was considered. Land
values were reported to ave rage $2,300 per acre on a national basis,
but vary from region to region as shown below:
No. of
Min. Price Max. Price Ave. Price Estimates
($ acre) ($ acre) ($ acre)
Region 1 2,000 3,000 2,250 4
Region 2 900 2,500 1,350 4
Region3 500 6,000 2,500 14
Region 4 600 4,000 1,520 10
Region 5 3.,000 3, OOP 3, OOP _1_
Total 2,300 29
V-23
-------
VI. IMPACT ANALYSIS
The impacts considered in this analysis include the following:
A. Price effects
B. Financial effects
C. Production effects
D. Employment effects
E. Community effects
F. Balance of payment effects
A comprehensive and detailed impact analysis of each of the above was
beyond the scope of this study. Consequently, efforts were allocated
more to financial and plant analyses, with lesser detail allocated to
macro-impacts.
A. Price Effects
Estimated price increases necessary for the industry to maintain its
current levels of profitability are not large, although certain segments
will require much higher price increases than others. Table VI-1 shows
the estimated price increases required to maintain estimated current
profitability levels, based on the model plant analyses. As shown, ex-
cepting the plants with no water re circulation, the required price increase
ranges from . 2 to .8 percent.
Considering that nearly 30 percent of the industries present daily slicing
capacity (in terms of production this will be equivalent to about 40 to
45 percent of the annual production due to the longer campaign of these
plants) is already in compliance with the zero discharge level and another
20 percent of the industries' daily slicing capacity (representing about 30
percent of the production) requires only a .2 percent increase, one can
conclude that the price increase due to pollution control would be minimal.
This situation also suggests the possibility that required price increases
may not be passed forward.
Since the demand for sugar the household level is relatively inelastic,
we doubt such a price increase would alter these consumption patterns
significantly. Although price elasticities for industrial uses nor cross
elasticities with other sweetners, such as cane sugar, corn sweetners
and synthetics are not known with certainty, there appears to be a
VI-1
-------
Table VI-1. Estimated price increases to maintain profitability and meet zero discharge levels
Campaign
(days)
105
110
115
130
145
160
175
Small (1750 TPD) Medium (2800 TPD)
Recirculation Recirculation
All Flume None All Flume None
.2 .8 2.2
.2 .7 1.5
.7
1.8 .6
.2 .5
Large (5000 TPD)
Recirculation
All Flume None
.2
.2 .5
.2
-------
possibility that beet sugar will become less competitive, although in the
final analysis, it will depend on the impact of pollution control costs on
the U.S. domestic cane sugar industry. The situation is further com-
pounded by the role of sugar imports, which represent about 45 percent
of total sugar consumption.
Beet sugar's ultimate competitive position under present legislation
will depend upon the Department of Agriculture's policy regarding the
levels of import quotas. The objectives of the Sugar Act, discussed
in Chapter III, suggest that pollution control costs could receive some
consideration.
The Act, in Section 205 entitled "Allotments of Quotas or Prorations,"
states that the Secretary (Agriculture) shall make allotments to assure
an orderly and adequate flow of sugar, prevent disorderly market or
importation and to maintain a continuous and stable supply of sugar
and to afford all interested persons to an equitable opportunity to mar-
ket sugar. It seems that under this Section the Secretary could make
adjustments in quotas to adjust for increased costs of pollution. How-
ever, in so doing DPRA suspects that the Secretary would take in account
the cost impacts of pollution control on both the beet and cane sugar in-
dustries. In so doing the Se creta ry would be constrained to variances
in the price objective of some 3 to 4 percent, defined in Section 202 of
the Act.
Thus, an important factor in price changes in response to imposition
of pollution controls appears to be the position which the Secretary
chooses to take. It is of interest to note that some members of the
beet sugar industry believe the Secretary is not presently taking full
advantage of his powers to insure their welfare. Of further interest is
the fact that some professionals that are involved or have studied the
United States sugar policy suggest that the benefits of a domestic sugar
industry are considerably less than the cost of maintaining this industry
and suggest that our policy be redirected in favor of increased imports.
Given the current posture toward removal of the Government agricultural
controls, it seems that a ruling by the Secretary in favor of increased
prices for the domestic sugar industry can not be automatically expected.
Satisfaction of one purpose could be interpreted to be in conflict with
another. In view of current pressures to keep food prices down, the
provision of ample sugar supplies at reasonable prices might well
receive greate r weight than the othe r purposes . However, this reflects
the opinion of DPRA only.
VI-3
-------
With much of the industry, in terms of capacity, at or near zero dis-
charge level, two-thirds of the sugar going to industrial markets, which
appears to be price conscious and the indirect government price controls,
it is doubtful that any significant price increases can be achieved by the
beet sugar industry to offset new non-productive pollution control invest-
ment. However, it is DPRA's opinion that any price adjustments that
might include incremental cost of pollution control will be most likely
made in terms of the total domestic sugar industry; that is, the cane and
beet sugar taken together. Looking at the beet sugar segment alone, it
is concluded that under existing competitive price structures that the large
firms not requiring significant price increases will probably tend to hold
the line on prices. However, if the cane sugar industry as a whole is
found to ultimately require a 2 or 3 percent price increase, adjustments
may be made to protect the domestic industry by reducing import quotas
and that price increases of this magnitude rnay be passed along. If this
were to happen, the small impacted beet producers could experience some
relief.
Processors may be able to share the costs with growers through lower
beet prices or because grower cooperatives take over the processing in the
absence of private processors. However, this appears doubtful due to the
already in-place control facilities of a large portion of the industry. Also,
in the case of the grower cooperatives, the member-patrons have per-
sonally incurred significant debt obligations as well as check-off obli-
gations on future beet deliveries. Thus, it seems unlikely that growers
will opt for lower beet prices, although, this will depend on profitability
and risk levels for other crops in each of the producing areas.
The beet industry is unique in that beet growers receive a share of the
proceeds from beet sugar sales, either based on measured sugar con-
tent of the harvested beet -- peculiar to the West --or based on actual
sugar yield -- peculiar to the East. This complicates the price in-
crease analysis and it may be the total price increase will need to be
slightly larger to allow the firms to recover pollution control costs.
VI-4
-------
B. Financial Effects
Measurement of the financial effects of water pollution control of the
beet sugar industry requires knowledge of the existing financial condition
of the industry to serve as a base line plus projections of the key financial
indicators following pollution control implementation. These estimates
were based on the model plants described in Chapter II and the incremental
costs by model plants discussed above in Chapter V.
1. Profitability
As shown in Chapter II, the beet sugar industry is not highly profitable,
with after-tax returns on invested capital of two to five percent. Thus,
any investment increase without a profit increase will only compound this
situation.
Profitability effects for purposes of this analysis are measured on both
a book rate of return and discounted cash flow procedure. In line with
the conclusions of the previous section, no price increases were taken
in this analysis.
As shown in Table VI-2, the book rate of return, after imposition of
zero discharge is reduced, but the change declines as one moves from
plants with no recycling to plants with flume and condenser recycling
in place. This would be expected as the incremental costs to meet zero
discharges decline moving from no in place recirculation to circulation
in place. The ROI for the plants with no recycling is reduced by about
1.5 to 3.0 percentage points, reflecting both a decline in after-tax income
and higher invested capital. The small plants move from a small positive
return to a small negative return.
VI-5
-------
Table VI-2. Estimated book rate of return and cash flows before and after
zero pollution control standards
After -tax ROI
Status and Plant Cam-
Configuration paign
(days)
No recycling
1750
1750
2800
Flume recycling only
1750
1750
2800
2800
2800
5000
Flume and condenser
recycling
1750
2800
2800
5000
5000
5000
110
145
145
110
130
115
145
175
145
110
115
175
105
145
160
Base
p,
.9
4.6
8.7
. 1
2.0
3.6
6.9
9.7
5.2
-.4
3.2
9.2
-.2
4.9
6.5
Cash Flow
Zero
discharge Base
r-4-
-. 5
2.8
5.7
-. 5
1.6
3. 1
5.7
7.4
4.8
-. 5
3. 1
9.1
-.3
4.8
6.3
-------
In the case of flume recycling, only the impact of the meeting a zero
discharge level is a .5 to 2.3 percentage point reduction in ROI. Here
too the small plant short campaign plant is shown to move from a small
positive to a small negative ROI. Where flume and condenser recycling
is in place, the decline in ROI is only . 1 percentage point reflecting the
very small incremental cost (increased ponding only) necessary to meet
a zero discharge.
The impact on cash flow after tax income plus depreciation shows
similar trends (Table VI-2), although the impact is much less pronounced.
It should be noted that no additional interest charges were assumed for
new pollution control investment in the results shown in Table VI-2. It
is conceivable that additional interest charges may be incurred and if so
the impact of the zero pollution control would be slightly higher than
indicated.
The above book rate of return analysis, although indicative, has a number
of weaknesses relating to timing of investment, depreciation policies and
the artificiality of book value as an estimate of invested capital. Because
of these weaknesses another measure -- present value of discounted cash
flow -- was computed. This method is believed to be superior and more
indicative of impacts.
Present values were computed at a 7. 5 percent discount rate which is
the approximate after-tax cost of capital (equity and debt) in the beet
sugar industry. (The computation of this is discussed in Chapter V).
A higher rate would make these impacts more severe and a lower rate
would reduce the impacts. (Cost of capital rates and associated present
values are shown in the next section.) In these terms, present value
of the cash flows before and after added pollution control, the financial
impact is also significant. As shown in Table VI-3, the plants requiring
both flume and condenser recycling facilities have significantly reduced
capitalized earnings, ranging up to a 66 percent reduction for the small,
short season plants. The plants requiring condenser recycling only are
less impacted, ranging from a five to 34 percent reduction in capitalized
earnings. Plants with existing flume and condenser recycling are im-
pacted least in financial terms, generally a two to three percent reduction
in capitalized earnings, excepting the very small plants and/or short
campaigns of 110 days or less.
Another view of these data can be obtained from comparing the capitalized
earnings with the sunk investment or subtracting capitalized earnings from
the sunk investment. If capitalized earnings are less than the sunk invest-
ment value (other words if the present value is less than zero), the firm
VI-7
-------
00
Table VI-3. Estimated present values of cash flows for model beet sugar plants without
and with pollution control (computed at 7.5 percent)
Reduction in capitalized cash flow due to
pollution control
Current
Model
No.
Size and
status
No recycling
1
2
3
Flume
4
5
6
7
8
9
Flume
10
11
12
13
14
15
1,750
1, 750
2,800
recycling only
1, 750
1,750
2, 800
2,800
2,800
5, 000
and condenser
1,750
2,800
2,800
5, 000
5, 000
5, 000
Campaign
(days)
110
145
145
110
130
115
145
175
145
recycling
110
115
175
105
145
160
Sunk
investment^.'
($1,000)
1,870
2,280
3,480
1,910
2, 150
3, 000
3,560
4, 150
6,530
1,910
3,000
4, 150
5, 180
6,530
7,050
Capitalized
earnings
($1,000)
1,094
2,581
6,004
807
1,645
3,238
5,654
8, 066
8, 764
675
3,044
7,883
2, 312
8,468
10,824
.5 Ibs. BOD - 1977
and zero in 1983 Zero
Dollars Percent Dollars
($1,000) ($1,000)
626 57 727
695 27 805
866 14 1,023
277
285
392
413
442
682
55
96
131
148
199
213
discharge
Percent
66
31
17
34
17
12
7
5
7
8
3
2
6
2
2
Sunk investment value at shadow-price (scrap for equipment, market value for land and working capital).
-------
would be better off to realize the sunk investment in cash by closing
the plant and reinvesting these proceeds where they could yield the cost
of capital rate. Looking at these data from this viewpoint, it can be seen
that Model numbers 1, 4, 5, 10 and 13 have sunk investment valued higher
than capitalized earnings under present conditions (see Table VI-4 for 6.0 percent).
Imposition of pollution controls add Model numbers 2., 6 and 11 to this
list. In short, imposition of pollution controls reduces the earning
value of the impacted from two to 60 percent, depending on the present
condition, plant size and campaign length. From these data, it is
clear that plants requiring additional investment will have significant
profit impacts. This is particularly true of those plants not yet re cir-
culating water and to a lesser extent for those with flume recirculation
only. Also the plants with short campaign seasons appear to be impacted
more severely than the plants with longer campaigns.
In placing the model plant results in perspective, it would appear that
the Michigan and Colorado segments would be most impacted, due to the
existence of smaller plants, shorter campaigns, and/or no inplace recir-
culation. In terms of companies, Great Western, Michigan Sugar and
Moniter would appear to be particularly hard hit relative to other firms,
due to the number of impacted plants each owns. This is contrasted to
Utah-Idaho and Amalgamated, who have larger and more modern plants.
2. Capital Availability
As discussed in Chapter II, the beet sugar as a whole appears to be
hard pressed to attract new capital. Imposition of^new capital require-
ments, particularly for non-productive assets would appear to impact
Great Western and the Michigan companies particularly hard. Great
Western is in the midst of negotiations for purchase by a grower cooper-
ative. Growers apparently have pledged both cash and check-off against
future production for equity financing of the purchase. Immediate cash
requirements by farmers have apparently been met in many cases through
mortgages on their fam business and an additional capital requirement could
be serious, since the availability of funds from this group is no doubt
finite.
This becomes particularly noticeable, when looking at the proforma cash
flows which are quite small for the small and short campaign plants which
are the older more depreciated plants. Considering existing debt and the
new requirements for pollution control, one would speculate that debt
servicing could be a difficult problem for companies with these sorts of
plants. Although the ability to meet debt service charges is important,
the low rates of returns suggest that attraction of debt or risk capital
will be difficult for the less profitable segments of the industry.
VI-9
-------
C. Production Effects
Of critical and fundamental interest is the production impact which
pollution control may cause. Of particular interest are potential plant
closures. As discussed in Chapter IV, the methodology used was to
apply a shutdown model to representative plants and to compare the
appropriate model plant results with each of the firms in the beet sugar
industry and draw inferences for each based on its relationship to the
model.
1. Potential Plant Closures
Net present values, computed at 6.0 and 7.5 percent after-tax
cost of capital, for each of the model conditions are shown in Table VI-4.
In interpreting this table, values less than zero indicate that the firm
would be financially better off by liquidating the sunk investment and
reinvesting where that money could yield the industry's target return.
Inspection of these values indicate that the larger and/or longer cam-
paign plants are sound operations, but that the smaller and/or short
campaign plants would appear to be financially improved by closing.
This analysis presumes that the sunk (salvage) investment value shown
in Chapter II. Inspection of these values also shows that plants with no
recycling are impacted much more severely than those with flume and
condenser recirculation in place. This, of course, would be expected
since the incremental costs (as shown in Chapter V) are quite large in
relation to the former.
As previously indicated, the model plant results must be interpreted in
light of the actual key parameters in the industry since they can not all
be reflected in the model plant analysis. The factors listed in Table
VI-5 show the key parameters evaluated and the relationship of the
model plants to the industry.
None of the 52 operating plants fit the models precisely, especially so
relating to capacity. Three model sizes of small, medium, and large
are representative of covering a range of plant sizes from 1,700 TPD to
10,500 TPD, a 7 1/2 fold spread. The financial models point up that
large is good insofar as profitability, so that in each model range those
larger than the model should be better and the smaller ones less profitable,
VI-10
-------
Table VI-4. Net present values for model plants under alternative
conditions of pollution control
Status and
plant configuration Campaign
(davs)
\ **" y * i
No recycling
1,750 TPD 110
No controls
.5 Ibs. BOD-1977
.5 Ibs. BOD-1977)
0 - 1983 )
0 - 1977
1,750 TPD 145
No controls
.5 Ibs. BOD-1977
.5 Ibs. BOD-1977)
0 - 1983 )
0 - 1977
2,800 TPD 145
No controls
.5 Ibs. BOD-1977
.5 Ibs. BOD-1977)
0 - 1983 )
0 - 1977
Flume recycling only
1,750 TPD - 110
No controls
Zero
1,750 TPD 130
No controls
Ze ro
2,800 TPD 115
No controls
Ze ro
2, 800 TPD 145
No controls
Zero
6. 0 percent
Model cost of
No. capital
-------
Table VI-4. Net present values for model plants under alternative
conditions of pollution control (continued)
Status and
plant configuration Campaign
(days)
Flume recycling only
2,800 TPD 175
No controls
Zero
5,000 TPD 145
No controls
Zero
Flume and condenser recycling
1,750 TPD 110
No controls
Zero
2, 800 TPD 115
No controls
Zero
2,800 TPD 175
No controls
Zero
5,000 TPD 105
No controls
Zero
5,000 TPD 145
No controls
Zero
5, 000 TPD 160
No controls
Zero
6. 0 percent
Model cost of
No. capital
*
^
8
5, 106
4,656
9
3,611
2,915
10
-1,069
-1, 124
11
554
457
12
4, 898
4, 767
-2, 359
-2, 507
14
3,278
3, 083
15
5, 432
5, 223
7. 5 percent
cost of
capital
1 Oflfl
3,916
3, 474
2,234
1,552
-1,235
-1,290
144
52
3, 733
3, 602
-2, 868
-3,016
1,938
1,739
3, 774
3, 561
Closure
probability
L
L
L
L
H
H
L
M
L
L
H
H
L
L
L
L
Note: H = High
M = Medium
L = Low
VI-12
-------
Table VI-5. Parameters used in evaluating actual plants
against model plant results
Factors
Model Plants
Industry Plants
1. Type of plant
2. Capacity TPD
3. Campaign
4. Age
5. Ownership
6. Land owned
7. Land availability
8. Land value
9. Seepage
10. Evaporation
11. Precipitation
12. Winter season
13. Continuity of beets
14. Consolidation
15. Potential for
municipal hook-up
Straight
3 plants
1,750-2,800-5,000
TPD
9 campaigns
110 to 175 days
Small - 50 years
Medium - 40 years
Large - 20 years
Corporate
Multi-plant
Purchased for each
pond configuration
Available
$1, 000 per acre
1/4" per day
None
None
Constant
Continuing supply
Not considered
Not considered
Straight and Steffen House
52 plants
1,400 to 10, 500 TPD
27 compaigns
80 to 236 days
4 to 83 years
Corporate and Co-op
Single and multi-plant
60 to 1,700 acres
Available to not available
in varying degrees
$600 to $6, 000 per acre
1" to trace per day
29" to 63" per year
12" to 28" per year
Mild to severe
C'ontinuing to diminishing
supply
Possible
Some potential to no
potential
continued
VI-13
-------
Table VI-5. Parameters used in evaluating actual plants
against model plant results (continued)
Factors
Model Plants
Industry Plants
16. In place pollution
control facilities
Lime pond
No recycle
Flume recycle
Flume and condenser
recycle
17. Technology
Close flume loop
Close condenser loop
Seepage ponds
Dredging
Lime pond
No recycle
Partial flume recycle
Complete flume recycle
Partial condenser recycle
Complete condenser recycle
Zero discharge
Municipal hook-up
Close flume loop
Close condenser loop
Seepage ponds
Evaporation ponds
Irrigation
Dredging
Solid waste disposal
VI-14
-------
As with size, age bears a direct relationship; older plants are smaller
and less able to withstand cost impacts than are the newer, usually
larger plants.
Model plants have minimum land areas in their structure. When con-
sidering water pollution control land availability is a prime need for
ponds and lagoons. Plants without land are forced to make land pur-
chases. The model identifies $1, 000 per acre as a model price but
data shows average land prices are $2, 300 per acre so that the avail-
ability of land improves on the model's performance while lack of land
proves to be a serious deficiency.
The length of campaign made significant differences in model plant per-
formance. A number of model campaigns from 105 to 175 days were
run. Plants that can improve on those model numbers will better the
performance through the lowered fixed costs per unit that, longer cam-
paigns can deliver. Conversely shortened campaigns diminish per-
formance .
Just as in the case of land availability, those plants that have land and
are currently closer to zero discharge in level of pollution technology have a
better chance of operating successfully. The lesser degree of water
pollution control the more money is yet to be spent to achieve zero dis-
charge. The greater the degree of pollution control the better the per-
formance according to the relation of the model analysis and to the
plant in question.
All model plants were assumed to have 1/4 inch per day seepage. Some
plants can exceed this rate but in the case of seepage this may not spell out
improved performance. Seepage may need to be controlled or reduced to
avoid contamination or to comply with state regulations. Lesser seepage
does suggest poor performance related to the model as lower seepage
means more land, more cost and a greater impact for shutdown.
The models assumed a continuing supply of beets. It is apparent then
that any plant in an area without continuity of beet supply, whether it be
due to enchroaching urbanization or other reasons, has severe future problems,
The model does not consider the possibility of connecting the beet sugar
effluent to a municipal sewage system. However, if such an opportunity
exists and only two have been noted, this would be a strong positive
factor.
VI-15
-------
Finally, plants that are seriously impacted by any of the above factors
will be considered more likely candidates for closure if the plant is
near a larger, newer plant that may have possibilities of expansion.
All these factors need to be evaluated and were evaluated in making
judgments as to what was the extent of impact on each plant and the
resultant expected response in additional control standards.
Table VI-6 is the compilation of factors that form the basis of the com-
posite judgment regarding the probability of closure --a high, maybe or low.
By following through the 22 information bits on one plant, the analyst can
make his own analysis of the economic impact on this plant of pollution
control and a personal judgment of the plants management response to
this impact.
For example, take the Scottsbluff plant in Region III. By following across
the columns, the factors of this plant show the following:
1 Capacity - 3, 300 tons larger than 2, 800 ton model +
2 Built in 1910 - 63 years old model - 40 years in model
3 125 day campaign - longer than 115 day model +
4 Municipal hook-up possibility - none - same as model 0
5 Zero Discharge now - none - same as model 0
6 No Recycle - N.A. - same as model 0
7 Flume Recycle - yes same as model 0
8 Condenser recycle - no - same as model 0
9 Condenser Cool - no - same as model 0
10 Pond acres calculated - same as model 158 0
11 Plant site acres - calculated same as model 0
12 Total acres calculated same as model 210 0
13 Owned acres 467 - exceeds model greatly +
14 Land availability - yes +
15 Land cost - not applicable 0
16 Ownership - currently corporate - soon to be coop +
17 Seepage l/4"per day - same as model 0
18 Evaporation - 54" per year - model shows more +
19 Precipitation 14" model shows none +
20 Winter is moderate - same as model 0
21 Consolidation possibilities - yes - exceeds model +
22 Beet continuity - yes - agrees with model 0
23 Financial Analysis - with no changes - model indicates L +
24 Financial Analysis - . 5 BOD or zero 77 land available M
25 Financial Analysis - zero discharge 77 M -
26 Steffen House - model is Straight House +_
10 +
3 -
VI-16
-------
I'l ml Locati
I. 8.p_nJ_
1 M r'moiil
l'.,,y Ctly
( roswcll
Si In wamn
1 ,,,1,-iy
l. gumjl
~M~i-.on City
Muii hertd
( took, ton
DnyloH
i. L'OH III
l*7u U Ford
1 ,,M 1 Hill
1 Mon
1,1.. ley
1 .nmmtiiit
SI. l tllll.
1 oil Moi ua
S. ,,1|-llluff
1 ,, l inu
1% 1 1 ^Illoll
H M 1 111
n Capacity
(TPD)
1, 900
3,050
4,000
2,000
1,400
2,000
1,535
1,700
(closed)
3.900
3,700
5, 000
3,024
3,670
2, 145
2, 180
3, 190
2,440
^ 3,445
3,300
2,215
2, 190
2,285
Date
built
1890
1900
1901
1902
1902
1902
1911
1912
1948
1954
1965
1900
1901
1902
1902
1903
1905
1906
1910
1916
1917
1917
Munic- No
Table VI-6
at
Recycle
Cam- ipal Ze ro Type re - Con-
paign sewage now plajit cycle Flume denser
(days)
145
157 X
145
145
145
145
153 X
150 X
182
176
161
100
110
100
100
10
11
12
12
12
100
117
Ni' X
N
N X
N X
N X
N X
N
N
N
N
N
N
S
S
N
N
S
N
S
S
S
N
N
X X
X
X X
X
X X
X X
X
X X
X
X
X
X
X X
X
denser
cool Ponds
(acres)
106
222
111
77
111
-
173
X 272
250
X 308
116
X 155
X 82
84
X 257
107
164
158
105
X 84
102
Plant
(acres)
38
-
55
40
34
40
-
-
80
72
80
54
49
41
41
50
43
51
52
42
42
43
Total
(acres)
144
-
277
151
111
151
-
213
352
322
388
170
204
123
125
307
150
215
210
147
126
145
sure analysis
Owned
kcre»)
100
60
90
130
80
150
82
100
550
386
493
800
523
134
62
74
248
327
249
467
230
122
428
Land
Avail-
able Cost
($per A)
2.000
-
3.000
NA
2.000
2,000
-
-
I/ 2 500
J./ 1,000
{' °>°°
L1 1,000
X 2,000
6,000
3,000
3,000
4,000
X 1.500
X 1,500
X 4,000
X 2,000
4,000
X 1,000
Owne r
Mich
G-W
Monitor
Mich.
Mich.
Mich.
G-W
Buckeye
Co-op
Co-op
Co-op
Co-op
G-W
G-W
G-W
G-W
G-W
G-W
G-W
G-W
G-W
G-W
Seepage
rate
(m/dayl
1/16
1/16
1/16
1/16
1/16
-
I/ 16
1/16
1/16
1/16
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
1/4
Severity
Evaporation- of Consohdatio
precipitation winter possibilities
(inches)
30-28
30-28
30-28
30-28
30-28
30-28
30-28
30-28
29-20
29-20
29-20
29-20
54-14
54-14
54-14
54-14
54-14
54-14
54-14
54-14
53-14
53-14
53-14
Severe
Mod
Severe
Seve re
Severe
Severe
Mod
Mod
Severe
Severe
Severe
Severe
Mod
Mod
Mod
Mod
Mod
Mod
Mod
Mod
Mod
Mod
Mod
X
X
X
X
X
X
X
X
X
X
X
X
X
X
l Beet
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Model plant
. 5 Ib.
BOD
V Base 1977
L H
L L
L H
L H
L H
-
L
L
L
L
L
L
H
H
L
L
L
L
H
H
L
mancial ar
Zero dis
charge
1977
H
L
H
H
H
-
L
L
L
L
M
M
H
H
M
M
M
M
H
H
M
lalysis
Model
2
3
2
2
2
12
12
6
15
6
11
10
4
11
6
6
6
5
10
6
-------
Table VI-6 (continued)
Region HI (con' t)
Mitchell
Ovid
Tomngton
Hereford
Good land
Re ion IV
Idaho Falls
Garland
BUlmgs
Twin Falls
Lovol
Worland
Mini Cassia
Delta
Sidney
Toppenish
Nyssl
Nampa
Uosee Lake
Capacity
(TPD)
2,240
2,760
3,034
6,493
3,400
4,200
2,550
4,280
2.235
1,900
6,725
1,500
4,000
4,050
6,575
9,050
10,500
Date
built
1920
1926
1926
1964
1968
1903
1903
1906
1916
1917
1917
1920
1925
1937
1938
1942
1953
Mumc-
Cam- ipal Zero
paiEn sewage Now
(days)
114
119
110
85 X
129 X
no
180
166 2/
115 2/
165
145
110
80
140
185
125
120 X
185 X
Cur re
Dt status
Calculated needs l^and
No Recycle Con-
Type
plant
N
N
S
N
N
S
S
S
5
N
S
N
S
N
N
S
N
S
re-
cycle Flume
X
X
X
X
X
X
X
X
X
X
X
X
X
Con- denser
denser cool
X X
X
X
X X
X
Ponds
(acres)
98
126
233
273
176
273
141
106
283
46
215
287
315
Plant
(acres)
43
46
49
55
45
55
42
39
50
36
54
54
61
Total
(acree)
141
172
282
328
221
328
183
145
333
82
269
341
376
Owned
icres)
402
127
200
200
80
164
237
246
200
211
100
250
200
219
Avail-
able Cost
(*per A)
X 1,500
1,000
SOO
1,000
2,000
4,000
X 1,000
X 600
1,000
X 1,000
600
3.000
1,000
Owner
G-W
G-W
Holly
U-l
U-I
G-W
G-W
Holly
Amal
Holly
HoUy
U-I
Amal
Seepage
rate
(in/day)
1/4
1/4
1/4
1/4
1/4
1/4
1/4
W4
1/4
1/4
1/4
1/4
1/4
1/4
Evaporation-
precipitation
( inches )
53-14
53-14
53-14
41-12
41-12
41-12
41-12
41-12
41-12
41-12
41-12
41-12
41-12
41-12
Severity
of
winter
Mod
Mod
Mod
Severe
Severe
Severe
Severe
Severe
Severe
Severe
Severe
Severe
Mod
Mod
Consolidation
Possibilities Continuity
X X
X
X
X
X
X
x
X
X
X
X
X X
X
X
Model plant f:
.5 Ib.
BOD
Base 1977
H
L
L
L
L
L
L
H
H
L
H
L
L
L
inancial ana
Zero dis-
charge
1977
H
M
M
L
J.
L
L
H
H
1,
H
L
L
1.
lysis
Model
1
6
6
15
8
9
9
5
5
9
4
14
9
9
-------
Table VI-6 {continued)
1-Unt Location
H* i/i on V
Ilrttoravta
Sprni klea
Hamilton City
Santa Anna
I ra< y
CUrksburg
Woodland
Hrawley
Mendota
Chandler
Totals
-' Assumed 1/16
t-l
(TPD)
4,800
5,500
2,500
1.851
4, 500
4,500
3, 100
3,300
6,500
4,400
4,500
seepage ther
}J N - Straight
S - Steffen
Date
built
1897
1899
1906
1912
1917
1917
1935
1937
1947
1963
1966
Munic-
Cam- ipal
nann sewaie
(days)
200
200
145
175 X
236
200
142
200
105
200
200
5
Zero
now
X
X
X
X
X
X
X
X
11
Current .tatu. Calculated need. Land ' ' Model plait ll.ai.cial' anal..,.
No Recycle Con- Severity j Jb Ztrn'dis
Type re- Con- denser Avail- Seepage Evaporation- of Consolidation BOD* charge Model
plant cycle Flume denser cool Ponde Plant Total Owned able Cost Owner rate precip;tation vintet pooibilities Continuity Base H77 1977 no
(acres) (acres) (acres) (acres) ($ per A) " ( in/day) ( meats) ' ~ " > ^
N
S
N
S
S
N
N X 238 50 288 175 3,000 Co-op 1/4 6J g
N XX X 262 58 320 640 X Holly Q fcj
S H 13
N
6 20 10 13 16
efore land not available.
-------
From this analysis the 10 plus factors need to be weighed against the
3 minus factors. Those zero factors, that is like the model, do not need
to be adjusted. The most serious negative factor is the "maybe" impact
of the model financial analysis for zero discharge and indicates a "maybe"
closure but this is offset by several positive factors:
a.. Capacity larger than model.
b. 125 day campaign compared to models 115 days.
c. The 467 acres owned where 210 needed acres are indicated
as a definite and strong plus.
d. Its pending co-op ownership would indicate a strong plus as
the grower owners would want this plant to continue,
e. Bay and Gerring, and Mitchell are the nearby plants and if a
consolidation were to occur, Scottsbluff would be one of the
surviving plants because of its size, land and longer campaign.
f. Steffen House extends campaign by a few days.
On the basis of this analysis, Scottsbluff is a strong candidate to with-
stand the economic impact of zero discharge or a low probability of closure.
The same sequence of analysis was used for determining the impact on each
of the 52 plants of the industry to plant closings and loss of beet sugar pro-
duction resulting from the alternative effluent limitation guideline conditions.
At the end of the 1972-73 campaign, five plants have hookups with munic-
ipal systems, 11 plants have waste water treatment facilities and are con-
sidered zero discharge. One plant has closed. Therefore, 36 remaining
plants were in the closure analysis.
The first condition considered was the baseline. This case assumes no
changes or additions to the water effluent standards. These projections
purport to show normal attrition.
The next condition was . 5 pounds BODc, per ton processed or land available
and zero discharge in 1977. The land available alternative assumes that if
a plant has land available for complete water treatment under the EPA land
formula, owned and contiguous to the beet factory itself, it must achieve
zero discharge to the surface waters in 1977. If such land is not available
according to the EPA formulae (see Chapter V) then the plant shall achieve
or maintain a discharge of . 5 Ibs BOD per ton of beets sliced by 1977 and
zero discharge by 1983.
For the third condition for which conclusions have been drawn regarding
plant closure is zero discharge by 1977 without exception. These numbers
are not additive to those in the above condition but deal only with the zero
requirement for 1977.
VI-20
-------
It should be noted that a third alternative is zero discharge in 1983.
However, with the information now available, it seems likely that the
estimates of closing for 1977 will hold also for 1983. However, the
additional time might allow new technology to enter or the coops to "get
off the ground," which might reduce this estimate.
Table VI-7 summarizes the estimated ranges of closures under the
various conditions. Under the base case it is estimated that two to six
plants may close. Under the second condition (. 5 or land available) the
incidence of closure is higher. Adjusting for the base situation, it is
estimated that four plants have high probability of closure due to pollu-
tion control.
Under imposition of zero discharge standards, it is estimated that
seven to 17 plants may close due to pollution control.
Computation of the estimated ranges of closure is based upon adjusting
out the base cases and accounting for the high and maybe probability estimates.
The ranges purport to be the least number of closings due to pollution con-
trol and the most due to pollution control.
Table VI-8 summarizes the estimated closures in terms of plant numbers
and estimated production tonnage. Under the first condition, the closing of
4 to 10 plants representing 4 to 15 percent of production is estimated (Table
VI-8). Under the third condition 7 to 17 plants are predicted to close
representing 8 to 26 percent production. The tonnage under either case
would be nearly offset by the three new beet sugar plants being constructed
in Minnesota and North Dakota. These three new plants, programmed to be
zero discharge operations will add almost 11 percent to the current capacity.
It is likely that consolidation of plants in some of the areas of shutdown
will occur. Thus the production of the surviving plant may increase to
offset partially the production of closed plant. This seems most likely
in Region III, the Western Plains. However, consolidation will not offset
the anticipated closings and losses expected in Michigan, Region I. A new,
larger type plant with complete water treatment facilities may be expected
to replace the plants in this impacted area but no evidence of this has been
observed.
VI-21
-------
Table VI-7. Closure probabilities under different water pollution control conditions
Region I
Region II
Region III
Region IV
Region V
Total
Range of Probability
High
Base
Total
Base
Maybe
Previous
Total
High
-
1
1
I
2
2
-
2
_
+4
-
6
Base Case
Maybe Low
5
4
3 10
1 9
_- _2
4 30
2 Minimum
6 Maximum
. 5# BOD
High
3
-
2
2
-
7
7
-3
4
+8
-
10
"77 or Land Availability
Concept
Maybe Low
2
4
4 8
1 8
1 1
8 21
4 Minimum
10 Maximum
Zero
High
5
-
5
2
T
12
12
- 5
7
+ 3
+ 8
- 1
17
Discharge '77
Plants
Maybe
-
3
3
1
i
8
for all
Low
-
1
6
8
_J
16
7 Minimum
17 Maximum
-------
Table VI-8. Net estimated production effects 01 c^o^re due to pollution control
Region I
Region II
Region III
Region IV
Region V
Total
hH
1
CO
OJ
Base Case .5 Ibs. BOD '77 or
Lost Total Losi-
Min. Max. beets beets Percent Min. Max. betts
000 Tons 000
3 780
5 1,685
_
- -
1 219 5,257 4.2 1 275
4 1,056 5,257 20.1 2 542
1 120 9,075 1.3 - 275
2 395 9,075 4.4 2 644
_
1 682
2 339 25,369 1.3 4 1,330
6 1,451 25,369 5.7 10 3,553
Land Availability Zero Discharge All Plants '
Total
beets
Percent Min.
Tons
2,
2,
2,
2,
5,
5,
9,
9,
5,
25,
25,
701
701
617
617
257
257
075
075
719
369
369
28.
62.
-
-
5.
10.
3.
7.
11.
5.
14.
8 5
4
-
3
2 1
3
0 1
1
-
9
2 7
0
Lost
Max. beets
000
1,685
5 1,685
-
3 1,812
275
7 1,996
275
1 369
1 682
2,235
17 6,544
Total
beets
77
Per-
cent
Tons
2,
2,
2,
2,
5,
5,
9,
9,
5,
25,
25,
701
701
617
617
257
257
075
075
719
369
369
62
62
69
5
37
3
4
11
8
25
.4
.4
_
.2
.2
.9
.0
.0
.9
.8
.8
-------
D. Employment Effects
Beet sugar plants do not employ a large labor force for the size of their
output measured in dollars or tons. The average plant will employ 50
people on a full time year around basis and approximately 200 full time
people on a seaonsal basis during the campaign.
These employees are relatively unskilled and this employment is not
their primary source of income. Many of these workers are fs rmers
working during the off-farm season. On the other hand the full time
workers are semi-skilled and skilled and this work is their major source
of income. Because of their skill, however, they are believed to be
employable in other industries in beet plant areas.
It is estimated that the range of displaced employees would vary from
a minimum of 200 full time and 800 seasonal employees to a maximum
of 850 full time and 3400 seasonal on a national basis. The primary
impacted area is Michigan where the likelihood of other industrial em-
ployment is possible. The Western Plains is also an impacted area but
it too should be able to absorb this work force.
It does not appear that the employment impact or effect of displaced or
terminated employees in this industry would be a major problem.
E. Community Effects
The community effects of closures are more to be felt by community
through the growers than through the employees. Each plant represents
about 300 growers that will be affected by a shutdown and loss of beet
outlet.
As pointed out for Region III, this impact may not be great if the closing
of one plant means its capacity and processing are picked up by a nearby
plant. However, if this does not occur, it simply means the loss of beets
as a profitable crop and the need to switch to lesser value crops, which will
mean fewer dollars circulating in the respective communities.
The attraction of sugar beets to growers is not hard to explain. Table
VT-9 shows the net return to management for the U.S. is $55.00 per acre
of beets grown. Compared to income from other crops, sugar beets rank
high. However in Region I, the beet returns are low and not so relatively
to other crops.
VI-24
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Table VI-9. Returns costs and profits per acre of sugar beets planted
by regions, 1968
Region
I
Production
Beet acres per farm
Yield per planted acres
(tons)
Returns
Sale of beets
Sugar Act
Hauling allowed
Sale & use of beet tops
Total Returns
Costs
Direct costs
Indirect Costs
Total direct & indir
Total Rent &c Interest
Costs exclusive of
management
Management income
40
16
$216
43
3
262
139
37
. 176
57
234
28
. 2
.4
. 0
.0
-
. 0
.0
. 0
. 0
.0
.0
. 0
. 0
Region
II
125.
13.
$166.
29-
2.
1.
198.
96.
22.
118.
27.
145.
53.
5
0
0
0
0
0
0
0
0
0
0
0
0
Region
III
84.
16.
$237.
38.
1.
14.
289.
148.
35.
183.
54.
237.
52.
5
8
0
0
0
0
0
0
0
0
0
0
0
Region
IV
71.
17.
$277.
45.
1.
15.
338.
219-
42.
261.
14.
275.
63.
0
6
0
0
0
0
0
0
0
0
0
0
0
Region
V
191-
21.
$315.
48.
9.
4.
376.
210.
45.
255.
58.
63.
4
5
0
0
0
0
0
0
0
0
0
0
U.S.
81.0
17.2
$255. 0
42.0
3. 0
9-0
309-0
164. 0
36. 0
200. 0
53. 0
253. 0
55. 0
Source: USDA, ASCS Sugar Division.
VI-25
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In addition to returns per acre, there are benefits to soil where beets are
used in a crop rotation. Because the sugar beet is deep rooted, it is a
good crop to alternate with shallow-rooted crops needing heavy fertilization.
The beets extensive root system draws moisture and plant nutrients from
as deep as 4 to 5 feet, in well drained soil, thereby benefiting from much
of the fertilizer left by the shallow-rooted crops. _'
Another community loss is the tax base loss that a beet sugar plant with
book value assets of 3 to 10 million dollars would have in a small community.
Again the impact is spread to isolated communities involving 4 to 17
total plants. The greatest impact being in Michigan where other indus-
trial opportunities may be present.
One new element, however, with community overtones is just now be-
cominr present. This is the fact that some impacted and possibly closing
plants are owned cooperatively by newly formed groups. Such groups
have pledged somewhat over $100 per beet acre by cash or loan to
initially finance the take over of the beet companies. The loss of a plant
essentially financed by a mortgage on the farm would have serious con-
sequences on these agricultural communities in Colorado, Nebraska,
Wyoming, Minnesota and North Dakota.
F. Balance of Payments Effects
With the implementation of discharge controls, it has been shown some
eight to 25 percent of the beet sugar capacity would probably close. Were
this to happen the allocation of production and making of sugar would be shifted to
(a) Other beet sugar plants
(b) Cane sugar production, or
(c) Foreign raw sugar imports.
If a or b did not happen due to any number of factors of weath'er or lack
of availability of other production facilities, then the increase of foreif i
imports of raw sugar would adversely effect the balance of payments. This
would be of particular concern at present since every effort is being made by
government to maintain the trend toward improvement in balance of payments.
However, with the construction of three new beet sugar plants, the potential
closures should not materially increase raw sugar imports.
_L' "The Sugar Beet Industry in California," Circular 562, Agricultural
Publication, U of Calif., Berkeley, Calif., 94720
VI-26
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VII. LIMITS TO ANALYSIS
A. General Accuracy
Data gathered were of secondary nature drawn from previously published
reports., from private sources, contracted government studies and
regularly reported government services. Personal interviews of key
personnel of sugar beet companies and trade associations, together with
field trips into most sugar beet areas, were conducted.
Throughout the study an effort was made to evaluate data and other in-
formation used and to update these material, wherever possible. Data
were reworked so as to make its presentation more clear in light of the
purpose of this report and to the use that is intended.
As a result of the data and the step by step methodology by which the
conclusions are drawn, this analysis represents a systematic evaluation
of the impact of effluent limitation guidelines on the beet sugar industry.
However, it must be recognized that it is not possible to be clairivoyant,
and the estimates represent the best possible informed judgments given
the limitations of time and budget.
B. Possible Range of Error
The instructions of the contract required that the contractor use the
cost data provided by EPA under Supplement A Cost Analysis and to
comment on these costs and technology. The following items indicate
some of the range of error that is possible based on the use of the data
supplied by EPA and the basic financial data.
Different data series and different sections of the analysis will have
different possible ranges of error. Estimated error ranges as an
order of magnitude are as follows:
VII-1
-------
Error Range
1. For number, location, capacity, age and
processes of plants 0.2%
2. Price information on products, materials
and equipment +5.0%
3. Sunk investment
4. Plant operating costs _+10.0%
5. Land Values $500 - $4,000 acre
6. Incremental pollution control costs +20.0%
7. Plant Closures +15.0%
From EPA provided formulae, the net sizes of time, flume and condenser
ponds were calculated. These are net acreages. It seems likely that
a margin or buffer zone acreage should be added to the net area in the
order of 20 percent. This would account for the following conditions:
(a) Because of maintenance requirements, ponds cannot be
built in one clear cut size and place. Barriers and baffels
are required to restrict or direct flow. Borders need to be
kept at the edges for maintenace equipment to operate
and larger ponds need to be sectionalized so that ponds maiy
be rotated in use for clearing and maintenance.
(b) All land at a plant site is not equally useful for ponding due
to topographical differences. Net pond sizes will not always
fit the gross acreages.
With the control of flume water through ponds, there is a parallel
problem of and cost for solid waste disposal.
EPA's "Supplement A Cost Information" provides for an annual flat
fee for pond dredging of $15,000 per plant. For ponds 20 to 40 acres,
this dredging cost is probably adequate but likely does not reflect the
final disposal (hauling) of the solid material. The separating, loading,
hauling, dumping and spreading of solids on the land or into a land fill
VH-2
-------
represent a significant effort. ' Dreding larger ponds of 200 and more
acres is believed to represent a cost well beyond $15, 000 annual esti-
mate. Some beet plants have projected future costs in excess of $100,000
per year to remove solid wastes plus the cost of a landfill site for disposal
of the solids. No attempt is made here to quantify this factor or to eval-
uate more precisely this economic impact.
While not directly a part of water pollution control, odor problems in
beet suga r plants are directly associated with waste water control. As
waste waters were discharged with little or no treatment, odor problems
were also largely discharged.
The advent of water containment for treatment and control creates an
odor source. Waste water from beet plants, particularly the flume or
transport water when impounded in deep ponds or lagoons under anaerobic
conditions, promote the growth of sulfur reducing organisms and thus the
generation of hydrogen sulfide and other gases. These obnoxious gases
can be partially controlled or eliminated by maintaining aerobic conditions
in shallow lagoons 1. 5 to 2 feet deep or by the expenditure of energy for
blowing air through the pond with aerators.
Costs provided by EPA do not include aeration equipment, which may
become necessary if deep ponds are used rather than shallow evapor-
ation ponds.
C. New Technology
Two new technologies, not evaluated, which have potential impacts on
waste water disposal are in the early stages of consideration or use by
the industry. One is the condensation of sugar vapor by compression
rather than by cooling in a condenser. This technology, not fully de-
veloped for application to beet sugar, is of interest, because it elim-
inates the large volumes of water for condenser cooling and further the
entrainment of sugar in the cooling water.
The principle involves the use of a compressor for compressing the
sugar vapor into liquid. Energy is required to accomplish this but a
byproduct of the process is that the heat generated in the compressing
phase can be used as heat energy in the total beet sugar extraction process.
_' "Separation, Dewatering and Disposal of Sugar Beet Transport Water
Solids," by N. Fordyce and A. M. Cooley, Phase I, Office of Research
and Monitoring, EPA, Washington, D.C., 20460
VII-3
-------
A second technical change in the processing of beet sugar is being used
by two plants now and may find wider use in the future. This involves
extracting the sugar from the beet and storing the raw sugar juice for
refining at a later time. The key appeal for this processing is a potential
full or higher refining capacity by using the days beyond the standard
slicing and extracting campaign.
A somewhat analogous processing is found in the cane sugar industry.
The critical part in beet sugar processing is the ability to store "raw
juice" without loss of quality. Storage tank designs and liquid surface
coverings have apparently provided solutions for this quality problem.
The application of the latter processing change seems to indicate a further
reduction in gross water use, thus reducing the total effluent discharge
and possible improvements in plant economics. However, the economics
remain questionable in the minds of some industry management personnel.
D. Critical Assumptions
A key assumption concerns the action of the Department of Agriculture
in response to maintaining the health of the beet sugar industry. The
Secretary of Agriculture can act on certain conditions which include
maintaining orderly marketing and supply processes. Further, under
the broad terms of the Sugar Act there are provisions to assure an
equitable division of returns from sugar between beet and cane growers,
farm workers and processors. However, it is unknown as to whether or
how the Secretary would act in response to added costs to the processors
arising from pollution control.
It has further been assumed that the growers would not be willing to take
a lower beet price for their beets to offset these additional costs. In view
of the buyer-seller conflict now present in beet purchase contract nego-
tiations, this seems to be a reasonable assumption. However, grower
response in face of pending and real plant closure possibilities may change
and they may accept lower beet prices, in terms of real price adjustments
or indirectly through plant ownership.
VII-4
-------
It was also assumed that none of the 36 plants not now at zero discharge
or on municipal hookups would make municipal hookups. This assumption
was discussed and verified with industry personnel, but when firms actually
face the need for outlays in pollution control facilities and/or communities
become aware of potential plant closures, municipal hookups may become
viable alternatives.
It was assumed that inflationary effects on costs and returns will be
proportional. However, the index of sewer construction is rising at a
more rapid rate than GNP or the wholesale price index. If this continues
(and the widespread imposition of pollution standards would suggest an
ever faster rise) investment in pollution control by 1977 or 1983 may have
even larger relative impacts.
E. Remaining Questions
Many questions remain regarding seepage, cost of land, total costs of
pollution control and incremental investment pollution abatement facilities
in addition to that already in place. Additionally, the evaluation of the
above listed assumptions should be considered. Another important issue
is how will the co-ops fare during these next few formative years of their
existence. They not only have to cope with starting to manage large
businesses with the normal attendant business problems, but also with
the added concerns of financing pollution control equipment. The ability
of co-op management to handle these problems is particularly important
with regard to the 1977 alternative of zero discharge.
VII-5
-------
BIBLIOGRAPHIC DATA
SHEET
4. Title and Subtitle
1. Kcport No.
EPA 230/1-73-002
3. Recipient's Accession No.
'Economic Analysis of the Proposed Effluent Limitations
Guidelines for the Beet Sugar Industry
5. Report Date August>
(Date of completion}
6.
7. Author(s)
Milton L. David, Robert J. Buzenberg
8. Performing Organization Kept.
No. 11 4
>. Performing Organization, Name and Address
Development Planning and Research Associates, Inc,
P. O. Box 727
Manhattan, Kansas 66502
10. Project/Task/*ork Unit No.
Task Order No. 1
11. Contract/Grant No.
Contract No.
68-01-1533
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S.W.
Washington. P. C..
13. Type ot Report & Period
Covered
Final Report
14.
15. Supplementary Notes
16. Abstracts " ^ __^
The beet SLjgar industry, SIC 2063, is composed of 52 operating plants owned by 10
firms. Beet sugar plants are old \viih 38 plants built prior to 1933. Nineteen plants
nave 55 percen. of industry capacity. Estimated after-tax return on sales range from
zero up to four percent depending on plant size and campaign length. Prices are
indirectly controlled under the Sugar Act by adjustments in domestic production
acreage and impact quotas.
Imposition of effluent lin Lta1 ions are not expected to raise prices because large portion
of the capacity is a: a near zero discharge level. Ultimate price responses, however,
are believed to depend on the Secretary of Agriculture' s action on quota adjustments.
Potential closures due to imposition of zero discharge standards are estimated to
be 7 to 17 plants (8 to 26 percent of beet sugar production). A discharge of .5 pounds
Key Words and Docjrrer.t Analysis. 17o. Descriptors
Pollution, water pollution, industrial wastes, sugar beets, economic, economic
analysis, discounted cash flow, demand, supply, prices, fixed costs, variable
costs, corr.manity, production capacity, fixed investment.
7b. Identifiers/Opcn-Enaej Terms
0s- A M !». !.!( :
05 Behavioral and social sciences, C-cconomics
Q^ p,i0i0gicai arcj medical sciences, "-{-food
National Technical Information Service
Springfield, Virginia ZZ151
21.
20. M> ur.r,
135
1 22.
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