EPA-230/1-73-012
OCTOBER, 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
Fruit & Vegetable Processing Industry
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 2046O
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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, .D.C. 20460
The document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151
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ECONOMIC ANALYSIS OF
PROPOSED EFFLUENT GUIDELINES
FRUIT AND VEGETABLE PROCESSING INDUSTRY
Donald J. Wissman
David L. Jordening
Samuel G. Unger
To
Environmental Protection Agency
Contract No. 68-01-1533
Task Order No. 4
October, 1973
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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.
i-Cli /.GII.'CI
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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
("ETA"). 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 304(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 import was submitted in fulfill-
ment of Contract No. EPA -230/ 1-73-0 12, Task Order No. 4, by Development
Planning and Research Associates, Inc. Work was completed as of
October, 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 anv such proceeding
as a statement of EPA's views regarding the subject industry.
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CONTENTS
I. INTRODUCTION
A. Scope
B. Data Sources
II. INDUSTRY SEGMENTS II-1
A. Characteristics of Fruit and Vegetable Canning,
Freezing, and Dehydrating Firms II-l
1. Size and Number of Firms II-l
2. Degree of Integration II-4
3. Industry Diversification and
Specialization II-6
4. Concentration of Fruit and Vegetable
Firms II-7
5. Total Employment in the Industry II-9
B. Number of Plants and Employees in Each
Segment II-11
C. Characteristics of Fruit and Vegetable Canning,
Freezing and Dehydrating Plants 11-12
1. Number and Location of Plants 11-12
2. Size of Plant 11-14
3. Single Plants vs Multiplants 11-16
4. Number of Plants by Type of Product 11-16
5. Number of Products by Type of Plant 11-19
6. Age of Plants and Level of Technology 11-19
7. Plant Efficiency 11-22
D. Characteristics of Specific Product Segments
of the Industry 11-25
1. Citrus 11-25
2. Apples 11-35
3. Spinach 11-43
4. Asparagus 11-46
5. Potatoes 11-48
6. Dehydrating Plants 11-48
7. Model Plants 11-50
E. Specific Products Relative to the Industry 11-51
1. Specific Vegetable Products Rela-ivc
to the Canned Vegetable Industry 11-51
2, Specific Vegetable Products Relative
to the Vegetable Freezing Indus tr> 11-52
3. Specific Fruit Products Relative tc,
Total Packs of Canned t ru;t ?-id
Fruit. ,1 ui> '.- s
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CONTENTS (continued)
Page
4. Specific Fruit Products Relative to
Frozen Fruit Industry 11-52
5. Specific Products Relative to the
Dehydrating Industry II- 54
F. Significant Impacts In the Industry 11-54
1. Capacity of Low Cost Producers
Relative to High Cost Producers 11-54
2. Factor Dislocations Within the Industry 11-55
3. Reasons for Dislocations 11-56
4. Narrowing the Study Scope 11-57
III. FINANCIAL PROFILE
A. Model Plants by Segment III-l
Potatoes III-2
Citrus III-2
Apples III-4
Spinach III-4
Asparagus III-5
B. Model Plant Configuration III-5
1. Utilization III-5
2. Description of Cost and Revenue
Components III-5
3. Summary of Model Plant Data 111-23
4. Annual Profit before Taxes 111-25
5. Annual Cash Flow III-30
6. Market Value of Assets 111-30
C. Comparison of Model Plant Data with IRS Data 111-33
D. Ability to Finance New Investment III-35
IV. PRICING EFFECTS IV-1
A. Price Determination IV-1
1. Demand IV-2
2. Supply Characteristics of the
Fruit and Vegetable Industry IV-31
3. Pricing IV-33
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CONTENTS
V ECONOMIC IMPACT ANALYSIS METHODOLOGY V-l
A. Fundamental Methodology V-l
1. Benefits V-6
2. Investment V-7
3. Cost of Capital - After Tax V-7
4. Construction of the Cash Flow V-8
B. Price Effects V-9
C. Financial Effects V-10
D. Production Effects V-ll
E. Employment Effects V-12
F. Community Effects V-12
G. Other Effects V-12
VI POLLUTION CONTROL REQUIREMENTS AND COSTS VI-1
A, Categories of Canned and Preserved Fruits
and Vegetable Plants VI-1
B. Effluent Limitation Guidelines VI-2
C. Pollution Control Requirements VI-5
D. Pollution Control Costs VI-S
E. Status of Wastewater Treatment VI-8
F. Relationships of Model Plants to Industry
Categories VI-IS
VII IMPACT ANALYSIS Vii-i
A. Price Effects VII-2
B. Financial Effects VII-5
C. Production Effects VII-15
Baseline Closures VII-18
Plant Shutdowns Resulting from
Pollution Control Guidelines VII-20
Total Production Lost Due to Guidelines VII-22
D. Employment Effects VII-23
E. Community Effects VII-2 J
F. Other Effects VII-24
G. Summary of Impacts VII-25
VIII LIMITS OF THE ANALYSIS VIII-1
A. General Accuracy VIII-1
B. Possible Range of Error VIII-2
C. Critical Assumptions VIII-3
D. Remaining Questions VIII-4
APPENDIX
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ECONOMIC ANALYSIS OF PROPOSED EFFLUENT GUIDELINES
FRUIT AND VEGETABLE PROCESSING INDUSTRY
I. INTRODUCTION
The purpose of this study is to analyze the economic impact of the cost
of proposed effluent abatement requirements on selected portions of the
Fruit and Vegetable Processing Industry. These requirements (effluent
limitation guidelines) are being developed by EPA pursuant to the Federal
Water Pollution Control Act Amendments of 1972.
A. Scope
The industrial pollution abatement impacts that are considered in this
report include those applicable to selected portions of the following
Standard Industrial Classifications:
SIC 2033 Canned Fruits, Vegetables, Preserves, Jams
and Jellies
SIC 2034 Dried and Dehydrated Fruit and Vegetables
SIC 2037 Frozen Fruits, Fruit Juices, Vegetables and
Specialties
Within these broad industry groups, emphasis is focused on the pro-
cessing of five specific products: (1) citrus, (2) apples, (3) potatoes,
(4) spinach, and (5) asparagus. It is understood that these products
are but a limited cross-section of products in the industry. However,
a principal objective of this analysis was to intensively study specific
types of operations in relation to water effluent characteristics and
control requirements.
The impacts considered herein are expected to apply directly to some
operations, but must be considered on a "prorated" basis for others.
Complications are encountered when dealing with specific products due
primarily to the wide range of product combinations, product forms
and varied processes which, in fact, exist in the industry. For example,
processed apple products include sliced apples, apple juices, apple
sauce and cider, some of which are canned, frozen or dehydrated.x
Apples may also be processed in conjunction with other fruits and/or
vegetables.
1-1
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Chapters II-IV present characteristics of the fruit and vegetable industry
with a focus on the specific products indicated above. Impact analyses
are presented in Chapter VII for citrus and apple products. A prelim-
inary impact analysis of the potato processing industry is presented
in Appendix A. Insufficient industry data was available for model plant
analysis. Pollution control costs for spinach and asparagus were not
available as expected, thus an impact analysis was not possible. Basic-
industry information of these segments is presented, however.
B. Data Sources
The most commonly used and in many cases the most readily available:
source of industry information including employment, location, value of
shipment and specific product data is the ("ensus of Manufactures. In the
rase of the fruit and vegetable canning and freezing industry, an additional
source is also available. This latter source is The Pi rectory of the
Canning, Freezing, Prese r'/mg Industrie s published by Edwa rd E. Judge
arid Sons, Inc. The Directory contains data concerning plant location,
volume, specific products, and type of plant and is the Directory generally
recognized by industry. Both sources will be utilized throughout the report.
The problem that is encountered is that there is not perfect correspondence
or relationship between these two data sources. For example, the following
summary depicts the number of fruit and vegetable canning and freezing
plants contained in the two references. Projections of number of plants
based on the two sources is also presented in Table II-1.
1-2
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Table II-1. Numbers of fruit and vegetable canning and freezing
plants in the United States
Number of Plants
1947 1954 1958 1963 1967 1970 1972 1975 1980
From Census of Manufacturers
Canners 2,265 1,758 1,607 1,430 1,223 1,165 1,990 800
Freezers 291 266 426 650 608 580 545 505
Total 2,556 2,024 2,033 3, 080 1,831 1, 745 -- 1,445 1,305
From Judge's Directory
Canners -- -- -- -- -- 841 828 715 578
Freezers -- -- -- -- -- 176 185 165 153
Combination -- -- -- -- -- 171 181 145 117
1, 188 "l,20 5 1,025 848
1-3
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As portrayed in the above summary, there is a total discrepancy of
537 plants (1,745 - 1, 188) in the 1970 data. The lack of 1972 census
data prevents comparing current plant numbers from the two sources.
There are several possible explanations for this data reporting dis-
crepancy, however, it is believed that one factor can explain most of
the differences. The singularily most important factor is believed to
stem from the fact that census data includes all plants including the
extremely small plants employing only one employee vvhile many of
these plants may have been deleted from Judge's directory. While
there is no way to completely reconcile the two data sources given time
and budget considerations, a few brief explorations were employed to
explain the discrepancy.
A comparison of Judge's plant listings by number of plants by state
with the number of plants by state with 20 employees or more as
reported by census eliminates much of the data discrepancy which suggest
that some of the small plants have been deleted from Judge's directory.
An additional comparison between number of plants by employment size
from census with number of plants by average employment according to
Judge again reveals that the greatest disparity exist in the number of
small processing plants as reported in the two sources. This again
would seem to indicate that the difference can in large part be explained
by the omission of some very small plants from Judge's directory.
In view of the fact that the Directory contains current data on numbe r
of plants, location of plants and specific products that can not be ac-
quired from census Judge's directory must be utilized. The acquisition
of other data, i.e. , value of output, concentration ratios and other data,
must be taken from census publications.
While the data discrepancies can not be reconciled and as such presents
a few difficulties, it is largely inescapable at the present time. Number
of firms and employment estimates from the two sources are presented
in a later section.
The remainder of this chapter is devoted to a discussion of the industry
under consideration utilizing several taxonomies or segmentations.
1-4
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II. INDUSTRY SEGMENTS
A listing of fruit and vegetable canning and freezing plants compiled
from the industry directory contains a total of 1,205 commercial estab-
lishments. An additional 178 fruit and vegetable dehydrating plants are
reported in the census of manufacturers which brings the total number
of plants to be considered to 1, 383. In view of the fact that most of these
plants have diversified product lines as well as a diversity of production
processes, there is a great need to segment the industry using various
categories or segments. It is not sufficient, at least in the terminal steps
of the report, to talk in terms of a typical apple processor or a typical
freezing plant until the specific characteristics of these plnnts have been
explored, i.e. , characteristics by type oi product, characteristics by
type of process and characteristics by type of firm. There is a great
variance in what might be called the ''typical" plant.
to
For this rei son it is desirable to devote a section of the report
detailed industry segmentation. This is the objective 01 this section
which presents various characteristics of the fruit and vegetable canning,
freezing, and dehydrating industries. The first major section is devoted
to nrm and industry characteristics while later sections discus-; specific
olar.t and product characteristics.
A. Characteristics of Fruit and Vegetable Canning, Freezing.
and Dehydrating Firms
Fruit and vegetable canning, freezing, and dehydrating firms vary great-
ly in size, organizational structure, product mix, and degree of diversi-
tifaction and integration. The firm and industry characteristics considered
in this section include number and size of firms, degree of integration,
concentration, employment and payroll.
1. Size and Number of Firms
a. Canners
A detailed analysis was made of the volume packed (in terms of cases of
canned product) for 598 canners. It should be emphasized that this analysis
is in terms of physical volume rather than gross sales. To avoid any
possible disclosure of individual operations, only industry totals for seven
volume categories were considered. Table II-1 indicates the number of
firms in each volume category.
II-1
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Table II-1. Size distribution, fruit and vegetable canning firms, 1970
Size Category
Number of Firms Percent of Total
(Annual volume cases
canned product)
Under 100, 000
100,000 - 250,000
250,000 - 500,000
500,000 - 1,000,000
1,000,000 - 2,000,000
2,000,000 - 5,000,000
Over 5, 000, 000
106
108
114
99
66
44
61
598
17.
18.
19.
16.
11.
7.
10.
100.
6
1
1
6
0
4
2
0
Source: The Directory of the Canning, Free/.ing and Preserving
Industries, 1970-71.
Over a third of the firms analyzed (35. 7%) would be considered small
canners with an annual pack of less than 250,000 cases. At the other end
of the range, 28. 6 percent packed over i, 000, 000 cases and would be
classed as large and 10 percent of the canners packed over 5 million
cases annually and would be considered in the very large group.
During the intervening time period (1970-1973) several existing industry
trends have been continuing, i. e. , exodus of small firms and increased
dominance and number of larger, multiplant firms. It is not possible at
this time to present a table comparable to Table II-1 for 1973, however,
several preliminary observations are appropriate. For example, an
examination of subsequent editions of Judge's Directory reveals that there
has been a net decrease of 49 (134 deleted and 85 new) fruit and vegetable
canning plants from the industry listing. This includes 134 plants that
may have discontinued operations as a result of unfavorable profit posi-
tions or other reasons and 85 new plants that have entered the industry.
It is entirely possible that some of the 134 deleted plants have not actually
left the industry but have merged with other firms or changed ownership
and/or mailing addresses. It is further possible that some of the plants
included as "new" plants actually represent previously existing plants
-that have been added to the directory for the first time. Since, however,
the trends are consistent with a priori industry information, there is
merit in including some preliminary and qualified results or observations.
II-2
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An examination and analyses of the specific characteristics of the
deleted plants reveals that 80 percent of these plants were small
processing plants and 6 percent were large processing plants, e. g. ,
less than 500,000 annual cases and over 5,000,000 annual cases
respectively.
On the other hand, if the emphasis is on firms as opposed to plants, the
listings of new and deleted firms reveal that a disproportionally large
number of the deleted plants were single firm plants. The listing of new
plants reveals that most are affiliated with multi-plant firms.
These results indicate that when Table II- 1 is updated to reflect the num-
ber of firms by annual volume, an increase in the number and importance
of medium and large firms will be reflected.
b. Freezers
Volume data were available from Z31 fruit and vegetable freezing firms.
The distribution of sizes of these firms is shown in Table II-2,
Table II-2. Size distribution, fruit and vegetable freezing firms, 1970
Size Category
(Annual volume million Ibs. )
Under 2
2-5
5 - 10
10 - 20
20 - 50
50 - 100
Over 100
Number of Firms
43
41
30
31
37
27
62
Percent of Total
15.8
15. 1
11. 1
11.4
13.7
10.0
22.9
Source: The Directory of the Canning, Freezing and Preserving
Industries, 1970-71.
Approximately 30 percent of all firms analyzed would be classed as small
freezers, with annual volume of less than 5 million pounds. However,
46.6 percent would be considered large (annual volume in excess of 20
million pounds) and 22. 9 percent would be in the very large categ.ory
with annual packs in excess of 100 million pounds.
II-3
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Procedures similar to the above were employed to ascertain recent
trends in the number of fruit and vegetable freezing firms. The results
of these investigations reveal that, based solely on number of plants the
freezing segment of the industry is in a better relative position in that
the change in number of plants indicates an increase rather than a de-
crease as was the case for fruit and vegetable canners. Twenty-four
freezers were deleted while thirty-six freezers were added to the
directory from 1970-1973, representing a net increase of twelve freez-
ing plants. Delineating the net addition by size produced inconclusive
results with no perceptable trends in number of plants by size classifica-
tion.
Segmenting the new and deleted plants by type of firm reveals that approximately
83 percent of the deleted plants are single plant firms while 50 percent
of the new firms are affiliated with single plant firms. On the other hand,
only 4 percent of the deleted plants were associated with firms consisting
of 2 to 5 plants while 44 percent of the new plants were associated with
firms consisting of 2 to 5 plants. Since the single plant firms are charac-
teristically small producers and the multiplant firms tend to produce a
larger combined total output, the results are analogous or the trends are
similar to the trends previously observed in the canning segment of the
industry, i.e., a shift in the number and importance of firms in the middle
and upper size categories.
c. Dehydrators
A comparable series, i.e. , number of firms by annual volume pack does
not exist at the present time for the dried and dehydrated fruit and
vegetable processors. One alternative and perhaps the only alternative
is to present the number of food dehydrators by employment class. This
data is available for 1967 from the Census of Manufacturers and is summar-
ized below in Table II-3. Census data concerning the number of canned
and frozen fruit and vegetable processors by employment size is also
presented in this table so as to provide insight and perspective into the
relative importance of the three industry segments.
2. Degree of Integration
There is only a relatively small amount of vertical integration in the fruit
and vegetable canning, freezing and dehydrating industries. Based on a
special canner survey by the Economic Research Service, U. S. Depart-
ment of Agriculture in 1964, it was estimated that only 8 percent of the
fruits and vegetables canned were obtained from land owned or rented by
II-4
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Table II-3. Size of fruit and vegetable processing establishments, by
number of employees, census years 1954-67.
Establishments with:
Year 1-4 5-11 20-99 100-499 5m00°e Total
employees employees employees employees employees
Number ...
Canners:
1954 '
1958
1963
1967
Freezers:
1954
1958
1963
1967
Dehydrators:
1954
1958
1963
1967
377
285
276
281
41
51
139
135
45
49
42
51
383
409
318
210
57
112
165
110
39
45
54
46
715
627
547
433
104
138
194
186
42
41
57
46
254
266
266
273
59
111
136
147
22
26
23
35
29
20
23
26
5
14
16
29
0
0
0
0
1, 758
1,607
1,430
1,223
266
426
650
607
148
161
176
178
Source: Bureau of the Census, Census of Manufactures, U.S. Department
of Commerce.
II-5
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canners. A comparable situation existed in the freezing industry-where
only 9 percent of the raw product was obtained from freezer-owned or
rented land.
Over- two-thirds of the supply of fruits and vegetables processed by
canners and freezers is obtained through contractual arrangements with
growers. Contracting with growers has provided a means whereby canners
and freezers can reduce the risk of raw product supply variations from
year to year without investing capital resources directly into farm produc-
tion. Thus, they avoid the necessity of integrating backward into produc-
tion.
Carriers and freezers also have never integrated very far forward into
wholesale and retail trade. Some large processors do maintain sales
offices in principal wholesale markets, however, brokers handle over
two-thirds of the sales of processed fruits and vegetables. A comparable
situation is believed to exist for the dried and dehydrated food processing
industry especially in the dehydrated potato industry which also makes
extensive use of contractural grower processor arrangements.
j. Industry Diversification and Specialization
While most canners and freezers operate multiple-product plants and
process a diversified line of fruits, vegetables and juices, these indus-
tries are nevertheless highly specializ.ee in the processing of fruits and
vegetables. A part of this specialization is location-oriented in that the\
are located in centers of fruit and vegetable production and another part
is equipment-oriented since specialized equipment is required.
The Bureau of the Census calculates specialization ratios for different
types of industries. These represent the ratio of sales value of al] the
primary products of the plant to its total of primary plus secondary
products.
a. Canners
In 1957, the specialization ratio for fruit and vegetable canning plants was
calculated to be 90 percent. This indicates that canned fruits, vegetables
and juices represented 90 percent of the value of gross sales of these
plants. Secondary products shipped by this industry consist mainly of
canned food specialty products and frozen fruits and vegetables.
II-6
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b. Freezers
This industry's production of frozen fruits and vegetables (primary
products) in 1967 represented 92 percent (specialization ratio) of its
total product shipments. Secondary products consisted mainly of canned
fruits and vegetables and dehydrated food products.
c. Dehydrators
In 1967 the specialization ratio for fruit and vegetable dried and dehy-
drating plants was calculated to be 94 percent. The secondary products
shipped consist mainly of canned and/or frozen food products.
Specialization ratios for the three industry segments are not available
at this time for years later than 1967.
4. Concentration of Fruit and Vegetable Firms
Local area processing concentration has little meaning to the fruit and
vegetable canning, freezing and dehydrating industries. Plants and
firms located in any region are potential competitors to those producing
the same product lines in all other regions, therefore, concentration
by value of shipments is an important consideration.
a. Canners and Freezers
The canning and freezing industry is characterized by a large number of
firms. Consequently the small firms share a very small segment of the
total market and have very little influence on industry prices and total
supply. In addition, concentration is much higher on a product than a
firm basis. Table II-4 presents canning and freezing concentration ratios
which show that the four largest companies account for 21 and 26 percent
of the value of shipments for canners and freezers, respectively. Table
II-4 also presents the concentration ratios for 1963 and 1967.
b. Dehydrators
The fruit and vegetable dehydrating industry is much smaller in size
(measured by volume of annual sales) and also has a greater degree of
concentration, i.e. , concentration by firm domination as well as areal
concentration.
II-7
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Table II-4. Percent of value of shipments accounted for by largest companies in each industry segment
00
Value of Industry Shipments
SIC Code /year
2033 (Canning)
1970
1967
1963
2034 (Dehydrated)
1970
1967
1963
2033 (Frozen)
1970
1967
1963
Total
(Million
dollars)
NA
930
1, 135
NA
134
126
NA
495
566
Percent Accounted For By
4 largest
companies
21
22
24
33
32
37
26
24
24
8 largest
companies
33
34
34
52
50
56
NA
36
37
20 largest
companies
NA
52
NA
NA
75
80
NA
55
54
50 largest
companies
NA
70
66
NA
96
NA
NA
74
70
Source: Bureau of the Census, Census of Manufacturers, U» S. Department of Commerce.
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Table II-4 presents the total value of shipments and the percent accounted
for by the 4 largest, 8 largest, 20 largest and 50 largest companies for
the three industry segments. As stated above, the number of firms is
smaller and the concentration is greatest in the dehydrating segments
of the industry. While there is considerable concentration by a few
firms, the remainder of the production is contributed by numerous small
firms.
Table II-4 also shows that for the years 1963 to 1970, there is some evi-
dence of increased importance of the larger firms within the fruit and
vegetable frozen food industry as the concentration ratio has increased
from 24'percent in 1963 to 26 percent in 1970. The reverse is true for
the canned and dehydrated segments of the industry in that the percent
accounted for by the four largest firms has declined slightly.
These trends seem to be somewhat inconsistent with the increasing number
of multiplant firms observed earlier. This, however, may not be the case
in that the concentration ratios have been presented for the 4, 5, 20, and
50 largest firms only. This represents only a small portion of the total
firms in both the canning and freezing industry. The exodus of small
plants and increasing number of multiplant firms observed earlier con-
sidered all firms even the extremely small which may explain the dis-
crepancy in the observed trends.
5. Total Employment in the Industry
The fruit and vegetable canning, freezing and dehydrating industries are
major employers of labor in the areas in which they operate. Furter,
they employ a high proportion of low-skilled seasonal workers in relation
to total employment in the industry. As a result, curtailment of these
processing industries would have an important impact on employment in
the lower income levels in the areas concerned.
a. Number of Employees
i. Canning Industry - rihe total employment in the fruit and vegetable
canning plants in 1970 was 96, 400 down from 100, 000 in 1967 and 108, 400
in 1957. A large percentage (89 percent) of all employees consisted of
production workers (1967). Only sixty percent of the plants employed
more than 20 people in 1967 compared with 57 percent in 1958. This
segment is by far the most important of the three industry segments con-
sidered herein with 54 percent of the total employment in all three indus-
try segments combined.
II-9
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ii. Freezing Industry^ - In contrast to the canning industry where total
employment has decreased, employment in the fruit and vegetable freez-
ing industry increased from 39, 500 in 1958 to 64, 500 in 1967 and to
71,800 in 1970. This represents a gain of 63 percent from 58 to 67 and
an increase of 11 percent from 1967 to 1970. Average number of em-
ployees per plant increased from 93 in 1958 to 106 in 1967, again re-
flecting increases in scale of operations. Production workers in 1967
represented 91 percent of total employment, up 3 percent over 1958.
Sixty percent of the plants employed 20 or more people. The freezing
industry employs 40 percent of the total employment of the combined
three industry segments.
iii. Dehydrating Industry - The dehydrating industry {much smaller in
terms of total employment) employed a total of 11, 100 employees in
1967 and 10,700 in 1970. Eighty-four percent of the 1967 employees were
production workers. This represents approximately 6 percent of the total
employment in the combined industry segments.
b. Industry Payrolls
i. Canning Industry - In 1967, annual payroll in the canning industry
totaled $473, 800, 000, an average of $387,000 per plant while in 1970
the total payroll was $523, 800, 000. Production payrolls equalled 79
percent of total payroll in 1967. The average annual earnings per
employee was $4, 732 in 1967.
ii. Freezing Industry - Total annual payroll in the fruit and vegetable
industry in 1967 was $295, 200, 000 and $389, 900, 000 in 1970. Produc-
tion payrolls equalled 78 percent of total payroll in 1967. Average annual
earnings per employee were $4, 576 in 1967.
iii. Dehydrating Industry - Total payroll for the dehydrating industry
was $58, 000, 000 in 1967 and $68, 700, 000 in 1970. Production workers
claimed 75 percent of the 1967 payroll.
11-10
-------
B. Number of Plants and Employees in Each Segment
One as.pect of the discussion that is of obvious importance is the number
of plants and employees in each industry segment. This information is
summarized below. The detail of these estimates are presented in greater
detail in subsequent sections. For this reason the summary is presented
below in tabular form without further supporting explanations.
Table II-4a. Number of plants and employees by industry segment
sic y
2033 (Canning)
2034 (Dried & Dehydrated)
2037 (Freezing)
Specific Products
Apples
Citrus
A sparagus
Spinach
Potatoes
Number of
Plants
1,223
178
607
144
105
60
52
103
Estimated
Number of Employees
100, 100
11, 100
64,300
14,655
10,602
7,305
7, 165
13,250
~J Number of plants and employees by SIC from 1967 Census of Manufactures
2/ Number of plants from The Directory of the Canning, Freezing and
Preserving Industries, 1972-73.
Employment estimates are based on average employment of 55, 90,
190 for small, medium and large plants respectively. These employ-
ment estimates have been suggested by personnel closely associated
with the canning and freezing industries. It is believed, however, that
these average employment estimates are somewhat low for citrus and
potato plants.
11-11
-------
C. Characteristics of Fruit and Vegetable Canning,
Freezing and Dehydrating Plants
A more convenient, readily available, and in some cases a more meaning-
ful summary is derived by segmenting the industry by plant characteristics
rather than Ly firm characteristics. This summary may be preferred in
that operating decisions are perhaps based on individual plant data as op-
posed to fi-'?ji <>ita. Operating or closure decisions will probably proceed
on a plant b,, ; . .ut L.:sis within the multiplant firms in that some plants
may share a s..i ^ro "Uonately large share of the total burden of manda-
tory pollutKr.i abatemoi.. standards and subsequently discontinue operations
while perhaps newer, more effluent and profitable plants will be virtually
unaffected.
A variety of plant characteristics including but not limited to size,
location, number, utilization and efficiency are presented in the
ensuring discussion.
1. Number and Location of Plants
A summary of the recently published inuustry directory indicates that
there are 1Z05 fruit and vegetable canning and freezing plants in the
U.S. this includes 828 fruit and vegetable canners, 196 fruit and vege-
table freezers and 181 plants that can arid freeze fruit and/or vegetables.
Table H-5 presents the total number of fruit and vegetable canners,
freezers and combination plants in the U.S. by economic region.
Table II-5 shows that all thirteen economic regions within the contiguous
48 states contain fruit and vegetable canning plants with 473 or 57 percent
located in four economic regions -- Atlantic, Upper Great Lakes, North
Central and the Pacific Southwest region. All regions with the exception
of the South Center and Southwest Plains Region also contain fruit and
vegetable freezing plants. One hundred thirty-four or 68 percent of all
fruit and vegetable freezing plants are located in the Pacific Northwest,
Pacific Southwest, Atlantic and Gulf Coast and Eastern Great Lakes Regions.
There are combination plants, i.e. , canners and freezers in all regions
with the exception of region six -- Central Plains Region. Four regions,
i.e. , Eastern Great Lakes, Lower Great Lakes, Atlantic and Gulf Coast
and the Pacific Northwest Regions, contain 61 percent of all combination
plants.
11-12
-------
B. Number of Plants and Employees in Each Segment
One aspect of the discussion that is of obvious importance is the number
of plants and employees in each industry segment. This information is
summarized below. The detail of these estimates are presented in greater
detail in subsequent sections. For this reason the summary is presented
below in tabular form without further supporting explanations.
Table II-4a. Number of plants and employees by industry segment
sic y
2033 (Canning)
2034 (Dried & Dehydrated)
2037 (Freezing)
Specific Products
Apples
Citrus
A sparagus
Spinach
Potatoes
Number of
Plants
1,223
178
607
144
105
60
52
103
Estimated
Number of Employees
100, 100
11, 100
64,300
14,655
10,602
7,305
7, 165
13,250
_L' Number of plants and employees by SIC from 1967 Census of Manufactures
2/ Number of plants from The Directory of the Canning, Freezing and
Preserving Industries, 1972-73.
Employment estimates are based on average employment of 55, 90,
190 for small, medium and large plants respectively. These employ-
ment estimates have been suggested by personnel closely associated
with the canning and freezing industries. It is believed, however, that
these average employment estimates are somewhat low for citrus and
potato plants.
II-11
-------
c. Characteristics of Fruit and Vegetable Canning,
Freezing and Dehydrating Plants
A more convenient, readily available, and in some cases a more meaning-
ful summary is derived by segmenting the industry by plant characteristics
rather than Ly firm characteristics. This summary may be preferred in
that operating decisions ar-e perliaps based on individual plant data as op-
posed to fi-'iji c'-ita. Operating or closure decisions will probably proceed
on a plant b . ; . ..nt L,,:sis within the multiplant firms in that some plants
may share a s..i t.-ro "Uonately large share of the total burden of manda-
tory pollution abatemoi,. standards and subsequently discontinue operations
while perhaps newer, more effluent and profitable plants will be virtually
unaffected.
A variety of plant characteristics including but not limited to size,
location, number, utilization and efficiency are presented in the
ensuring discussion.
1. Number and Location of Plants
A summary of the recently published industry directory indicates that
there are 1205 fruit and vegetable canning and freezing plants in the
U.S. this includes 828 fruit and vegetable canners, 196 fruit and vege-
table freezers and 181 plants that can and freeze fruit and/or vegetables.
Table II-5 presents the total number of fruit and vegetable canners,
freezers and combination plants in the U.S. by economic region.
Table II-5 shows that all thirteen economic regions within the contiguous
48 states contain fruit and vegetable canning plants with 473 or 5? percent
located in four economic regions -- Atlantic, Upper Great Lakes, North
Central and the Pacific Southwest region. All regions with the exception
of the South Center and Southwest Plains Region also contain fruit and
vegetable freezing plants. One hundred thirty-four or 68 percent of all
fruit and vegetable freezing plants are located in the Pacific Northwest,
Pacific Southwest, Atlantic and Gulf Coast and Eastern Great Lakes Regions.
There are combination plants, i.e. , canners and freezers in all regions
with the exception of region six -- Central Plains Region. Four regions,
i.e. , Eastern Great Lakes, Lower Great Lakes, Atlantic and Gulf Coast
and the Pacific Northwest Regions, contain 61 percent of all combination
plants.
11-12
-------
Table II-5. Number of canning, freezing and combination plants by economic region (1972)
I/
Economic Region
Type of Plant
Canner
Freezer
Both
Total
Percent of total
1
132
15
20
167
14
2
69
23
21
113
9
3
56
17
33
106
9
4
101
2
9
112
9
5
107
5
4
116
10
6 7
14 47
1 9
5
15 61
1 5
8
38
5
3
46
4
9
52
22
21
95
8
10
16
0
3
19
2
11
24
8
8
40
3
12
39
55
35
129
11
13
133
34
19
186
15
Total
828
196
181
1,205
Percent of
all plants
69
16
15
100
100
_' Source: The Directoryof the Canning, Freezing and Preserving Industries, 1972-73, Edward E. Judge & Sons,
"- 21
Winchester, Maryland
Economic Regions of the U.S. :
1. Atlantic Region
2. Eastern Great Lakes Region
3. Lower Great Lakes Region
4. Upper Great Lakes Region
5. North Center Region
6. Central Plains Region
7. Central and Eastern Upland Region
8. Southeast Coastal Plains Region
9. Atlantic and Gulf Coast Region
10. South Center and Southwest Plains Region
11. Rocky Mountain Region
12. Pacific Northwest Region
13. Pacific Southwest Region
-------
The number of fruit and vegetable dehydrating plants by census region
is presented in Table II-6 which shows that fruit and vegetable dehydrating
plants are concentrated primarily in the western producing regions -- 76
percent of all dehydrating plants are localed in the West Census Region.
This is explained by the importance of potatoes, raisins and prunes as
major dehydrated commodities.
Table II-6 . Number of fruit and vegetable dehydrating plants
by Census region (19&7)
Census Region Number of Plants Percent of Total
Northeast Region 20 11
North Central Region 15 8
South Region 7 4
West Region 136 76
Total U.S. 178 100
Source: Bureau of Census, Census of Manufactures, U.S. Dept. of Commerce
2. Size of Plant
Segmenting the fruit and vegetable canning and freezing plants by volume
of annual pack illustrates the dominance of small plants in these segments
of the industry. A similar segmentation for combination plants shows
that approximately 79 or 44 percent of all combination plants are classified
as medium sized plants.
Table II-7 shows the number and percent of fruit and vegetable canning
and freezing plants by volume of annual pack.
A listing of fruit and vegetable dehydrating plants by size classification
can not be expanded beyond that presented in Table II-3.
11-14
-------
Table II-7. Number and percent of canning and freezing plants
by volume of annual pack
Type of Plant
Canners
Total
Freezers
Total
Combination
Plants (Canners
and Freezers)
Total
Number of
Size Classification Plants
Small (up to 500, 000 annual cases) 390
Medium (500,000 to 5 million
annual cases) 203
Large (Over 5 million annual cases) 235
Small (up to 10 million pounds)
Medium (10 to 100 million pounds)
Large (over 100 million pounds)
Small
Medium
Large
Source: The Directory of the Canning, Freezing and
828
82
73
41
196
58
79
44
181
Preserving
Percent
of total
47
25
28
100
42
37
21
100
32
44
24
100
Industries ,
1972-1973.
11-15
-------
3. Single Plants vs Multiplants
All of the 1,205 canning, freezing and combination plants were classified
according to whether they belonged to single plant or multiplant firms
which produced the distributions presented in Table II-8.
The dominance of plants affiliated with single plant firms is again obvious
in that more than 50 percent of all plants -- canners, freezers or com-
bination plants --are single plant firms.
The absence of a comprehensive listing of all fruit and vegetable de-
hydrating plants necessitates confining the above discussion to fruit
and vegetable canners and freezers only.
4. Number of Plants by Type of Product
An additional segmentation, i.e. , type of plant by type of product reveals
that approximately 5 5 percent of all canners process vegetables only
while the remainder process only fruit (21 percent) or both fruit and
vegetables (24 percent). The distribution of tLe number and percent
of freezer and combination plants by type of product is presented in
Table II- 9. A relatively large percentage of freezers pro^c^ f<-_.*
only while the percentage of plants processing both fruits n-ic . 3
is relatively constant by type of plant.
11-16
-------
Table II-8. Number of plants per firm
Total Number and Percent of Plants Belonging to:
Type of Plant
Canner
Freezer'
Combination
Total
Source: The
Single Plant Few Plants
Firms per Firm
No. Percent No. Percent
(2-5)
457 55 189 23
109 56 66 34
96 53 63 35
Directoiyof the Canning, Freezing
Many Plants
per Firm
No. Percent
(6 and over)
182 22
27 14
22 12
Total
828
196
181
1,205
and Preserving Industries ,
1972-1973.
11-17
-------
Table II- 9. Type of plant by type of product
Total Number of Plants and Percent by Type of Product
Numbe r
Number Percent Number Percent Both Percent
Vegetable by Fruit by Fruit & by
Type of Plant Only Type Only Type Vegetable Type
Canner
Freezer
Both
Source:
451
77
53
The Directory
54
39
29
of the Canning
176
80
85
, Freezing
21
41
47
and
201
39
43
Preserving
24
20
24
Industries ,
1972-1973.
11-18
-------
5. Number of Products by Type of Plant
Most canning, freezing and combination plants are multiproduct plants
with approximately 70 percent of all plants engaging in the processing
of two or more products. The distribution of type of plant by number
of products packed is presented in Table 11-10. This table is again con-
cerned with only canning, freezing or combination plants in that com-
parable data has not as of this point been located for fruit and vegetable
dehydrating plants.
The advantages to be gained by processing several products include in-
creasing the length of the processing season due to different harvest
dates by type of crop, avoiding crop failures and adverse price and demand
fluctuations associated with a single product and greater utilization of plant
capacity.
6. Age of Plants and Level of Technology
Level of technology is difficult to assess in the fruit and vegetable
industry. Many of the plants are relatively old, but throughout their
useful life new equipment has been added or used to replace that which
is old or technologically obsolete. Asa result, most plants in the in-
dustry are a combination of old and new equipment. Gens rally, the
newer equipment installed represents a higher level of technology than
the old.
In a recent survey by the National Canners Association the age of plants
was investigated. ' Approximately 200 plants were surveyed and the
approximate years at the site is given in Table II-11 along with the years
since the last expansion (Table 11-12 also contains Seafood and Specialty
plants). Only 13 percent of the plants were less than 10 years of age
and 8 percent from 10-19 years. Seventy-nine percent of the plants were
located at the same sight for more than 20 years. Sixty-two percent
of the plants have undergone a major expansion program in the last five
years, however, and another 19 percent had undergone expansion movep
since I960. Nineteen percent had not expanded since 1959 or earlier.
A large majority of the plants surveyed in the New England, North
Central and Mountain Regions were over 40 years old. By commodity
the oldest plants spread throughout the three classifications of fruit,
tomato and vegetable canning plants. By comparison the Seafood and
Specialty plants were relatively newer.
L' National Canners Association.
H-19
-------
Table II- 10. Number of products by type of plant
R
i
Number and Percent of
Type of Plant
Canners
Freezers
Combination
Total
Number of
Single Product
Plant
289
67
60
416
Percent
by
Type
35
35
33
Number of
Few Product
Plants
(2-5)
483
112
116
711
Plants by Type and Number of Products
Percent
by
Type
58
57
31
Number of
Many Product
Plants
(6 and over)
56
17
5
78
Percent
by
Type
7
9
3
Total
828
196
181
1,205
-------
Table II- 11. Percent of Canning Plants in Various Age Groupings by Location and Commodity
and Years Since Last Major Expansion
Years at site
0 - 9
10 - 19
20 - 39
40 - 59
60+
Total
Years since last
expansion
65 - 69
60 - 64
50 - 59
Before '50
Total
Years at site
0-9
10 - 19
20 - 39
40 - 59
60 +
Total
Year since last
expansion
65 - 69
60 - 64
59 - 59
50-
Total
New
England
8
8
8
53
23
100
46
8
8
38
100
Middle
Atlantic
9
9
34
34
14
100
55
25
8
12
100
Fruit
9
8
40
34
9
100
53
23
14
10
100
South
Atlantic
9
12
49
21
9
100
64
12
18
6
100
North
Central
9
5
16
50
20
100
62
22
11
5
100
Tomato
9
0
30
45
16
100
61
17
15
7
100
Location
South
Central Mountain
16 0
5 0
53 27
21 46
5 27
100 100
68 50
5 20
16 10
11 20
100 100
Type
Vegetable
10
7
32
40
11
100
64
22
7
7
100
North-
west
17
11
49
18
5
100
63
21
9
7
100
Seafood
17
15
26
23
19
100
63
7
15
15
100
South-
Alaska west
30 14
10 9
25 34
10 37
25 6
100 100
85 60
5 20
10 12
0 8
100 100
Specialty
14
13
30
30
13
100
67
16
10
7
100
Total
13
8
33
33
13
100
62
19
11
8
100
Source: National Canners Association
-------
To arrive at some level of efficiency for plants in various age categories,
(assumed to reflect the level of technology) the Department of Interior
report The Cost of Clean Water, Volume II, No. 6, U was used. The
capital costs and annual operating and maintenance costs were estimated
for old (1950), prevalent (1963) and new (1967) plants. These estimates
were converted to an index of investment and operating costs for selected
plants (Table 11-12).
The above procedure can be utilized for fruit and vegetable canning and
freezing plants. Comparable procedures will have to be developed if
dehydrating plants are included.
7. Plant Efficiency
Plant efficiency is even a broader concept which includes factors such
as age, level of technology, utilization, capacity and many other factors.
It is obviously not possible to discuss or even ascertain many of these
factors on a firm or plant by plant basis . For this rea son only a few pas sing
comments and a general summary are extended at this time.
Capacity is defined as the output which a. canning or freezing plant is
capable of producing during a given time under specified conditions.
Normal capacity is the output per unit of time which can be realized
under usual operating conditions. Maximum capacity is the greatest
output obtainable, per unit of time, with existing plants and equipment.
Excess capacity equals capacity minus volume processed through a
plant during a given time period.
Utilization of capacity is the degree to which normal capacity is attained
in the output of a plant during a given period.
Utilization of capacity is an important factor in the financial success of
a given plant and utilization is affected by a number of supply, operating
and sales factors. These factors are summarized in Table 11-13.
Little information is available concerning capacity and utilization of capacity
in canning and freezing plants. The only authoritative study in this area was
done in the Southern Region. Pearson found that canning plants in the
South utilized only 57 percent of their vegetable processing capacity against
74 percent for freezers. As a general rule, the plants largest in size
utilized a greater portion of their capacity.
I/ The Cost of Clean Water, Vol. Ill, Industrial Waste Profile No. 6,
Canned and Frozen Fruits and Vegetables, FWPCA, U.S. Dept. of
Interior, 1967.
2_/ Pearson, James L. , "Utilization of the South's Vegetable Processing
Capacity, Department of Agr_ Econ. , Fla. Agr. Exp. Sta. and Econ.
Res. Sv. , USDA, AgEcon. Res. Rpt. EC68-5, January 1968.
11-22
-------
Table II- 12. Index of Investment and Operating Costs for
Old, Prevalent, and New Technology by Size of Plant
Small Plant
Medium Plant
Large Plant
2,000 cases/day
Capital
Cobt
Annual
O&M
10,000 cases/day
Capital
Cost
Annual
O&M
30,000 cases/day
Capital
Cost
Annua 1
O&M
Old Technology 62 107
(1950)
Prevalent Tech- 80 100
nology (1963)
New Technology 100 100
(1Q67)
62
85
100
115
107
100
58
83
100
114
108
100
Source: Adapted from The Cost of Clean Water, Vol. Ill, Industrial
Waste Profile No. 6, Canned and Frozen Fruits and Vege-
tables, FWPCA. U. S. Dept. of Interior, 1967.
n-23
-------
Table II- 13. Summary of factors affecting utilization of capacity
within fruit and vegetable processing plants
Factor
Corn in cuts
1. Length of Harvest Season by
Product
2. Distribution of Raw Product
Supplies Within Harvest
Sea son
3. Sales demand
4. Raw Product Quality/Recovery
Percentage
5. Level of Maturity of Raw
Product
6. Degree of Additives to the Raw
Product
7. Productivity of Labor/Job
Performance
8. Number of Products & Schedule
9. Variations in container Sizes
10. Warehouse and Inventory
Conditions
Year to year variation exists
Varies from year to year, but generally
peaks within season. Delays occur from
lack of availability
Year to year variation affects planned
pack
Percent of raw product recovered varies
product quality
Can vary within a season and affects
quality
May alter normal utilization in terms of
raw product processed.
Varies somewhat and effects utilization
of plant capacity
Multiprocuct plants may have overl? pp'mg
and competing seasons. Capacity is
affected by definition.
Affects raw product volume crtpacity
Plant schedules may vary \vith associated
warehouse space and/or inventory
conditions
11-24
-------
Due to the fact that there is substantial year-to-year variation in the
production of fruits and vegetables, 10-20 percent excess capacity,
above normal, is desirable to enable the industry to process the
production of larger-than-normal years.
By increasing processing line rates per hour and by extending hours
worked or by adding shifts, it was estimated that canning plants could
increase their capacity above "normal" levels by 25 percent or more.
In summary, it is apparent that appreciable excess capacity exists
in both the canning and freezing industries. In general, utilization of
capacity is higher in larger plants and in intensive, commerical pro-
duction areas. It is also recognized that there are other factors that must
be considered. These, however, will be deferred to a later time and
section. It is worthwhile to mention that most of these relevant factors
will have to be explored at the industry level in that time and effort
constraints and more importantly data availability prevents discussing
these factors on a plant level.
D. Characteristics of Specific Product
Segments of the Industry
As previously mentioned, the emphasis of this report is to focus on
five specific products or product types within the fruit and vegetable
canning, freezing and dehydrating industry. These include the pro-
cessing of apples, asparagus, spinach, potatoes and citrus. As was
adequately demonstrated above, a delineation by specific products en-
counters several difficulties, i.e., most fruit processors deal with
a variety of products including many other fruits and other vegetables.
Vegetable processors seldom produce a single vegetable product and
when they do it is likely to be a major vegetable such as the processing
of numerous variety and types of peas, beans or corn.
There is therefore the obvious need to further segment the industry
to ascertain the specific characteristics of plants processing the above
mentioned specific products.
1. Citrus
The characteristics of the citrus processing industry are developed
below so as to provide insight into the salient characteristic of the
segment of the industry. The discussion includes products packed by
volume and location, size of citrus plants, employment and other specific
plant characteristics.
11-25
-------
a. Citrus Products and Pack Volumes
Citrus products include the following specific products:
Citrus Sections
1. Grapefruit sections
2. Orange sections
3. Citrus salad
Citrus Drinks
1. Lemonade concentrate
2. Orange
3. Pineapple-grapefruit
4. Pineapple-orange
Citrus Juices
1. Single strength grapefruit
2. Grapefruit concentrate
3. Grapefruit-orange
4. Lemon
5. Lime
6. Single strength orange
7. Orange concentrate
8. Tangerine
The volume packed by production area for selected citrus products is
shown in Table 11-14 through Table 11-18.
b. Citrus Processing Plant Characteristics
A detailed analysis of the 1972-73 industry directory indicates that
there are 105 plants that process citrus products and 103 citrus pro-
cessing firms. A further breakdown of plants by specific product shows
that only 41 of the 105 plants process only citrus products. The remainder
(64) process other fruits or vegetables in addition to citrus products.
The typical citrus plant is therefore a multiproduct plant, multiproduct
across other product lines.
Even within the group of citrus plants that deal exclusively with citrus
products, there is a variety of specific citrus product mixes or com-
binations. The following distribution (Table 11-19) of exclusively
citrus producing plants by specific citrus product shows that the largest
number is engaged in the processing of citrus juices.
11-26
-------
Table 11-14. U.S. pack; of canned grapefruit segments by state
(Thousands of actual cases -- pack beginning year shovra)
Year
State 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970*
Florida 4,610 2,985 3,394 4,077 4,413 5,239 3,772 3,800 3,726 3,629
Texas 11
U.S. Total 4,621 2,985 3,394 4,077 4,413 5,239 3,772 3,800 3,726 3,629
*1971-72 pack to 4/29/72 Florida only, basis 24/2's - 2,562,792 cases as reported by Florida
i
EO Source: Division of Statistics, National Canners Association
-------
Table 11-15. U.S. packs of canned orange juice by states
(Thousands of actual cases -- pack beginning year shown)
Year
State 1961 1962 1963 1964 1965 1966 1967 ~ 1968 196~9
Florida 15,423 12,772 10,157 13,027 13,466 15,803 11,895 13,702 14,266 13,368
Texas 723 -- -- -- NA 519 305 878 (a) 1,776
California & Arizona NA 595 482 469 679 1,308 352 1,111 2,816 1,822
U.S. Total 16,146 13,367 10,639 13,496 14,145 17,629 12,551 15,691 17,082 16,966
M ""1971-72 pack to 4/29/73 Florida only basis 24/2's - 9,660,217. Cases as reported by the Florida Canners Association
^ (a) Included in California and Arizona
00 Source: Division of Statistics, National Canners Association
-------
Table 11-16. U.S. packs of canned grapefruit juice
(Thousands of actual cases -- pack beginning year shown)
Year
State 1961 1962 1963 1964 1965 1966 1967 1968 1%9 1970*
Florida 8,907 7,829 4,665 8,721 10,671 15,565 11,756 12,586 14,711 17,393
Texas 355 -- -- -- 658 1,579 684 2,681 (a) 4,174
California & Arizona 549 551 997 1,020 886 1,233 1,622 1,940 5,369 2,287
U.S. Total 9,811 8,380 5,662 9,741 12,215 18,377 14,063 17,207 20,080 23,854
"'1971-72 pack to 4/29/72 Florida only, basis 24/2" s 19,224,837 cases as reported by the Florida Canners Association
!_, (a) Includes California and Arizona
1 Source: Division of Statistics, National Canners Association
vO
-------
Table 11-17. U.S. packs of canned blended grapefruit and orange juice by state
(Thousands of actual cases -- pack beginning year shown)
Year
State 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
Florida 3,248 2,622 2,006 2,019 2,203 2,705 1,689 1,908 1,799 1,791
Texas 39 -- -- NA NA 44 28 56 (a) 93
California & Arizona NA 13 128 65 180 303 92 176 186 161
U.S. Total 3,288 2,635 2,135 2,084 2,384 3,053 1,809 2,141 1,984 2,046
H *1971-72 Pack to 4/29/72 Florida only, basis 24/2's - 1,655,588 cases as reported by Florida Canners Association
OJ
o
(a) Included in California and Arizona
Source: Division of Statistics, National Canners Association
-------
Table 11-18. U. S. packs of frozen citrus juices
(thousands of gallons)
Year
Concentrated Citrus Juices
Orange
Grapefruit
Grapefruit-Orange
Lemon
Lemonade
Limeade
Tangerine
Citrus Juices, Single
Strgth & Purees
1964
53,674
2,573
130
NA
NA
1, 196
1, 146
1,576
1965
88,869
4,000
70
NA
NA
862
1, 154
1, 188
1966
70,831
3,971
50
NA
NA
795
715
1,470
1967
127,611
5,485
29
NA
NA
503
1, 120
NA
1968
83,697
1,814
10
NA
NA
541
582
NA
1969
108,043
5,920
36
NA
NA
852
1,051
NA
1970
126,402
4,294
16
NA
NA
1,345
785
NA
1971
125, 187
6,870
18
NA
NA
1,648
1,090
NA
Source: THE ALMANAC of the Canning, Freezing, Preserving Industries, for 1972.
-------
Table 11-19. Breakdown of 41 exclusively citrus producing plants
by type of product produced
Citrus Product Number of Plants
Sections only 1
Drinks only 3
Juices only 18
Sections and juices 7
Drinks and juices 8
Sections, drinks, ,ind juices 4
Source: The Directory of the Canning, Freezing and Preserving
Industries7 1972-73.
11-32
-------
Table 11-20 provides a breakdown of the specific plant characteristics
for all 105 citrus producing plants. Factors considered include number
of plants by type of product, type of plant, size of plant and number of
products.
Table 11-20. Number of plants by specific characteristics
Citrus Only
41
Canners Only
68
Small
36
(Under 500 thousand
canned cases; under
10 million frozen
pounds)
Single
(Citrus only)
41
Type of Product
Fruit Only
70
Type of Plant
Freezer Only
17
Size of Plant
Medium
43
(500 thousand to 5 mil-
lion cases; 10 million
to 100 million frozen
pounds)
Number of Products
Few
(2 to 5 products--
citrus and other
than citrus)
39
Fruits and
Vegetables
35
Both
20
Large
26
(Over 5 million cases
for canners; over
100 million pounds for
freezers)
Many
(6 and over, products-
citrus and other than
citrus)
25
Source: The Directory of the Canning, Freezing and Preserving Industries,
1972-73.
H-33
-------
Table 11-20 reveals that only 39 percent of all citrus producing plants
process only citrus products, 67 percent process only fruit (citrus
and other fruit products) while 33 percent of the plants process fruits
and vegetables. Sixty-five percent are canners, 16 percent are freezers,
and 19 percent are combination freeze r-canner plants. Approximately
one-third are classified as small, 40 percent are medium and 25 percent
are large plants on the basis of annual pack volumes. Approximately
60 percent of the plants are multiproduct plants. On the basis of the
above percentages only, it appears that the typical citrus plant is a
small to medium sized canner that processes many citrus and other
fruit products.
Employment statistics by plant by specific product cannot be obtained
from government sources at the present time. An alternative is to
estimate employment based on average employees by size of plant
(volume pack). The following data were derived from a report by the
National Canners' Association, _' for the entire industry. This provides
a general basis for developing employment estimates for the industry
segments in this study:
Item
Plant Size .5-5
(1,000 Tons Raw Product)
Number of Plants
1,450
500
170
Small" "Medium" "Large" "Extra-Large"
10-20 50-100 200-500
30
Employees
Peak Period
. Estimate '
. Range
Average per Month
. Estimate '
. Range
105
42-170
55
20-85
380
300-500
145
120-180
1,035
850-1300
400
330-500
2,600
1900-4000
870
750-1100
±J "Liquid Wastes and The Economic Impacts of Pollution Control; Fruit
and Vegetable Processing Industry," Progress Report, National Canners
Association, July 1973.
£' Weighted average of employees by size category. Weighted by number
of plants in NCA report.
11-34
-------
As indicated, a wide range of plant sizes and associated employment levels
exist in the fruit and vegetable processing industry as a whole. Ideally,
account should be taken of the specific products involved and the labor
requirements on a product by product basis. However, in lieu of more
precise information, the procedure for indicating general employment
levels of plants in this study is to multiply numbers of plants by "size"
times the average monthly employment estimates above, i.e.,
Small plants - 55 employees
Medium plants - 145 employees
Large plants - 400 employees
The estimates for "Extra-Large" plants are not used since less than 2 percent
of all plants are believed to fall into this category. Also, it is noted that peak
period employment is from about 2 to 2. 5 times as large as the average
monthly employment. Characteristically, fruit and vegetable processors
employ many additional part-time employees during peak periods of the
packing season.
The procedure stated produces the following average monthly employment
estimates for the citrus processors:
Total Estimated Employment - Citrus
Small Plants Medium Plants Large Plants Total U.S.
1,980 6,235 10,400 18,615
2. Apples
a. Apple Products and Pack Volumes
The apple products listed in the industry directory include the following
specific products.
1. Baked apples
2. Apple rings
3. Sliced apples
4. Applesauce
5. Crabapples
6. Apple cider
7. Apple drinks
8. Apple juice
11-35
-------
Many of these products are of only minor importance and need not be
considered further. Pack statistics for the major products of interest
are presented in Table 11-21 to 11-24 by national total and major pro-
ducing state. These statistics show that apple sauce is clearly the moat
important specific product of those iacluded, i.e., apple sauce, apple
juice and packs of whole and sliced apples .
b. Apple Processing Plant Characteristics
The industry directory indicates that there are 144 plants engaged in the
production of canned and frozen apple products. This included 128
separate firms. A further analysis of the industry listing shows that
there are only 29 plants that devote their total production capacity to
various apple products. The distribution of these 29 plants by specific
product is presented in Table 11-25.
A further breakdown of the 144 plants by specific plant characteristic is
presented in Table 11-26.
11-36
-------
Table 11-21. U.S. pack of canned apple sauce by state
(Thousands of actual cases -- pack beginning year shown)
Year
State
New York
Maryland, Pennsylvania
and Virginia
Michigan
Washington, Oregon,
Idaho
California
Other States
U.S. Total
1961
6,265
)
7,679
2,082
272
2,640
725
19,663
1962
6,508
8,669
1,378
425
2,777
642
20,399
1963
5,474
8,475
2,050
903
2,791
1, 141
20,834
1964
5,782
10,069
2,674
515
3,941
1,445
24,426
1965
6,512
11,300
3,377
612
1,730
1,538
25,070
1966
6,068
5,987
2,659
893
3, 103
850
19,561
1967
6,543
9,800
2,989
835
1,934
1,385
23,487
1968
5,793
9,863
3, 170
321
3,501
1,423
24,073
1969
6,289
11, 111
3,850
1,457
3,129
1,698
27,533
1970*
6,
8,
3,
2,
1,
23,
518
577
833
783
342
594
647
* 197 1-72 pack to April 1 - 24,498,925 actual cases compared with 23,053,689 in same period 1970-71.
Source: Division of Statistics, National Canners Association
-------
Table. 11-22. U. S. pack of canned apple juice by state
(Thousands of actual cases -- pack beginning year shown)
Year
State
Pennsylvania &t Virginia
East
Michigan
Michigan & Other MW
California
Other West
Other States
U.S. Total
1961
1,660
NA
1,255
NA
1,283
NA
2,776
6,974
1962
2, 196
NA
785
NA
1,344
NA
3, 158
7,483
1963
2,341
NA
1, 145
NA
1, 151
NA
3,921
8,558
1964
2,576
NA
1, 113
NA
1,933
NA
4, 162
9,784
1965
2,512
NA
1,700
NA
934
NA
4,524
9,670
1966
2,034
NA
940
NA
1,379
NA
4,600
8,953
1967
(a)
5,088
(a)
1,632
982
1,327
(a)
9,029
1968
(a)
5,214
(a)
1,791
1,629
1,006
(a)
9,641
1969
(a)
6,881
(a)
2, 100
1,792
2,730
(a)
13,503
1970
(a)
7,946
(a)
2,692
(a)
3,834
(a)
14,472
Source: Division of Statistics, National Canners Association
-------
Table II-23. U. S. pack of canned apples by state
(Thousands of actual cases -- pack beginning year shown)
Year
R
i
State
New York
Maryland, Pennsylvania,
& Virginia**
Washington, Oregon,
& Idaho
Other States
U.S. Total
1961
1,002
2,360
233
392
3,986
1962
928
2,414
424
270
4,036
1963
974
2,300
485
302
4,062
1964
1,055
2,266
317
290
3,928
1965
1,005
2,737
345
322
4,409
1966
1,033
1,567
515
368
3,483
1967
1,001
2,047
385
243
3,676
1968
927
2,007
314
356
3,604
1969
809
1,682
328
308
3, 128
1970*
626
1,007
301
388
2,271
* 197 1-72 pack to April 1st - 2,535,062 basis 6/10's compared with 2, 183,369 in same period 1970-71
*#
Beginning 1970 does not include Maryland
Source: Division of Statistics, National Canners Association
-------
Table 11-24. Total U.S. frozen pack of apples and applesauce
(Thousands of pounds)
Year
1964 1965 1966 1967 1968 1969 1970 1971
Apples and Applesauce 86,843 93,392 94,352 97,634 117,218 122,293 100,370 96,999
Source: THE ALMANAC of the Canning, Freezing, Preserving Industries, for 1972.
-------
Table 11-25. Distributuion of 29 apple(only) plants by specific product
Product Number of Plants
Sliced only 4
Juice only 1
Cider only 4
Sauce only 2
Cider and juice 8
Sauce and juice 2
Sliced, sauced, cider and juice 1
Sauce, cider, and juice 4
Sliced, sauce, and juice 2
Baked, rings, sliced, sauce, cider, and juice 1
Total 29
11-41
-------
Table 11-26. Characteristics of apple processing plants
Number of Plants by Specific Characteristic
Apples Only
29
Canner
97
Small
63
Apples Only
29
Type of Product
Fruit Only
58
Type of Plant
Freezer
28
Size of Plant
Medium
42
Number of Products
Few
(2 to 5 products--
other than apples)
51
Fruits and
Vegetables
57
Both
19
Large
39
Many
(6 or more products
other than apples)
63
Size categories correspond to those used in Table 11-20.
Source: The Directory of the Fruit and Vegetable Canning, Freezing, and
Preserving Industries, 1972-73.
11-42
-------
The above tabulations indicate that 80 percent of the apple processing
plants also process other fruits and vegetables. Most (67 percent)
are canners, 19 percent are freezers while the residual can and freeze
aople products. Forty-four (44) percent are small sized plants and
42 percent process many products, i. e. , six or more products other
than apples. The typical apple processing plant is therefore (based
on the above percentages) a small canner that processes a diversity
of products.
Employment in the above specific product sector of the industry can be
estimated in a manner analogous to that used to derive estimated employ-
ment in citrus plants. The same average employment figures were
utilized and the results are as follows:
Total Estimated Employment - Apples
Small Plants Medium-sized Plants Large Plants Total U.S.
3,465 6,090 10,400 25, 155
3. Spinach
a. Number of Plants and Volume of Pack
The industry directory indicates that 52 plants from 42 firms engage in
canning and/or freezing spinach. There are, however, no plants that
devote their total production to spinach. Table 11-27 presents the canned
spinach pack by production area and total frozen spinach packs.
b. Spinach Plant Characteristics
The specific plant characteristics or patterns established in the above
discussion are equally appropriate for spinach processors. In fact,
there are no processors that devote their entire production line to the
processing of spinach. As Table 11-28 indicates , the 52 plants that
process spinach are not specialized by product or type of plant.
11-43
-------
Table 11-27. Canned and frozen spinach packs by state
(Thousand of cases, basis 24 No. 303 cans
for canned, thousand pounds for frozen)
State
Canned
Arkansas, Oklahoma i<
Tennes see
California
Other states
Total
Total U. S. Frozen
1962
2,591
3,801
874
7,266
NA
1963
2,688
3,296
2,047
8,031
NA
1964
2,
3,
1,
7,
126,
268
815
558
641
957
1965
2,
2,
1,
6,
122,
485
670
240
395
264
1966
2,
2,
1,
6,
142,
914
809
231
854
931
Year
1967
2,380
4,064
965
7,409
153,228
1968
3,
3,
1,
7,
Ib3.
564
320
116
990
960
1969
2,975
2,928
678
6,577
107,182
1970
2,197
3, 129
1,944
7,270
145,694
1971
332
4, 181
3, 162
7, 675
156,991
Source: Division or Statistics, National Canners Association
-------
Table 11-28. Number of spinach plants by specific characteristics
Number of Plants by Specific Characteristic
Type of plant
Canner Freezer Both
27 23 2
Type of Product
Fruit and
Vegetable Vegetable
30 22
Size of Plant"
Small Medium Large
9 15 28
Number of Products
Single Few Many
(Spinach only) (2-5) (6 and over)
0 15 37
Size categories correspond to those used Table 11-20.
Source: The Directory of the Fruit and Vegetable Canning, Freezing, and
Preserving Industries, 1972-73.
11-45
-------
Approximately half of all spinach plants are canning plants. The plant
listings also indicate that 58 percent of the spinach processing plants
process other vegetables while 42 percent process fruit products in
addition to vegetables. Only 17 percnnt of all spinach processors are
classified as small while 54 percent are large processing pkints. As
indicated earlier, there are no processors that process only spinach.
Approximately 70 percent of those plants that process spmat h process
at least 6 other fruit or vegetable products.
Employment estimates are again derived by estimating plant employment,
by plant size classification. The distribution is as follows:
Total Estimated Employment - Spinach
Small Plants Medium Plants Large Plants Total
495 2, 175 11,200 13,870
4. Asparagus
a. Asparagus Plants and Pack Volumes
The situation for asparagus is very comparable to that of spinach. There
are 60 plants consisting of 58 firms that process asparagus. Again, all
of these plants pack other truits or vegetables and none are demoted ex-
clusively to asparagus processing.
b. Asparagus Processing Plant Characteristics
The characteristics of the 60 plants that process asparagus must again
be viewed as characteristics associated with fruit and vegetable canning
and freezing plants in general. Table 11-29 presents the general charac-
teristics of the 60 plants that process asparagus.
Estimates reflect plant employment and not product line (spinach)
employment per se.
11-46
-------
Table 11-29. Specific plant characteristics of 60 plants that
process asparagus.
Number of Plants by Specific Characteristics
Canner
40
Vegetable
26
Small
17
Type of Plant
Freezer
18
Type of Product
Size of Plant
Medium
18
Both
2
Fruit and Vegetable
34
Large
25
Number of Products
Single Few Many
0 40 20
Source: The Directory of the Fruit and Vegetable Canning, Freezing,
and Preserving Industries, 1972-73.
11-47
-------
The above table indicates that asparagus processors consist -mostly of
canners that process a variety of other fruit and vegetable products.
The size distribution on the basis of annual pack indicates that
approximately 60 percent are small and medium sized plants while
40 percent are large plants.
5. Potatoes
a. Potato Products and Pack Volumes
The industry directory includes the following potato products-
1. Whole or sliced
2. French fried
3. Hash browns
4. Flakes
5. Sticks
6. Salad
A summary of the industry directory indicates that 103 plants and 89 firms
process potato products. This includes 29 plants that process potatoes
and only potatoes. A breakdown of other plant characteristics is presented
in Table 11-30.
Applying average employment figures,by size of plant produces tht.
following employment distribution:
Estimated Total Employment - Potatoes
(Potato Canning and Freezing Only)
Small Medium Large Total
1,265 4,495 19,600 25,360
The data for the potato segment reflects only canning and freezing
operations listed in the Directory which excludes many major potato
de hydra tors.
6. Dehydrating Plants
The above discussion has summarized many salient characteristics of
plants producing citrus, apples, spinach, asparagus and potatoes.
For the most part, dehydrating plants have been deleted from the
discussion with the summary information presented for canning and
freezing plants only. With the exception of apples and potatoes, the
above products are not dehydrated in significant quantities. For
example, the 1967 Census of Manufactures indicates the following
dehydrated products and processing volumes.
11-48
-------
Table II-2g. Specific plant characteristics of 60 plants that
process asparagus.
Number of Plants by Specific Characteristics
Canner
40
Vegetable
26
Small
17
Type of Plant
Freezer
18
Type of Product
Size of Plant
Medium
18
Both
2
Fruit and Vegetable
34
Large
25
Number of Products
Single Few Many
0 40 20
Source: The Directory of the Fruit and Vegetable Canning, Freezing,
and Preserving Industries, 1972-73. ~~
11-47
-------
The above table indicates that asparagus processors consist mostly of
canners that process a variety of other fruit and vegetable products.
The size distribution on the basis of annual pack indicates that
approximately 60 percent are small and medium sized plants while
40 percent are large plants.
5. Potatoes
a. Potato Products and Pack Volumes
The industry directory includes the following potato products:
1. Whole or sliced
2. French fried
3. Hash browns
4. Flakes
5. Sticks
6. Salad
A summary of the industry directory indicates that 103 plants and 89 firms
process potato products. This includes 29 plants that process potatoes
and only potatoes. A breakdown of other plant characteristics is presented
in Table 11-30.
Applying average employment figures by size.of plant produces the
following employment distribution:
Estimated Total Employment - Potatoes
(Potato Canning and Freezing Only)
Small Medium Large Total
1,265 4,495 19,600 2-,360
The data for the potato segment reflects only canning and freezing
operations listed in the Directory which excludes many major potato
dehydrators.
6. Dehydrating Plants
The above discussion has summarized many seilient characteristics of
plants producing citrus, apples. spinach, asparagus and potatoes.
For the most part, dehydrating plants have been deleted from the
discussion with the summary information presented for canning and
freezing plants only. With the exception of apples and potatoes, the
above products are not dehydrated in significant quantities. For
example, the 1967 Census of Manufactures indicates the following
dehydrated products and processing volumes.
11-48
-------
Table 11-30. Plant characteristics of 103 potato processing plants.
Number of Plants by Specific Characteristic
T-rc of Product
Vegetable Only
75
Small
23
Single Plant Firms
Size of Plant
Medium
31
Number of Plants
Few Plants
(2-5)
29 22
Type of Plant
Canner Freezer Dehydrator C^nn^r
Large
49
Many Plants
(6 .a. nd over)
52
Tanner & Freezer
49
32
Freezer Dehydrator Dehydrator
62 8
Source: The Directory of the Fruit and Vegetable Canning, Freezing, ^nd
Preserving Industries, 1972-73.
H-49
-------
Percent of
Product Volume total pack
(million pounds)
Raisins 402. 2 28
Prunes 288. 3 20
Figs 21.4 l
Dates N.A. N.A.
Apples 31.1 2
Other fruit 50. 8 4
Potatoes 322.4 22
Other Vegetables 136.0 9
Other fruits and 14. 6 1
vegetables (not else-
where classified)
Soup mixes and other 173.4 12
products
Total Pack 1,442.2 100%
Since the dehydrating segment of the industry is relatively small when
compared with the canning and freezing segments, and the specific
products to be emphasized herein are not important dehydrated commo-
dities, it is suggested that this report should concentrate on only the two
major segments of the industry.
Further work should be done in reference to the potato dehydrating industry.
It is recognized that the specific plant data contained in The Directory is not
adequate for potato dehydrating. The directory cannot be used to acquire
potato dehydrating data. Other sources have been explored but as of this
time specific plant data for potato processors is not available.
7. Model Plants
As may be expected from the results of the above summary of specific
plant characteristics by specific product; some difficulty has been
encountered in constructing model plants that adequately typify the
production*
Model plants have been constructed for apples, citrus and spinach products.
This includes both canned and frozen products. A more detailed discussion
of model plants for these commodities as well as a discussion of data
problems encountered in constructing model potato plants is presented in
Chapter III.
11-50
-------
Specific Products Relative to the Industry
The preceding section has discussed the plant characteristics of the five
specific products that are to be considered in this report. The importance
of these products relative to the total fruit and vegetable canning, freezing
and dehydrating industries has not been explored.
The objective of this section is to place the problem in perspective by
exploring the importance of these products relative to the fruit and
vegetable canning, freezing and dehydrating industries.
1. Specific Vegetable Products Relative to the Canned Vegetable
Industry
The relative importance of any specific product can best be portrayed
simply by presenting the volume of annual pack by specific product rela-
tive to the appropriate industry totals. This information is presented
below for canned asparagus, potatoes and spinach.
Percent of total canned
Product Volume Pack vegetable pack
(thousands of cases (1970 by product to 1970
--24 No. 303) total vegetable pack)
Asparagus 5,972 2.1
Potatoes, white 6,602 2.3
Spinach 7,270 2.6
Total 19,844 7.0
Annual volume pack for the three products totaled only 19, 844 thousand
cases on a 24 count 303 basis. This amounted to 7 percent of the total
canned vegetable pack. On a product by product basis the summary
shows that all of the specific products accounted for approximately 2
percent of the total canned vegetable pack. On the other hand green
beans, sweet corn and canned tomatoes contributed 45 percent of the
total canned vegetable pack. The specific vegetable products considered
herein must therefore be viewed as relatively minor components of the
vegetable canning industry.
II-51
-------
2.. Specific Vegetable Products Relative to the Vegetable Freezing
Industry
The situation is quite different for the specific products relative to
the frozen vegetable segment of the industry. The following summary
shows that potatoes account for o^er 50 percent of the frozen vegetables
pack while asparagus comprises ,6 percent and spinach 3 percent.
. Percent of total frozen
Product Volume Pack vegetable pack
Asparagus 29,959 0.6
Potatoes, white 2,565,118 56.0
Spinach 156,991 3.0
,., /
Thousands of pounds
3. Specific Fruit Products Relative to Total Packs of Canned Fruit
and Fruit Juices
Table II-31 shows that canned apples comprise only one percent of the
total canned fruit and fruit juice packs while apple juice contributes 7
percent to the total canned fruit and fruit juice packs. Apple sauce, how-
ever, constitutes 12 percent of the total canned fruit and fruit juice pack.
Together apples, applesauce and apple juice constitute 20 percent of the
total canned fruit and fruit juice pack.
Citrus is also a major commodity in the canned fruit and fruit juice
segment of the industry. Twenty-three percent of the total pack consist
of citrus fruit and citrus juice packs.
4. Specific Fruit Products Relative to Frozen Fruit Industry
A similar review of U.S. pack statistics reveals that frozen apples
and apple sauce comprise 15 percent of the total frozen fruit industry
pack. Frozen citrus packs also contribute a substantial portion and
must be considered to be a major commodity in the total frozen fruit
pack.
11-52
-------
Table 11-31. Summary of canned fruit and fruit juice packs
Percent 1970 to total
1970 fruit and juice, 1970
(thousa.nds of actual cases)
Fruits
Apples 2,271 1
Applesauce 23,647 12
Grapefruit sections 3,629 2
Total all fruits 135,405 66
Fruit Juices
Apple juice 14,472 7
Grapefruit juice 23,854 12
Orange juice 16,966 8
Bl citrus juice 2,046 1
Total fruit juice 69,725 34
Total all fruits and
fruit juices 205,130 100
Source: The Almanac of the Canning, Freezing, Preserving Industries,
1972. Edward E. Judge & Sons, Westminster, Md. , 1972.
11-53
-------
5. Specific Products Relative to the Dehydrating Industry
A review of 1967 census data reveals that the dehydrated food industry
shipped a. total of 1,442 million pounds of fruit, vegetables and dehydrated
soup mixes. A breakdown of the specific dehydrated products was pre-
sented earlier.
F. Significant Impacts in the Industry
Because of the unique structure and competitiveness of the fruit and
vegetable processing industry, pollution abatement standards when im-
posed on the industry will have serious consequences on the industry it-
self. The magnitude of this impact will, of course, depend on the level
of investment required to meet the specific standards. The smaller third--
and to some extent the middle third of the plants are expected to be seriously
impacted. They may not be able to recover the cost of installing and
operating the abatement facilities unless they have access to low cost
facilities or municipal treatment. The specific plant impacts will, of
course, depend on many factors such as size of plant, profitability of the
plant, location and availability of low cost treatment strategies, and pre-
vailing waste water treatment facilities. Some of these factors are
discussed below.
1. Capacity of Low Cost Producers Relative to High Cost Producers
The capacity of low cost producers relative to high cost producers is
the single-most important factor in considering the impact of pollution
abatement costs imposed upon the industry. The industry is currently
operating at about 75 percent of capacity. In the canning industry the
largest third of the plants pack approximately 80 percent of the total
volume. The middle-third of the plants pack about 15 percent, and the
smallest-third can only 5 percent of the total pack. Due to economies
of scale, the larger plants already have a definite cost advantage. The
imposition of high pollution abatement costs on the smallest-third of the
plants, and to a large extent the middle-third, will result m further dis-
economies to the low volume plants. If the small plants are forced to shut
down (unless of course low cost abatement procedures can be utilized,
such as municipal sewage plants) the low cost-high volume plants in the
industry could easily offset possible losses in capacity among the high
cost producers .
Location of plants with excess capacity is another aspect which must
be considered; and this factor will require further analysis .
For many products, regional distributions of alternative-sized plants
are not uniform. Hence, significant re gional dislocations in processing
(and at the grower level) could be expected in that there are counties
throughout the U.S. that have a significant percentage of their labor force
employed in small processing plants--which are expected Lo be severely
impo.cted.
11-54
-------
2. Factor Dislocations Within the Industry
Differential impacts from pollution abatement controls are expected
within the fruit and vegetable processing industry, both in terms of type
of firm and in regional location of affected plants. The impacts expected
and reasons for associated dislocations are as follows.
a. Types of Firms and Their Location
As explained earlier, the fruit and vegetable processing industry is com-
prised of many firms differing in process (canning, freezing) products
processed (multi/single), size (rate per hour), length of season (long/
short), capacity and utilization of capacity, level of technology (new/old)
and other factors. Many of these factors were considered in above pre-
liminary analyses and the most critical measure in terms of assessing a
firm's ability to withstand the impact of internalized pollution abatement
costs is its overall through-put size.
In order to represent types of firms in the industry, a series of plants
were defined and referred to as being either small, medium or large.
In all cases, these plants were reflective of through-put size or total
volume packed.
i. Marginal Firms - Within the fruit and vegetable industry, marginal
firms are typically the "small" and single plant firms. This is particularly
true in terms of a small firm's ability to financially withstand the pro-
jected high capital investment requirements of internalized pollution
abatement measures. Such plants simply lack capacity to pay-out such
investments (at the levels given). Many single plant firms also lack the
capital acquiring ability of larger multiplant firms.
Within this framework, marginal firms faced with the decision to either
curtail employment or shutdown would most likely shut down. Pollution
abatement investment costs would be an incentive to expand production,
not lower it, in order to cover additional costs.
Because of rather widespread unde rutilization of total capacity in the
industry, it is not expected generally that marginal firms will attempt
to expand their existing facilities to achieve desired economies of scale;
the competitive structure of the industry will influence outward migration
of firms. As previously mentioned, downward trends in the number of
both canning and freezing plants is occurring. Pollution abatement controls
are expected to hasten this downward trend of total firms in the industry.
11-55
-------
ii. Locational Impacts - Only general patterns of location of plants by
size category have been assessed in this Phase of the study, but from
this alone it is believed that regional differences in impact will occur
following standard adoption of pollution abatement controls.
Another study recently completed has shown that on the basis of
average employment estimates and probable closures the county
unemployment generated could be as great as 4 percent of total county
employment in selected counties.
3. Reasons for Dislocations
Reasons for the above type of firm and location-dependent expected dis-
locations within the industry have been described generally already.
A summary in terms of profitability and capital availability is appropriate,
however.
i. Profitability - Profitability of firms, but pa rticula rly the smaller
inefficient and under capitablized firms, will be affected by pollution
abatement measures. While average incremental costs for pollution
abatement are expected to be passed through to consumers, the smaller
firms are expected to have much higher than average per unit costs of
abatement.
Economies of scale in pollution control are apparent, and this is naturally
to the relative disadvantage of smaller firms. As previously suggested,
many of the smaller firms might be forced out of the industry. This would
have a limited desirable impact on the remaining firms in that pollution
control costs could be spread over a larger volume. Thus, the level of
profitability of the surviving plants might be affected less on average.
ii. Capital Availability - Capital within the fruit and vegetable industry
obtained prima rily f rom commercial sources outside the industry and fi.^n
the investment of profits. Additional capital requiremerts for financing po ,
tion abatement measures will also principally be sought from such sources.
1 3
from
' u
In this case, availability of additional capital is expected to be determined
by an individual firm's ability to project adequate net returns following
an expanded investment program. Consequently, capital availability is
expected to be directly related to profitability--and the smaller,
inefficient firms will have difficulty raising the needed capital to stay in
business. In this sense lack of capital availability will contribute to
the shutting-down of marginal processing firms. In this regard single
plant firms are also in an unfavorable position relative to multiplant firms.
11-56
-------
4. Narrowing the Study Scope
It is difficult to narrow the scope of the study at this time. When view-
ing only the industry structure efforts could be concentrated on the smaller
individual firms that may be severely impacted to the point of shutdown.
However, to fully understand the ultimate severity of financial impact
both large and small firms must be analyzed.
Continued effort on spinach and asparagus will yield little results that
can be generalized for the entire industry. This is primarily because
both are minor products and processed in conjunction with many different
products which cut across most of the major vegetables and some fruits.
If the Guidelines developed and related costs for achieving those Guide-
lines cannot be generalized for other major products processed in con-
junction with spinach and asparagus, little can be derived in terms of
total impact on the industry.
11-57
-------
III. FINANCIAL PROFILE
To ascertain the economic impact of pollution abatement costs on alterna-
tive product segments of the fruit and vegetable processing industries, it
is critical to assess probable differential impacts among representative
plants within the industry. All firms are not expected to be affected
equally in terms of per unit cost of abatement. Economies of scale will
exist in controlling pollutants associated with processing.
A microeconomic evaluation of plants within the fruit and vegetable process-
ing industry for the product segments as outlined in the RFP is needed to
assess probable impacts within the industry. Froui this base of informa-
tion, overall impacts on the industry can be meaningfully projected.
The model plant data are then compared with certain financial data on the
canning and freezing industries obtained from IRS financial ratios and other
industry sources. These data, however, are based on broad industry
averages and do not permit examination of individual product or plant
situations. In the absence of specific plant or product data, the industry
averages do provide some broad benchmarks for evaluation purposes.
A. Model Plants by Segment
The basic methodological approach used in this analysis involves economic
engineering--synthesis of cost and return data for individual representative
processing plants within the given product categories. A broad range of
"representative plant operations" has been developed in order to general-
ize the individual plant impacts. A key variable or factor in this regard
is size of operation, e.g. , small, medium and large, for various fruit
and vegetable processing plants. Patterns of impact among different size
categories across different products are important interims of generaliz-
ing from individual plant data.
Economic performance of these representative plants are presented herein
on an annual basis. When costs of pollution abatement are obtained from
EPA for the final analysis, the performance of these representative plants
will be evaluated over a period of 20 years of simulated operation. Two
situations of primary concern are: (1) simulation of plant operation without
internalized pollution abatement controls, and (2) simulation of operations
with such controls.
III-l
-------
Representative plants for which economic cash flows were developed are
shown in Table II-1. Because of the wide variety of products produced in
each segment, the analysis has been confined to major product lines recog-
nizing that minor product lines are not included. Representative plants
were selected on the basis of major products packed and availability of
detailed plant data.
Small, medium, and large plants were analyzed for the high volume lines
of citrus, apple and spinach. Based on average industry production, a
small plant was developed with a throughput approximately equal to the
average throughput of the smallest 33 percent of the firms in the industry.
Normally, this amounts to 100 to 200 cases per hour. Likewise, for the
middle third, a representative plant was developed for each major product.
Throughputs ranged from 200 to 500 cases per hour for the middle sized
plants. Average size for large firms in each product line ranged from 600
to 1,500 cases. Freezing plants were based on a similar scale based on
pounds of finished product rather than cases.
It should be noted that approximately two-thirds of the plants (both canning
and freezing) are multiproduct firms. However, this analysis was limited
to specific products so the multiplant concept was excluded. Multiproduct
plants normally process any variety of products depending on the local
supply availability. Two exceptions to this generalization are the potato
industry and citrus industry where a plant may process various types of
potato and citrus products, but generally have not integrated across pro-
duct lines to the same extent.
Potatoes
After a search of the USDA, Universities, and trade organizations, no
information regarding individual plant volume, cost of processing or
investment was obtained for the potato industry. (Limited information
was obtained regarding total pack by types, plant numbers, and total volume
trends is contained in Chapter II. Also, see Appendix A.)
Citrus
Model plants were developed for two major citrus products, frozen concen-
trated orange juice and single strength canned orange juice. Three plants,
small, medium, and large were conducted for each product (see Table III-l).
Length of season was set at 2, 880 hours which represents a 6 month process-
ing season from early January through June. Plants operate 7 days a week
and frequently 24 hours a day during the heavy season. Sixteen hours per
day was used as an average.
Ill-2
-------
Table III-l. Capacities, length of operating season and annual pack for
representative canning and freezing plant.
Product
Orange juice, frozen cone.
it
rt
Orange juice, ss canned
M
it
Apple slices, canned
it
Apple juice, canned
1 1
ii
Apple slices, frozen
it
M
Spinach, canned
ti
ti
Spinach, frozen
n
ii
Unit Size
(cases or Ibs.
48/6 oz. S
M
L
12/46 oz. S
M
L
6/10 S
M
L
12/3 S
M
L
Ibs, S
M
L
303 eq S
M
L
Ibs. S
M
L
Operating
Capacity
Per Hour
140
490
1,000
100
200
500
200
400
600
218
435
653
9,600
19,200
28,800
100
400
1,200
1,500
6,000
22,500
Length
of
Season
(hours)
2,880
2,880
2,880
2,880
2,880
2,880
900
900
900
900
900
900
900
900
900
500
500
500
500
500
500
Annual
Pack
(90% util. )
360,000
1,260,000
2,700,000
259,200
518,400
1,296,000
162,000
324,000
495,000
176,400
352,800
529,200
7,776,000
15,552,000
23,328,000
45,000
180,000
540,000
675,000
2, 700,000
10, 125,000
III-3
-------
Basic plant data was obtained from an annual series of publications by
A. H. Spurlock entitled "Cost of Processing, Warehousing and Selling
Florida Citrus Products", Food and Resource Economic Department,
University of Florida. Data used was for the 1971-72 season.
Processing costs (no capital investment costs included) were analyzed
for other canned juices including grapefruit, tangerine, and blended.
Cost of processing varied only by one cent per case with the exception of
tangerine which averaged about 5 cents per case difference. It was
determined that orange juice would represent adequately the other juices.
Frozen orange concentrate represents 93 percent of the total frozen citrus
concentrate pack and was used in this analysis.
Apples
Four major types of apple processing plants were developed: canned slices,
canned sauce, canned juice and frozen slices. Dried and dehydrated apples
were omitted as they represented only 6 percent of the total amount processed.
Length of season for the various size plants was set at 900 processing hours.
Basic plant data on processing and investment costs was obtained from
Jorge Gutierrey Villarreal, "Investment Alternatives in the Processing of
North Carolina Apples, " Department of Economics, North Carolina Univer-
sity, 1972. These costs were updated to the 1971-72 pack year and discussed
with industry specialists.
Spinach
Model plants for both canning and freezing of spinach were developed. It
should be noted at this point that no record of a single line spinach processing
plant could be found. All plants that process spinach also process other fruits
and vegetables. Three sizes of plants for both freezing and canning of
spinach with a length of season determined to be 500 hours -were developed
from published sources. In each case, data were constructed from simulated
plant operations versus actual industry costs as used in the citrus plants.
The basic data sources are Mathia, Pearson and Ela, "An Economic Analysis
of Canning Leafy Greens, Lima Beans and Southern Peas," Economics
Information Report No. 18, Department of Economics, North Carolina State
University at Raleigh, 1970, and Brocher and Pearson, "Commercial Freez-
ing of Six Vegetable Crops in the South," MRS Report No. 926, Economic
Research Service, USDA, 1971.
Ill-4
-------
Asparagus
No detailed information regarding cost of processing asparagus could be
obtained from published sources. After discussion with various industry
specialists, it was determined that work on this industry has not been
completed. As with spinach, no plants could be identified that process
only asparagus.
B, Model Plant Configuration
The detailed specification for each model plant configuration are presented
in Tables III-2 to 8. Revelant portions are then summarized in Tables
III-9 to 11.
1. Utilization
It is generally recognized that fruit and vegetable plants are currently
operating at a level of less than capacity. For the purposes of this report
plants costed out at 100 and 90 percent of operating capacity during the
operating season.
2. Description of Cost andJRevenue Components
Revenues - are based on the average f. o.b. plant prices for the canning
year. These prices were obtained from various recognized published
sources including: Canning Trade, Quick Frozen Foods, and others.
Raw product costs - were developed on the basis of the tonnage of raw
product required to yield a given number of cases or product of processed
product. Average f. o.b. plant prices were used for the 1971-72 process-
ing season.
The following physical relationships were used:
Frozen orange juice concentrate- 135 Ibs. oranges per case, 48/6 oz.
Canned single strength orange
juice
Canned apple slices
Canned apple sauce
Canned apple juice
Frozen apples
Spinach, canned
Spinach, frozen
68 Ibs. oranges per case, 12/46
67 Ibs. apples per case, 6/10
31 Ibs. apples per case, 24/303
100 Ibs. apples per 9 gals, juice
100 Ibs. apples per 72 Ibs. frozen
18. 18 Ibs. raw spinach per case,
24/303
100 Ibs. spinach per 70 Ibs. frozen
III-5
-------
Product related expenses - (other direct costs) were developed from the
previously mentioned plant studies, updated and adjusted to plant types
and sizes indicated and checked against performance data from industry
sources. This normally included processing labor, containers, sugar
and spices, power, fuel, water, and variable repairs.
Plant related expenses - (indirect costs) included management, sidministra-
tive expense, selling, and other.
Depreciation - was based on 20 year life for buildings and 15 year life
equipment of the estimated replacement cost of the plant. In the case of
citrus, no replacement costs were available at this point so the average
industry depreciation cost was used as reported by IRS in the Almanac
of Business and Industrial-Financial Ratios.
Interest - for processing plants were based on indicated rates from the
Almanac of Business and Industrial-Financial Ratio.
Ill-6
-------
Table III-2. Estimated cash flow for frozen concentrated orange juice
140 cases/hr -
$ Case
Utilization
Annual throughput (48/6 oz)
Sales (000) 7.52
Product related
expenses (000) 5. 78
Plant related expenses (000)
Cash earnings (000)
Depreciation - (000)
Interest (000)
Pre-tax income (000)
Income tax (000)
After-tax income (000)
Annual cash flow (000)
DCF cash flow (000)
Replacement investment (000)
Total working capital (000)
Total
Annual
100
400,000
3,008
2, 312
267
429
97
36
296
13t
160
257
293
1, 582
1,002
2, 025
144 TPD
Annual
90
360,000
2,707
2, 080
267
360
97
36
227
102
125
222
258
i, 582
901
1,924
490 cases/hr -
$ Case Annual
100
1,400,000
7.52 10,538
5.78 8,092
936
1,510
271
190
1,049
497
552
823
J , 0 1 3
4,405
4,215
7,803
528 TPD
Annual
90
1,260,000
9,475
7,282
936
1,257
271
190
796
376
420
691
881
4,405
3, 790
7, 378
1,000 cases/hr
$ Case Annual
100
3,000,000
7.52 22,560
5.78 17,340
2,006
3,214
474
406
2, 334
1, 115
1, 119
1,593
1,999
7,694
9,024
16, 718
- 1.072 TPD
Annual
90
2,700,000
20,304
15,606
2,006
2,692
474
406
1,812
864
948
1,422
1,828
7,694
8, 121
15,815
-------
Table III-2 (continued)
140 cases
$ Case
Utilization
Average fixed assets (000)
Total working capital (000)
Current liabilities (000)
Average fixed investment (000)
R Pre-tax income /av. fixed inv.
i
00
Net income/av. fixed inv.
Annual cash flow/av. fixed inv.
/hr - 144
Annual
100
791
1,002
644
1, 149
25. 8
13.9
22.4
TPD
Annual
90
791
901
579
1, 113
2Q.4
11.2
20.0
490 cases/hr - 528
$ Case Annual
100
2,202
4,215
2,255
4, 162
Percent
25.2
13.3
19.8
TPD
Annual
90
2,202
3,790
2,028
3,964
20. 1
10.6
17.4
1, 000 cases/hr -
$ Case Annual
100
3,847
9, 024
4,828
8,043
29. 0
13.9
19.8
1,072 TPD
Annual
90
3,847
8, 121
4,345
7,623
23.8
12.4
18. 6
I/
~ Preliminary
-------
Table III-3. Estimated cash flow for single strength orange juice canning plants
100 cases/hr - 54 TPD 200 cases/hr - 109 TPD 500 cases/hr - 272 TPD
$ Case Annual Annual $ Case Annual Annual $ Case Annual Annual
Utilization 100 90 100 90 100 90
Annual throughput
(12/46 oz. cases eq.) 288,000 259,200 576,000 518,400 1,440,000 1,296,000
Sales (000) 4.25 1,224 1,102 4.25 2,448 2,203 4.25 6,120 5,508
Product related
expenses (000) 3.459 996 897 1,992 1,793 4,981 4,481
Plant related
expenses (000)
Cash earnings (000)
Depreciation (000)
Interest (000)
Pre-tax income (000)
Income tax (000)
After-tax income (000)
Annual cash flow (000)
DCF cash flow
I/
Replacement Investment (000)
Total Working Capital (000)
Total (000)
145
82
32
15
35
10
25
57
72
512
407
919
145
60
32
15
13
3
10
42
57
512
366
878
291
165
59
44
62
23
39
98
142
956
979
1,937
291
119
59
44
16
4
12
71
115
958
881
1,839
727
412
129
110
173
77
96
225
335
2,086
2,448
4,534
727
298
129
110
59
23
36
165
275
2,086
2,203
4,289
-------
Table III-3 (continued)
100 cases/hr - 54 TPD 200 cases/hr - 109
$ Case
Utilization
Average fixed assets (000)
Total working capital (000)
Current liabilities (000)
Average fixed investment (000)
S Pre-tax income /av. fixed inv.
t '
° Net income /av. fixed inv.
Annual cash flow/av. fixed inv.
Annual
100
256
407
262
401
8.7
6.2
14.2
TPD 500 cases/hr - 272 TPD
Annual $ Case Annual Annual $ Case Annual
90
256
366
236
386
3.4
2.6
10.9
100
479
979
524
934
Percent
6.6
4.2
10.5
90
479
881
471
889
1.8
1.3
8.0
100
1,043
2,448
1,310
2, 181
7.9
4.4
10.3
A nnual
90
1,043
2,203
1,179
2, 067
2.9
1.7
8.0
I/
Preliminary
-------
Table III-4. Estimated cash flow for canned apple slices
Utilization
Annual throughput
(Cases 6/10)
Sales (000)
Product related
expenses (000)
Plant related
expenses (000)
Cash earnings (000)
Depreciation
£ Bldg. 5% (000)
V Equip. 6.6% (000)
h '
"" Interest (000)
Pre-tax income (000)
Income tax (000)
After-tax income (000)
Annual cash flow (000)
DCF cash flow (000)
Replacement investment
(000)
Total working capital
(000)
Total
200 cases/hr - 32
$ Case Annual
100
180, 000
6.30 1,134
4.83 870
166
98
26
27
14
31
9
22
75
89
918
378
1,286
TPD
Annual
90
162, 000
1,020
783
160
77
26
27
14
10
3
7
60
74
918
340
1,258
400 cases/hr - 64
$ Case Annual
100
360,000
6.30 2,268
4.58 1,649
270
349
41
43
41
224
102
122
206
247
1,476
907
2, 383
TPD
Annual
90
324, 000
2,041
1,484
270
287
41
43
41
162
72
90
174
215
1,476
816
2,282
600 cases/hr - 96
$ Case Annual
100
540, 000
6.30 3,402
4.53 2,446
380
576
51
63
61
401
187
214
328
389
2,076
1,361
3,437
TPD
Annual
90
495,000
3,062
2,242
380
440
51
63
61
265
121
144
258
319
2,076
1,225
3,301
continued.. . .
-------
Table III-4. Estimated cash flow for canned apple slices (continued)
Utilization
Average fixed assets
(000)
Total working capital
(000)
Current liabilities
(21.4) of sales (000)
Average fixed invest-
ment (000)
( i
i i
i i
i
ro
200 cases/hr - 32
$ Case Annual
100
459
378
243
594
TPD
Annual
90
459
340
218
581
400 cases/hr -
$ Case Annual
100
738
907
485
1, 160
Percent
64 TPD
Annual
90
738
816
437
1, 117
600 cases/hr -
$ Case Annual
100
1, 038
1, 361
728
1,671
96 TPD
Annual
90
1, 038
1,225
655
1, 608
Pre-tax income/av.
fixed investment
Net income/av. fixed
investment
Annual cash flow/av.
fixed investment
05.2 01.7
03.7 01.2
12.6 10.3
19.3
10.5
17.8
14.5
08. 1
15.6
24. 0
13.3
19.6
16.5
09.0
16.0
-------
Table HI-5. Estimated cash flow for canned apple sauce plants
Srpall 32 TPD Medium - 64
$ Case
Utilization
Annual throughput
6/10s
Sales (25% 6/10s) 5. 13
(75% 303s) 3.62
Total sales (000)
Product related
expenses (000)
Plant related expenses
expenses (000)
Cash earnings (000)
B Depreciation (000)
£ Bldg. (5%)
Equip. (6.6%)
Interest (000)
Pre-tax income (000)
Income tax
After-tax income (000)
Annual cash flow
DCF Cash Flow
Replacement Investment
(000)
Total Working Capital
Total
Annual
100
60, 000
290,250
308
1, 051
1, 359
1, 072
183
104
26
27
16
35
11
24
77
93
928
453
1, 381
Annual $ Case
90
54, 000
261,225
277 5.13
946 3.62
1,223
965
183
75
26
27
16
6
2
4
57
73
928
408
1, 336
Annual
100
120, 000
580,500
616
2, 10]
2,717
2, 061
306
350
30
43
49
228
104
124
197
246
1.250
906
2, 156
TPD Large - 96 TPD
Annual $ Case
90
108,000
522,450
554 5.13
1,891 3.62
2,445
1,855
306
284
30
43
49
162
72
90
163
212
1,250
815
2,065
Annual
100
180,000
870,750
923
3, 152
4,075
3,096
434
545
59
62
73
351
163
188
309
382
2, 120
1, 358
3,478
Annual
90
162, 000
783,675
831
2,837
3,668
2,786
434
448
59
62
73
254
116
138
259
332
2, 120
1,222
3.342
-------
Table III-5 (continued)
$
Utilization
Average fixed assets
(000)
Total Working Capital
(000)
Current Liabilities
(21.4) of sales (000)
Average fixed investment
(000)
Small - 32
Case Annual
100
464
453
291
626
TPD
Annual
90
464
408
202
610
Medium - 64
$ Case Annual
100
625
406
581
950
Percent
TPD
A nnua 1
90
625
815
523
917
Large - 96 TPD
$ Case Annual
100
1,060
1, 358
872
1, 546
Annual
90
1,060
1,222
785
1,497
Pre-tax income/av.
fixed investment
Net income/av. fixed
investment
Annual cash flow/av.
fixed investment
5.6
3.8
12.3
1.0
.7
9.3
24.0
13.0
20.7
17.7
9.8
17.8
22.7
12.2
20.0
17.0
9.2
17.3
-------
Table III-6. Estimated cash flow for canned apple juice plants
218 cases/hr - 48 TPD
$ Case
Utilization
Annual Throughput
(12/3)
Sales (000) 3.60
Product Related
Expenses (000) 2.50
Plant Related Expenses (000)
Cash Earnings (000)
V Depreciation (000)
5 Bldg. (5%) (000)
Equip. (6.6%) (000)
Interest (000)
Pre-tax Income (000)
Income Tax (000)
After -tax income (000)
Annual cash flow (000)
DCF cash flow
Replacement investment (000)
Total working capital (000)
Annual
100
196, 000
705
490
135
80
9
13
8
50
18
32
54
62
395
234
Annual
90
176,400
635
441
135
59
9
13
8
29
8
21
43
51
395
211
435 cases/hr - 96
$ Case Annual
100
392, 000
3.60 1,411
2.30 900
210
301
15
15
25
246
112
134
164
189
540
564
TPD
Annual
90
352,800
1.270
811
210
249
15
15
25
194
87
107
137
162
540
508
653 cases/hr -
$ Case Annual
100
588,000
3.60 2,H6
2.29 1,346
289
481
22
21
38
400
186
214
257
295
740
846
144 TPD
Annual
90
529,200
1,905
1,211
289
405
22
21
38
324
149
175
218
256
740
762
Total (000) 629 606 1,104 1,048 1,586 1,502
continued ....
-------
Table III-6 (continued)
218 cases/hr - 48 TPD
$ Case
Utilization
Average fixed assets (000)
Total working capital
Current liabilities
(21.4) (000)
Average fixed in-
vestment (000)
Pre-tax income/ave.
fixed investment
Net income/av. fixed
investment
Annual cash flow/av.
fixed investment
Annual
100
198
234
151
281
17.8
11.4
19.2
Annual
90
198
211
136
273
10.6
7.6
15.8
435 cases/hr -
$ Case Annual
100
270
564
302
532
Percent
46.2
25. 1
30.8
96 TPD
Annual
90
270
508
271
507
38. 3
21. 1
27.0
653 cases /hr -
$ Case Annual
100
370
846
453
763
52.4
28.0
33.6
144 TPD
Annual
90
370
762
407
725
44.7
24.1
30.1
-------
Table III-7. Estimated cash flow for frozen apple slices plant
Utilization
Annual throughput
(000 Ib)
Sales (000)
Product related
expenses (000)
Plant related
expenses (000)
I-H
j-1 Cash earnings (000)
^ Depreciation (000)
Bldg. (5%)
Equip. (6.6%)
Interest (000)
Pre-tax income (000)
Income tax
After-tax income (000)
Annual cash flow (000)
DCF cash flow
Replacement investment
(000)
Total working capital
9, 600 Ibs. per
$/lb. Annual
100
8,640
.151 1,305
.153 1,326
179
-200
47
18
16
-281
--
-281
-216
-200
1,219
435
hour
Annual
90
7,776
1, 174
1, 193
179
-198
47
18
16
-279
--
-279
-214
-198
1,219
391
19, 200 Ibs. per
$/lb. Annual
100
17, 280
.151 2,609
.149 2,581
297
-269
81
24
31
-405
--
-405
-300
-269
2, 117
1, 043
hour
Annual
90
15,552
2, 348
2, 323
297
-272
81
24
31
-408
--
-408
-303
-272
2, 117
939
28, 800 Ibs. per
$/lb. Annual
100
25,920
.151 3,913
. 148 3, 849
421
-357
113
46
47
-563
--
-563
-404
-451
3,972
1,565
hour
Annual
90
23, 328
3,522
3,464
421
-363
113
46
47
-569
--
- 569
-410
-457
3,972
1,409
(000)
Total (000) 1,654 1,610 3,160 3,056 5,537 5,381
continued
-------
Table III-7. Estimated cash flow for frozen apple slices plant (continued)
Utilization
Average fixed assets
(000)
Total working capital
(000)
Current liabilities
(21.4 of sales) (000)
Average fixed in-
vestment (000)
9, 600 Ibs. per
$/lb. Annual
100
605
435
279
761
hour
Annual
90
605
391
251
745
19, 200 Ibs. per
$/lb. Annual
100
1,059
1,043
558
1, 544
Percent
hour
Annual
90
1,059
939
502
1,496
28, 800 Ibs. per
$/lb. Annual
100
1,986
1,556
837
2,705
hour
Annual
90
1,986
1,409
754
2,541
Pre-tax income/av.
fixed investment
Net income/av. fixed
investment
Annual cash flow/av.
fixed investment
-------
Table III-8. Estimated cash flow for spinach canning plant
$ Case
Utilization
Annual Throughput
(Cases)
Sales ($1,000) 3.65
Operating Expenses
HH
tt
,L Cash Earnings
Depreciation
Bldg. at 5%
Equip, at 6. 6%
Interest
Pre-tax Income
Income tax
After-tax Income
Annual cash flow
DCF cash flow
Replacement investment
Total working capital
100 case/hr
Annual
100
50,000
183,000
171,000
12,000
2,250
4,440
1,830
3,480
870
2,610
9,300
11, 130
122, 303
60,900
Annual
90
45,000
164,000
162,000
2,000
2,250
4,440
1,830
-6,520
-
-6,520
170
2, 000
122, 303
54,600
400 case/hr.
$ Case Annual
100
200,000
3.65 730,000
607,000
123,000
6, 100
10,974
8,760
97, 166
40,890
56,276
73,350
82, 110
307,487
292,000
Annual
90
180, 000
657,000
567,000
90,000
6, 100
10,974
8,760
64, 166
15,050
49,116
66, 190
74,950
307,487
262,800
1,200 case/hr.
$ Case Annual
100
*
600,000
3.65 2,190,000
1,567,000
623, 000
16,200
26,255
39,420
541, 125
253,990
287, 135
329,590
369,010
781,711
876,000
Annual
90
540,000
1,971,000
1,484,000
487,000
16,200
26,255
39,420
405,125
188, 710
216,415
258,870
298,290
781,711
788,400
Total
183,203 176,903
599,487 570,287
1,657,711 1,570,111
continued
-------
Table III-8. Estimated cash flow for spinach canning plant (continued)
100 case/hr.
$ Case
Utilization
Average fixed assets
Total working capital
Current liabilities
(21.4 of sales)
Average fixed in-
vestment
Pre-tax income/av.
fixed investment
Net income/av.
fixed investment
Annual cash flow/av.
fixed investment
Annual Annual
100 90
61, 152 61, 152
60,900 54,600
39,000 35,000
83,052 80,752
04.2 ( )
03.1 ( )
11.2 00.2
400 case/hr. 1 , 200 case/hr.
$ Case Annual
100
153,744
292, 000
156, 000
289, 744
Percent
33.5
19.4
25.3
Annual $ Case
90
153, 744
262, 800
141, 000
275, 544
23.2
17.8
24.0
Annual
100
390,856
876, 000
469, 000
797,856
67.8
36. 0
41.3
Annual
90
390, 856
788, 400
422, 000
757, 256
53.5
28.6
34.2
-------
Table III-9. Estimated cash flow for spinach freezing plant
1 , 500 Ibs. per hour
$ Ib.
Annual
Annual
6, OOP Ibs. per hour
$ Ib. Annual Annual
22, 500 Ibs. per hour
$ Ib.
Annual
Annual
Utilization
Annual Throughput
(Ibs)
Sales
Product related
expenses
Plant related
expenses
G Cash earnings
i
£j Depreciation
Bldg. at 5%
Equip, at 6.6%
Interest
Pre-tax income
Income tax
After-tax income
Annual cash flow
DCF cash flow
Replacement investment
Total working capital
Total
100
90
1856
0996
750,000 675,000
139,200 125,280
74,700 67,230
90,696 90,696
-26,196 -32,646
551,000 551,000
46,000 42,000
597,000 593,000
100
90
100
90
3,000,000 2,700,000
1856 556,800 501,120
11,250,000 10,125,000
1856 2,088,000 1,879,200
1855 256,500 230,850 .0595 669,375 602,437
274,500 274,500
25,800 -4,230
1,328,000 1,328,000
222,000 200,000
1,550,000 1,528,000
937,634 937,634
480, 991 339, 129
826
2,544
1,392
-30,968
-30,968
-27,598
-26,206
826
2, 544
1, 392
-37, 408
-37, 408
-34, 038
-32,646
1,991
6, 134
6,681
10,994
2,748
8,246
16,371
25,800
1,991
6, 123
6,681
-19,036
-19,036
-10,911
- 4,230 '
5,212
16, 978
20,250
438, 551
204, 754
233,797
255,987
480, 099
5,212
16,978
20, 250
296,689
136,661
160,028
182,218
196,719
3,675,000 3,675,000
835,000 752,000
4,510,000 4,427,000
continued. . . .
-------
Table III-9. Estimated cash flow for spinach freezing plant (continued)
Utilization
Average fixed assets
Total working capital
Current liabilities
(21.4 of sales)
Average fixed in-
vestment
1, 500 Ibs. per hour
$ Ib. Annual Annual
100 90
275,500 275,500
46, 000 42, 000
30,000 27,000
291, -500 290,500
6, 000 Ibs. per
$ Ib. Annual
100
664, 000
222, 000
119, 000
767, 000
hour
Annual
90
664, 000
200, 000
107, 000
757,000
. 22,500 Ibs. per
$ Ib. Annual
100
1, 837,500
835, 000
447, 000
2, 225, 500
hour
Annual
90
1,837,500
752, 000
402, 000
2, 187,500
Percent
Pre-tax income/av.
fixed investment
i i
i
^ Net income/av. fixed
( ) ( )
01.4
( )
19.7
13.6
investment
01. 1
10.5 07.3
Annual cash flow/av.
investment
02. 1
11.5 08.3
-------
3. Summary of Model Plant Data
Model plant sales, variable costs, fixed costs including depreciation
and interest are summarized in Table 111-10. The summary is made
at the 90 percent utilization level as this will present a more realistic
operating value than the hypothetical 100 percent.
Raw product cost ranges from a low of 10 percent for the spinach canning
plant (slight variation due to rounding) to a high of 55 percent for frozen
concentrated orange juice.
As a check of the accuracy of the model plant data, a comparison was
made with margin data developed by ERS of USDA.J.' Generally, pro-
cessor margins are expanding over time and the most current ERS
estimate is for 1969/70 so some variation can be expected. A summary of
the results is as follows:
Processor Margins
Model Plants USDA
Frozen Orange Juice 55*-> 53%
Canned SS OJ 44 42
Applesauce, canned 31 28
Canned spinach 11 11
Frozen spinach 19 17
This brief description indicates that the revenue and raw product
calculation in the model plants accurately reflect the cost relationships
that exists in the industry.
The breakdown of processing costs to other direct and indirect costs
is somewhat arbitrary and does not provide a meaningful comparison
between plants. The two should be summed. On that basis, they range
from a low of 32 percent for frozen orange juice to a high of 77 percent
for canned spinach. This range is to be expected given existing raw
product margin.
As indicated previously, depreciation was calculated on the basis of
replacement cost and ranged from 1 to 5 percent of sales as expected.
This is slightly higher than actual industry averages which ranged from
2. 1 to 2. 3 percent of sales for the years 67-68 through 69-70.
Economic Research Service, "Prices, Margin and F rm Value for
Canned and Frozen Fruits, Vegetables and Juices," Statistical
Bulletin No. 420, USDA, 1971.
IIJ-23
-------
Table 111-10. Estimated sales, variable and fixed costs and relationships for industry segments based on model plants (90 percent utilization)
Sales
Variable costs
Raw materials
OJ , frozen cone .
11
11
OJ , SS canned
"
"
Apple slices, canned
"
11
Apple sauce, canned
"
11
Apple juice canned
11
"
PP
"
Spinach canned
11
"
Spinacli frozen
"
' '
Unit Capacity
48/b 400
oz. 1,400
3,000
12/48 288
576
1,440
6/10 180
360
540
303 eq. 387
774
1, 162
12/3 192
392
588
Ib . 8,640
17,280
25,920
303 50
200
600
Ib. 750
3,000
11, 250
D o 1 la r s
2,
9,
20,
1,
2,
5,
1,
2,
3,
1,
2,
3,
1 ,
1 ,
2,
3,
1,
2,
707
475
304
102
203
508
020
041
062
223
445
668
635
270
905
174
348
522
183
657
971
125
501
088
Percent
of sales
100. 0
100. 0
100.0
100.0
100. 0
100. 0
100. 0
100. 0
100.0
100.0
100.0
100.0
100. 0
100.0
100.0
100.0
1 00. 0
100. 0
100.0
100. 0
100. 0
100.0
100.0
100.0
100.0
Dollars
1,483
5, 191
11, 124
488
976
2,440
378
758
1,137
379
758
1, 137
156
311
467
379
758
1,137
18
74
220
24
97
361
Percent
of sales
54. 78
54. 83
54.79
44.28
44. 30
44.30
37.06
37. 14
37. 13
31.00
31.00
31. 00
24. 57
24.49
24. 51
3 2. 28
32.28
32.28
9- 84
11.26
11. 16
19- 20
19. 36
17. 29
Other direct
Dollars
597
2,091
4,482
411
1,17
2,041
405
726
1, 105
586
1,097
1,649
285
500
744
81 4
1,567
2,327
144
493
1,264
43
134
241
percent
of sales
22. 05
22. 07
22. 07
37. 30
37. 09
37. 06
39. 71
35.62
36. 09
47.91
44. 87
44. 99
44. 88
39- 37
39. 06
69.34
66.74
66. 07
78.69
75.04
64, 13
34.40
26. 75
11. 54
Indirect
Dollars
267
936
2,006
145
291
727
166
270
380
183
306
434
135
210
289
1 79
297
421
I/
I/
I/
91
275
938
Percent
of sales
9
9
9
13
13
13.
16.
13,
12.
14.
12.
11.
21.
16.
15.
1 5.
12.
11.
72.
54.
44.
.86
. 88
. 88
. 16
. 21
. 20
. 27
. 23
.41
96
52
83
26
54
17
25
65
95
80
89
92
Fixed Costs
Depreciation
Dollars
97
271
474
32
59
129
53
84
114
53
73
121
22
30
43
65
115
169
7
17
42
4
8
21
Percent
of sales
3. 58
2. 86
2. 33
2. 90
2. 68
2. 34
5. 20
4. 12
3.72
4. 33
2. 99
3. 30
3.46
2. 36
2. 26
5.54
1- 90
4. 80
3. 83
2. 59
2. 13
3. 20
1. 60
1. 01
Interest
Dollars
36
190
406
15
44
110
14
41
61
16
49
73
8
25
38
1 L
i D
31
47
2
9
39
2
7
20
Percent
of sales
1. 20
2. 01
2. 00
1.36
2. 00
2. 00
1. 37
2. 01
1. 99
1. 31
2. 00
1.99
1.26
1.97
1. 99
1 ^ A
1 . JO
1. 32
1. 33
1.09
1.37
1. 98
1. 60
1. 40
. 95
Total
Dollars
2,480
8,679
18,492
1, 091
2, 187
5,447
1,016
1,879
2,797
1,217
2,283
3,414
606
1,076
1, 581
1,453
2,768
4, 101
171
593
1,565
164
521
1,581
Percent
of sales
91.61
91. 60
91.08
99.00
99.27
98. 89
99.61
92.06
91. 35
99. 51
93. 37
93. 08
95.43
84. 72
82.99
123. 76
117. 89
116.44
93.44
90. 26
79.40
131 20
103.99
75.72
_ Combined with other direct
111-24
-------
Interest rates were taken from IRS averages. Net profits as a percent
of net sales are summarized for the model plants in Table III-ll. Net
profits range from < 0 to as high as 11 percent for canned spinach.
A sample average of sales to net profit for the small plants is 1.6 percent,
for medium plants, 4. 5 percent and 5. 6 percent for large plants. This
compares with the industry average of 4. 0 percent during the period from
1915-1917 and is slightly higher than the latest information available
from published IRS data which averaged 3. 2% for 1967-68, 2. 6% for 1968-
69 and 2. 2% for 1969-70.
4. Annual Profit before Taxes
Pre-tax income, return on average invested capital before and after taxes
and after tax return on sales, for the types and sizes of fruit and vegetable
packing plants analyzed, are shown in Table III-ll.
Pre-tax income was derived as follows:
Gross sales
- Raw materials cost
- Gross margin
- Direct and indirect operating expenses
= Cash earnings
- Depreciation and interest
- Pre-tax income
These data were developed from a combination of published and unpublished
sources and were checked against available information on industry linanciaJ
ratios and other measures of industry financial performance, to insure their
credibility.
Average invested capital was calculated as follows:
Average fixed assets (1/2 of replacement cost)
+ Total working capital
- Current liabilities
- Average invested capital
Average fixed assets were estimated from previously published research
(updated and adjusted for plant size and type), enginnering estimates of
plant and equipment and industry information on new plant costs. These
estimates are still in the process of being checked by knowledgeable
individuals in the food industry.
Current liabilities were estimated from industry performance ratios as
reported in the Almanac of Business and Industrial Financial Ratios--!973.
The uniform rate used for all plants was the three year industry average of
21.4 percent of sales.
111-25
-------
TableIII-1 1. Estimated pre-tax income and rate of return on average invested capital for industry segments
based on model plants.
I
ro
Pre-tax Income Dollars
Plant Unit
Orange juice, frozen cone. 48/6
1 1
11
Orange juice, ss canned 12/46
n
1 1
Apple slices, canned 6/10
M
n
Apple sauce, canned 303
"
1 1
Apple juice, canned 12/3
"
"
Apple slices, frozen Ibs.
11
1 1
Season
Capacity
(000)
oz. 400
1,400
3, 000
oz. 288
576
1,440
180
360
540
387
774
1, 162
196
392
588
8,640
17,280
25,920
Utilization
100%
296
1,049
2,334
35
62
173
31
224
401
35
228
351
50
246
400
(281)
(405)
(563)
90%
227
796
1,812
13
16
59
10
162
265
6
162
254
29
194
324
(279)
(408)
(569)
ROI Pre-tax
Income ROI After Tax Income
Utilization
100%
25.8
25.2
29.0
8.7
6.6
7.9
5.2
19.3
24. 0
5.6
24.0
22.7
17.8
46.2
52.4
0
0
0
90%
20.4
20. 1
23.8
3.4
1.8
2.9
1. 7
14.5
16.5
1.0
17.7
17.0
10. 6
38.3
44.6
0
0
0
Utilization
100%
13.9
13.3
13.9
6.2
4.2
4.4
3. 7
10. 5
13.3
3.8
13.0
12.2
11. 3
25.2
28. 0
0
0
0
90%
11.2
10.6
12.4
2.6
1.3
1.7
1.2
8. 1
9.0
0. 7
9.8
9.2
7.8
18.2
24. 1
0
0
0
-------
Table III-ll. (Cont'd)
Pre-tax Income Dollars ROI Pre-tax
Plant
Spinach, canning
1 1
ii
Spinach, frozen
1 1
ii
Season
Unit Capacity
303 50
200
600
Ib. 750
3, 000
11,250
Utilization
100%
3
97
541
(31)
11
438
90%
(6)
64
405
(37)
(19)
296
Income ROI After Tax Income
Utilization
100%
3.
33.
67.
1.
19.
6
5
8
0
4
7
90%
23.
53.
13.
0
3
5
0
0
5
Utilization
100%
3.
19.
36.
0.
10.
1
3
0
0
4
5
90%
0
17.8
28.5
0
0
7.3
-------
TableIH-12 Estimated annual cash flow and rate of return on average invested capital for industry segments
based on model plants.
00
Annual Cash
Flow Dollars
Utilization
Plant
Orange juice, frozen cone.
"
"
Orange juice, ss canned
"
1 1
Apple slices, canned
1 1
1 1
Apple sauce, canned
1 1
11
Apple juice, canned
"
1 1
Apple slices, frozen
1 1
t «
Unit Capacity
(000)
48/6 oz. 400
1, 400
3,000
12/46 oz. 288
576
1,440
6/10 180
360
540
303 387
774
1, 162
12/3 196
392
588
Ibs. 8,640
17,280
25,920
100%
90%
ROI Annual
Cash Flow
Utilization
100%
90%
( Pe r c e nt )
257
823
1, 593
57
98
225
75
206
328
77
197
309
54
164
257
(216)
(300)
(404)
222
691
1,422
42
71
165
60
174
258
57
163
259
43
137
219
(214)
(303)
(410)
22.4
19.8
19.8
14.2
10. 5
10. 3
12.6
17.8
19.6
12. 3
20.7
20.0
19.2
30. 8
33.6
0
0
0
20.0
17.4
18.6
10.9
8.0
8.0
11.8
15.6
16.0
9.3
17. 8
17.3
15.8
27.0
30. 1
0
0
0
-------
Table III-12 (continued)
Annual Cash Flow Dollars
Utilization
Plant
Spinach, canning
11
1 1
Spinach, frozen
1 1
1 1
Unit Capacity
303 50
200
600
Ibs. 750
3, 000
11,250
100%
9
73
330
(28)
16
255
90%.
1
66
259
(34)
(10)
182
ROI Annual Cash Flow
Utilization
100%
11.2
25. 3
41.3
0
2. 1
11.5
90%
0.2
24.0
34.2
0
0
8.3
I
CvJ
sO
-------
Working capital was estimated from actual industry performance r^ti.vs
as reported from IRS data in the Almanac of Business and Industrial
Financial Ratios. In the earlier study for EPA by DPRA , working
capital was estimated at 33.3 percent of sales. The IRS dat.i . >r,tirm< d
this If vel of working capital for small plants but for median- > .,d Urge
pLar.ts, the level as a percentage of sales was increased to to p-:r :ent.
Pro-tax retuina on average capital varied directly with size cf p'nnt
with the exception of the citrus industry (discussed below). Tin.-, ranged
from a negativ'e return for all sizes of frozen apple plants to a high
of 53 percent for the large spinach canning plant at the 90 percent level
of utilization.
As expected, orange juice frozen concentrate demonstrated ,-t higher
rate of profit than did canned SS. A uniform operating cost was used
for all size plants in the citrus industry as direct industry results
indicate no direct relation between cost of processing and size of operation.
Low returns were obtained on both the frozen apple and frozen spinach
plants. This can generally be explained by the high cost of investment
per case of operating capacity. In order for freezing plants to operate
profitability they must pack for longer seasons and maintain higher
annual throughputs per unit of capacity. For this reason, nearly all
freezing plants extend their operating season with the addition of other
products to their processing limit.
5. Annual Cashflow
The estimated annual cashflow and rate of return on average capital for
model plants is shown in Table III-1Z. Based on the 90 percent utilization
figure, percent return by plant averaged between 8 and 34 percent, with
the exception of the non-citrus freezing plants which remain either
negative or very low. Again economies of scale for size of plant are
evident (with the exception noted above).
6. Market Value of Assets
The market or salvage value of processing plants will vary widely from plant
to plant depending on the age of the plant, type and equipment configuration.
Also the condition of plant and equipment, and location will effect the mar-
ket or salvage value.
Ill-30
-------
Where plants are forced to close because they are presently unprofitable,
or because they would become unprofitable if they were forced to assume
the added investments and operating costs required for water pollution
control, then the salvage value of some buildings would be essentially
zero. Storage areas could be converted to alternative uses and the
equipment might sell from 10 to 50 percent of its original cost and the
value of the site could vary widely, depending on location.
In many instances, the value of a plant, particularly where a small firm
is involved, would be greater to its present owner than it would be to any
potential buyer. In terms of "book value", the physical facilities and
equipment may have been fully depreciated, or nearly so, but in terms of
their "use value" to their present owners, these plants represent assets
with tangible valuesmuch greater than their market or their salvage value.
No data were available on actual salvage values for fruit and vegetable
plants. A "market" for plants which would be forced to close, because
of added costs of water pollution control, would be virtually non-existent.
The impact analysis will therefore use an arbitrary ascribed value for
salvage value.
All operating capital will be recovered intact, land will be valued at its
original cost and buildings and equipment will be valued at 10 percent
of their replacement value. The combined value of operating capital,
land, buildings, and equipment will represent the salvage value to be
used.
Ill-31
-------
Table III- 13. Estimated replacement value and gross working capital
requirements for industry segments based on model plants
Replacement value
of plant
Type and Size equipment & site
Frozen OJ Cone.
Small
Medium
Large
Canned SS orange
Small
Medium
Large
Apple slices canned
Small
Medium
Large
Apple, sauce canned
Small
Medium
Large
Apple juice canned
Small
Medium
Large
Apple slices frozen
Small
Medium
Large
Spinach canned
Small
Medium
Large
Spinach frozen
Small
Medium
Large
($000)
1,023
3,588
7,694
417
835
2,086
918
1,476
2,076
395
540
740
931
1,508
2,109
1,219
2, 117
3,972
122
307
781
551
1,328
3,675
Total working
capital
requirement
($000)
1,002
4,215
9,024
407
979
2,448
378
907
1,361
234
564
846
452
1,087
1,630
435
1,043
1,565
61
292
876
46
222
835
Replacement
value of
total as set s
($000)
'2,025
7,803
16,718
824
1,814
4,534
1,286
2,383
3,437
629
1,104
1,586
1,383
2,595
3,739
1,654
3,160
5,537
183
599
1,657
597
1,550
4,510
III-3 2
-------
C. Comparison of Model Plant Data with IRS Data
Selected financial data and asset size for firms in canned and frozen foods
is given in Table III-14-. This is based on the latest available 3 year
results from the Almanac of Business and Industrial Ratios as developed
from IRS data.
Net income as a percent of sales as derived from the industry averages
amounted to 3. 6 percent in 67-68, 2. 3 percent in 19&8-69 and 1.8 in
1969 and 1970. Considerable variation was experienced by size of firm wit
with the very small firm (less than $50,000 of asset) performing relatively
well. A sharp drop in profits for the next size category with a gradual
increase in profits as the firm size increases. The relatively high pro-
fits of the very small firms may be explained by older plants with large
amounts of plant and equipment already depreciated out, low wages for
production line workers and relatively low level management structure
model plants. Model plants, however, show a higher net income averaging
1.6 percent for small plants, 4. 5 percent for medium and 5.6 percent for
large plants. (Table III-ll). However, other costs such as management,
advertising and G and A may be understated on the model plants.
Net Income as a Percent of Total Assets Less Current Liabilities. For the
total industry this was reported at a high of 7. 2 in 1967-68 and decreased
gradually to 5.0 in 1969-70. There are great variations by plant size
with some of the small plants sizes showing returns up to 51 percent.
The results generally decrease as plant sizes become larger.
The model plant data as presented in Section III-B-2 ranged from less than
0 to a high of 36 percent -- averaging somewhat higher than the actual
industry averages. Model plant data with the exception of citrus, dem-
onstrated defin te economies of scale with large plants demonstrating
higher returns. Frozen orange juice ranged from 12 to 16 percent,
canned orange juice from 1 to 2 percent and canned apples and apple
sauce from 1 to 24 percent. Canned apple juice ranked similar to
m-33
-------
Table III- 14. Selected financial data for firms in canned and frozen foods by asset size
No. of Firms reporting
1967-68
1968-69
1969-70
Net Income before tax as
1967-68
1968-69
1969-70
Net Income or percent of
1967-68
1968-69
1969-70
Total
1,805
1,588
1,707
a percent of labor
3.6
2.3
1.8
Under 50-
50 100
24.3 9.4
22.5 13.1
15.8 18.7
.
2.9 9.0
.7 *
100- 250- 500-
250 500 1,000
19-9 13.0 11.9
8.3 11.1 19.6
18.6 12.0 18.9
* * 2. 2
.6 1.6
* * 2. 4
1,000- 5,000
5,000 10,000
16. 0
15.5
9.9
3.0
_
-
2.9
6.0
17.4
4. 5
]-
2. 1
10,000-
25,000
1.4
2.3
3.0
3. 4
2.6
1-9
25,000-
50,000
0. 5
. 5
2.4
3. 2
2. 1
1-9
50,000- 100,000-
100,000 250,000
0.1 0.2
.3 .5
.7 .5
* 4.4
* 4. 6
.5 3. 2
250,000-
& over
0. 2
6. 0
N/C
N/C
total assets less current liabilities
7. 2
6.4
5.0
42. 1
51.4 39-5
-
12.3 8.6
11.0 6.6 8.7
4.8 7.8
9-2
6.2
5. 2
10. 0
5. 8
6. 2
6.1
5.9
5.2
6. 1
6.3
5. 0
1.6 6.3
1.3 6. 8
6. 8 3. 1
5. 1
Cash flow as percent of total assets less current liabilities
1967-68
1968-69
1969-70
12.0
11.5
10.4
Source: Almanac of Business and Industrial F
41.3
82. 6 50. 3
-
inancial Ratios,
19-9 17.7
22.4 15.6 17.0
18.8 15.9
1971, 1972, 1973. Ed.
15.9
13.3
13. 0
, Prentice
15. 3
12. 0
11. 0
Hall,"
11.7
11-9
11. 4
Inc. These
10.6
11.4
12.4
data are
5. 5 10. 8
7. 9 11.0
9-4 9.6
from Internal Revenue
10. 9
Service Corporation Statistics and Income.
111-34
-------
frozen orange juice concentrate with spinach varying widely from less
than 0 to 36 percent.
Cash flow as a percent of total assets less current liabilities for the:
total industry are shown in Table 111-12. A similar pattern exist
for net income as a percent of total assets less current liabi lities.
The results range from a high of 12 percent for 1967-68 and decrease
to 10.4 for 19^)9-70. The model plant data generally averages between
10 and 20 percent with the except1 on as noted earlier dropping to 0 or
increasing to } percent.
Overall, the results of the comparison of model plant data with actual
industry averages, recognizing different /ears are involved, indicates
that the model plants are operating at a slightly higher rate of profit
on sales as well as higher returns on total assets less current liabilities
than actual industry performance during the 1967-70 period. The model
plant data for the 71 -72 year would be rr.ore indicative of the 1965-67
period when profits in the industry were higher. It is evident from the
industry data that wide variation exists in the industry especially when
such a broad spectrum of plant sizes, oroducts -.rid types -,: oroerssing
are averaged into one category.
It would appear, at this stage, that the mode!, plants reflect conditions
of individual industry segments in a representative manner. This is
especially true since it is generally recognized that the industry experienced
higher profits in the 71-72 season than during the 1968-70 season.
D. 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
depreciation 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,
existing debt-equity ratio and the lenders' 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
III-35
-------
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 general economic conditions
are also major 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,
relationships, trends in production and consumption, the state of
technology, impact 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 international economy can influence
capital markets.
The food canning and freezing industries in the United States are highly
competitive with a large number of relatively small firms. Profit margins
on sales are low and highly volatile both for individual plants and for the
industry as a whole. Detailed information on the profit position of respec-
tive type and size companies is simply not available and only broad industry
averages can be obtained.
According to the Census of Manufacturers the total number of canning
plants decreased from 1,607 in 1958to 1,223 in 1967 a reduction of
24 percent in the 10 year period. While it cannot be quantitatively
stated, it is believed that the firm shut downs are basically the older,
small plants. This trend has been continuing for the past thirty years and
no doubt will continue for some time as the smallest third of the plants
account for only 5-10 of the total pack and are generally considered to
be old and small.
Ill-36
-------
A compositive income statement for canned fruits and vegetable (SICZ033)
was obtained from the National Canners Association and is presented in
Table III- 15. (Profits before tax, all canners and freezers as taken
from IRS data in the Almanac of Business and Industrial Financial
Ratios is included as a comparison.) No similar statement has been
obtained for the freezer industry. Total sales in the canned fruits
and vegetable industry amount to $3. 7 billion. Labor costs amount
to $613 million or 16.6 percent of sales. This has increa sedfrom 15.4
percent of sales in 1965. Fresh fruit and vegetable costs declined sharply
in 1969 and 1970 to 21.4 percent. Profits were also lower during the
past three years and averaged 2. 3 percent of sales compared with an
average of 4. 0 percent during the 1965 through 1967 period. According
to earlier survey of income and earnings over a five year period by the
National Canners Association, an average of 54 firms operated on a.
profitable basis each year and an average of 10 firms operated on a
loss basis of about 16 percent. (According to the IRS data, 48 percent
of the canners reported a negative income in the 1969-70 year, 29
percent in 1968-69 and 38 percent in 1967-68).
When net income as a percent of equity in the fruit and vegetable cttrinmg
industry is compared with other types of companies, they compared
favorably. For the 65-67 period (Table III-16) net income as a percent
of equity amounted to 9. 9 percent compared with 9- 2 for all canned and
frozen foods, 10. 1 for total manufacturing and 8. 1 for all corporations.
During the 1968-70 period, however, net income dropped sharply to 4. 6
percent. Information for other industry groups was not available for
comparative purposes. No information is available as to net income by
type of size of firm.
The number of freezing firms increased from 426 in 1958 to 608 in
1967 according to the Census of Manufacturers. Generally freezing
plants have been constructed more recently than canning plantsand are
larger in size. A recent article by Quick Frozen Foods_ reporting
the findings of their annual survey of frozen food packers (contains
also seafoods, meats, prepared foods, etc.) reported that 62 percent
of the frozen food packers queried intend to build new FF processing
plants or renovate old ones. Approximately one-fourch of those con-
tacted in the survey indicated expansion programs of more than $1,000,000.
With the increase in volume in the freezing industry, increase in plant
number and current plans for expansion it would appear that the freezers
are in a relatively better situation than canners to meet the added cost of
pollution control equipment.
_/ Katz, Arnie, "Annual Survey of Construction and Equipment Purchasing
Plan", Quick Frozen Foods, Cahner Publishing Company, Inc. ,
New York, N.Y., March, 1973.
Ill-37
-------
Table III-15. Income Statement, Canned Fruits and Vegetables (SIC 2033)
i
OJ
00
1965
1966
1967
1968
1969
1970
Millions of Dollars
Sales
Labor cost
Wages
Salarie s
Supplementary labor costs
Materials & other costs
Fresh fruits & vegetables
Other food ingredients
Containers
Other materials, supplies,
All other costs
Depreciation
Profits before tax
Total labor cost
Wage s
Fresh fruit & vegetable costs
Other food ingredient costs
Container costs
Profits before tax
Profit before tax, all canners
2,982
457
317
89
50
2,343
702
571
etc.
63
116
15
10
23
19
3
&; freezers
.0
.9
.8
. 3
. 8
.7
.9
.4
.7
.7
.4
.7
.6
.2
.9
-
3,215
492
341
92
58
2, 527
769
614
"
62
133
15
10
23
19
4
.8
. 5
. 1
.8
. 5
.4
. 5
. 5
.0
.9
. 3
.6
.9
. 1
.2
-
3,467. 8
536.4
376.0
97. 8
62.6
2,725.7
812.7
170. 5
627. 5
443. 8
671.2
72. 0
133.7
Percent
15.5
10.8
23.4
4.9
18. 1
3.9
-
3,654.
582.
409.
106.
66.
2,881.
876.
708.
77.
112.
of Sales
16.
11.
24.
19.
3.
3 .
1
9
5
5
9
9
6
5
1
2
0
2
0
4
1
6
3,670.
594.
419.
104.
70.
2, 943.
810.
720.
80.
51.
16.
11.
22.
19.
1.
2.
1
6
5
9
2
4
7
8
7
4
2
4
1
6
4
3
3,700.
613.
424.
114.
74.
2,916.
793.
728.
81.
88.
16.
11.
21.
19.
2.
1.
0
4
5
6
3
4
2
2
4
8
6
5
4
7
4
8
Source: National Canners Association, developed by Townsend-Greenspan and Company, Economic Consultants,
One New York Plaza, New York, N.Y., Oct. 1971.
Sales - 1958-1969 from Census of Manufacturers. 1970 estimated on basis of detailed price and
volume data on packs of individual fruits and vegetables.
Almanac of Business and Industrial Financial Ratios, 1973, ed. Prentice-Hall
continued--
-------
LO
Table 15 (continued)
L?hor Cost - Payroll, 1958-1969 from Census of Manufactures. 1970 estimate from
Bureau of Labor Statistics data. Fringe benefits, levels for 1957, 1967 and 1968, from
1958 Census of Manufactures and Annual Survey of Manufactures 1968. Other years
estimated from data for SIC 20 in National Income Accounts.
Cost of Materials - Costs of fruits, vegetables and containeib, Census of Manufactures
for 1958, 1963 and 1967. Other years interpolated on basis oi data in Tables 2-6. Other
food ingredients, Census of Manufactures. Other materials, supplies, Census of
Manufacture s.
Depreciation - Based on data for SIC 203 from Internal Revenue Service, Corporation
Source Books of Statistics of Income.
Profits - Profit margins derived from Touche Ross data lor (1) a sample of California canners
1960-1968, and Northwest, East and Midwe st canner a for 1960-1964, and (2) a smaller sample
of total company pretax margins for 1960-1970. Regional data were reweighted according to
national totals from the Census of Manufactures ami margin trends calculated using Census
profit margin proxies (ratio of value added less payroll to total sales). Estimates for 1958 and
1959 were obtained by linking to data for SIC 203 f'r^m IRS 1-ooree Books.
All Other Costs - Derived as residual.
-------
Table III- 16. Net Income as a Per Cent of Equity
Annual averages:
1959-61
1962-64
1965-67
3 1968-70
o
(1) (2)
All Total
Corporations Manufacturing
5.9 '.8
6.4 7.9
8.1 10.1
n. a . n. a .
(3)
Food &
Kindred
Products
7. 3
7.9
9.2
n. a.
(4)
Canned &
Frozen
Food s
8.0
6.4
9.2
7. 8
(5)
Canning
Industry
Selected
Group (1)
n. a
8. la
9.9
4.6
(1) Total company, including other seasonal and nonseasonal food products and certain foreign and
other operations.
a - Average of 1963 and 1964
n.a. - Not available.
Source: National Canners Association as developed by Townsend-Greenspan and Company.
Cols. 1 through 4 - Internal. Revenue Service, "Corporation Income Tax Returns."
Col. 5 - Touche Ross & Co. study of nine major fruit and vegetable canners.
-------
In general, it is not anticipated that there will be any serious constraints
in securing capital required for pollution control for large and medium
size canners and especially freezers. However, in individual situations
where plants are old, obsolete or unprofitable, and where local conditions
may require substantial investments for internal pollution abatement
systems or for participation in expanding capacity of sewer systems in
small communities, fruit and vegetable management may hesitate to
make the investments required -- even though capital may be available.
Capital availability may be a much more serious problem for small
plants which continue to operate primarily because owners have depre-
ciated out original investment costs, consider their investment in the
plant as "sunk capital" and consider that the plant has a "utility value"
if continued in operation which is greater than the "market value" or
''salvage value" of the plant should they decide to cease operations. For
such plants, the increased investment required for pollution control
may be difficult to obtain and even if available may be unattractive to both the
borrower and the lender. In these situations, the decision to attempt
to obtain additional capital may be based on the desire of the owners
to maintain the business for personal employment reasons rather than
on the expectation of realizing a return on invested capital.
111-41
-------
IV. PRICING EFFECTS
Environmental quality enhancement or the prevention of further
environmental quality degradation is not a free good and as such
must be borne by either producers, consumers or intermediaries.
This chapter briefly explores the possible price effect of mandatory
pollution abatement standards on the fruit and vegetable canning,
freezing and dehydrating industries.
Such a discussion is broad in scope and inevitably leads to the dis-
cussion of many diverse topics. The emphasis here will be confined
to a brief discussion of price determination within the industry and
the possible price effects emanating from the inauguration of manda-
tory pollution abatement standards.
A. Price Determination
Although the fruit and vegetable processing industry is characterized by
the existence of large multi-product, multi-plant firms, where a rela-
tively small number of firms process a high proportion of the total out-
put, the industry is nevertheless highly competitive. There are a
large number of small canners and freezers and the industry is faced
with the necessity of selling a high proportion of its total pack to large
national food chains. Plants and firms located in any region are
potential competitors to those producing the same product lines in
all other regions.
The resultant effect of the above structure dictates that prices are
determined largely on a competitive basis under conditions of supply
and demand. This chapter explores briefly these conditions.
IV-1
-------
1. Demand
The primary demand for processed fruits and ve getables --canned,
frozen, dried or dehydrated is a nation-wide market of consumers
served mainly through retail food stores. Secondary, but neverthe-
less important, markets are found among institutional food purveyors
(hotels, restaurants, in-plant feeding, schools, etc.). governmental
purchases for military, school lunch and needy persons subsistence
programs and purchases by further processors who use processed
fruits and vegetables in the manufacture of prepared dinners and
other convenience foods. For some products, mainly fruits , there
exists an important export market.
Long-run changes in demand for processed fruits and vegetables are
affected by gradual changes in dietary patterns and preferences of con-
sumers and by technological processes which improve the availability
and convenience of these foods for the consumer.
Short-run changes in demand are influenced by seasonal and year-to-year
variations in production of fruits and vegetables for processing and for
fresh use. Carry-over stocks of canned and frozen products are im-
portant in relation to short-run demands, but in the long-run the entire
pack of both canned and frozen products ultimately moves into con-
sumption.
a. Aggregate Demand for Processed Fruits and Vegetables
Aggregate demand for processed fruits and vegetables can best be examined
by exploring trends in per capita consumption of major product groupings,
briefly looking at government purchases and international markets, then
examining total pack by major product lines (to expedite discussion, an
examination of carry-over stocks will not be made in this discussion,
it is assumed that total pack represents consumption).
i. Per Capita Consumption of Fruits and Vegetables
Some very distinct changes have occurred in the patterns of consumption
of fruit and vegetables by the American consumer over the past two
decades. These patterns can best be examined by viewing past utilization
trends. Changes in consumption patterns generally reflect the interaction
of various factors such as production, price, rising income, population,
new food styles, and more casual and informal living.
IV-2
-------
Fruits - After a r ecord high per capita consumption of all fruits in 1946
of 225 pounds (fresh equivalent) -- partially the result of restocking
pantry shelves and retail stores following the wartime scarcity -- con-
sumption leveled off to approximately 200 pounds in the early 50" s.
During the last two decades annual per capita consumption of all fruits
combined fluctuated from a high of Z03 pounds in 1952 to a low of 165
pounds in 1964. Present level is at about 200 pounds on a fresh equivalent
basis.
Total consumption of processed fruits (product weight basis) have in-
creased steadily from 43 pounds per capita in 1950 to 55 pounds by 1971.
According to USDA specialists, consumption will climb to about 60-61
pounds by 1980 (Table IV-1).
Canned fruits have averaged a consistent 23 -24 pounds per capita during
the past 10 years and are expected to hold at the present level through
1980.
Canned juices, however, have increased from 15 pounds per capita in
1960 to 20 pounds by 1971. According to USDA specialists, per capita
consumption of canned juices can be expected to climb to about 23 pounds
per capita by 1980.
Dried fruits have steadily declined in importance from 1950 dropping from
4. 1 pounds per capita on a processed dried weight basis to 2. 6 pounds in
1971. This includes dried apples, apricots, dates, figs, peaches, pears,
prunes and raisins.
Frozen fruits (including frozen citrus juices) have also increased steadily
from 4. 3 pounds in 1950 to approximately 10 pounds per capita during the
past five years. This can be expected to increase slightly to approximately
12 pounds per capita by 1980.
Vegetables - The consumption of vegetables (fresh equivalent) has in-
creased gradually over the past 20 years from about 200 pounds per capita
to the present rate of consumption of about 210 pounds (Table IV-2). Future
consumption is not projected to change drastically with total per capita
consumption in 1980 projected to be about 215-220 pounds.
The canned and frozen consumption estimates are. based on the commonly
used "fresh equivalent basis." This means that the 94 pounds of canned
(fresh equivalent) reported for 1969 would actually amount to 51 pounds
of consumption (about 54 percent). For frozen vegetables it would
amount to about 9 pounds of actual consumption for 20 pounds of fresh
equivalent (44 percent).
IV-3
-------
Table IV -1. Processed fruits: per capita civilian consumption,
United States, 1929-71
Year Canned fruits
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
(Ibs.)
21.6
19. 0
20.8
21.0
21.2
22.5
21.9
22.6
22. 9
22. 3
23. 0
23.6
23.2
23. 3
23.4
23.8
23.4
23. 1
22. 3
24.6
23.7
22. 2
^ 2/
Canned juices
(Ibs.)
13.5
15. 0
14. 1
13.4
13.2
12.0
14.8
15.6
16. 1
14. 0
15. 1
13.4
14. 0
14.2
12.9
12.9
14.9
16. 1
16.4
18. 9
18.9
20.2
Dried fruits
(Ibs.)
4. 1
3.8
3.8
3.8
3.9
3.6
3.7
3.6
3.0
3.2
3. 1
3. 1
3.0
2.9
2.9
3.0
3.0
2.8
2.8
2.7
2.7
2.6
4/
Frozen fruits Total
(Ibs.)
4. 3
4. 8
6.6
7. 1
7.4
8.7
8.8
9.0
7. 9
8. 8
9. 1
8.8
9.7
8. 0
7. 4
8. 5
8. 1
10. 1
9.4
9. 3
9. 8
10.2
(Ibs.)
43.5
42.6
45.3
45.3
45.7
49.8
49.2
50.8
49.9
48. 3
50. 3
48.9
49.9
48.4
46.6
48.2
49-4
52. 1
50.9
55.5
55. 1
-5.2
Apples, applesauce, apricots, berries, cherries (including brined), cranberries,
figs, fruit cocktail and salad, citrus sections, olives (including brined), pine-
apple, plums, prunes, peaches (including spiced), and pears.
Grapefruit, orange, blended citrus, lemon and lime, tangerine and blends,
pineapple, apple, grape, and prune juices, and fruit nectars. Including canned
concentrated citrus juices converted to single-strength basis but excludes all
frozen juices.
Dried apples, apricots, dates, figs, peaches, pears, prunes, and raisins. Ex-
cludes unmerchantable figs, substandard prunes, and prunes used for juice and
concentrate. Data are in terms of processed dried weight.
4/
Principally cherries, apples, peaches, apricots, strawberries, other berries,
and citrus juices.
IV-4
-------
Table IV-2. Commercially produced vegetables: Civilian
per capita consumption, United States, 1950-71
Year
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
I96i
1962
1963
1964
1965
1966
1967
1968
1969
197G
197i£/
Total
fresh and
processed
(Ibs.
199
200
199
200
196
'98
201
201
1 r:>9
198
:,02
; °9
2'Jl
201
198
201
iOl
209
212
213
213
210
)
.2
.8
.7
.2
.2
.5
. 5
. 0
, 9
. 4
. 5
o
. 12
f 7
.5
. 3
. 7
. 2
. 3
.0
.7
, 7
, I/
Fresh
(Ibs
115.
111.
111.
109.
107.
105.
L07.
106.
103.
102.
105.
103.
101.
101.
98.
98.
96.
98.
98.
98.
98.
97..
>
2
0
6
1
2
2
0
1
~
"i
Q
3
4
4
6
6
0
1
7
9
o
3
Processed
Total
(Ibs
84.
88.
88.
91.
89.
93.
94.
94.
9b.
96.
^b.
?b.
99.
100.
99.
102.
1 05 .
111.
113.
114.
114.
113.
>
0
9
i
J
j.
0
3
5
6
2
i
!-,
i
7
2.
9
i
-7
i
o
1
8
4
Canned
(Ibs
76.
79.
76.
79.
76.
80.
80.
80.
81.
81.
B i .
81.
83.
84.
83.
85.
86.
91.
92.
94.
93.
94.
Frozen
. ) (Ibs.)
6
6
8
4
8
2
9
6
2
-7
j
f
9
-7
3
8
2
6
o
9
0
7.
9.
11.
11.
12.
13.
13.
14.
14.
14.
14.
14.
16.
i 5.
i b.
1 "7
I ' .
18.
19.
2 L.
i 9.
20.
!«*.
4
3
3
7
2
1
6
0
7
q
9
8
0
4
7
4
q
9
0
5
9
4
Excludes melons. Data include pickles and r.auerkraut in bulk; ex-
cludes canned and frozen potatoes, canned sweetpotatoe s, canned
baby foods, and canned soups.
2/
Preliminary.
IV-5
-------
During these same years a gradual increase in the consumption of canned
and frozen vegetables has occurred. Since total consumption did not
appreciably change, this increase has been at the expense of the fresh
product share of the market. The convenience of using processed pro-
ducts, plus their ability to compete on terms of quality and price has
stimulated increases in the consumption of both frozen and canned
vegetables.
Canned vegetable consumption climbed from 77 pounds per capita in 1950
to 94 pounds in 1969 where it has held through 1971. At the same time,
frozen consumption has climbed steadily from the early 1950's to nearly
20 pounds in 1971. Fresh consumption, however, decreased from about
115 pounds in 1950 to 105 pounds in I960. Further decline has placed per
capita fresh consumption at about 98 pounds for the past five years.
USDA specialists believe that the major shift from fresh to canned and
frozen has leveled out. Although total canned and frozen consumption
is expected to increase from the current 114 pounds per capita to about
120 by 1980. This will not be at the expense of fresh produce, but will
represent an increase in total consumption. Most of this gain will be taken
up by frozen commodities which should increase to about 24 pounds by 1980.
Fresh vegetables are projected to remain at the same level for the re-
mainder of the decade.
Potatoes - The above data exclude the consumption of processed potatoes.
Demand for potatoes and potato products has changed markedly during the
past decade. Annual per capita consumption (fresh and processed com-
bined on a fresh weight equivalent basis) rose from 108.4 pounds in I960
to 118.4 pounds in 1970. The increase is c r edited entirely to processed
use, which rose from 24 pounds in I960 to 59 pounds in 1970. In contrast,
fresh per capita potato consumption fell from 85 to 60 pounds.
Among the processed potato products, use of frozen french fries has risen
the most. In I960, people ate less than 7 pounds (fresh weight equivalent)
of potatoes in the frozen form. Ten years later they ate 28 pounds, or
nearly half of all potatoes processed compared with only 28 percent in 1960.
Further gains in the use of frozen french fires have occurred since 1970»
A preliminary estimate of per capita consumption showed 32. 5 pounds per
pe rson in 1 972.
IV-6
-------
Chips increased from 11.6 to 17.7 pounds but took approximately 50
percent of all processed potatoes in the early 1960's, declining to 30
percent in 1970. Per capita use of dehydrated potatoes moved upward
enough to have a significant impact on total processed usage. Dehydrated
potatoes accounted for about a fifth of all potatoes used for processing in
most years. Per capita consumption rose from 5 pounds to 1 3 pounds.
Per capita use of canned potatoes was small, less than 1 pound throughout
the period.
Several factors are behind these changes in per capita consumption.
Retail price trends have encouraged the shift to processed potatoes,
especially the frozen. Prices of fresh potatoes increased from 71.8
cents for 10 pounds in I960 to 89.7 cents in 1970. Retail prices of frozen
french fries declined from 19.7 cents for 9 ounces in 1960 to 16.6 cents
in 1970.
Other factors include changes in consumer tastes and preferences and
living patterns which include more working wives and desire for more
convenience. Processed potatoes are essentially convenient and time-
saving foods. Also, frozen and dehydrated potato products are popular
with the institutional trade, i.e., the away-from-home trade where con-
venience, uniformity, quality and portion control are important.
ii. International Trade
Exports - Although there is an appreciable year-to-year variation in the
export of individual fruit and vegetable items, little trend is apparent over
the last five years in U. S. exports of canned and frozen fruit, vegetable
and juice products. The following data indicate the export volumes for
general product categories, 1967-1970.
Export Volume
Products Unit 1967 1968 1969 1970 1971
Canned fruits (000 Ibs) 354,809 302,234 439,990 396,261 321,850
Canned
vegetables (000 Ibs) 100,261 89,764 107,384 102,587 84,717
Canned juice (000 gal) 33,115 29,992 28,199 32,135 28,516
Frozen juices (000 gal) 5,419 5,162 5,437 7,815 9,641
Frozen fruits
& veg. (000 Ibs) 32,377 32,276 34,351 30,342 24,036
IV-7
-------
These data do show the dominance of canned fruits in the export trade.
While the pack of canned vegetables in the United States is approximately
twice that of canned fruits, exports of canned fruits equal approximately
three times the volume of canned vegetables.
Exports of canned vegetables, fruits and juices are shown in Table IV- 3
for 1970 and 1971. As can be seen, exports of canned vegetables are not
significant, in terms of total pacK., '._>- any item. Canada is the major
export market, for most products, aithoi ^h Japan is first for sweet corn
and Hong Kong is an important market for both corn and tomato catsup.
The situation is different for canned fruits. Export markets are relatively
important, taking 14.7 percent of the fruit cocktail pack, 14.5 percent of
the cherry pack, 12.6 percent of the peach pack and 9. 1 percent of the
pineapple pack for 1970. West Germany and other Western Euorpean
countries plus Canada are the major export markets for canned fruit
products.
Much the same situation exists for canned fruit juices. Export markets
take 41.5 per.-ent of the hot-pack orange juice. The U. S. market has
turned largely toward frozen concentrated orange juice, but there is still
a good rnarke: tor hot-pack juice in Canada, Western Europe and Sweden.
A good export market (18.5 percent of total pack) also exists for canned
L'rapefruit juice and 9.8 percent of the pack of canned pineapple juice is
exported. In contrast, only 2.8 percent of the pack of canned tomato
juice is exported.
Frozen concentrated orange juice is the principal frozen product expcrtt;-!.
Over six million gallons (60 million pounds) were exported in 1970, and
nearly eight million gallons in 1971, a volume greater than all other fr^^en
fruit, vegetable and juice products. Canada, Sweden, United Kingdom,
and West Germany were the principal export markets served. However,
in terms ot total U. S. pack, exports of frozen, concentrated orange juics
accounted for only 5.6 percent of total pack.
The export market for frozen concentrated grapefruit juice, while smaller
than for orange juice (998, 000 gallons) accounted for 16 percent of total
pack in 1971.
Exports of frozen vegetables in 1970 were 25,798,000 pounds, but accounted
for only 0. 6 percent of total pack.
IV-8
-------
Table IV-3. Exports of major canned and frozen vegetables, fruits
and juices, 1970 and 1971
Product
1970
1971
% of
Pack
Major
Countries
Canned vegetables
Tomatoes
Corn
Tomato puree
and cone.
Beans, nee
Asparagus
Tom. catsup and
Chili sauce
Other
Total Canned Veget
(COO Ibs)
19,146
15,574
9, 994
7, 638
7,486
6, 967
35,782
Vegetables 102,587
Frozen vegetables (all) 25,798
17,381
14,740
0,301
3, 123
4. 484
10,576
27,612
84, 717
17,905
(1970)
2.4
1.3
4. 1
0.7
0.7
0.6
Canada
Japan
Hong Kong
Denmark
Sweden
W. Germany
France
Nigeria
Switzerland
United Kingdom
Canada
Dominican Republic
Panama
Canada
Denmark
Sweden
BeJgium -Lux.
W. Germany
United Kingdom
Hong Kong
Canada
Canada
United Kingdom
Denmark
Sweden
Bermuda
Australia
W. Germany
IV-9
-------
-3. Exports of major canned and frozen vegetables, fruits
and juices, 1970 and 1971 (continued)
Product
1970
1971
% of
Pack
Major
Countries
Canned fruits
Peaches
Pineapple
Cherries
Pears
Other
Total Canned
Fruits
Canned juices
Pineapple
(000 Ibs) (1970)
165,573 137,811 12.6
Fruit cocktail 108,773
68,648
3, 301
8, 743
41,223
396,261
3,749
Grapefruit, single
strength 5, 990
Orange, single str.
and cone. 12,632
76,832 14.7
63,321
3,192 3.1
10,109 2.1
30,585
321,850
3,051 9.8
4,940 18.5
10,363 41.5
IV-10
W. Germany
Canada
Switzerland
Belgium- Lux.
Sweden
Ne therlands
Austria
Canada
W. Germany
Belgium- Lux.
W. Germany
Belgium- Lux.
France
Canada
Netherlands
Switzerland
W. Germany
Belgium- Lux.
Netherlands
Rep. South Africa
W. Germany
Canada
Canada
Canada
Canada
Sweden
France
W. Germany
-------
Table IV-3. Exports of major canned and frozen vegetables, fruits
and juices, 1970 and 1971 (continued)
Product 1970 1971
(000 Ibs)
Canned juices (continued)
Tomato 1,589 1,461
Other 8,175 8,701
Total canned
juices 32, 135 28, 516
% of
Pack
(1970)
2.8
-
Major
Countries
Japan
Saudi Arabia
Canada
Frozen juices
Orange, froz.
cone. 6,097
Grapefruit, froz.
cone. 939
7, 83Q 5.6 Canada
Sweden
United Kingdom
W. Germany
998 15.9 Canada
Australia
W. Germany
IV-11
-------
While exports of canned and frozen fruit, vegetable and juice products
were valued at over $143, 000, 000 in 1970, they still represent but a
small percentage of the total pack of these products. There are individual
exceptions such as canned, hot pack orange and grapefruit juice, canned
cherries, fruit cocktail and peaches where important export markets
exist. However, for most fruits, vegetables and juices, either canned
or frozen, the private, domestic market is still the dominant outlet.
Imports - The greatest competition with regard to imports of fruits and
vegetables is from the importation of fresh products. Imports of pro-
cessed fruits, vegetables and juices are primarily tropical or subtropical
products not produced in the United States. However, for certain products,
imports do constitute a major part of the total supply in the United States
and do, therefore, compete directly with similar products processed by
U. S. canners and freezers.
Imports of these products -- volume, relation to U. S. pack and principal
countries of origin -- are shown in Table IV-4.
Imports of apple and pear juice, mainly from Switzerland and France, in
1970 totaled 16.8 million gallons -- equal to 45 percent of the U. S. pack.
This doubled in 1971 to 34.0 million gallons.
Pineapple juice imports in 1970, 13.6 million gallons, were equal to 38
percent of the U. S. pack. Most of this import volume came from the
Philippines. Canned pineapples imported from the Philippines, Taiwan,
Mexico, Malaysia and Thailand equaled 32 percent of the U. S. park.
Orange juice concentrate increased sharply from 1.5 million gallons in
1970 to 19. 3 million gallons in 1971 or 15% of the U. S. pack.
Canada was a major supplier of frozen blueberries, equal to 25 percent
of the U. S. pack, and Mexico exported nearly 84 million pounds of frozen
strawberries to the United States, an amount equal to 46 percent of the
U. S. pack in 1971.
Large quantities of canned mushrooms, nearly 31 million pounds, are
received from Taiwan -- equal to 60 percent of the U. S. pack.
Nearly 200 million pounds of tomatoes, paste and sauce, came into the
United States in 1970, mainly from Italy, Portugal and Spain.
IV-12
-------
Table IV-4. United States' imports of canned and frozen fruit and
vegetable products, 1970 and 1971
% of
U. S.
Product Unit 1970 1971 Pack
(1970)
Canned Fruit Juices
Apple and pear juice 000 gai. 16, 900 34, 024 45
Orange juice, cone. 000 gal. 1,461 19,343 15
Pineapple juice 000 gal. 13.59S 13,143 35
Canned & Froz. Fruits
Blueberries, frozen 000 Ibs. 1 1 , 09r' 3,433 ?.
-------
Although imports of canned and frozen fruits, vegetables and juices are
relatively minor when compared to the total U. S. pack of these pro-
ducts, imports are important in competition with certain products.
Most important are:
1. Frozen strawberries
2. Canned mushrooms
3. Canned apple and pear juice
4. Canned pineapple juice
5. Canned pineapple
6. Frozen blueberries.
iii. Government Purchases
Government purchases of canned and frozen fruits, vegetables and juices
are made primarily to supply the requirements of the Armed Services,
Veterans Administration, School Lunch Program and Needy Families
Programs.
Canned Products - Although the volume of purchases varies substantially
from year to year for specific canned fruit or vegetable items, there has
been no consistent trend in the volume of government purchases (either
up or down) for individual items or aggregate volume during the period
1966-1971. Total government purchases of canned products during the
past five years were as follows:
Year All Vegetables All Fruits All Juices
000/Cases 000/Cases 000/Cases
24/303 23/2 1/2 24/2
1966 16,437 6,337 4,409
1967 16,355 9,621 9,101
1968 12,475 5,300 3,272
1969 18,302 5,574 8,218
1970 . 13, 167 7, 142 8, 050
1971 11,126 6,590 7,892
The principal canned vegetables purchased in volume were tomatoes and
tomato paste, green beans and sweet corn. In relation to total pack,
government purchases of canned vegetables varied between a low of 1. 6
percent for sauerkraut and a high of 8.2 percent for tomatoes and tomato
paste.
IV-14
-------
Only two canned fruits were purchased in large volumes -- peaches and
applesauce. In relation to total pack, government purchases varied from
a low of 1. 9 percent for fruit cocktail to 7.8 percent of the total apricot
pack.
Government purchases of canned juices were relatively more important
in relation to total volume packed, accounting for 12.8 percent of the
pack of apple juice, 11.8 percent of the pineapple juice and 11.4 percent
of the canned orange juice pack.
In summary, government purchases of canned fruit and vegetable pro-
ducts are an important element of total market demand, but do not occupy
a dominant position.
Frozen Products - There was an increasing trend in military purchases
of frozen vegetables, volume increasing from 67, 981, 000 Ibs. in 1966-
to 83,865,000 in 1970, but declined to 73,260,000 in 1971. Increases
were the result of substantial increases in purchase of frozen potato
items. However, the trend appears to be decreasing for other frozen
vegetables and frozen fruits or juices. Total government purchases of
frozen vegetable, fruit and juice products during Lhe past six years were
as follows.
Year Frozen Vegetables
(000 Ibs.)
1966 67,981
1967 79,241
1968 72,592
1969 80,270
1970 83,865
1Q71 73,260
Frozen Fruits
(000 Ibs.)
24, 895
25,930
23,883
20, 588
19, 227
14,709
Frozen Juices
(000 Ibs.)
24,460
24,334
18,750
20,962
18,321
13,922
Potato products represent Lhe greatest total volume, over 24 million
pounds, of frozen vegetables out even so, government purchases repre-
sent only one percent of the total frozen pack of potato products. Other
large volume items are mixed vegetables, green beans. pea=, corn and
broccoli. In terms of relative importance, government purchases were
-nost significant for mixed vegetables (8.Q% of pack), Brussels sprouts
(7.2%), asparagus (6.8%) and cauliflower (6.7%) in 1970.
IV-15
-------
Principal frozen fruits purchased in 1971 were strawberries (5.4
million pounds) and peaches, 5. 1 million pounds. Peaches were the only
crop for which government purchases (12.5%) were a major part of the
total sales.
Frozen concentrated orange juice goes mainly to the military subsistence
and school lunch programs. Government purchases in 1971 were 8.9
million pounds, but this represented but 1. 0% of the total pack of frozen
concentrated orange juice.
In summary, as was true for government purchases of canned vegetables,
fruits and juices, government purchases represent substantial product
volumes for frozen products, but do not dominate in relation to total
sales for specific products or volume in total.
IV-16
-------
iv. Total Demand by Commodity
Although there is normally some carry-over from one packing season
to the next, the total volume packed is the best indicator of aggregate
demand by specific product.
Canned Vegetables - Table IV-5 shows the total packs for canned vege-
table commodities for the 1969-70, 1970-71 and 1971-72 pack seasons.
Total canned vegetable pack in the 1969-70 pack year was 326,474
thousand cases, 324,850 thousand cases in 1970-71 and 344,608
thousand cases for the 1971-72 season (estimated). While there has
been a slight increase during the past few years the demand is rela-
tively constant with slight increases due prima rily to population
inc reases.
Canned Fruits of Fruit Juices - Table IV"-6 shows the total pack for
canned fruits and fruit juices for 1969j 1970 and 1.971 pack season.
Total pack of canned fruits and fruit juices for 1969 was 252,084,000
actual cases and 7-05, 130,000 actual cases in 1?70. Estimated canned
fruit and frviit juice packs in 1971-72 pack s<-ason are 205, 7*72,000
actual cases. These packs compare \vtth an average pack oJ 199,580,000
cases during the 1961-70 period.
Frozen Vegetables - Table IV-7 shows the t-.'-ial pack of frozen vege-
tables for 1969, 1970 and 1971. The pack for 1970 was 4, 472. 2 13 , 000
pounds, more than double the pack in 19bi (2. 116,041,000 pounds)
and nearly 50 percent above the 1961-70 average (3,123,665,000)
pounds.) 1971 pack statistics snow an increase over the 1970 produc-
tion levels with 4, 697 , 787 , 000 estimated pounds .
In terms of total tonnage produced, potato products represent over half
of the total volume, 2.4 billion pounds in 1970 .Compared to a total pack
of 4. 5 billion pounds. Other major vegetable items frozen included: peas
peas 344 million Ibs. 7.7n;; oi pack
corn, cut 216 million Ibs. 4.8
-------
Table IV- 5. Summary of canned vegetable packs, 1969,
1 970 and 1971-L/
Product
Tomatoes & Tomato products - Total
Tomatoes, whole peeled
Tomato juice
Tomato catsup
Tomato chili sauce
Tomato puree
Corn, Sweet
Beans, Green
Peas, Green
Potatoes, Sweet
Beets
Sauerkraut
Asparagus
Spinach
Potatoes, White
Carrots
Pumpkin and Squash
Beans, Wax
Mixed Vegetables
Beans, Lima
Leafy greens
Peas, field
Carrot and Peas
Mushrooms
Pimentos
Okra and tomatoes
Succotash
Okra
Total
1969-70
112, 148
32, 036
33, 653
Q T 7 Q f\Lt 1
J (, (OU
1, 665
7, 014
49, 387
42, 481
32, 071
12,499
11, 339
10, 569
6, 817
6, 577
6, 110
5,463
5, 244
4, 858
4, 357
3, 596
3, 440
2, 946
2, 438
2, 0324/
876
475
383
368
326,474
Pack, 000 Cases
24/303 cans
1970-71
120, 200
39, 017
35, 952
37, 7801/
1, 504
5, 947
46, 995
43, 189
28, 697
9, 846
11, 310
12, 088
5, 972
7, 270
6, 602
5, 388
3, 973
4, 382
4, 367
2, 776
3, 527
2, 393
2, 086
2.0324/
627
348
339
443
324, 850
Estimated
1971-72
124, 182
38, 385
38,411
"2 "7 *7 Q r\ " /
J I t 1 O U
1,462
7, 844
53, 757
45, 213
33, 197
9, 8461'
1 1 , 3 1 o!/
1-5 f~\ Q Q 3 /
1 Li t \J OO
5, 542
7, 675
6, 602l/
5, 3881'
4, 581
4, 797
4,482
3, 116
4, 443
2, 742
2, 106
2, 03 zl/
738
378
338
355
344, 608
Source: Division of Statistics, National Canners Association
!/ 1967 pack, data not available since that time
I/ 1970 pack, data not available for 1971-72.
!/ 1968 pack, data not available for 1969, 1970 or 1971-72.
IV-18
-------
Table IV-6. Summary of canned fruit and fruit juice pack
1970 and 197ll/
1969,
Product
Peaches
Apple Sauce
Pineapple
Fruit Cocktail
Grapefruit Juice
Orange Juice
Pears
Pineapple Juice
Apple Juice
Apricots
Cranberry Sauce
Grapefruit Segments
Apples
Other Fruits and Juices
Total
1969
43, 645
27, 553
24, 256
23, 909
20, 080
17, 082
13, 597
13, 558
13, 503
7, 126
C j O L*
3, 72b
3, 128
14, 229
232, 084
Pack, 000 Actual Cases
1970
33, 096
23, 647
25, 939
18, 319
23, 854
17, 080
10, 906
12, 387
14, 472
4, 654
7, 394
3, 629
2, 271
10, 860
205, 130
1971
29, 885
23, 64 7 1'
25, 939V
19, 141
23, 854^
16, 966
13,284
12, 3871''
14, 472 V
4, 182
6, 551
3, t>29-'
2, 271 i'
"i, 764
205, 9^2
.Source: Division of Statistics, National Carmers Association
-1 1969-70 pack, 1971-72-data not yet available
IV-19
-------
Table IV-7. Summary of frozen vegetable packs, 1969, 1970 and 197li''
Product
Potato products
Peas
Corn, cut
Beans, green and wax
Broccoli
Carrots
Spinach
Mixed vegetables
Beans, lima, baby
Corn-on-cob
Cauliflower
Beans, lima, fordhook
Brussels sprouts
Other vegetables
Total
I/
Source: American Frozen
1969
2, 043,
367,
289,
197,
153,
150,
107,
101,
82,
73,
69,
55,
40,
317,
4, 055,
408
J23
268
1<-<<1
784
945
182
400
562
914
744
792
083
078
282
Pack
(000 Ibs. )
1970
2, 404,
344,
216,
212,
185,
173,
145,
110,
73,
80,
59,
36,
42,
387,
4,472,
389
= 20
097
362
157
054
694
333
012
889
782
844
b63
417
213
1971
2, 565,
348,
226,
228,
189,
143,
156,
* 112,
73,
106,
67,
40,
49,
387,
4, 697,
1 18
418
835
763
600
681
991
388
898
893
659
690
195
658
787
Food Institute
IV-20
-------
Table IV-8. Summary of frozen fruit and fruit juice packs,
1969, 1970 and 1971-
Product
Strawbe rries
Cherries RSP
Apples and sauce
Orange Juice, cone.
Peaches -
Blueberries
Raspberries, red
Blackberries
Other fruits, berries
and juices
Total
Source: American
1 -- :>9
178, 693
140, 688
122, 293
108, O43.fi/'
53, 527
37, 663
27, 657
27, 184
90, 578
678, 283
Frozen Food Institute
Pack (OOC Ibs. )
1970
201, 572
121, 271
100, 370
126,402^
47, 471
21, 836
25,409
29, 186
73, 573
620, 688
1971
199, 399
159,408
96, 999
125, 187
59, 924
30, 441
24,467
27, 536
67, 304
665,478
_' Thousands of gallons, not included in pack totals,
equals 1,069, 625, 000 Ibs. 1969
1, 251, 379, 000 Ibs. 1970
-------
Four products dominate the pack of frozen fruits and juices. Frozen
concentrated orange juice pack is more than equal to the entire pack
of all other frozen fruits and juices and in 1970 amounted to 126, 402, 000
gallons or 1, 251, 379, 000 pounds as compared to a total pack of 620, 688, 000
pounds for all other frozen fruits. Among frozen fruits, strawberries--
201. 6 million pounds (32% of total frozen fruit pack) is by far the dominant
product. Other important frozen fruits are cherries and apples and
apple sauce.
v. Expenditure Proportions
As of this point, the discussion of demand has been confined to physical
measures such as total demand by product group, total demand by specific
commodity or per capita consumption levels. One factor that has not been
considered is retail expenditure proportions. The importance of canned
and frozen fruits and vegetables as a portion of total expenditures or as
a proportion of food expenditures is briefly discussed below. Table
IV-9 presents expenditure proportions for canned and frozen fruits
and vegetables relative to total retail expenditure and retail food expendi-
tures.
Fruit and Vegetable Expenditures as a Proportion of Total Retail
Expenditures - Expenditures for fresh, canned, frozen and dried
fruits and vegetables comprise only 4.7 percent of total retail
expenditures. If, however, fresh sales are deleted the proportion
attributed to processed fruits and vegetables falls to less than 2
percent of retail sales. This includes canned, frozen and dehydrated
fruit and vegetable products which contribute 1. 19, .34 and 0. 1
percent respectively.
Fruit and Vegetable Expenditures as a Proportion of Food Expenditures
The relative size or importance of canned, frozen, and dehydrated
fruits and vegetables relative to total food expenditures is also pre-
sented in Table IV-9. Expenditures for fruit and vegetables (exclu-
sive of potatoes) comprise 8. 1 and 8.3 percent of all retail food
expenditures respectively.
More than half of this amount is for fresh products with the remainder
divided among canners (3.2 percent), freezers (1.5) and dehydrators
(.75 percent).
IV-22
-------
Table IV-9. Fruit and vegetable as a proportion of retail food and total
expenditures
Commodity
Fruit
Fr.-sh
Canned
Frozen
Dried
Total Fruit
Vegetables
Fresh
Canned
Frozen
Dried
Total vegetables
Potatoes
White
Sweet
Total Potatoes
Total all food
Total nonfood
Proportions expressed
I ood expenditure
4. 846
. 217
.. 74 6
. 373
8. 182
4. 265
3. 002
. 746
. 373
8. 386
1.226
. 174
1. 401
100. 00
as a percentage of
All expenditure
1. 1045
. 5053
. 1700
.0850
1. 8648
.9721
. 6842
. 1700
. 0850
1. 9113
. 2795
. 0399
.3194
22. 79
77. 21
Source: George and King, Consumer Demand for Food Processing, 1971.
IV -2?
-------
b. Substitute Products
The principal substitutes for canned and frozen fruits, vegetables and
juices are fresh fruits and vegetables. Although fresh products sub-
stitute for both canned and frozen forms of the same product, the
substitution relationship between the fresh and frozen product is
usually closer since the canned product is often cooked and may have
seasoning (salt, etc.) or sweetness (e.g., peaches in heavy syrup) added.
Development of new fresh production areas coupled with the improvements
which have occurred in truck, rail and air transport, plus new technology
in fresh product preparation, packaging and refrigeration, now make it
possible to buy fresh products nearly the year around throughout the
United States. However, out-of-season fresh products must be trans-
ported greater distances (sometimes from Mexico, Central or South
America) or must be produced under hot house conditions in colder
climates. The result is higher prices and consumers turn to frozen
or canned forms to save money. However, price is not the only con-
sideration influencing the consumer in her choice between fresh and
processed fruits and vegetables. Many canned or frozen products offer
greater convenience, more consistent quality and preferred flavor for
certain uses. Canned and frozen products are easier to keep on hand
on the shelf or in the freezer and this gives the housewife a greater
variety available in her home at any given time than would be possible
if she were entirely dependent on fresh products.
There are some substitution relationships between canned and frozen
vegetables and other classes of foods. Canned or frozen fruit can,
and does, substitute as a dessert for such items as ice cream, cakes
or puddings. As dietary habits have changed ( away from fats, oils
and heavy desserts), there has been some substitution of fruits and
vegetables, in terms of diet composition. However, this relationship
is not close.
c. Retail Price Elasticity
Retail price elasticity measures the responsiveness of demand to price
changes. In a study by Brandow of Pennsylvania State University_' the
price elasticity of all fruits is identified as -. 60 and for all vegetables
at -. 30.
I/ Brandow, G.E., Inte/relations Among Demands for Farm Products
and Implications for Control of Market Supply, Bulletin No. 680,
Pennsylvania State University 1961.
IV-Z4
-------
Table IV-10 presents retail demand elasticities, cross-elasticities and
income elasticities for a variety of canned, fresh and frozen fruit and
vegetable products. Additional elasticities have been estimated in the
above reference but have not been included herein.
d. Price Margin and Price Conditions for Selected Products
There is a considerable variation in prices, margins and farm value for
processed fruits and vegetables. Most of the variation and fluctuations
occur from one marketing year to another with moderated fluctuations and
variations within the marketing year. Retail prices and retail and
wholesale margins chacteristically fluctuate more frequently and with
greater amplitude than do processor and grower prices and processor
margins.
Retail prices, processor prices, farm values and total marketing margins
have increased during the past few years. As a percentage of retail
prices, however, farm value and marketing margin have been relatively
constant. Price fluctuations have normally been shared by both the
grower and the retail and wholesale marketing system. One noteable
exception is citrus prices received by the grower which have fluctuated
widely.
Retail prices, processor prices, farm values and processor margins
associated with canned peaches, canned pears and frozen strawberries
have not increased in recent years.
Table IV-11 and IV-12 present prices and margins for a variety
of selected fruit and vegetable products.
George, P.S. and G.A. King, Consumer Demand for Food Commodities
in the United States with Projections for 1980, California Agricultural
Experiment Station, 1971.
IV-25
-------
Table IV-10. Selected fruit and vegetable demand and income elasticities
Selected Canned
Fruits
Frozen
Frozen Fruits -1.
Dried Fruits
Selected Canned Fruits
Peaches
Pineapples
Frozen Vegetables
Dried Vsgetables
Selected Canned Vege:
Corn
Tomatoes
Peas
Other Canned Fruits
& Vegetables
I-H
1
DO
Fruits
0
0079
:
0184
0011
001
003
004
003
0005
003
Dried
Fruits
.003
.65
- .0641
.0000
-.0001
.0002
.00006
.0003
.00006
.0001
Pine- Frozen
Peaches
.013
. 106
-.759
.155
-.00004
.001
.001
.001
.001
.001
apple
.0005
.0001
. 125
-.826
.000005
.0003
.0005
.0003
.0005
.0003
Vege.
.0009
.0001
.0004
.00002
4.03
.015
.016
.015
.016
.015
Dried
Vege.
.001
.0001
.0005
.00003
.007
-.48
.059
.00003
.014
.0004
Selected Canned
Vegetables
Corn
.002
.0003
.0009
.00006
.010
.078
-.255
.00000
.047
.0004
Tomatoes
.001
.0001
.0005
.00003
.007
.00000
.00001
-.176
.033
.0002
Peas
.002
.0003
.001
.00007
.012
.024
.059
.056
-. 185
.0006
Other
Canned
Fruits &
Vege.
.009
.0003
.001
.00007
.002
.0003
.003
.001
.003
-.40
Income
. 147
.661
.447
.315
.616
.216
. 173
.216
.023
.200
-------
Table IV- 11. Growers, processors, and wholesaler-retail margins as a percentage of
retail price - fruits
i
C\)
-0
Applesauce
Canned
(Eastern Retail
Prices, Eastern
Growers
Grapefruit Sections
Canned
Eastern Retail
Southern Production
Grapefruit Juice
Canned
Eastern Retail
Southern Production
Lemonade frozen
U. S. retail
Western Production
Orange juice canned
Eastern retail
Southern production
Year
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
Grower
19
21
24
23
19
17
14
21
15
16
28
19
32
22
31
14
15
17
16
14
25
19
35
34
26
Processor
49
53
53
47
49
31
30
27
29
29
38
37
28
35
26
40
36
35
36
37
40
37
29
29
38
Wholesale Retail
32
26
23
30
32
52
56
52
56
55
34
44
40
43
43
46
49
48
48
49
35
44
36
37
36
Total
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-------
Table IV-11. (continued)
Orange juice frozen
Concentrated
U.S. retail
Southern production
Year
65-66
66-67
67-68
68-69
69-70
Grower
40
26
43
46
35
Processor
34
34
29
31
34
Wholesale Retail
26
40
28
23
31
Total
100
100
100
100
100
tv
00
-------
Table IV-12.Growers,
processors, and wholesaler-retail, margins as a percentage of
retail price - vegetable
i
fO
Asparagus canned
Eastern retail
Eastern production
Asparagus canned
Western retail
Western production
Asparagus frozen
Western retail
Western production
Spinach canned
Eastern retail
Eastern production
Spinach canned
Western retail
Western producer
Year
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
65-66
66-o7
67-68
68-69
69-70
65-66
66-67
67-68
68-69
69-70
Grower
30
31
32
31
31
33
36
32
31
31
31
35
33
31
31
8
8
8
7
7
7
7
7
7
7
Processor
29
29
29
33
31
26
25
27
30
30
41
37
37
41
41
38
37
37
42
46
41
40
38
43
43
Wholesale Retail
41
40
39
36
38
41
39
41
39
39
28
28
30
28
28
54
55
55
51
47
52
53
55
50
5C
Total
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-------
Table IV-12.(continued)
Year
Grower
Processor
Wholesale Retail
Total
Spinach frozen
Western retail
Western production
65-66
66-67
67-68
68-69
69-70
8
9
8
8
8
58
56
59
61
55
34
35
33
31
37
100
100
100
100
100
-------
2. Supply Characteristics of the Fruit and Vegetable Industry
The fruit and vegetable canning, freezing and dehydrating industries are
supply-oriented in that the location of processing plants is dictated
by the location of raw product production. Most fruits and vegetables
are perishable or semi-perishable and for most products, the time-
lag between harvesting and processing must be kept to a minimum to
maintain high standards of product quality-
The diversity of products processed and the seasonal production require-
ments of basic fruit and vegetable crops, results in a widespread network
of canning and freezing plants. Specific fruit or vegetable crops may be
produced in more than one area at different seasons of the year.
Although a relatively small number of firms produces a relatively large
percentage of the total pack, the production of these large, diversified
packers is obtained from a large number of plants scattered throughout
the principal producing areas. A Ithough there is appreciable concen-
tration of capacity in a few firms, there is widespread geographic
dispersion of processing plants.
Partly as the result of shifts in the relative importance of raw product
production areas, there is some lack of balance in capacity and utili-
zation of capacity of processing facilities.
The industry has a high capacity to utilized large numbers of relatively
low-skilled production workers, especially women, but at the same time
demands a cadre of highly skilled technical, quality-control and managerial
staff.
Production technology has changed substantially in recent years and plant
obsolescence is an important factor, especially among small independent
packers. There are appreciable economies of scale in production and as a
result there is a continuing decrease in the number of operating plants.
a. Types and Locations of Raw Materials
The fruit and vegetable canning and freezing industries are primarily
oriented toward the location of supplies of fruits and vegetables pro-
cessed. Other materials used, such as sugar, seasonings, cans,
cartons, etc. are important but the raw product tonnage required and
the perishable nature of fruits and vegetables make the location of
raw materials of paramount importance.
IV-31
-------
Due to the diversity of products that are processed, however, there are
canning and freezing plants in virtually every state in the nation. Some
states possess only a small number or insignificant proportion of the
total plants within the industry. For example, there are several
Midwestern states that possess one or two small canning plants that
process only a very limited number of specialized product- When
considering the processing plants by specific product there is as a
general rule, considerable geographical clustering of processing plants
as a result of supply orientation. A prime example is the potato processors
of Oregon and Idaho.
There is also a tendency toward geographical clustering by processing
or marketing types. For example, dehydration is heavily concentrated
in Western states due again to the fact that only specialized products are
dehydrated while apple production areas tend to specialize by use or
marketing type, i.e. , the Pacific Northwest produces large quantities of
apples for the fresh apple market while Eastern apple producing states
specialize in the production of apples for processing.
The inauguration of mandatory industry pollution abatement standards
can therefore be expected to adversely and disproportionately affect
selected areas of the country.
b. Utilization of Plant Capacity
It is generally recognized that fruit and vegetable plants are currently
operating at a level of less than full capacity. This has been shown to
be an important cost or supply factor and will be simulated in Phase II
by variable cash flows that have been developed for representative plants
operating at 100 percent and 90 percent of plant capacity- Because the
throughputs used are representative of actual average size, throughputs,
plant sizes and operating costs will be adjusted upwards to represent, for
example, a large sized plant operating at 90 percent capacity.
The economic implications of plant capacity and the effects of pollution
abatement standards at various capacity levels will be reflected through
the above procedures. The effects of plant utilization on return on invested
capital have been demonstrated in an earlier study. For the small plant,
returns were reduced from 14 percent to 7 percent when capacity utilization was
was reduced from 100 percent to 75 percent. Similar results were obtained
for the medium sized plant with the internal rate of returns decreasing
from 26 to 18 percent and for the large plant returns dropped from 70 to 50
percent. Returns with treatment facilities were then reduced by about 7
percentage points for the small and medium sized plants and about 15
percentage points for the large plant.
IV-32
-------
c. Length of Operating Season
Another critical supply or cost consideration in the fruit and vegetable
processing industry is length of operating season. Because raw product
availability is limited to specific short seasons, a single line plant may
operate for as little as 2 months. Other multiproduct firms may operate
for as long as 9 months or more. With secondary processing, the plant
may be operated on nearly a year-around basis.
Much effort is made to extend the annual operating season by hauling raw
product fr.om the south early in the year and/or hauling from the north late
in the season. By processing a variety of products the season may be
extended. Also by operating on a 2 shift per day basis - or even 3 shifts
per day - the effect of a longer season is obtained.
3. Pricing
a. Market Competition and Price Determination
Although the fruit and vegetable canning and freezing industries are
characterized by the existence of large, multiproduct, multi-plant firms,
where a relatively small number of firms process a high proportion of
the total output, the industry is nevertheless highly competitive. There
are a large number of small canners and freezers and the industry is
faced with the necessity of selling a high proportion of its total pack to
large national food chains. Plants and firms located in any region are
potential competitors to those producing the same product lines in all
other regions.
Market information on current packs, carryover stocks and current
prices is readily available so that all segments of the industry operate
from a position of reasonable knowledge of market conditions.
IV-33
-------
Products are relatively standardized and are bought and sold by grade.
Once a canning season is underway and prices have found the level dic-
tated, in part, by supply conditions and known pack and stocks, prices
are relatively stable as compared to many other industries.
An increasing proportion of the total pack is being sold under private
label where packers must meet buyer specifications and compete on a
bid-price basis.
Competition tends to be centered around national brands, quality and
merchandising services more than on price in a given year. Non-price
competition includes credit or cash discounts, merchandising services
and promotional allowances, but even these forms of competition tend
to be standardized.
Strong national trade associations in both the canning and freezing in-
dustries serve both large and small packers and provide market infor-
mation and services to their members.
In summary, the fruit and vegetable canning and freezing industries
operate within a stable but competitive industry climate. Prices are de-
termined by pack, stocks and national economic conditions rather than by
oligopolistic price management at one extreme or by cut-throat compe-
tition at the other.
Some specific products have demonstrated greater historical variations
and/or fluctuations in prices and margins at all levels -- grower, whole-
sale and retail. As a general rule, however, packs, stocks heavily
influence the determination of fruit and vegetable canned and frozen
prices.
Historical grower, process, wholesale and retail prices and margins were
presented in Table IV-11. .
B. Expected Price Changes
If the industry is successful in passing all pollution abatement costs
forward to the consumer, the expected increase in price would amount
to approximately 1 to 2 percent based upon earlier abatement strategy
levels. }J This would result in little impact in consumption patterns of the
consumer. In a study by Brandow of Pennsylvania State University and
previously citedthe price elasticity for all fruits is identified as -.60 and
for all vegetables at -. 30. This means that a 1 percent increase in price will
LJ Agri Division, Dunlap & Assoc. , "Economic Impact of Environmental
Controls on the Fruit and Vegetable Canning and Freezing Industry,"
A report for the Council on Environmental Quality, November, 1971.
IV-34
-------
result in .6 percent and .3 percent decreases in consumption, respec-
tively. Total per capita consumption of processed fruits is approximately
67 pounds and is expected to climb to 70-75 pounds in 1980; and total
per capita consumption of processed vegetables is now 115 pounds with
an expected growth to 120-130 pounds by 1980. Thus, if all costs were
passed forward, a resultant decrease of 0. 5 to 1.0 percent of approxi-
mately 1 to 2 pounds per capita could be expected. This would be less
than the total annual increase in consumption resulting from population
expansion and projected increases in per capita consumption.
i. Projected Plant Utilization
On the basis of the earlier study cited above, plant shutdowns were
projected to occurr heavily within the small and medium size categories.
This would be largely for firms which have not as yet installed pollution
abatement equipment and do not have access to low cost facilities.
Because of rather wide-spread underutilization of total capacity in the
industry, it is not expected generally that marginal firms will attempt
to expand their existing facilities to achieve desired economies of scale;
the competitive structure of the industry will influence outward migration
of firms thus increasing the rate of firm closures that has been occurring
over the past 3 decades.
ii. Projected Price Response
The ability to pass forward all price increases depends upon many factors
such as demand, margin, substitute products and other factors. In the
fruit and vegetable processing industry we have seen a historical trend for
a decrease in the farm margin and processor margin for many of the
canned fruits and vegetables, however, for frozen citrus juices and other
products which are increasing in per capita consumption, the farm margin
as a percent of retail costs have decreased while processor margins have
increased. Thus, it would appear that there will be differential responses
by commodity.
Processors may have more difficulty passing forward increased processing
cost for products with stable demand than with products with rising demand
such as citrus juices.
Asa general rule, it is believed that the grower margins are sufficiently
small to prevent a backward price movement. The bulk of the price effects
are therefore expected to precipitate in the form of increased consumer
IV-3 5
-------
prices with processors absorbing some of the increase for commodities
with stable demand trends. There may be some very minor price absorp-
tion at the wholesale and retail levels for specific products.
iii. Locational Impact
Many of the marginal processing plants likely to be affected adversely
by pollution abatement controls are located in areas or regions of the
country that are already relatively economically depressed. Processor,
grower and associated businesses are generally a major component of local
economic development in these areas; and, consequently, any appreciable
impact on these businesses will also impact the entire local economy via
indirect multiplier effects on area incomes, employment, sales, level of
trade, etc. Such effects are likely to be far more consequential in aggre-
gate than the direct impacts of pollution abatement on the industry itself.
iv. Secondary Impact
Growth. Aggregate demand growth will likely only be dampened as a
a consequence of pollution abatement costs and expected higher retail
prices. Population growth is expected to quickly offset any short-run
declines in per capita consumption.
Fresh Product Competition. Fresh fruits and vegetables pose little threat
as substitutes for processed products. Because of convenience in prepar-
ation of processed commodities, they have been steadily gaining on fresh.
With the relatively small expected rise in price for processed commodities
this trend is not expected to be reversed. This is, of course, on an indus-
try-wide basis.
Imports of Processed Fruits and Vegetables. The impact of increased
imports of processed fruits and vegetables associated with anticipated
increased costs of domestic processed products, is generally expected
to be limited. With the exception of substantial imports of processed
mushrooms and tomato products, imports of vegetables are negligible
and would not be expected to increase materially. Apple juice, frozen
strawberries, pineapple products and frozen blueberries are the principal
fruit products imported . Production areas for pineapple and blueberries
are limited in the United States and import of tomato products from Italy
and Spain is, in part, associated with style of pack. Frozen strawberries
from Mexico are a major competitive item and increased costs could reduce
the competitive position of U.S. frozen strawberries.
However, both U.S. producers of raw products and U.S. processors are
large and highly mechanized as compared to foreign suppliers and in spite
of increased costs of pollution abatement, it is probably that the overall
increase of imports would be small.
IV-36
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V. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The following economic impact analysis utilizes the basic industry infor-
mation developed in Chapters I-IV 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 ihe 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 incus try
segments were reduced to money relationships insofar as possible and ;he
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 following this
section.
V-l
-------
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 III. 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
center 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 cf 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. Opportunities for changes in the ownership structure of
the plants (or firms) exist through acquisition by con-
glomerates, large diversified firms, or through other
acquisition circumstances which would permit re-
evaluation of assets or in situations where new owner-
ship may be willing to accept temporary low returns
with the expectation that operations can be returned
to profitable levels.
4. Personal values and goals associated with business owner-
ship that override or ameliorate rational economic rules
is this complex of factors commonly referred to as a value
of psychic income.
V-2
-------
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-ope rator 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-operator'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 a useful and reliable insight into potential business responses
to new investment decisions, as represented by required investment in
pollution control facilities. Thuc , :?onomic 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.
V-3
-------
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 <1_ 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 rnultiplant 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
-------
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:
n=l
AHi)
-n
where
V = present value
An = a future value in n**1 year
= discount rate as target ROI rate
= number of conversion products, i.e. ,
I 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.
V-5
-------
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 may be lower
in a single plant situation, but the firm's tax rate wUl be close to the
48 percent rate.
Revenue, expenses, interest and depreciation charges used were those
discussed in Chapter III and Chapter VI for pollution control facilities.
These items were assumed to constant over the period of analysis.
V-6
-------
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 III for values). This same
amount was taken as a negative investment in the terminal year. 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 business.
Investment in pollution control facilities was taken as the estimates
provided by EPA and shown in Chapter VI. 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.
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 inte rest bearing liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.
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 investment
may take on a dine rent value.
V-7
-------
The cost of capital was determined for purposes of this study by examining
Troy's Financial Almanac and industry provided data. The weights of the
two respective types capital were estimated at 60 percent debt and 40 percent
equity. The cost of debt was assumed to be 8 percent. The cost of equity
was determined from the ratio of before tax income to net worth and esti-
mated at 16.5 percent.
To determine the weighted average cost of capital, it is necessary to
adjust the before tax costs to after tax costs. This is done by multiplying
the costs by one minus the tax rate (assumed to be 48 percent, the mar-
ginal federal income tax rate).
Weighted Average Cost of Capital
Before tax After tax
Weight cost Tax Rate cost
.60
.40
.08
.165
.48
.48
.0416
.0858
Weighted
cost
.02496
.03432
.05928 .06
As shown in the above computation, the estimated after tax cost of
capital is 7.0 percent. (The before tax costs were compiled from
several sources and are assumed to be representative of the industry.)
4. Construction of the Cash Flow
A twenty-two period cash flow was used in this analysis and was con-
structed as follows:
1. Sunk investment (salvage market value of fixed assets plus
net working capital) taken in year t0.
2. After tax cash proceeds taken for years t^ to t2Q.
3. Annual replacement investment, equal to annual current
depreciation taken for years tj to
4. Terminal value equal to sunk investment taken in year ^21.
V-8
-------
5. Incremental pollution control investment taken in year t
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-j to t2Q for 1983 standards.
7. No replacement investment taken on baseline pollution in-
vestment on assumption of 20-year useful life.
8. Terminal value of pollution facilities are assumed equal
to zero in year t£j.
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 deere;
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 ana altern-
ative price changes to be employed.
V-9
-------
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
_ (PVP) (100)
~ (1-T) (PVR)
whe re:
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.
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.
V-10
-------
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 growth
of the industry also be estimated via qualitative methods.
The remaining effect, plant closures, is very difficult to measure
realistically as discussed above in Section A. As a starting point
in the plant closure analysis, a shutdown model will be employed
to indicate which model plants should be closed, the marginal oper-
ations and the sound operations. 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.
The above analysis will be done under a without pollution control condi-
tion and a with pollution control condition. The former (and including
historical trends) will establish a baseline against which total closures
after pollution control '.vill be compared, to arrive at an estim£te of
closures due to pollution control.
V-ll
-------
E. Employment Effects
Given the production effects of estimated production curtailments, plant
closings and changes in industry growth, a major consideration 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 classifi-
cations 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 asnects
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).
These impact factors will be qualitatively 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.
V-12
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VI. POLLUTION CONTROL REQUIREMENTS AND COSTS
Water pollution control requirements and costs used in this analysis were
furnished by the Effluent Guidelines Division of the Environmental Protec-
tion Agency from materials developed by the Ben Holt Company, i/ These
basic data covered selected types of apple, citrus and potato processing
plants in the fruit and vegetable processing industry, and this information
was adapted to the types and sizes of processing plants specified in this
analysis. '
Three effluent control levels were considered in the information provided:
BPT - Best Practicable Control Technology Currently
Available, to be achieved by July 1, 1977
BAT - Best Available Pollution Control Technology
Economically Achievable, to be achieved by
July 1, 1983
NSPS - New Source Performance Standards, apply to
any source for which construction starts after
the publication of the proposed regulations for
the Standards
No pretreatment controls were estimated to be required for the types of
plants included in this study.
A. Categories of Canned and Preserved Fruits and Vegetable Plants
Information regarding the standards of performance and costs for achiev-
ing said standards was provided by EPA. Data were provided for large
and small plants categorized as follows:
Development Document for Effluent Limitations Guidelines and
Standards of Performance--Canned and Preserved Fruits and
Vegetables Industry, Draft Report, The Ben Holt Company,
July, 1973.
£/ Pollution control guidelines and treatment costs were not provided for
spinach and asparagus products. Hence, no further analysis is presented
herein.
VI-1
-------
Citrus Products
Apple Juice
Apple Products, except Juice
Frozen Potatoes
Dehydrated Potato Products
These data, however, did not coincide with the model plant data developed
in Phase I of this report and were modified accordingly. The model plant
structure used in this report consisted of the following plants in small,
medium, and large size categories: _'
Frozen Orange Juice Concentrate
Single Strength Orange Juice
Apple Juice
Apple Slices
Apple Sauce
An extensive sear.ch was made to obtain information regarding the potato
processing industry, but because information regarding revenue, produc-
tion cost, profits and investment ic closely held, we were unable to develop
sufficient economic information regarding frozen and dehydrated potato
plants to include them in this analysis (Chapter III).£.'
The above categories of plants were evaluated separately from the stand-
point of establishing effluent limitation guidelines which are described in
the following section.
B. Effluent Limitation Guidelines
Specific effluent limitation guidelines were provided by EPA, as recom-
mended by Ben Holt, Inc. , for inclusion in this study. Two levels of
control were recommended: (1) BPT--Best Practicable Control Current-
ly Available (1977), and (2) BAT--Best Available Technology Economical-
ly Achievable (1983). The NSPS--New Source Performance Standards,
were set equal to the BAT guidelines. No pretreatment standards were
provided and are not estimated to be required in the industry segments
studied.
For reference, the recommended BPT and BAT guidelines to be met by
the industry segments involved in this study are as shown in Table VI- 1
and VI-Z. The types of treatment which are proposed to achieve the
effluent limitations indicated are described briefly in the following section.
Alternative treatment strategies are available to achieve both the BPT
and BAT guidelines.
_' Single-product model plants were developed given available secondary
data. Multi-product plants are common, but numerous product combin-
ations and volume-mixes exist. Single-product plants we re assumed to
best reflect the general magnitude of impact involved.
_' Potato processing model plant data was unobtainable within the scope of
study. A preliminary impact assessment for potatoes is contained in
Appendix A.
VI-2
-------
Table VI-1. Recommended BPT (Best Practicable Control Technology)
effluent limitation guidelines for selected fruit and
vegetable processing plants
PLANT BODS SUSPENDED SOLIDS
SUBCATEGORY (kg/kkg) (kg/kkg)
APPLES: Slices and Sauce 0.35 0.25
(Both Small & Large Plants)
APPLES: JuiCfe 0.25 0.15
(Both Small & Large Plants)
CITRUS: Juice, Oil, Segments
Plant Capacity Less Than 0.30 0.15
370 kkg/D
Plant Capacity Greater Than 0.25 0.15
370 kkg/D
CITRUS: Peel Products 0.20 0.20
(Both Small & Large Plants)
CITRUS: Juice, Oil, Segments, 0.25 0.25
Peel Products
(Both Small & Large Plants)
POTATOES: Dehydrated Products 0.60 1.20
(Both Small & Large Plants)
POTATOES: Frozen Products
Plant Capacity Less Than 1.00 1.50
320 kkg/D
Plant Capacity Greater Than 0.95 1 50
320 kkg/D
I/
Source: EPA and the Ben Holt Company, Inc.
VI-3
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Table VI-2. Recommended BAT (Best Available Technology Economically
Achievable) effluent limitation guidelines for selected fruit
and vegetable processing plants L'
PLANT
SUBCATEGORY
APPLES: Slices and Sauce
APPLES : Juice
CITRUS: Juice, Oil, Segments
CITRUS: Peel Products
CITRUS: Juice, Oil, Segments
and Peel Products
POTATOES : Dehydrated Products
POTATOES: Frozen Products
BODS
(kg/kkg)
0.07
0.02
0.03
0.01
0.03
0.15
0.21
SUSPENDED SOLIDS
(kg/kkg)
0.04
0.02
0.01
0.01
0.01
0.13
0.15
Source: EPA and the Ben Holt Company, Inc.
VI-4
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C. Pollution Control Requirements
To achieve the effluent limitations as proposed above, the fruit and
vegetable processing industry is likely to apply a variety of treatment
strategies. A number of alternatives were presented by EPA (Ben
Holt Co.); and these alternatives are briefly described in Table VI-3.
As indicated in the table, alternatives B and E are suggested to meet
the BPT guidelines. Alternatives C, F and G are suggested to meet
the BAT guidelines. Also, alternative D (spray irrigation) is indicated
to provide treatment to meet both the PPT and BAT guidelines if it
can be applied. It is further noted that B to C and E to F or G are
logical combinations to first meet BPT and then the BAT guidelines.
Not all plants are expected to be able to use the least costly system
(estimated costs are shown below) based primarily on land availability -
either for lagoons or spray irrigation. ^n Table VI-9 below, selected
combinations of treatment strategies which mav be used are estimated.
D. Pollution Control Costs
Pollution control cost estimates Here provided by EPA (from Sup-
plement A of the Development Document prepared by the Ben Hclt Co. )
for selected plants (small and large) in each cf the principal categories
defined above, i.e. , apple juice, apple products except juice and citrus
products. Pollution control investment and operating cost data were
included for alternative treatment practices within each category, i.e.
alternatives B, C, D, E, F and G, which correspond to the BPT and
BAT effluent reduction guidelines as has been indicated.
Based upon data available, DPRA generated additional investment and
operating cost data in the form desired for this study. In particular,
data corresponding to different sizes of plants within each category of
processing plants were desired. A summary of the estimated pollution
control costs for the various categories and sizes of plants as used in
this study are as shown in Table VI-4.
The method used to develop the cost data in Table VI-4 involved linear
interpolation and extrapolation of investment and annual operating cost
data provided. That is, data received were for small and large plants of
specified sizes (in tons per day). DPRA model plants (small, medium
and large) were of different sizes ranging from smaller to larger than
those for which data were estimated. Insufficient information was available
to establish non-linear relationships of investment and annual operating
costs by size; therefore, linear functions were assumed to approximate
the costs for this study.
VI-5
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Table VI-3 Summary of treatment components for alternative strategies of effluent reduction:
Apple Juice Only, Apple Products except Juice, and Citrus Products _
Treatment Component
Alternative Strategies
for
Apple Juice Only
Alternative Strategies
for Apple Products
except Juice
Alternative Strategies
for
Citrus Products
BCDEFG
Screening (Level A) XXXXXX
Primary Sedimentation
Cooling Tower
^ Shallow Lagoon (30 day) X
i
Aerated Lagoon- -Settling X
Aerated Lagoon--No Settling XX X
Anaerobic /Aerobic Lagoon
Activated Sludge XXX
Sand Filtration X X
Spray Irrigation X
BCDEFG BCDEFG
XXXXXX XXXXXX
X XXX
XX XX
X XX
XX XXX X
X
XXX XXX
XX XX
X X
Source: EPA and the Ben Holt Co. , Inc. Levels B and E are alternative BPT control strategies,
levels C, F and G are alternative BAT control strategies, level D provides both BPT and BAT
effluent reductions.
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Table VI-4. Estimated Investment (I) and Annual Costs (AC) for Best Practicable Control Technology (BPT)
and Best Available Control Technology (BAT) for wastewater effluent treatment
for selected plants in the fruit and vegetable processing industry ($1,000)
Alternative Effluent Reduction Strategies
B
(BPT)
Type of Plant
Citrus
Frozen Cone. Or.Ju.
Frozen Cone. Or.Ju.
Frozen Cone. Or. Ju.
Single Strength Or.Ju.
Single Strength Or.Ju.
Single Strength Or.Ju.
Apples
Canned Slices
Canned Slices
Canned Slices
Canned Sauce
Canned Sauce
Canned Sauce
Canned Juice
Canned Juice
Canned Juice
Category
S
M
L
S
M
L
S
M
L
S
M
L
S
M
L
Tons /day
144
528
1,072
54
109
272
32
64
69
32
64
96
48
96
144
I
201
276
382
184
195
226
24
28
32
24
28
32
9
13
17
AC
42
53
68
40
41
46
17
25
33
17
25
33
3
4
5
C
(BAT)
I
423
578
797
387
409
475
58
66
74
58
66
74
16
22
29
AC
87
110
114
82
85
95
41
42
43
41
42
43
8
10
12
D
(BOTH) ±.1
I
208
363
583
172
194
260
37
43
49
37
43
49
17
25
33
AC
48
84
136
39
44
60
8
10
12
8
10
12
3
5
7
E
(BPT)
I
620
862
1,205
563
597
700
215
228
241
215
228
241
136
151
166
AC
37
53
75
33
36
42
8
9
10
8
9
10
4
5
6
F
(BAT)
I
709
984
1,374
644
684
800
249
263
277
249
263
277
155
174
193
AC
50
69
96
46
48
57
15
16
17
15
16
17
10
11
12
L' Alternative D, Spray Irrigation, is estimated to meet both the BPT and BAT guidelines.
-------
For reference, the linear functional relationships used to generate the
pollution control investment and annual costs used in the impact analysis
are as shown in Tables VI-5 to VI-7. The equations were derived given
the two data points (small plant and large plant, as shown) provided
both for investment and annual costs.
E. Status of Wastewater Treatment
Approximately two-thirds of the plants in the citrus and apple processing
industries have either tie-ins with municipal systems or have land-
irrigation waste disposal systems (Table VI-8). In either case, further
treatment requirements are not expected in terms of the.limitation guide-
lines of this study.
The remaining one-third of these industries have only partial treatment
or no treatment facilities at the present time. Some plants in this group
are believed to currently meet the BPT guidelines based on information
provided, but no specific estimate is known. However, further treatment
is expected to be required by essentially all (99 percent) of these plants
in order to meet the BAT (1983) guidelines.
In Table VI-8, a more detailed summary of the status of wastewater
treatment in the citrus, apple and potato processing industries is shown.
These data are sample data only, but they are assumed to reflect the
status of the industry categories shown. Further information was
sought but not found available regarding the status of all plants in the
industry.
Because alternative treatment strategies are available, a further estimate
is needed of which treatment strategies will be employed to meet :he BPT
and BAT guidelines (including potential hook-up with municipal systems).
According to information supplied by EPA, the schedules shown in
Table VI-9 are used herein.
Given the estimated current treatment status of citrus and apple products
processing plants as summarized in Table VI-8, and given the estimated
schedules of treatment strategies for plants which are not presently on
municipal or land disposal systems as indicated in Table VI-9, then it is
possible to project distributions of treatment practices for 1977 and 1983
as shown in Table VI-10. That is, the estimated distributions of treatment
alternatives to meet the BPT (1977) and BAT (1983) proposed standards are
as indicated.
VI-8
-------
Table VI-5. Summary of investment (I) and annual cost (AC) data
for selected citrus products plants. And estimated
linear cost relationships for alternative treatment practices
Treatment
and Typ
Treatment
Treatment
Treatment
T reatment
Treatment
Treatment
Practice
e Cost
B: I
AC
C: I
AC
D: I
AC
E: I
AC
F: I
AC
G: I
AC
Plant
400 TPD(S)
($000)
251.2
49.7
526.2
102.5
311.5
72. 1
781.2
47.5
892.3
62.8
973.3
81.2
Data !/
4, 000 TPD(L)
($000)
950.2
151.2
1, 977.4
321.3
1, 767.5
419.9
3, 054.2
194.7
3, 473.4
241.4
3, 825.4
296. 1
Linear Cost
'a1
173.5
38.4
365. 0
78.2
149.7
33.8
528.6
31. 1
605. 5
43.0
656.4
57.3
21
Fcn-Y=a+bX
Tb'
. 1942
.0282
.4031
.0608
.4044
.0958
.6314
. 0409
.7170
. 0496
.7923
. 0597
Data provided by EPA. Supplement Table 32: Investment and annual
costs by effluent reduction level for citrus products subcategory for
typical small plant (400 TPD) and large plant (4,000 TPD).
Indicates functional form where Y is either I or AC and X is tons per
day (TPD) processed.
VI-9
-------
Table VI-6. Summary of investment (I) and annual cost (AC) data
for selected apple products except juice plants. And estimated
linear cost relationships for alternative treatment practices
Treatment Practice
and Type Cost
Treatment B
Treatment C
Treatment D
Treatment E
Treatment F
Treatment G
: I
AC
: I
AC
: I
AC
: I
AC
: I
AC
: I
AC
Plant Data ' Linear Cost
100 TPD(S)
($000)
32.0
11.8
74.0
42.2
49.0
11.0
242.0
9.5
280.0
17.4
295.0
22.8
1, 000 TPD(L)
($000)
135.2
34.4
278.2
60.7
199.2
45.3
600.2
33.3
692.7
48.8
757.7
79.2
'a1
20.5
9.3
51.3
40. 1
32.3
7.2
202. 2
6.9
234. 1
14. 1
243.6
16.5
Fcn:~Y=a+bX
'b'
.1147
.2511
.2269
.0206
. 1669
.0381
.3980
.0264
.4586
.0327
.5141
.0627
Data provided by EPA. Supplement Table 31: Investment and annual
costs by effluent reduction level for apple products except juice (only)
subcategory for typical small plant (100 TPD) and large plant (1, 000 TPD).
Indicates functional form where Y is either I or AC and X is tons per
day (TPD) processed.
VI-10
-------
Table VI-7. Summary of investment (I) and annual cost (AC) data
for selected apple juice (only) plants. And estimated
linear cost relationships for alternative treatment practices
Treatment Practice
and Type Cost
Treatment B
Treatment C
Treatment D
Treatment E
Treatment F
Treatment G
: I
AC
: I
AC
: I
AC
: I
AC
: I
AC
: I
AC
Plant
100 TPD(S)
($000)
13.0
4.3
23.0
10.0
26.0
5. 1
152.0
5.3
176.0
11. 1
182.0
13. 1
Data -
500 TPD(L)
($000)
46.2
14.0
80.2
25.2
92.4
22.1
272.2
11.8
334.7
22. 1
356.7
28.7
Linear Cost
'a'
4.7
1.9
8.7
6.2
9.4
0.85
122.0
3.7
136.3
8.4
138. 3
9.2
21
FcnY=a+bX
V
.0830
. 0243
. 1430
.0380
. 1660
. 0425
.3005
.0163
.3968
.0274
.4368
.0389
Data provided by EPA. Supplement Table 30: Investment and annual
costs by effluent reduction level for apple juice (sale product) sub-
category for typical small plant (100 TPD) and large plant (500 TPD).
Indicates functional form where Y is either I or AC and X is tons per
day (TPD) processed.
VI-11
-------
Table VI-8. Summary of industry wastewater treatment status based
on sample data from the Ben Holt Co. (BH) and
the National Canners Association (NCA)
Type of Product
Citrus
Apple Products
Potatoes
Total
BH
NCA
I/
Total-
BH
NCA
Total
BH
NCA
Total
BH
NCA
Total
Number
of
Plants
59
6
65
41
13
54
41
10
51
149
29
170
Percent
Municipal
25
30
26
33
23
30
10
20
12
23
24
23
of Plants by Type of Treatment
Land (Irrig. )
47
42
46
38
31
36
44
60
47
43
43
43
Biological
21
5
20
14
15
15
36
10
31
24
11
22
None
7
23
8
15
31
19
10
10
10
10
22
12
Percentage totals are weighted averages based on number of plants in the
BH and NCA samples. Note samples are not necessarily mutually
exclusive. NCA data summarized from information provided to DPRA.
VI-12
-------
Table VI-9. Estimated schedule of treatment strategies to be used
by citrus and apple processors to meet the BPT and
BAT effluent limitations guidelines
BPT Treatment BAT Treatment
Description Strategy Percent Strategy Percent
Citrus
Municipal -- 12 -- 12
Secondary B 16 C 16
E 16 F 10
G 6
Land D 56 D 56
100 100
Apple Products
Municipal -- 26 -- 26
Secondary B 10 C 10
E 10 F 6
G 4
Land D 54 D 54
100 100
Schedule applies only to those plants which are not already on municipal
systems or using land (irrigation) disposal methods.
Source: Derived from schedules provided by EPA.
VI-13
-------
Table VI-10. Estimated status of wastewater treatment in the citrus
and apple processing industries plus projected distribution
of treatment practices
Type of Product Type of Treatment
and Time Period Municipal Land Disposal £/ Biological None Total
Citrus
1973 (Current) -
I/
26
46
20
8 100
1977 (BPT) 29
1983 (BAT) 29
Apples
1973 30
1977 39
1983 39
62 B:4
E:5
62 C:4
F:3
G:2
36 15
54 B:4
E:3
54 C:4
F:2
100
100
19 100
100
100
Current status based on sample data presented in Table VI-8. Projection
(rounded) based on estimated schedule presented in Table VI-9. Schedule
applied to Biological and None categories only.
2/
Land disposal refers to spray irrigation strategy D as described.
VI-14
-------
F. Relationships of Model Plants to Industry Categories
The citrus model plants in this analysis have been limited to orange
juice products: frozen concentrated orange juice and canned single
strength orange juice. Other citrus products are packed, e.g. , grape-
fruit, tangerine, lemon, and blended citrus juices. Also, other pro-
duct forms are packed, e. g. , sections and salad. However, orange
juice concentrate is by far the dominant frozen citrus product packed,
and single strength orange juice is a major canned citrus product.
In the recent past, 1970-72, frozen concentrated orange juice repre-
sented over 90 percent of the frozen citrus pack as indicated in Table
VI- 1 l(sxcluding lemon juice and lemonade for which pack data are not
reported). As also shown, canned single strength orange juice comprised
about 39 percent of the canned citrus juice products.
Because of the dominance of frozen concentrated orange juice, the
model plants used are assumed to effectively reflect this segment of
the industry. Canned single strength orange juice plants represent
a much smaller portion of the canned citrus products segment. How-
ever, based on data reported by A. H. Spurlock (Costs of Proces sing,
Wa rehousing and Selling Florida Citrus Products, 1971-72 Season, EC on.
Report 46, U. of Florida, April 1973), the average costs per case for
processing orange juice, grapefruit juice and blended juice are quite
similar, and the processing characteristics are comparable. Thus, the
canned single strength orange juice model plants are regarded as sur-
rogates for citrus product canning operations.
Canned grapefruit sections, canned citrus salad, and chilled citrus
juices and salad are not represented by the model plants, but these
products are relatively minor compared with the main processed pro-
ducts as described. Plant data regarding these products is also meager.
Regarding processed apple products, canning operations are dominant.
As shown in Table VI-12, about 61 percent of the canned apples are
packed as apple sauce, about 33 percent of the cases packed are apple
juice, and only 6 percent are sliced or whole canned apples. By com-
parison, frozen apples and sauce represent only about 5 to 6 percent of
the total canned volume packed.
VI-15
-------
Table VI- 11. Selected pack statistics for processed citrus products,
1970-72
_ Annual Pack __ Average
Type of Pack 1970 1971 1972 Percent
Thousands of Gallons
Frozen Concentrated
Citrus Juices
Orange 126,402 125,187 134,229 93.3%
Grapefruit 4,294 6,870 8,798 4.. 8%
Grapefruit-Orange 16 18 22 . 1%
Lemon N.A. N.A. N.A. N.A.
Lemonade N.A. N.A. N.A. N.A.
Limeade 1,345 1,648 1,498 1.1%
Tangerine 785 1,090 1,220 18%
100.0%
Canned Citrus^ Juices -- Thousands of Actual Cases
Grapefruit 23,854 24,891 N.A. 57.1
Orange 16,966 15,927 N.A. 38.6
Blended Citrus 2,046 1,626 N.A. 4.3
Tangerine N.A. N.A. N.A. N.A.
100%
Other Citrus Products
Grapefruit Sections 3,841 3,113 N.A.
Calculated for years shown and for pack data reported only.
Source: The Almanac of the Canning, Freezing, Preserving Industries,
1973, Edward E. Judge & Sons, Inc., Westminister, Md. , 1972
VI-16
-------
Table VI-12. Selected pack statistics for apple products, 1970-72
Type of Pack
Canned Apple
Apple
Apple
Apple
Products
s
Sauce
Juice
1970
2
24
14
Thousand
,271
,291
,472
1971
of
2
26
14
Actual
,564
,399
, 148
1972
Cases
N
N
N
.A.
.A.
.A.
Average
Percent __'
5.
60.
34.
7%
3%
0%
Frozen Apple Products -- Thousands of Pounds
Apples and Sauce
Est. Case Equiv.
100,370
(2,478)
96,999
(2,395)
130, 377
(3,219)
' Calculated for pack data as reported.
Source: The Almanac of the Canning, Freezing, Preserving Industries;
1973, Edward E. Judge & Sons, Inc., Westminister, Md., 1972.
VI-17
-------
The model plants involving canned apple products reflect the major
processing operations of concern in this study. An advantage of the
single product models is that individual product line effluent charac-
teristics can be assessed. However, a more general problem is the
evaluation of multiproduct plants (apples only or apples plus other
products) which are inadequately represented by the single product
model plants used herein.
The single product canned apple products model plants of this study
are taken as a first approximation of the expected impacts on various
segments of the apple processing industry. In the case of multiple
apple products, some judgment can be made of composite impacts by
weighting the individual product line impacts. Consideration of additional
products would essentially require a plant by plant analysis within the
industry. Such an approach was beyond the scope of this study.
Vl-18
-------
VII. IMPACT ANALYSIS -
The impacts of direct discharge effluent guidelines on the citrus and apple
products processing industries are expected to be moderate on an industry-
wide basis but with selected segments of these industries likely to be im-
pacted severely. For example, single strength orange juice plants will
be impacted seriously regardless of size, and small plants in the apple
slices and apple sauce segments of the industry are likely to shutdown.
A mitigating influence on the processing industries studied is that approx-
imately two-thirds of the plants either are tied into municipal treatment
systems or currently have in place land disposal (spray irrigation) systems. The
former plants are not directly subject to the guidelines of this study. The
latter plants employ a treatment strategy that is generally acceptable to
meet both the proposed BPT (Best Practicable Control Technology) and
BAT (Best Available Technology Economically Achieveable) guidelines.
Consequently, only about one-third of the industries studied will be required
to upgrade and/or install waste treatment systems.
Process wastes from the fruits and vegetable processing industries are
generally well suited for biological treatment in municipal waste treatment
systems. Thus, pretreatment effluent limitation guidelines and associated
pretreatment control practices were not specified for this study. Also, the'
new source performance standards (NSPS) were set equal to the BAT
guidelines for 1983. Therefore, NSPS impacts are considered com-
parable to those shown for the BAT level of control.
In this section, impacts of the BPT and the BAT proposed standards and
associated abatement strategies are discussed. Estimated impacts are
based primarily on expected financial effects of the pollution control costs
(as provided) on representative model plants in the industry.
The impacts considered in this analysis include the following:
- Price effects
Financial effects
- Production effects
- Employment effects
Community effects
- Other effects, e.g., balance of payments
_' A preliminary impact analysis of water pollution controls on the
potato processing industry is reported in Appendix A.
VII-1
-------
A. Price Effects
A series of model plants for specific segments of both the citrus and
apple products processing industries were simulated and evaluated with
and without pollution controls. One analysis was to estimate the per-
centage price increase that would be required to recover the estimated
cost of pollution control. A total of 15 model plant situations were
assessed. A brief summary of the estimated price increases required
to recover costs are indicated immediately below. A more detailed
summary which also illustrates the treatment strategies involved is as
shown in Table VII-1.
I/
Plant and Size Class
Percent Change in Price Needed
BPT BAT
Citrus - Frozen Concentrate O. J.
Small
Medium
Large
Citrus - Single Strength O. JN
Small
Medium
Large
1.9 - 2.5
.7 - 1.0
.4 - .7
4.4 - 5. 5
2. 3 - 3.0
1. 1 - 1.4
2. 1 - 4. 1
1.1- 1.5
.8 - .9
4. 4 - 9.5
2.5 - 4.9
1.3-2.2
Apples - Canned Slices
Small 1.0-1.8 1.0-4.3
Medium .6-1.3 .6 - 2. 3
Large .5 - 1. 1 .5-1.5
Apples - Canned Sauce
Small .8-1.5 .8-3.6
Medium .5-1.1 .5-1.9
Large .4 - . 9 .4-1.3
Apples - Canned Juice
Small .6-1.7 .6-2.8
Medium . 4 - .9 .5-1.6
Large .3 - .7 .5-1.2
Price change such that net income of the plant remains constant.
Ranges reflect alternative treatment strategies.
VII-2
-------
Table VII-1. Percent increase in prices required after pollution controls to maintain net income
for selected model plants.
Treatment Alternative
Size
Type of Plant
Citrus
Frozen
Orange
Concentrate,
Juice
Single Strength
Orange
Apple
Canned
Canned
Canned
Juice
Apple Slices
Apple Sauce
Apple Juice
Class
S
M
L
S
M
L
S
M
L
S
M
L
S
M
L
Tons /Day
144
528
1, 072
54
109
272
32
64
96
32
64
96
48
96
144
BPT
B
1.
.
4.
2.
1.
1.
1.
1.
1.
1.
.
.
9
7
4
4
3
1
8
3
1
5
1
9
6
4
3
E
2.
1.
5.
3.
1.
1.
1.
1.
.
1.
.
m
5
0
7
5
0
4
8
0
7
5
8
6
7
9
7
C
4.
1.
9.
4.
2.
4.
>
i- *
1.
3.
1.
1.
1.
.
.
BAT
1
5
9
5
9
2
3
3
5
6
9
3
4
9
7
F
3. 2
1.3
. 8
7. 2
3. 9
1.8
2.6
1.5
1. 0
2. 2
1.2
.8
2.8
1.6
1.2
Both
D
2. 1
1. 1
.8
4.4
2.5
1. 3
1.0
.6
. 5
.8
.5
.4
.6
.5
.5
-------
The indicated price effects would be applicable at the plant level assuming
each such plant could pass-through price increases. However, each plant
is not expected to independently change prices. First, larger plants with
generally lower per unit cost increases would tend to establish new price
levels and smaller firms would then recover only part of their increased
costs. Second, and probably the dominant factor in these industries, the
two-thirds of the plants either on municipal systems or those with land
disposal systems should be largely unaffected by the guidelines.
Also, the price structures of these industries are highly competitive.
As a consequence, average industry prices are expected to change
only slightly as a direct result of the controls.
Industry prices may also be affected due to supply shifts resulting from
production curtailments and/or plant shutdowns. In general, there has
been underutilization of capacity in these industries except for peak
periods. Thus, production losses from plant shutdowns (described
below) should be picked-up by the remaining segments of the industry;
and, substantive supply shifts would not be expected.
Based on the above considerations, price increases on an industry-wide
basis should be limited at most to the levels determined by the largest
producers. Thus, BPT controls are generally expected to result in
price increases of less than 1 percent, and the BAT controls are expected
to result in less than 2 percent price increases.
More precise estimates of industry-wide price changes maybe established
given relative weights for each type of plant, e.g., number and size dis-
tribution of plants and relative volumes of each type of product packed.
A summary of available plant information is presented in Table VII-10.
below for the citrus and apple processing industries. Also, based on
1968-70 average production data, the following percentages of raw
products were processed:
Relative Raw
Type of Product Product Packed
Citrus - Orange Juice
Frozen Concentrate O.J. 85%
Single Strength O.J. 15%
100%
Apples - Canned
Slices
Sauce
Juice
VII-4
-------
Applying the percentages above as weights to large model plants only,
then average citrus (orange juice) prices for large plants would need
to increase from . 5 to .8 percent to cover BPT control costs, and
from . 9 to 1. 1 to cover BAT costs as provided. Similarly, large apple
processing plants would require weighted average increases in prices
from .4 to .9 percent for BPT control and from . 5 to 1.3 percent for
BAT control. Other weighted averages might be calculated for medium
and small plants to determine relative impacts for multiproduct types of
plants and industry averages.
Another general concern regarding price (and other) effects of the
proposed controls is the accuracy of the pollution abatement costs.
To assess the sensitivity of price changes to pollution control costs,
the estimated control costs were increased by 50 percent. (Industry
representatives expressed that such levels of increase or more were
likely for some treatment strategies.) The incremental price increases
required to maintain net incomes are shown in Table VII-2 for selected
model plants. For example, price increases needed for BAT control
in large plants would range from about . 3 to .6 percent more among the
model cases shown.
B. Financial Effects
Two primary types of analysis were completed to assess the financial
impacts of the proposed pollution control costs on the model plants: (1)
profitability impacts, and (2) impacts on the present value of future net
income streams.
Profitability. The profitability of all plants which are required to add
pollution control facilities will be adversely affected. This is indicated
in Tables VII-3 and VII-4 for all model plants (assuming no price in-
creases). Net incomes are shown to decrease in direct relation to the
pollution control investment and annual operating costs. Also reported are
estimates of net income as a percent of sales and the after tax return on
investment (ROI) for each model plant under alternative treatment conditions.
VII-5
-------
Table VII-2. Incremental price increases required by selected model
plants _' to maintain net income with a 50 percent increase
in estimated pollution control costs
Treatment Alternative
Type of Plant
Citrus
Frozen O.J. Concentrate
Apple
Canned apple slices
Canned apple sauce
Canned apple juice
Size
S
M
L
M
L
M
L
S
M
L
BPT
B
1.0
.4
.2
.6
.6
. 5
.5
.5
.2
.2
E
1.3
.5
.3
.5
.4
.4
.3
.8
.7
.4
BAT
C
2. 1
.8
.5
1. 1
.9
1.3
.6
.8
.4
.3
F
1.4
.6
.4
.7
.6
.6
.5
1.5
.8
.5
Both
D
1. 1
.5
.4
.3
.3
.5
.2
.5
.3
.2
_' Plants selected were only those with positive NPV's after original
pollution control costs were applied.
VII-6
-------
Table VII-3 . Net profits and return on investment for selected citrus processing plants with and without pollution
control costs.
Small Plants
Type of Plant and
Treatment Strategy
Net Net Inc.
Income % Sales
($000) (%)
After Tax
ROI
Medium Plants
Net Net Inc.
Income % Sales
($000) (%)
After Tax
ROI
Large Plants
Net
Income
($000)
Net Inc.
% Sales
After Tax
ROI
Frozen Concentrate O. J.
Base
BPT:
BAT:
Line
B
E
C
F
D
125
97
89
66
79
94
4.6
3.6
3. 3
2.4
2.9
3.5
11.
8.
6.
5.
5.
7.
2
0
3
0
4
7
420
386
370
346
358
367
4. 4
4. 1
3.9
3. 1
3. 8
3.9
10.6
9.4
8. 4
8. 1
8.0
8.9
948
903
879
847
862
863
4.7
4.4
4. 3
4.2
4. 2
4. 3
E Single Strength O. J.
^ Base
BPT:
BAT:
Line
B
E
C
F
D
13
(36)
(48)
(92)
(66)
(35)
.9
< 0
<0
<0
<0
<0
8.
<
<
<
<
<
6
0
0
o
0
0
16
( 35)
(50)
(93)
(70)
(38)
. 5
-------
Table VTI-4. Net profits and return on investment for selected apple processing plants with and without pollution
control costs.
Small Plants
Type of Plant and
Treatment Strategy
Net
Income
($000)
Net Inc.
% Sales
Medium Plants
After Tax Net
ROI Income
(%) ($000)
Net Inc. After Tax
% Sales ROI
Large Plants
Net
Income
($000)
Net Inc.
% Sales
After Tax
ROI
Canned Apple Slices
Base
BPT:
BAT:
Line
B
E
C
F
D
7
(10)
(8)
(34)
(17)
0
.7
< 0
<0
<0
< 0
< 0
1.2
<0
<0
<0
<0
<0
90
77
79
67
75
85
4.
3.
3.
3.
3.
4.
4
8
9
3
7
2
8. 1
6.8
6.4
5.8
6.0
7.5
144
126
133
118
128
136
4.7
4. 1
4.3
3.9
4.2
4.4
9.0
7.8
7. 7
7. 3
7. 3
8. 3
M Canned Apple Sauce
M
i Base Line
00
BPT:
BAT:
B
E
C
F
D
Canned Apple Juice
Base Line
BPT:
BAT:
B
E
C
F
D
4
(12)
(12)
(38)
(21)
(4)
21
19
14
16
9
19
.3
< 0
<0
<0
<0
<0
3. 3
3. 0
2.2
2.5
1.4
3.0
.7
<0
<0
<0
<0
<0
7.6
6.8
4. 1
5.8
2.6
6.7
90
77
80
67
75
85
107
105
101
102
97
104
3.
3.
3.
2.
3.
3.
8.
8.
8.
8.
7.
8.
7
1
3
7
1
5
4
3
0
0
6
2
9.8
8.3
7.8
7. 1
7.2
7.5
21. 1
20.4
17.4
19.7
16.3
20.0
138
120
127
114
122
131
175
172
168
168
164
170
3.8
3. 3
3.5
3. 1
3.3
3.6
9. 1
9.0
8.8
8.8
8.6
8.9
9.2
7.9
7.9
7. 4
9. 1
8.6
24. 0
23.5
20.8
22.7
20. 0
22.9
-------
As shown in the tables, all single strength orange juice model plants
(smallj medium and large) are shown to have negative net incomes
after pollution control costs are added. Such plants, plus at least
small plants with this product line, are expected to be impacted severely.
As discussed further below, such plants are expected to close. Further,
small processors of apple slices and apple sauce are projected to be
severely impacted.
Net profits and rates of return on investment for the model plants are
as presented in Tables VII-3 and VII-4 for the pollution control cost
levels as provided. Comparative estimates are shown in Tables VII-5
and VII-6 for 50 percent increases in pollution control costs for selected
plants. After-tax net incomes are typically not reduced dramatically
relative to the original level control costs, primarily because pollution
control costs are tax deductible. Therefore, the incremental burden is
effectively less than implied by the 50 percent increase, e. g. , about half
or 25 percent for most plants.
Net Present Value (NPV). Another measure of the financial viability of
a plant is the net present"value (NPV) of projected streams of costs and
revenues. With this measure it is possible to assess the likelihood of
continued plant operation versus closure. By discounting at the cost of
capital rate (see Chapter V), then positive NPV's would indicate the
likelihood of continued plant operation; whereas negative values indicate
probable plant shutdowns. To complete this analysis, the following
assumptions were made:
1. Existing plants have sunk investments but they presumably
could be scrapped or salvaged and the salvage value rein-
vested elsewhere as an alternative to the processing opera-
tion. However, only 10 percent of the estimated replace-
ment cost of a citrus or apple processing plant is assumed
recoverable. This relatively low value is based on little
opportunity for use of equipment outside the industry and
low prospects for use as replacement equipment in existing
plants. Also, buildings are typically older buildings and
not well suited for other uses.
2. Revenues and expenses are assumed to remain constant
over time, i.e. , 20 years of operation.
3. The estimated cost of capital for the industry is 6. 0
percent after taxes (see Page V-8).
VII-9
-------
Table VII-5. Net profits and return on investment for selected citrus processing plants with a 50 percent
increase in pollution control costs
Small Plants
Type of Plant and
Treatment
Strategy
Net
Income
($000)
Net Inc.
% Sales
(%)
After Tax
ROI
(%)
Medium Plants
Net
Income
($000)
Net Inc.
% Sales
(%)
After Tax
ROI
(%)
Large Plants
Net
Income
($000)
Net Inc.
% Sales
(%)
After Tax
ROI
(%)
Frozen Concentrate O.J.
BPT:
BAT:
B
E
C
F
D
84
71
37
57
79
3. 1
2.6
1.4
2. 1
2.9
6
4
2
3
6
.6
.5
.6
.5
.2
368
345
308
326
341
3.9
3.6
3.3
3.4
3.6
8.8
7.4
7.0
7.0
8. 1
881
843
800
818
820
4.3
4.2
3.9
4.0
4.0
11. 1
10.0
9.7
9.5
10.2
I
tI
a
-------
Table VII-6.
Net profits and ROI for selected apple processing plants with a 50 percent increase in pollution
control costs
Small Plants Medium Plants
Type of Plant and
Treatment Strategy
Canned Apple Slices
BPT: B
E
BAT: C
F
D
M Canned Apple Sauce
£ BPT: B
~ E
BAT: C
F
D
Canned Apple Juice
BPT: B
E
BAT: C
F
D
Net Net Inc. After Tax Net
Income % Sales ROI Income
($000) (%) (%) ($000)
I/ 70
75
55
67
81
11 70
75
55
67
81
17 2.7 6.1 103
10 1.6 Z.7 97
12 1.9 4.2 99
2 .3 .5 91
17 2.7 5.9 102
Net Inc.
% Sales
(%)
3.4
3.7
2.7
3.3
4.0
2.9
3. 1
2.£
2.7
3. 3
8. 1
7.b
7.8
7.2
8.0
After Tax
ROI '
(%)
6.2
5.8
4.7
5.2
7.0
7.5
6.9
5.7
6.0
8.5
20.0
15.6
18.9
14.4
19.4
Net
Income
($000)
117
127
106
119
132
111
121
102
115
127
170
164
165
158
168
Large Plants
Net Inc.
% Sales
(%)
3.8
4. 1
3.5
3.9
4.3
3.0
3.3
2.8
3. 1
3.5
8.9
8.6
8.7
8.3
8.8
After Tax
ROI
(%)
7.2
7. 1
6.4
6.6
8.0
7.3
7.3
6.6
6.8
8.3
23.1
19.3
22. 1
18.2
22.4
Plants omitted since closure is assumed to have occurred at original level, therefore there is no need to consider
at 50 percent increase level.
-------
The net present values were calculated for model plants both with and
without pollution controls. These results are shown in Table VII-7.
As indicated, all model plants without pollution controls had positive net
present values which indicates that they would--without controls--likely
continue to operate versus disposing of facilities and reinvesting else-
where. However, with pollution controls, specific types and sizes of
plants are likely to shutdown. The treatment strategy or alternative
involved is also a factor.
The most severely impacted type of plant is single strength orange juice
where small, medium and large plants would likely shut down given either
the B-C or the E-F treatment strategies. Also, only the large plant would
likely continue under the D strategy (land spray irrigation).
In the apple processing industry, the small canned apple juice and the small
canned apple sauce plants would be expected to shutdown-- regardless of
treatment strategy as depicted. All remaining types of plants would be
expected to continue operations under the assumptions indicated.
A sensitivity analysis of NPV's was completed for selected model
plants assuming a 50 percent increase in pollution control costs. The
results are reported in Table VII-8 for those model plants which had
positive NPV's with the original pollution control costs. Only one
additional type of plant (small canned apple juice) under the high cost
E-F treatment strategy was shown to lik«ly shut down. Thus, for up
to 50 percent higher costs, very few additional closures are expected.
Another special analysis was made to determine if any of the plants which
were projected to close would remain open to 1983 only. That is, would
a plant possibly meet the BPT guidelines in 1977 but close in 1983 rather
than meet the BAT guidelines. In this case, only the large single strength
orange juice plant would likely do so. The most probable treatment strategy
would be alternative B.
VII-12
-------
Table VII- 7. Net present values of selected citrus and apple processing model plant cash flows with
and without pollution controls
Si
Class
Citrus
Orange Juice, S
Frozen Concentrate M
L
Orange Juice , S
Single Strength M
L
£j Apples
,L Canned Apple Slices S
M
L
Canned Apple Sauce S
M
L
Canned Apple Juice S
M
L
Net Present A
ize
Tons /Day
144
528
1,072
54
109
272
32
64
96
32
64
96
48
96
144
/alue
W/O
PC
1,507
5,880
13,278
159
285
964
90
1,226
1,947
61
1,350
1,961
252
1, 369
2,230
Treatment
BPT BAT :
B C
- - K
V3>
816
5,003
12, 100
(905) I/
(813)
(68)
(294)
982
1,679
(334)
1, 106
1,686
206
1, 316
2, 159
Strategy
BPT BAT
E F
1 000^
735
4,818
11,801
(903)
(845)
(138)
(259)
964
1,675
(299)
1,093
1,682
73
1, 199
2, 041
Land
D
1,059
5, 116
12,053
(426)
(368)
280
(5)
1, 148
1,840
(45)
1,272
1,854
224
1, 321
2, 163
Parentheses denote negative NPV's and, thus, probable plant closures.
-------
Table VII-8. Net present values of selected model plant cash flows with a 50 percent increase in
pollution control costs
Citrus
Orange Juice,
Frozen Concentrate
Apples
Canned Slices
Canned Sauce
Canned Juice
Size
S
M
L
M
L
M
L
S
M
L
Treatment
BPT BAT
B C
484
4,654
11,514
855
1,548
979
1,562
172
1,273
2, 129
Strategy ( With +
BPT BAT
E F
1 $1 0001
210
4,284
11,051
833
1,536
957
1,550
(26) y
1, 112
1, 942
50% Costs)
Land
D
839
4, 740
11,439
1, 092
1,753
1,216
1,807
203
1,298
2, 136
' Parentheses denote negative NPV's and, thus, probable plant closure.
-------
C. Production Effects
The citrus and apple processing industries have generally experienced
slight to moderate rates of growth during the past decade in terms of
physical volumes packed. An exception has been canned apple slices
(and whole apples), which have declined in volume packed. A summary
of recent pack data for the principal products in this analysis is shown
in Table VII-9. More detailed data are presented in Chapter II.
A summary of available plant data regarding both the citrus and apple
processing industries is presented in Table VII-10. In 1972, 105 plants
were involved with citrus products processing, although only 41 were
strictly citrus processors. The remaining 64 plants also processed
other fruit and/or vegetable products. Plants involved with citrus process-
ing are typically multiproduct plants rather than single-product plants.
(Further descriptions of citrus processors are reported in Tables 11-19 and
11-20.)
Also in 1972, 144 plants processed canned or frozen apple products.
Twenty-nine (29) plants packed only apple products, while the remainder
were about equally distributed as fruit only and as fruit and vegetable
processors. The most prevalent apple products only plants were plants
processing cider and juice (8), slices only (4), cider only i4). and sauce,
cider and juice (4). The majority produced multiple products, however.
(See Tables 11-25 and 11-26. )
Also shown in Table VII-10 are estimated distributions of citrus and apple
processing plants by size category, and the estimated volume of pack by
each size category of plants. It is noted that small plants comprise a
relatively small portion of total industry pack. Consequently, small plant
closures do not commonly affect industry-wide patterns substantially
and/or production losses can be made-up by larger plants. Local economic
impacts can be severe, however. These factors are discussed further
below.
VII-15
-------
Table VII-9. Summary of recent pack data for selected citrus and apple products
Annual Pack
H
i
H-
Type of Product
Citrus
Frozen Concentrate,
Orange Juice
Canned Orange Juice
Apples
Apple Slices (& Whole)
Apple Sauce
Apple Juice
Source: The Almanac of the
Units
1,000 gal.
1, 000 cases
1, 000 cases
1, 000 cases
1 , 000 cases
Canning, Freezing,
1968 1969
83,697 108,043
15,691 17,082
3,604 3,128
24,073 27,533
9,641 13,503
Preserving Industries,
1970
1971
126,402 125,187
16,966
2,271
23,647
14,472
1972, Edward E.
N. A.
N. A.
N. A.
N. A.
Judge & S
Inc., Westminster, Md. , 1972.
-------
Table VII-10. Summary of estimated plant numbers and volumes packed
by size category for the citrus and apple processing industries
Size Category '
Type Plant Small
Citrus
Citrus Only
Citrus plus other
Total citrus 36
Approx. Volume Packed 10%
Apples
Apples only
Apples plus other
Total apples 63
Approx. Volume Packed 5%
Medium Large
__
__
43 26
30% 60%
__
__
42 39
40% 55%
Total
41
64
105
100%
29
115
144
100%
Size categories here are defined to include total pack of all products
processed. Therefore, these sizes are larger than the single-product
model plant categories as defined. Based on Judge, the size ranges
for these plants are as follows:
Small £. 500,000 canned cases or 10 million frozen pounds
Medium _^ 500,000 to 5 million canned cases or 10-100 million
frozen pounds
Large *L 5 million canned cases or 100 million frozen pounds
Source: The Directory of the Canning, Freezing, Preserving Industries,
1972-73, Edward E. Judge & Son, Inc., Westminster, Md. , 1972.
VII-17
-------
Baseline Closures
There has been a general decline in the number of fruit and vegetable
canning and freezing plants throughout the U.S. in recent years. For
example, Census of Manufacture rs data for the most recent census
years indicates the following numbers of fruit and vegetable canning
and freezing plants:
Year Canners Freezers
1958 1,630 303
1963 1.42Z 650
1967 1,223 608
The overall rate of decline in canning plants from 1958 to 1967 was
about 2.8 percent per year. Forfreezers, the decline from 1963
to 1967 was about 1.6 percent per year.
More recent data compiled from The Directory of the Canning, Freezing
and Preserving Industries, by Edward E. Judge, for 1970-71 and 1972-73
indicates that the overall rate of decline for both canners and freezers
may have decreased in the 1970-72 period. From this source it was
estimated that 183 plants closed from 1970-72; but, also, 151 new
fruit and vegetable canning and freezing plants were opened (or newly
listed). Thus, a net loss of only 32 plants was recorded between 1970
and 1972. This represented only a 1.3 percent net decline per year
for both canners and freezers. Some plants may have existed prior to
1970 but were first reported in The Directory in 1972. This would result
in actual net losses greater than the 1.3 percent per year.
As suggested, conclusive baseline plant closure data are not readily
available. In our judgment, net plant closures are estimated to be
between 2.8 and 1.3 percent per year for both fruit and vegetable canners
and freezers, e.g. , 2 percent per year. It is also noted that the pro-
ductive capacity of this composite industry has probably increased despite
net losses in plant numbers. New plants are typically larger than old
plants which have closed across all product classes.
Using the 2 percent estimate as a basis for projecting baseline plant
closures in this analysis (prior to enforcement of pollution controls),
then the following summary of annual closures is projected:
VII-18
-------
Present No. Baseline Annual
Type of Processor of Plants Closures _'
Citrus
Citrus only 41 1 (0.8Z)
Citrus plus other 64 j_ (1.28)
Total 105 2 (2.10)
Apples
Apples only 29 1 (0. 58)
Apples plus other 115 2, (2. 30)
Total 144 3 (2.88)
-L' Closure estimates would decrease slightly overtime as
"present" numbers of plants decline.
Again, these estimates are projected annual net losses. Also, while
plant closures may occur among all size segments of plants, the
greatest losses are expected to occur among ihe small size categories.
The above annual projections of plant closures can be extended to yield
the following baseline estimates for 1977 and 1983 as follows:
Total Baseline Plant Closures
Type of Processor 1973-77 1977-83 1973-83
Citrus 8 10 18
Apples I?. H 25
Total 20 23 43
VII-19
-------
Plant Shutdowns Resulting From Pollution Control Guidelines
Based upon the above financial analyses, three basic groups of model
plants are highly subject to shutdown due to the increased burden of
pollution control costs (and little offsetting price increases):
1. Single Strength Orange Juice plants (Small, Medium and
Large)
2. Small Apple Slices plants
3. Small Apple Sauces plants.
All other model plants remained "viable" with added pollution control
costs -- including treatment strategies B to C, E to F and D as described.
(Note E to G was similar to the E to F alternative and not repeated.
The impacts would be from 5 to 10 percent greater and conclusions would
be generally the same as for the E to F alternative.) Furthermore, based
on sensitivity analysis using increased pollution control costs of +50 percent,
the expected shutdowns were basically the same (small canned apple juu e
plants would also likely shutdown under the E to F control alternative;
otherwise the same results apply).
Also, it is noted that the plants would in general close in 1977 (BPT
level) rather than continue to 1983. Consequently, plant shutdowns due
to pollution controls -- and above the baseline case, are both limited
in scope and expected during the initial enforcement period (1977).
Citrus FHnt Closures Above Baseline. A review of Judge's The Directory
for 1972-73 indicates only 5 single strength canned citrus juice processors
which only produce canned juice in the small, medium and large categories
as depicted by the model plants. One other plant was a very large operation
and it was assumed that it probably had adequate economies of scale to
continue. In other words, 5 plants are expected to shutdown by 1977 if
treatment facilities must be installed. However, some other prior
assumptions lead to the following implications:
- 1 plant closure attributed to baseline conditions;
- 2 plants probably already on municipal or land disposal systems;
- 2 remaining plants shutdown due to pollution controls.
Another group of plants (6) were estimated to be single product frozen
concentrate citrus processors. However, these plants are not expected
to shutdown based on model plant results. Further, the remaining citrus
plants are multiproduct plants -- both citrus only and citrus plus other
products. While model plants did not specifically cover these plants, it
is concluded that any combination of products is relatively better than
VII-20
-------
the single strength juice model case. Except for baseline closures, no
additional plant shutdowns can be conclusively projected at this time.
In conclusion, two basic types of shutdown impacts on the citrus industry
are expected:
1. All 18 projected baseline citrus plant closures from 1973 to
1983 are expected to occur by 1977 (subsequent to BPT guide-
lines). This includes 10 plants which were projected to oper-
ate beyond 1977. Most of the baseline plant closures are ex-
pected to involve relatively small operations.
2. Single strength citrus juice plants are expected to be impacted
most severely. Only 5 applicable operations were identified.
Based on assumed treatment systems in place and baseline
conditions, a net closure of only 2 plants is projected due to
pollution controls.
Apple Processing Plant Closures Above Baseline. As noted above, only
small apple slices and sauce processing plants are expected to be severely
impacted due to BPT and BAT controls. Based again on data from The
Directory only about 14 plants fall into the small category as defined
by the model plants of this study. This includes small plants which pro-
duce slices, sauce, both, and limited other products where the total oper-
ation remains small.
Again not all 14 plants will necessarily close due to controls, and the
following breakdown is projected:
- 2 plant closures due to baseline conditions,
- 8 plants probably already on municipal or land disposal systems,
- 4 remaining plants shutdown due to pollution controls.
As shown in Table VII-10 there are a total of 63 small apple processing
plants. However, beyond the above shutdowns and expected baseline
closures (25 primarily small) the model plant results do not conclusively
indicate that other forced shutdowns are expected. Additional multiproduct
model plant cases would be desired, but virtually all plants produce unique
combinations of pack.
As stated similarly for citrus, there are two basic types of shutdown
impacts which are expected in the apple processing industry:
VII-21
-------
1. Baseline closures will occur more rapidly. In this case,
all 25 projected 1973-83 baseline closures are expected
by 1977 following BPT guidelines enforcement. This in-
cludes 13 plants which were projected to operate beyond
1977.
2. A total of 4 additional small plant closures are expected
to shutdown due to the added financial burden of pollution
controls. Eight to ten other small plants (primarily apple
slices and sauce) would be impacted severely, but it is
estimated that treatment systems are already in place.
Total Production Lost Due to Guidelines
The estimated short-term production lost from the 2 citrus juice plants
which are forced to shutdown due to the control guidelines is 6 percent
of the total single strength output. This percentage loss should be recover-
able among existing plants within a short period based on estimated under-
utilization of capacity.
The 4 apple products processing plants are all estimated small plant
shutdowns and the total production lost is approximately 4 percent of
the apple slices and sauce output. Again, this percentage loss should
be picked-up by other processors.
On an industry-wide basis the primary forced shutdown production losses
should be recoverable. However, the baseline rapid-closure pattern ex-
pected in 1977 will cause more serious adjustment problems in the in-
dustry. For example, in 1977 with f ewe r plants, the 10 citrus remaining
baseline closures would represent about 11 percent of the plants in the
citrus industry.
Also in 1977, the remaining baseline closures of 13 apple products plants
would represent about 10 percent of the total apple processors. Total
production lost should be substantially lower than these percentages since
most closures are expected to be small plants. However, the adjustment
problems could be serious both in terms of short term production and local
community and employment impacts.
VII-22
-------
D. Employment Effects
Total employment in 1972 in the citrus processing industry is estimated
at about 18,615 and at 25, 155 in the apple products processing industry.
Approximate estimates of 55, 1 ^ and 400 employees have been made for
small, medium and large plants. ; -^ p«:ct ively in each of these industries.
The above estimates reflect ''a\ er^-e monthly" employment per plant only.
Peak season employment is often 2. tc I, 3 times larger with part-time
employees added to meet seasonal requirements.
For the two forced shutdowns in the citrus industry (beyond baseline),
the employment losses would represent less ^han 1.5 percent of the
industry employment (one medium and one small plant assumed). In the
apple processing industry, the four small plant closures would represent
less than . 5 percent of the total employment.
Again, it is emphasized that the. rapid closure of "baseline" plants in
1977 will present probable adjustment problems which can only oe
partially attributed to pollution control impacts.
Employment displacements in these industries are not expected to be
absorbed by more than about 10 percent in the remaining plants in the
industry. Most remaining plants will tend cc be more capital intensive.
Some additional skilled labor may be transferable; but additional pro-
duction worke rs , if needed, would tend to come from local labor forces.
Employment on farms (orchards) is not expected to change significantly
on the assumption that alternate processors -vill be available within a.
feasible delivery range. In case an alternate processor is not available
then serious orchard losses and associated farm employment reductions
would occur.
E. Community Effects
Citrus and apple processing plants often are a vital economic factor in
the communities in which the plants are located. Thus, while only few
plants are projected to be forced to shutdown, local impacts could be
severe.
In information developed by the National Canners Association pertaining
to some 400+ fruit and vegetable processing plants which might close in
the future in relation to pollution controls, the following "average" char-
acteristics were derived for each plant closure situation:
VH-23
-------
63 full time employees involved
72 part time employees involved
33 farmers affected
- $700,000 local payrolls , expenditures involved
$1.4 - 2. 1 million local economic activity (multiplier effect)
involved
50 percent of such plants in or near towns with less than 2, 500
- 75 percent of such plants in or near towns with less than 5,000
From this general information, the approximate levels of local com-
munity effects can be assessed.
The exact location of the plants which are most likely to close has not
been established. However, it is noted that the principal citrus producing
areas are in Florida, Texas, California and Arizona. Major apple pro-
ducing and processing areas are in New York, Michigan, Maryland,
Pennsylvania, Virginia, California, Washington, Ore gon and Idaho.
More information on plant location is included in Chapter II.
F. Other Effects
A potential concern exists regarding international trade ar d balance of
payments consequences of pollution control impacts on the citrus and
apple processing industries. For example, 41.5 percent of the 1970
pack of canned orange juice (single strength and concentrated) was ex-
ported. Thus, any major reduction in production could result in losses
of exports and declining balance of trade consequences. However, as
estimated above, production levels of single strength orange juice are
expected to be maintained (despite a loss of 6 percent from plants which
are forced to shutdown).
On the other hand, the U.S. is a net importer of processed apple products,
e. g. , apple juice, representing about 45 percent of the U.S. pack in 1970.
In this case, only apple slices and sauce processing plants were expected
to be impacted. Thus, no major international trade implications are in-
volved. However, product mixes could vary and relatively more or less
apple juice could be produced. Any substitution from juice to sauce or
slices could result in increased apple juice imports and a net decline in
the balance of trade. More detailed export and import data are presented,
by product in Chapter IV.
VII-24
-------
Summary of Impacts
The foregoing analysis of the citrus and apple processing industries
indicates that specific segments of these industries are likely to be
impacted severely on the basis of model plant effects. A broad range
of effects were considered and a. brief summary cf the main effects
estimated for both BPT and BAT levels of control is as follows:
Type of Impact
1. Price Effects
Orange Juice - large plants
Apples - large plants
2. Financial Effects
BPT (1977)
. 5 - .8%
. 4 - .9%
A11S.S. Orange Juics
and small apple slices
and #auce plants incur
losses. Plant shut-
downs expected.
Production Effects
Citrus plant shutdowns
Baseline
Above Baseline
Apple plant shutdowns
Baseline - No. plants
Above Baseline - No. Plants
Production losses (short-term)
Citrus - Above Baseline
Apples - Above Baseline
Employment Effects
BAT (1983)
.9 - 1.1%
. 5 - 1.3%
Same as BPT
Citrus - Above Baseline
Apples - Above Baseline
Community Effects
Citrus and apples
Other Effects
Citrus
Apples
8 10
2(+10 Baseline)
12 13
4( + 13 Baseline)
6%(+Baselme)
4%(+ Baseline)
. 5%(+Baseline)
. 5%(+Baseline)
Employee losses
Payroll losses
Local multiplier effect loss
Farmer impact possible
Potential loss in experts of
canned juice
Potential increase of imports of
apple juice
VII-25
-------
VIII. LIMITS OF THE ANALYSIS
The foregoing impact analysis was based upon data and information
from published secondary data, annual company reports, financial
statistics services, private sources and the Contrator's files. The
various data are subject to error and variance. The purpose of this
final section is to present the limits of the analysis in terms of ac-
curacy, range of error, critical assumptions and remaining questions
to be considered.
A. General Accuracy
Key financial information on the fruit and vegetable industry is generally
.scarce, particularly for individual planis cr ;.rrr.s. Consequently, the
financial aspects of the impact inaiysis v,/ere- '.! necessity, sasea upon
synthesized co^ts and returns for model ^larr . representing the "'anou =
segments stuaied. In. developing these mode, uata, efforts *vt, r^ devoted
to evaluating and cross checking; tnese mater.al^ wherever possiole.
cTruit and vegetable processing plants generally process a trux c,i uroduc-ts
and product funns. For example, apple prcc.assors will ciren produce
apple juice, sauce and slices as -veil -is .~ther fruit products sizr1" r. ; peach*
and pears. Vegetable plants vix-tually always process multiple species.
Turrher, in processing multiple products, some plants in the industry are
relatively large, in terrns of total plant throughput.
These characteristics (large number of product mixes) make ;t dilf-cui1;
';o model the various industry segments. To handle this sn.ua Uon, ^oiant
models were -ieveioped on single product basis. These models were
si£t;d to typiv.a.1 throughputs of that product. rt is recognized that this pro-
cedure may .T:r. fully reflect cost savings through the use of cororr>'"'n. facil-
ities by several products.
Due io severe budget constraints and a paucity of financial data: ,hi.-
analysis used Lro-'.en and single strength orange juice plants as surrogares
:or the citrut> oil, sections and peel products segments. The pr:-~ jdure
may nave red^ceo the accuracy of the impact analysis, but it ±3 bci.eved
that the inferences drawn are of an acceptable order of magnitude.
/
Specifications of the contract called for the Contractor to use effluent
control costs provided by EPA. The contract precluded detailed com-
ment on these costs and technology by this Contractor. The cost data
VIII- 1
-------
provided were for two discrete plant sizes which did not correspond
with plant sizes used in this analysis. Linear extrapolations of the
provided cost data were made by the Contractor to obtain the needed
data. It is quite conceivable that the cost-size relationships may be
non-linear, but information on this was not provided. To the extent
this relationship deviates from a linear one, the effluent control costs
used in the model plant analysis may be misstated.
B. Possible Range of Error
Different data series and portions of the results of the impact analysis
are subject to error and variance with the industry. Estimated error
ranges of key items as an order of magnitude, are as follows:
Error range
7. Estimated plant closures _ 20
VIII-2
-------
C. Critical Assumptions
In an analysis of this sort, a number of underlying assumptions are
required. Some of the more critical assumptions used in this analysis
are given below:
1. As indicated in the above discussion on general accuracy,
single product model plants were used as the basis of the
analysis. It was assumed that they would be indicative
of the reactions of corresponding multiproduct units.
2. It was further assumed that frozen and single strength
orange juice plants would serve as proxies for the other
citrus products-sections, oil and peeled products.
3. Linear cost-fcize relationships of effluent control invest-
ment and annual costs were assumed in estimating these
costs for the model plants.
4. Constant 1972 prices and costs were used for each of the
model plants for the period of analysis. This is based upon
the assumption that inflation will influence both proportionately.
There is some evidence that effluent control costs are rising
at a rate faster than the general price level, which may lead
to an understatement of the 1977 and 1983 effluent control
investment.
5. Plant throughput was held constant for the period of analysis,
although the various types of plants varied in length of oper-
ating season (Table III-l). In practice, it should be recognized
that due to weather conditions, crop quality and other factors,
that year to year variations of throughput will occur.
6. Based on sample data of the various industry segments, approxi-
mately two-thirds of the plants were assumed to have either
existing municipal system hookups or land-irrigation disposal
systems in place that would meet BAT standards. Only the
remaining third with partial or no treatment facilities would
require additional investment to meet BPT and/or BAT, (See
Table VI-10 for summary.)
7. Alternative effluent control technologies were provided by
EPA, along with a set of assumptions regarding the number
of plants that would employ each type of technology. The
VHI-3
-------
schedule of BPT and BAT technology (including further
municipal hookups) is presented in Table VI-10. The
impact analysis was based upon these assumptions.
It turns out, in most cases, that the conclusions regard-
ing impact of the effluent controls are similar for each
of the alternative technologies.
Cost data were not provided regarding new municipal
hookups by these fruit and vegetable plants. Since data
were not provided, the number of plants assumed to
follow this alternative were excluded from the closure
estimates, to the extent these hookups would involve
substantial new costs, estimated potential closures
may be understated.
D. Remaining Questions
Use of the model plant approach obviously results in question of its
representativeness. Although any rigorous analysis of the type this
report reflects would require the use of representative plants, given
a larger budget the analyst could use a larger number of models and
perhaps better reflect the economics of the industry. This question of
representativeness of the model plants can only be answered by further
detailed analysis.
Although several treatment strategies were examined, land based
technologies dominated. This raises questions regarding the availability
and cost of land for land based disposal techniques. High land costs could
lead to a greater impact then estimated in this report. Answers to these
questions would require further industry surveys on this issue.
Another unresolved question as of this writing is the impact of effluent
controls on the potato processing segment. As previously pointed out
in the Phase I report and subsequent memos from the contractor to EPA,
this required financial data for this segment are virtually non-existent.
Efforts to obtain and/or synthesize these data have proven unsuccessful.
Given this situation, it is suggested that the best alternative, short of
an extended project.to obtain an insight into an order of magnitude impact
of pollution control costs on the potato processing industry would be a
comparison of unit effluent control costs with wholesale prices.
VIII- 4
-------
Because many fruit and vegetable processing plants process a number
of products, in addition to those which -were included in the proposed
effluent limitations guidelines, an obvious question arises as to what
constitutes an apple or a citrus processing plant. Presumably some
sort of concentration ratio would have to be established, and any plant
which was above that ratio would be classed as that sort of plant.
This definitional difficulty, of course, gave rise to the problems of
estimating the industry economics discussed above.
VIII- 5
-------
APPENDIX A
-------
APPENDIX A
Preliminary Potato Processing Industry Economic Impact
of Costs of Proposed Effluent Limitation Guidelines
An unresolved question is the expected economic impact of effluent con-
trols on the potato processing industry. Proposed effluent guidelines
have been established, and estimated investment and operating costs
for specified plants have been developed. However, plant financial data
to which the incremental pollution control costs would apply were not
available from secondary sources nor obtainable by DPRA from exten-
sive contacts with trade association and private industry sources.
A preliminary insight into expected impacts of pollution control costs
is possible through comparison of unit effluent control costs with whole-
sale prices of processed potatoes. The purpose of this brief summary is
to estimate both unit costs and prices and derive a cost/price ratio which
would indicate the gene ral magnitude of price increase required to cover
the incremental pollution control costs.
In this assessment, two major subcategories of potato processing oper-
ations are involved:
1. Frozen potato products
2. Dehydrated potato products
These subcategories represent the major potato processing categories.
For example, in 1970, all processed potatoes were distributed approxi-
mately as follows in terms of fresh weight equivalent:
Process 1970 % Distribution
Frozen 47%
Dehydrated 30
Chips 22
Canned 1_
Total Processed 100%
Further the ratio of processed to fresh potato consumption has been
steadily increasing with a 50/50 ratio occurring in 1970. By 1980, it
is estimated that processed products will account for about three-fourths
of the total food use of potatoes (Figure A-l).
A-l
-------
POTATO CONSUMPTION BY PRODUCTS
WITH PROJECTIONS TO 1980
CANNED
DEHYDRATED
I960
1965
1970
1975
1980
Figure A- 1
Source: Vegetable Situation, ERS, USDA, TVS-186, October,
1972
A-2
-------
Within the frozen potato category, frozen french fries are the dominant
product packed (85-90%). The balance includes hash browns (5-7%)
and miscellaneous othe r products (5-8%).
A variety of dehydrated potato products are also produced, e. g. ,
granules, flakes, slices, and diced potatoes. A percentage breakdown
of these products is not known at this time, but granules a re a major
product.
Water Pollution Control Costs
In information supplied by EPA (Ben Holt Co.), water pollution control
standards (see Tables VI-1 and VI-2) and associated treatment costs were
provided for both the frozen potato and the dehydrated potato products
categories. A summary of the estimated pollution control costs as
provided are shown in Table A - 1. For each pro cess Category,
-------
Table A-l. Summary of investment (I) and annual cost (AC) data
for water pollution control for selected
1 /
potato processing plants _'
Treatment Practice
and Type Cost
Treatment B:
Treatment C:
Treatment D:
Treatment E:
Treatmcrt F:
Treatment G:
I
AC
I
AC
I
AC
I
AC
I
AC
I
Frozen Potato Products
Plant Data
400TPD(S)
($000)
505.2
100.7
728.2
144. 5
469. 1
94.8
90Z.2
67.0
1,009.2
81.9
1,089.2
99.9
l.OOOTPD(L)
($000)
1,051.0
188. 9
1,525.0
273.6
1, 140.3
246.5
1,826.0
151.7
2,038.0
176.2
2,213.0
211.2
Dehydrated Potato Products
Plant Data
350TPD(S)
($000)
273. 3
49.6
383.3
75.4
217. 1
41.6
498. 3
32.6
559.3
42.7
599.3
53.7
l.OOOTPD(L)
($000)
586.9
113.0
842.9
162. 0
555. 1
114. 1
1,011.9
80.0
1, 131.9
96.2
1,223.9
116.2
Data provided by EPA. Supplement Tables 33 and 34 to the Development
Document prepared by the Ben Holt Co.
A-4
-------
Table A-2. Summary of treatment components for alternative strategies of effluent reduction:
Frozen Potato Products and Dehydrated Potato Products
Treatment Component
Screening (Level A)
Primary Sedimentation
Shallow Lagoon (30 day rentention)
Aerated Lagoon -- Settling
Aerated Lagoon -- No Settling
Anaerobic/Aerobic Lagoon
Activated Sludge
Sand Filtration
Spray Irrigation
Alternative Strategies
for
Frozen Potato Products
B C D E F G
X X X X X X
X X X X X X
X X
XX X
X X
X X
XXX
X X
Alternative Strategies
for
Dehydrated Potato Products
B C D E F G
X X X X X X
X X X X X X
X X
X X
X
X X
XXX
X X
X
Source: EPA and the Ben Holt Co. , Inc. Levels B and E are alternative BPT control strategies,
levels C, F and G are alternative BAT control strategies, level D provides both BPT and BAT
effluent reductions.
-------
Given the pollution control costs as shown in Table A-l and the oper-
ating assumptions above, then estimated control costs per unit (cwt.)
of final product for selected frozen potato and dehydrated potato pro-
cessing plants are as shown in Table A-3. Investment costs were con-
verted to an annual basis by including depreciation and interest costs as
noted in the table.
The control costs in Table A-3 are subsequently summarized by product
category in terms of BPT and BAT treatment strategies. The unit costs
shown are the basic matrix of cost components required for the proposed
unit control cost/wholesale value ratio analysis.
Estimated Wholesale Values
Wholesale prices (or f.o.b. plant prices) for frozen and dehydrated
potato products are not public-ally reported or available. Large institu-
tional buyers , food chains and seconda ry proces so rs (e.g. General Foods)
often negotiate contracts with potato processors and such contracts are
confidential. Thus, it is difficult to estimate wholesale values for either
frozen or dehydrated potato products.
The approach taken herein was to contact selected institutional buyers
in the Mid-west and solicit prices paid for various processed potato
products. The results of these inquiries are not purported to reflect
industry-wide averages. However, the general magnitude of prices per
hundredweight for frozen and dehydrated potato products are considered
acceptable for this very preliminary assessment.
A summary of estimated "average" values lor selected frozen and de-
hydrated potato products and relative weights for calculating composite
values is as follows:
Sample "Average" Relative
Process and Product 1972 Value/lb Weight
Frozen Potato Products
French Fries . 17 90%
Hash Browns .20 5%
Other .18 5%
Dehydrated Potato Products .
Granules, Flakes .28 75%-'
Other .40 25%
Assumed relative weights for dehydrated products.
A-6
-------
Table A-3. Summary of estimated water pollution control costs per unit of
final product for selected frozen potato and dehydrated
potato products plants
Frozen Potato Products Dehydrated Potato Products
Item
TPD Raw Product _i/
TPY -Annual Raw Product 1
TPY-Finished Product I/
Small Plant
400
100,000
40,000
Large Plant
1,000
250,000
100,000
Small Plant
350
87,500
12,250
Large Plant
1,000
250,000
35,000
Pollution Control Costs, $ per swt.
Treatment Alternative and
Cost Component
B:
C:
D:
E:
F:
G:
Depreciation
Interest
Operating Cost
Total cost/cwt.
Depreciation
Interest
Operating Cost
Total cost/cwt
Depreciation
Interest
Operating Cost
Total cost/cwt.
Depreciation
Inte re s t
Operating Cost
Total cost/cwt .
Depreciation
Interest
Operating Cost
Total cost/cwt.
Depreciation
Interest
Operating Cost
Total cost/cwt.
.042
.051
. 126
.22
.061
.073
. 181
.32
.039
.047
. 119
.21
.075
.090
.084
.25
.084
. 101
. 102
.29
.091
. 109
. 125
.33
.035
.042
.094
. 17
.051
.061
. 137
.25
.038
.046
. 123
.21
.073
.061
.076
.21
.068
.082
.088
.24
.074
.089
. 106
.27
.074
.089
. 202
.37
. 104
. 125
.308
.54
.059
.071
. 170
.30
. 127
. 153
. 133
.41
. 153
. 183
. 174
. 51
163
. 196
.219
.58
. 056
.067
. Ibl
.28
.080
.096
.231
.41
.053
.063
. 163
.28
.096
. 116
. 114
.33
. 108
. 129
. 137
.37
. 117
. 140
. 166
.42
I/ TPD equals Tons Per Day. Sizes provided by EPA and the Ben Holt Co.
2/ TPY equals Tons Per Year. Based upon 250 operating days per year.
3/ Finished product yields based on conversion factors from raw product of .4 for
frozen products and . 14 for dehydrated potato products.
4/ Basic investment and annual operating cost data as provided. Depreciation calculated
as .067 times investment, Interest as .08 times one-half of total investment, and
Operating Cost as given divided by cwt. of finished product,
A-7
-------
i
For purposes of this analysis, composite (weighted) wholesale values
per hundredweight unit of processed potatoes are estimated as:
Composite
Wholesale
Value/ cwt.
Frozen potato produc ts $17.20
Dehydrated potato products $31.00
Comparison of Unit Control Costs and Wholesale Values
The results of the two preceding sections can now be combined to approx-
imate the percent price increase required to recover the costs for water
pollution control:
Approximate Percent Price _ Control Cost/cwt
Increase ~ Wholesale Value/cwt
This ratio can be computed for both small and large plants, and for all
treatment strategies as shown in Table A-3.
A more condensed summary of the estimated water pollution control
costs per cwt. as presented in Table A-3 are shown in Table A-4. Also,
the costs are shown in relation to either the BPT or BAT levels of Control
as has been described.
Next, using the computed wholesale values above, the percent price increases
required to recover the control costs (as indicated in Table A-4) are as
presented in Table A- 5.
A-8
-------
Table A-4. Summary of estimated water pollution control costs per cwt.
of product for small and large frozen and dehydrated
potato processing plants _'
Type of Product
and Plant Size
Frozen Potato Products
Small Plant (400 TPD)
Large Plant (1,000 TPD)
Dehydrated Potato Products
Small Plant (350 TPD)
Large Plant (1,000 TPD)
Range
BPT
($/cwt)
.22-. 25
17-. 21
.37-. 41
.28-. 33
of Control
BAT
($/cwt)
.29-. 33
.24-. 27
.51-. 58
.37-. 42
Costs per Cwt.
"D" (Both)
($/cwt.)
.21
.21
.30
.28
.-' Summarized from Table A-l. BPT level involves treatment strategies
C or E; BAT involves C, F or G; and D meets both BPT and BAT re-
quirements .
A-9
-------
Table A-5. Summary of estimated percentage increases in wholesale
processed potato prices needed to recover proposed
water pollution control costs
Type of Product
and Plant Size
Approx.
Wholesale
Value /cwt
Percent Increase in Price Needed to
Recover Pollution Control Costs _'
BPT BAT "D"(Both
Frozen Potato Products
Small Plant (400 TPD)
Large Plant (1,000 TPD)
$17.20
1.3-1.5
1.0-1.2
1.7-1.9
1.4-1.6
1. L
1.2
Dehydrated Potato Products
Small Plant (350 TPD)
Large Plant(1,000 TPD)
$31.00
1.2-1.3
0.9-1. 1
1.6-1.9
1.2-1.4
1.0
0.9
I/
Ranges based on alternative treatment strategies as provided: BPT
involves alternatives B and E; BAT involves C, F. or G; and D meets
both BPT and BAT requirements as previously described.
A-10
-------
For frozen potato products plants, the range of estimated price in-
creases are from 1.0 to 1. 5% for BPT control and from 1. 2 to 1. 9%
for BAT control. These ranges include small and large plants as de-
fined. The higher percentages reflect small plant impacts, but
it is noted that "small" plants, as defined, are not impacted on a
unit cost basis as severely as generally expected relative to the
large plants.
For the dehydrated potato products plants, similar price increase
estimates range from . 9 to 1.3% for BPT control and from .9 to 1. 9"o
for BAT control. As further illustrated in Table A-5, the differential
impacts among small and large plants are not extremely large batied
on the control cost data provided.
Further weighting of the percentage price increases to reflect possible
combinations of treatment strategies which might be used, and/or to
reflect proportions of pack by small and large plants < oulcl be applied
to the data developed. However, given the reliability of present infor-
mation regarding the potato processing industry, such additional tabu-
lations are not wa r ranted. The intent of this supplemental analysis is
to provide a preliminary assessment of expected impacts despite \ e ry
limited availability of desired industry data.
Additional Considerations
The above "price effects" are intended only to reflect the general order
of magnitude of price increases which might he, involved as a consequent e
of the proposed effluent limitation guidelines.- There are various addi-
tional related effects which are even more tenuous given available infor-
mation. For example, probable plant shutdowns because of financial
effects and/or production curtailments cannot be specifically assessed.
Neither is it possible to evaluate expected employment effects and
community effects which would likely accompany plant shutdowns.
While the related effects cannot be directly estimated, it is noted that
the preliminary price effects are of a magnitude which is similar to other
fruit and vegetable processing industries. In other words, potato processors
do not appear to face control costs on a unit basis which are relatively
greater than other types of fruit and vegetable processors.
J_/ As noted below, about 60 percent of the potato processors are esti-
mated to either have municipal sewer hook-ups or land disposal systems
in place. The price effects described assumed no pollution controls in
place. Thus, the industry-wide consequences would be less than the
effects described.
A-ll
-------
As reported in Table VI-8, it is further noted that about 60 percent of
the potato processors are estimated to currently ha.ve either municipal
sewer hook-ups (12%) or land irrigation disposal systems (47%). Another
31 percent are estimated to have some biological treatment practices, and
only 10 percent are indicated to have no treatment at present (based on
sample data only).
Industry-wide impacts of pollution < i ntrol < osts will be mitigated sub-
stantially because of the relatively high percentages of plants whuh have
either municipal or land disposal systems. The former plants are not
directly affected by the proposed guideline^, and the latter plants employ
a treatment strategy which is indicated acceptable to meet the proposed
guidelines.
Based on materials presented in Chapter II, 103 potato processing plants
were identified by type as follows:
Type of
Potato Processin' "-lant Number, 1972
Freezer 32
Dehydrator b
Freeze-r and Dehydrator 8
Canner and Freezer 6
Canner and Dehydrator 2
Canner only 49
103
These data were obtained from Th-j Directory of the Fruit and Vegetable
Canning, Freezing, and Prese rving Indust ne s , 1972-73. This source of
plant data is not necessarily exhaustive, especially for potato dehydrators,
Additional study is needed to more completely identify potato processors
in the U.S. (A total of 114 processing plants were indicated in Table
II-7 in the Ben Holt Co. report, but not specified by type of process.)
A-12
-------
A much more thorough analysis and assessment of expected impacts of
water pollution controls on the potato processing industry is desired and
recommended. Data which does not now exist on an industry-wide basis
needs to be developed; and this is only possible with the close cooperation
of industry sources.
In conclusion, the level of expected price effects as suggested in this
preliminary analysis indicates that the potato processing industry will
not likely be impacted severely relative to other food processing in-
dustries. Also, extreme differential impacts among varied sizes of
plants are not indicated.
A-13
-------
BIBLIOGRAPHIC DATA ' Hcport No 2.
SHEET EPA-230/1-73-012
4. 1 ulc and ^btule
Economic Analysis of Proposed Effluent Guidelines
Fruit and Vegetable Processing Industry
7. Author(s)
Donald J. Wissman, David L. Jordening, Samuel G. Unge r
9. Performing Organization, .Name and Address
Development Planning and Research Associates, Inc .
P. O. Box 727, 200 Research Drive
Manhattan, Kansas 66502
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S.W.
Washington. D. C. 20460
3. Recipient's Accession No.
5- Hcpote Ujcc
October, 1973
6.
8. Performing C-.-ini/nun Kt;:.
No.
10. Pro jrc t 1 .1 s r * or *. i n ; \u.
Task Order No. !
11. Contract I.-.IM \j.
Contract N». 68-ul-l:--
13. ^ y pe ot Kc ; . t: ,^ t t n^ >:
Covered
14.
15. Supplementary Notes
The economic impacts, of proposed effluent guidelines on selected portion.1
(citrus, apples and potatoes) of the fruit and vegetable processing industry we r,- a-
The analysis included description and statistical compilationb regarding the' numbrr,
location and characteristics of types of firms and plants; financial profiles, in\ osiniori
ope rating costs and returns for selected model plants; prices and pricing mecham-m^,
description of analytical procedures employed; evaluation of costs of proposed eilhient
treatment practices; and economic impacts of proposed pollution controls in term- ot
effects on prices, industry returns, production, employment, c'ommunity ei onomu -
and international trade. Limits of the analysis were stated.
Specific segments of the citrus (single strength canned juice) and appb1 (-rn
slices and sauce plants) processing industries will be severely impacted both by the'
BPT (1977) and BAT (1983) levels of control. Some plants are projected to shutdown
17. Ke> «o:Js an>l Document Ana.vsis. 17a. LV scnpcors
Water pollution, e conomic analysis, economics, citrus, apples, potatoes, fruit
processing, vegetable processing, pollution, indus t ria 1 wa stes , economic demand,
supply, prices, variable costs, fixed costs, fixed investment, discounted cash flow."
17b. Idcmiiiers/Open-Endej Terms
02 Agriculture, B-Agriculture economics
05 Behavioral and Social Sciences , C-economics
\7-.. C(
215
-------
16. Abstract (continued)
due to control requirements including a more rapid closure of plants
which might other-wise operate until equipment was worn-out.
Approximately two-thirds of the plants involved are reported
either to be linked to municipal treatment systems or to have land
disposal (spray irrigation) systems. According to EPA these systems
will meet control requirements. Because of this, overall industry
impacts are effectively reduced. However, individual plants projected
to shutdown will cause serious local community effects including em-
ployment losses that often cannot be readily absorbed in the affected
communities.
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|