EPA-230/1-73-016
OCTOBER, 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
Leather Tanning and Finishing Industry
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
\
LU
-------
This report has been reviewed by the Office of Planning
and TC valuation, EPA, and approved for publication.
Approval docs 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-
mi-ndat ion for use .
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EPA - 230/1-73-016
ECONOMIC ANALYSIS OF
PROPOSED EFFLUENT GUIDELINES
LEATHER TANNING AND FINISHING INDUSTRY
Donald J. Wissman
October, 1973
Prepared for
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
IJ.S, Environmental Protection Agency
srr Lsri-et'
Chicago, JL 60604
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This document is available in limited
quantities through the U.S. Environmental Protection Agency,
Information Center, Room W-3Z7 Waterside Mall,
Washington, B.C. 20460
The document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151
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PREFACE
The attached document is a contractor's study prepared for the Office
of Planning and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent limitation
guidelines and standards of performance to be established under sections
304(b) and 306 of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development Document")
supporting the issuance of oroposed 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 report was submitted in fulfill-
ment of Contract No. WA-73X-42&, Task Order No. 8 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 any such proceeding
as a statement of EPA's views regarding the subject industry.
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CONTENTS
I. INTRODUCTION 1-1
A. Data Sources 1-1
II. INDUSTRY SEGMENTS II-1
A. Characteristics of Firms in the Leather
Tanning and Finishing Industry II-2
1. Number of Firms II-2
2. Size of the Firms II-4
3. Age of Plant and Level of
Technology II-5
4. Location II-7
5. Number of Products II-7
6. Level of Integration 11-11
7. Level of Diversification 11-11
8. Efficiency 11-12
B. Industry Segments 11-12
1. Conventional Industry Segments 11-12
2. Categorization of Plants by Type
of Manufacturing Process 11-14
C. Ability to Finance New Investment 11-19
1. General Industry Situation 11-20
2. Expenditures for Plant and
Equipment 11-21
III. FINANCIAL PROFILE III-l
A. Plants by Segment III-l
B. Annual Profit Before Taxes III-3
C. Distribution of "Model" Plant Financial Data III-5
IV. PRICING
A. Price Determination IV-1
1. Demand for Leather IV-1
2. Supply of Raw Hides IV-2
3. Pricing in the Leather Industry IV-4
B. International Trade IV-8
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CONTENTS (continued)
Page
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 Leather Tanning and Finishing
Plants VI-1
B. Effluent Limitation Guidelines VI-2
C. Pollution Control Requirements VI-5
VII. IMPACT ANALYSIS VII-1
A. Price Effects VII-1
B. Financial Effects VII-4
C. Production Effects VII- 10
1. Baseline Closures VII- 10
2. Capital Availability VII- 12
3. Plant Shutdowns Resulting from
Pollution Control Guidelines VII- 14
4. Total Production Lost Due to
Guidelines VII- 17
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CONTENTS (continued)
Page
VII. IMPACT ANALYSIS (continued)
D. Employment Effect VII-18
E. Community Effects VII-21
F. International Trade VII-22
VIII. LIMITS OF THE ANALYSIS VIII-1
A. Accuracy VIII-1
B. Range of Error VIII-1
C. Critical Assumptions VIII-2
D. Remaining Issues VIII-3
APPENDIX
SELECTED REFERENCES
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I. INTRODUCTION
The purpose of this study is to analyze the economic impact of the cost
of proposed effluent control guidelines on the leather tanning and finishing
industry. These requirements are being developed by EPA pursuant
to the Federal Water Pollution Control Amendments of 1972.
The initial impact study for the leather tanning and finishing industry,
completed by Urban Systems Research and Engineering, Inc. in
December, 1971, included part of the requirements of the basic scope
of work for the current study. This study will concentrate on updating,
improving, expanding upon and adding detail to the earlier study and
on expanding the financial analysis and economic impact evaluations.
The three levels of treatment plus pretreatment for plants disposing of
water into municipal systems are as follows:
1. Best practicable control technology currently available
(BPT) - to be met by industrial dischargers by 1977.
2. Best available technology economically achievable
(BAT) - to be met by 1983.
3. New source performance standards (NSPS) - to be applied
to all new facilities (that discharge directly to navigable
waters) constructed after the promulgation of these guide-
lines (approximately January 1, 1974).
4. Pretreatment standards - in this case to be applied to all
facilities that use municipal systems.
A. 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 product data is the Census of Manufactures. In addition to
the Census, other sources were used where applicable. Much of the de-
tailed statistical information on the industry was drawn from the compi-
lation and tabulation of the Tanners' Council of America, Inc. Generally,
the Census information is in agreement with data compiled by the Tanners'
Council.
1-1
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There is a dearth of published information regarding the tanning industry,
particularly regarding industry structure, pricing, import-export impli-
cations and other economic analyses. The USDA has published over the
years a few brief definative reports but compared with other industries
in the agriculture processing areas, study of the industry has been
neglected. We have used the sources described where applicable but
have relied on personal discussions with knowledgeable individuals to
provide the needed insight to the industry.
Financial data for the industry is particularly limited and was drawn
largely from information made available on a confidential basis to the
staff of the Tanners' Council. In addition, information taken from Troy's
Almanac of Business and Industrial Financial Ratios and other sources
were used where applicable.
In addition to the present study there have been earlier studies completed
on the tanning industry with regard to the impact of pollution control
facilities. Relevant data from the following studies are included herein.
1. USDI Federal Water Pollution Control Administration, The
Cost of Clean Water,'Volume III, Industrial Waste Profile
No. 7 - Leather Tanning and Finishing." September, 1967.
2. The President's Council on Environmental Quality, The
Leather Industry - A Study of the Impact of Pollution Control
Costs. Prepared by Urban Systems Research and Engineering,
Inc. December, 1971.
3. U. S. Environmental Protection Agency, Development Document
for Effluent Limitation Guidelines and Standard of Performance
- Draft. Prepared by Stanley Consultants, Inc., June, 1973.
(Hereafter referred to as Development Document).
1-2
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II. INDUSTRY SEGMENTS
The Census of Manufacturers classifies the leather tanning and finishing
industry (SIC 3111) into three types of establishments. These are es-
tablishments that are primarily engaged in the tanning, curing and
finishing hides and skins into leather. The three types of classifications
that are used include:
1. "Regular tanneries" - the regular tannery purchases raw
materials, employs production workers in the plant to tan,
curry and finish hides and skins, and sells the finished
product. In effect, this type of establishment performs all
of the usual manufacturing functions within one organization.
2. Converter - the converter typically performs only the
entrepreneural functions of the manufacturing concern
such as buying raw materials, and arranging processing with
outside factories, i.e. contract tanneries for the production
of the finished leathers. The actual tanning and finishing
of hides and skins is done on contract by the contract
tanneries.
3. Contract tanneries - the contract tanner employs production
workers in his own establishment to process materials
owned by converters, makes products to specification
but does not become involved in the sale of the finished
product.
It should be noted, however, that the above classification is not mutually
exclusive since some firms in the industry act as both regular tanners,
and leather converters or as regular tanners and contract tanners.
The Census has used the primary plant operation as the delineating classi-
fication criteria. If the direct wage and salary payments for one category
were less than the payments for the second, the plant was classified
according to the category in which the highest amount of wage and salary
payments were made.
II-1
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A. Characteristics of Firms in the Leather Tanning
and Finishing Industry
The leather tanning and finishing industry consists of a wide diversity
of types of firms. Firm ownership ranges from family-owned com-
panies and closely held corporations to divisions of large conglomerates.
As a result, information regarding operating characteristics is
closely held or else combined with operation statements of large
corporations where meaningful segregation is not possible.
Information regarding this industry must out of necessity be derived from
traditional sources of information such as the Census of Manufactures
and the published reports of the Internal Revenue Service. These two
sources have their limitations as frequently results are aggregated into
the SIC 31 Leather and Leather Products Major Group.
For convenience purposes and because the industry consists largely of
single firm plants, the characteristics of firms and characteristics of
plants will be discussed in conjunction in the following sections. Relevant
distinctions will be made as required.
1. Number of Firms
The Census of Manufactures lists the number of companies and number
of establishments as follows:
Year No. of Companies No. of Establishments
1958 521 578
1963 482 525
1967 474 519
Table II-l shows the total number of establishments in the leather tanning
and finishing industry by classification. In 1967, 60% of the establish-
ments were classified as tanneries which was an increase from 54% in
1963. The number of converters increased slightly from 1963 to 1967
accounting for 13% of the plants in 1967. Contract tanneries on the other
hand declined from 180 or 34% of the total number of plants in 1963 to
26% of the plants in 1967.
II-2
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Table II-1. Total number of establishments in the leather tanning
and finishing industry by classification
Total
Tanneries
Converter
Contract
Tanneries
No. of Establishments
With 1-19 employees
With 20-99 employees
With 100 employees or more
1963
525
269
166
90
284
133
81
70
61
50
10
1
180
36
75
19
1967
No. of Establishments
With 1-19 employees
With 20 - 99 employees
With 100 employees or more
519
261
171
87
314
163
91
60
70
52
13
5
135
46
67
22
Source: Census of Manufacturers, 1967.
II-3
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A tabulation by the Tanners' Council of America indicates a total ofi399
companies with 431 plants (including converters) in the industry as of
30 June, 1973. Their records also indicate a total of 33 plants
(establishments) have ceased operations between the period of
1 January 1968 and 30 June 1973. This would, in effect, reduce the 519
firms to 486 as of the present date. This leaves a difference between
the Census figures and the Tanners' Council list of 55 plants. It is
believed that this number reflects miscellaneous small operators, many
of which would be classified as taxidermists by the Tanners' Council rather
than tanners or finishers.
A further breakdown of plant numbers would include approximately 70
"establishments" that are converters and handle only entrepreneural
functions. This leaves a total of 361 manufacturing plants. Of this number,
185 are dry process finishers only which do not use water in the
manufacturing process. According to the data supplied by Tanners'
Council, this leaves a total of 176 plants that must be considered herein.
2. Size of the Firms
Based on number of employees, an indication of size of plant is avail-
able from the Census of Manufacturers (Table II-1). Plant size appears to
have remained relatively constant between the period of 1963 and 1967. In
1963, 51% of the total plants had less than 19 employees. This had decreased
to 50% by 1967. Thirty-two percent of the plants in 1963 and in 1967 em-
ployed between 20 and 99 employees and 17% had 100 employees or more.
When number of employees and type of operation are compared, we find
that little change has occurred in size structure during the period '63 to
'67. Approximately 52% of the tanneries had less than 10 employees in
1967. Twenty-nine percent had between 20 and 99 employees and 19%
had more than 100 employees in 1967. This is basically the same as the
size structure in 1963; however, in the tannery classification, the number
of plants with 100 employees or more amounted to 24% of the total tanneries.
The size structure of the converters also remains essentially the same
with a slightly larger percentage of the plants falling into the 100 employee
category in 1967 than in '63. For contract tanneries we see a slight shift
toward higher number of employees than in the other two classifications.
Only 34% of the plants have less than 19 employees in 1967 as compared
with 47% in 1963. Plants with more than 100 employees amounted to 16%
of the total in '67 as compared with 1 1% in 1963.
II-4
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A further indication of size of firms can be obtained from Table II-2. In
1970 the four largest companies accounted for 21 percent of the value of
industry shipments. This is approximately the same percentage as
existed in 1935. The eight largest companies account for 31 percent of
shipments and the largest 50 companies about 71 percent of the total.
Using the total number of companies in 1967 as reported by Census,
i.e., 47, the largest 10 percent of the companies control 70 percent of
the shipments.
Data for the most recent year, 1972, reflects a similar size structure
for the industry. According to data obtained from the Tanners' Council.
41 firms or 10. 3 percent of the total accounted for 69 percent of sales.
This included companies ranging in size from $5 to $50 million (Table II-3).
The medium .sized companies ranging in size from $1 to $5 million in
sales account for 28 percent of the companies and 15 percent of sales while
the small companies with less than $1 million of sales account for 64
percent of the companies but only 16 percent of the sales.
3. Age of Plant and Level of Technology
The leather tanning and finishing industry can be described as having
basically old plants in terms of actual brick and mortar with slightly
over 70 percent of the plants 50 years of age or older. From the member-
ship records of the Tanners' Council, the age of plants, tanning and/or
finishing leather, converter excluded, is as follows:
Plant Units
Less than 10 years 3
10-15 years 5
15-20 years 11
20-30 years 17
30-50 years 68
over 50 years 257
Total 361
Although the majority of industry units are in old buildings, a substantial
number of plants have been rebuilt, modernized and re-equipped at a
cumulative cost approaching the capital investment required for new plants.
The Urban Systems and Engineering report (2 ) categorizes the level of
technology for existing plants as older, prevalent, and new, i.e., 1950,
1963 and 1967 vintaj : respectively.
II-5
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Table II-2. Percent of value of shipments accounted for by the
largest companies in the leather tanning and finishing
industry, 1935-1970
Year
Conomts1
(IHMIM)
VUvtofinftBUyUnpmnts'
Tom
(mtlita
toll*!)
Pvctnt accounted for By-1
4
larftSt
companies
1
Iviesl
companies
20
lettest
companies
SO
Hips!
companies
PrMary
product
special-
nation
iltn'
(percent)
Cowate
rail*
fpucenl)
954..
1947...
1915...
,M) i
474
sao
323
500
'93
870.
94O.
7SS.
732.
706.
1,070.
HA,
100
100
100
too
Source: Annual Survey of Manufactures.
Table II-3. Distribution of companies and plants by dollar volume, 1972
Company Size
($ 000,000)
5 - 50
1 - 5
Under 1
Total
Volume
$ %
545
116
127
788
69.2
14.7
16. 1
100.0
Companies
No. %
41
110
256
399
10. 3
27.6
64.2
Source: Tanners' Council of America, Inc.
II-6
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Using this classification sheme, 20 percent of the plants were placed in
the older category and the remainder of the plants were classified in the
prevalent and newer category. Level of technology by size of plant is
defined as follows:
Percent Percent of plants this size in
Plant Hides plants of technology level
size No. /day this size Older Newer fc Prevalent
Small 300 10 55 45
Medium 300-800 50 30 70
Large 800 40 5 95
Source: Urban Systems and Engineering, "The Leather Industry -
A Study of the Impact of Pollution Control Costs. "
4. Location
Leather tanning and finishing establishments tend to be concentrated in
the Northeastern region of'the country. As shown in Table II-4, nearly
50 percent of the total number of establishments are located in Massa-
chusetts and New York, 28 and 21 percent respectively. New Jersey
reported 9 percent of the plants in 1967.
The second area of concentration is the East North Central region with
Wisconsin reporting 30 plants or 5.8 percent of the total. Other states
of importance in this region include Ohio, Illinois and Michigan. The
remaining plants are scattered widely throughout the United States.
Historically, tanneries were located throughout the country near the
source of hides. A concentration did develop in the early 1900's in the
East and North Central region .around Chicago and Milwaukee, but the
recent trend again would be to locate in and around the sources of hides.
With the relatively recent spatial dispersion of slaughter facilities away
from the traditional centers such as Kansas City and Chicago, we can
expect to see new tanneries follow the same trend.
5. Number of Products
Six major categories of animal skins are used today in addition to imported
rars skins such as alligator, crocodile, etc. They are as follows: cattle-
hides, kipskins and calfskins; sheep and lamb skins; goat and kidskins;
pigskins; horsehides; and deer and elk skins.
The products of the industry can be identified in traditional terms based
upon primary raw materials employed and end use.
II-7
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Table H-4. Location of leather tanning and finishing establishments by primary state
and region, 1967
1967
Region
New England Region
Maine
New Hampshire
Vermont
Massachusetts
Middle Atlantic Region
New York
New Jersey
H-, Pennsylvania
i
00
East North Central Region
Chio
Indiana
Illinois
Michigan
Wisconsin
West North Central Region
Minnesota
Mis souri
South
Delaware
Tennessee
West
California
Total
Total
Number
183
16
18
1
146
176
108
48
20
74
12
3
19
10
30
13
2
6
47
6
9
26
15
519
Industry
Percent
35.2
3.0
3.4
.2
28. 1
33.9
20. 8
9.2
3.9
14.3
2.3
.6
3.6
1.9
5.8
2.5
.4
1.2
9-1
1.2
1.7
5.0
2.9
100.0
Establishment with
20 or More Employees
Numbe r
93
14
15
1
62
68
30
25
13
51
7
3
12
5
24
7
1
5
30
6
7
9
8
258
Percent
36.0
5.4
5.8
0.4
24.0
26.3
11.6
9.7
5.0
19-8
2.7
1.1
4.6
K9
9-3
2.7
0.3
1.9
11.6
2.3
2.7
3.4
3.1
100.0
Total Industry
Numbe r
195
I/
17
II
162
188
109
53
26
67
I/
I/
20
7
27
9
I/
j_/
42
7
10
24
17
525
Percent
37. 1
-
3. 2
-
30.8
35. 8
20. 8
10. 1
5. 0
12. 8
_
-
3. 8
1.3
5. 1
1.7
-
-
2. 0
1.3
1.9
4.6
3. 2
100. 0
1963
Establishment with
20 or More Employees
Number
89
I/
15
I/
60
76
30
26
20
48
I/
I/
13
5
22
4
I/
\l
30
7
7
9
8
256
Percent
34.8
.
5.8
_
23.4
29.7
11.7
10.2
7. 8
18.7
-
-
5. 0
1.9
8.6
1.5
-
-
11.7
2.7
2.7
3.5
3. 1
100.0
I/ Included in division total
Source: Census of Manufacturers
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CATTLEHIDES:
CATTLE SIDE LEATHER. This is the principal product of the
industry which accounts for approximately 64% of total industry
sales. End use includes--shoe uppers, linings, garments,
gloves, sporting goods, handbags, small leather goods, and
waist belts. Side leather is primarily chrome tanned.
CATTLE SIDE SPLIT LEATHER. Cattle side split leather is
a by-product of hides which is not processed in full thickness.
Used for shoe uppers, linings, insoles, work gloves, small
leather goods, handbags, protective industrial clothing. Chrome
tanned; processed by side leather tanners or sold to "split
tanners" for finishing into specialized products.
SOLE LEATHER. Almost entirely vegetable tanned. Major use
is for shoe soles. Secondary uses include welting, counters,
box toes, waist belts.
CATTLE SIDE PATENT LEATHER. Sub-class of chrome tanned
cattle sides finished with special compounds (polyurethanes) for
glossy surface.
KIP SIDE LEATHER. Leather tanned from kips which are small
hides, intermediate between calfskins and cattlehides. Used almost
entirely for shoe uppers.
UPHOLSTERY LEATHER. Mainly vegetable tanned; some chrome
retannage. End use includes automotive and furniture upholstery.
HARNESS AND SADDLERY LEATHER. Composite group of the
same plants but possessing different characteristics useful for
various parts of equine equipage or related uses. (Collar,
harness, skirting, latigo, bridle, etc.) Also used for holsters,
gun cases, etc.
SPORTING GOODS LEATHER. Combination tannages of chrome,
vegetable, alum, glutaraldehyde used for footballs, baseballs,
baseball gloves and ces.
BAG, CASE &. STRAP LEATHER. Trade description for special-
ized group of leathers which are vegetable, chrome and combina-
tion tanned. End use includes luggage, briefcases, small leather
goods, decorative items, equipment cases, straps, and heavy
bookbinding.
II-9
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MECHANICAL LEATHER. Vegetable, chrome and impregnated
leather for industrial uses including belting, gaskets, washers,
seals for equipment.
CALFSKINS: Chrome tanned leather from skins of immature cattle
used for shoe uppers and handbags. Volume is in sharp decline due
to shrinkage of raw material supply.
SHEEP AND LAMB SKINS: .Second largest raw material category. Chrome
alum, oil and combination tannages for garments, gloves, shoe uppers and
linings, handbags and wallets, bookbinding and chamois.
GOAT AND KID LEATHER SKINS: Chrome tanned in smooth or suede
finish used for shoe uppers and linings.
PIGSKIN: Vegetable or chrome tanned shoe uppers, gloves, garments,
and small leather goods.
HORSE HIDES: Chrome and vegetable processed for shoe uppers, gar-
ments, baseballs. Cordovan is included in this group.
DEER AND ELK HIDES: Chrome and vegetable tanned for gloves, garments,
and to minor degree for shoe uppers (buckskin).
MISCELLANEOUS AND EXOTIC LEATHERS; Aggregate volume is minor
and the number of producers in the U. S. is less than 10. Products in-
clude Kangaroo for athletic shoe uppers, reptile for shoe uppers, belts,
and small leather goods, Peccary and Carpincho for gloves.
II- 10
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In summary, cattlehides are the dominant raw material of the industry
with the major products of Cattle Side leather, Sole leather, Upholstery,
Garment and Bag, Case & Strap leathers. Sheep and Lamb skins are
the second and much smaller raw material base yielding mainly garment
and glove leather, lining and shoe stock, chamois and leather for small
leather goods.
6. Level of Integration
The industry is not characterized by any appreciable integration either
back to the raw material supply or forward to finished and fabricated leather
products. There is, in fact, less integration in 1973 than several years
ago when two major packers owned tanning facilities and four leading
shoe manufacturers operated tanning plants. In 1973 the only firm that has
integrated toward the raw material is the A. C. Lawrence Leather Co.
(Swift). Armour and Company, which had operated the Armour Leather
Company for two generations, recently sold its leather subsidiary and liqui-
dated all leather operations. The Brown group (Brown Shoe) still operates a
cattle side upper leather plant as does Genesco. However, Endicott Johnson
and Interco have sold or liquidated all tanning enterpr: ses. It is estimated
that the sales volume of tanning or finishing units integrated with raw
material producers is less than 6% of gross annual volume. Leather
tanning facilities owned or operated by manufacturing companies account
for an even smaller percentage of leather sales or value.
7. Level of Diversification
The annual survey of manufacturers shows the leather tanning and finishing
industry with a very high specialization ratio of 98 pencent for 1967. This
indicates that 98 percent of sales are in the primary SIC code. The
typical production unit of the industry is not diversified for two main
reasons. First, tanning equipment and processes are specialized and
non inter-changeable in terms of raw material or end product. For
example, equipment suitable for tanning and finishing skins cannot be
used for hides, and per contra. Hence, most plants have confined pro-
duction to a very limited range of product. Second, shoe manufacturing
has been and still is the principal consuming industry. In 1962 shoes
accounted for 83% of all leather used. By 1972 this ratio had declined to
74%, and tanneries were seeking to diversify output. Cattle side leather
plants entered the garment leather market and sought outlets in waist
belts, handbags or small leather goods. However, this trend does not
reflect diversification of basic product line. It indicates, rather, an effort
to adapt available plant and equipment to moderately different needs of end
uses other than shoes.
II- 11
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A further observation is pertinent. Tanning machinery and equipment
cannot be adapted for any purpose other than treating hides and skins.
It is fixed capital which must be written off at scrap value in the absence
of demand for used machines.
8. Efficiency
By the historic standards of the industry, productivity is high. Value
added per production worker has increased from $4. 84 in I960 to $8. 00
in 1970 representing an average annual increase of 5.2 percent. Stated
in physical terms, production per man hour in cattle side upper leathers
has increased 40% in the past decade according to records of the Tanners
Council. Side leather tanners are now exceeding 60 sq.ft. per hour in the
most efficient plants when 42 sq.ft. per hour was considered very good
ten years ago.
B. Industry Segments
The leather tanning and finishing industry has traditionally been segmented
by type of leather manufactured such as cattlehide leathers, sheep and
lamb skins, goat etc. Most of the industry production data are given in
these terms. The Development Pocument, however, categorizes the industry by
manufacturing processes. This is more appropriate for evaluating the
imposition of pollution control on the industry since a major factor affecting
the waste production in the leather industry is the type of manufacturing
process used to convert the various types of animal skins to finished leathers.
The following material discusses industry segments using two taxonomies
(1) conventional industry segments and (2) categorization of plants by
manufacturing process. .
1. Conventional Industry Segments
Cattlehide leathers account for 81. 3 percent of the total production in the
leather tanning and finishing industry. The major use of cattle hide
leathers is side and patent leather used for shoe uppers. This accounts
for 48 percent of total leather or 59 percent of the cattleskin processed.
Sheep and lamb skins are the second most important with approximately
10 percent of production (Table II-5). Further discussion on recent trends
in conventional segments is contained in Chapter III.
11-12
-------
Table II-5. Percent of production and employment by conventional
industry segment
Industry Segment
Cattlehide Leathers
Side and Patent
Sole and Belt
Upholstery
Split Leather
Harness
Bag, Case & Strap
Other i'
Calf Leather
Goat and Cabretta
Sheep and Lamb
Pig
All Other U
Converters
Percent
of industry
production
81.3
47.8
9.4
4.7
10.9
0.1 )
1.8 )
6.6 )
1. 1
2. 3
10.3
4.6
0.4
n. a.
100.0
Percent
of industry
employment
80.7
52.6
11.4
6.9
5. 3
4.5
2.0
1.8
7.7
4.5
3. 3
n. a.
100.0
Includes sporting goods and mechanical
2/
Includes horse, kangaroo, deer, reptile and exotic types.
Source: Tanners' Council of America, Inc.
II- 13
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2. Categorization of Plants by Type of Manufacturing Process
For the purposes of establishing effluent limitation guidelines and standards
of performance', the leather tanning and finishing industry has been
divided into seven major categories. These categories have been de-
veloped by Standley Consultants principally by similarities in process and
waste loads. The industry categories are:
Primary Processes
Leather
Category Beamhouse Tanning Finishing
1 Pulp hair Chrome Yes
2 Save hair Chrome Yes
3 Save hair Vegetable Yes
4 Hair previously removed Previously tanned Yes
5 Hair previously retained Chrome Yes
6 Pulp hair Chrome No
7 Hide curing No tanning No
A brief description of the major process is given here. Further, more
detailed descriptions are available in earlier EPA reports or in published
technical description of the tanning and finishing processes
The major processes are:
1. BEAMHOUSE. This is a generic for all the initial stages of
process after raw hides and skins are re-
ceived at the tannery. The beamhouse entails large use of water and is
a major source of tannery waste loads.
2. TANYARD. The series of steps by which putrescible hides
and skins are converted into stable, non-
putrescible leather through aqueous solution containing various chemical
agents. Also marked by substantial water use and waste discharge.
3. RETANNING, FAT LIQUORING AND COLORING. In these
process
stages the specified physical properties of leather are adjusted and set
prior to surface treatment. Water usage and waste loads are substantially
reduced from the previous steps and processes.
4. FINISHING. Devoted largely to surface appeal and Char-
acteristics. Unimportant with respect to use of
water and waste loads.
11-14
-------
Two qualifications must be entered with respect to the data compiled
for these categories. First, converters have been eliminated since they
do not perform a production function implicit in the definition. Second,
addition of dollar volume for the first six categories will exceed total
industry sales by virtue of intra-industry transactions such as sales of
crust leather by tanners to other tanners or to finishers.
It will be obvious that the plants maintaining the full cycle of operations
-- from beamhouse through finishing -- will be most seriously impacted.
Such plants comprise the largest single portion of the tanning industry.
Table II-6 indicates that the full cycle tanneries in categories 1, 2
and 3 account for 78 percent of the employment and 81 percent of the
annual industry volume. Plants in Category 5 do not maintain beamhouses
but must be concerned with effluent problems of their lanyards. In cate-
gory 6, only the finishing operation is obviated.
The plants in category 4 are engaged only in finishing operations on leather
that was tanned elsewhere (essentially dry process). Water is not used in
the production process and for this reason this category is not considered
further in the analysis. There are a total of 185 plants in this segment
and of this number 94 percent have less than 50 employees which places them
in the small category. The remaining 6 percent fall into the medium size
category. Although this group contains 51 percent of the plant, it accounts
for only 7 percent of the total volume.
Category 7 is engaged in the treatment of hides or skins by packers or pro-
cessors prior to movement of such raw material to tanners.
Table II-6 gives the number of plants, employees and annual volume by
segment. A brief recap of plant numbers from the Census and the Tanners'
Council is as follows:
Census Tanners' Council
Total in SIC 3111 (1967) 519
Converters 70
Processing Plants 449
Closures since 1967 33 33
Plants in existence today 416 361
Dry Process 185
Wet Process 176
II- 15
-------
Table II-6. Distribution of plants, employment and annual sales by industry segment
Category _'
1.
2.
3^
4.
5.
6.
7.-2/
Total Plants
Beamhouse
Pulp hair
Save hair
Save hair
Hair previously
removed
Hair previously re
moved or retained
Pulp
Hide curing
Description
Tanning
Chrome
Chrome
Vegetable
Previously
tanned
Chrome
Chrome
No tanning
Finishing
Yes
Yes
Yes
Yes
Yes
No
No
No. of
plants
140
7
15
185
8
6
361
No. of
employees
11,750
2, 100
3,050
1,630
1,835
1, 115
21,480
Annual
$million
$470
84
122
62
68
29
$835
volume
Pet.
57
10
15
7
8
3
100
J./
2/
Categories adapted from the Development Document.
900 Principal packers; 24 hide processors other than packers.
Source: Tanners' Council of America, Inc.
-------
It is believed the discrepancy of 55 plants between the Census records
and Tanners' records may be accounted for by the exclusion of very
small plants, i.e., 1 - 10 hides per day from the Tanners' records.
Also, the Census records may contain certain plants engaged in taxi-
dermy.
Table II-7 stratifies the number of wet process plants by size in the
approximate categorization of the model plants. Because the
only size categorization that was available was employment, it was
possible only to approximate the size category in terms of "hides per
day."
Category 1, pulp hair-chrome tan with a finishing operation is the most
prevalent type of tauning and finishing operation with 140 plants of the
total 176 wet process plants. This category accounts for 61 percent of
the wet processed volume and is summarized as follows:
No. of Plants Percent of Volume
X Small 5 0. 4
Small 59 13.1
Medium 39 20. 1
Large 29 42.8
X Large 8 23.6
140 100.0
The remaining wet process segments have a total of 36 plants and account
for the remaining 39 percent of wet process volume. The size distri-
bution places only 10 percent of the plants (6) in the small and X small
category with the remaining plants in the medium and large categories.
Thus, the volume breakdown for all wet processing plants is estimated
as follows:
No. of Plants Percent of Volume
X Small 6 . 3
Small 64 9.6
Medium 48 16.9
Large 43 43.1
X Large 15 30. 1
176 100.0
II- 17
-------
Table II-7. Size distribution of wet process tanning and finishing plants by category,
approximate size group - hides per day
Category
(1)
(2)
(3)
(5)
(6)
50-180 180-540
X Small Small
5 59
1
1 3
1
6 64
540-1200
Medium
39
2
3
4
48
1200-2600
Large
29
2
8
2
2
43
> 2600
X Large
8
2
1
4
15
Total
plants
140
7
15
8
6
176
Based upon employment records of Tanners' Council, Inc. assumed production per man hour of
44 sq. ft. for plants with employment of 200 or more and 36 sq. ft. for plants with less than
200 for Categories 1, 2, and 3. Assume 105 ft, /man hour for Category 5 and 6.
-------
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 capita] must come from one or more of the following
sources: (1) funds borrowed from outside sources: (2) equity capital
through the sale of common or preferred stock; (3) internally generated
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 c ritical
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 year-,
stability of earnings, existing debt-equity ratio and !he It-ride r-,' < oiilideme
in management will be major considerations. Now equity funds through the
sale of securities will depend upon the firm's future earnings as anticipated
by investors, which in turn will reflect pa st ea rnings records. The firm's
record, compared to others in its own industry and to firms in other similar
industries, will be a major determinant of the ease \vith whu h ne\v equitv
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 p rotitabih ty 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 considerations in attracting new capital. The industry will be
compared to other similar industries (i.e. , other processing industries)
in terms of net profits on sales and on net worth, supply-demand relation-
ships, trends in production and consumption, the state of technology, im-
pact of government regulation, foreign trade and other signfleant 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. A firm is more
likely to attract new capital during a boom period than during a recession.
On the other hand, the cost of new capital will usually be higher during an
expansionary period. Furthermore, the money markets play a determining
role in new financing .
These general guidelines can be applied to the leather tanning and finishing
industry by looking at general economic data and industry performance
over the recent past.
II- 19
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1. General Industry Situation
The leather tanning and finishing industry has maintained a pre-tax profit
on sales of approximately 4-5 percent over the recent past few years
(Table III-l). An important consideration here is that the margin appears
to be relatively stable during this period (1968-1972) in spite of a general
downward trend in total volume of finished leather produced.
Return on investment as reported by the Tanners' Council as percent of
profits on investment averaged 12 percent for the total industry and 14.7
percent for cattle side leather for 1972 (III-B). Information is not avail-
able for a time series on return on investment but considering the consist-
ency of pre-tax profit on sales, it may be concluded that return on invest-
ment has been relatively stable also.
An attempt was made to determine the total assets and liabilities of the
industry by using two separate data sources. The IRS-based data con-
tained in Troy's Almanac-i' was taken from year ending 1969, the most
current available. It contain the financial ratios for all firms in SIC 31
or approximately 1,890 firms. The second source was obtained from
Urban Systems Report as taken from an accounting statement of 35 firms
by Robert Morris Associates.'
By applying the various ratios contained in the respective reports to the
estimated industry sales for 1972 of $788 million, two very similar
patterns emerge:
Assets IRS-Based RM-Based
$ million Pet. $ million Pet.
Current assets 308 70 319 69
Fixed assets 129 30 144 31
Total assets 437 100 463 100
Liabilities and Equity
Long term debt 69 16 75 16
Current liabilities 125 29 ' 125 27
Net worth 242 56 264 57
Total 432 100 463 100
Troy, Leo, Almanac of Business and Industrial Financial Ratios, 1972
and 1 973 editions, Prentice-Hall Inc ., Englewood Cliff s, New Jersey.
2/
Statement by Robert Morris Associates, Philadelphia, Pa. as contained
in Urban Svstems Research and Engineering, Inc., The Leather Industry,
A Study of the Impact of Pollution '-onlrol Costs, Vol. II, Distributed by
NTIS, Dec. < -7i.
-------
2. Expenditures for Plant and Equipment
New expenditures as reported by the Annual Survey of Manufactures
and the Census fluctuated between $4.7 and $7. Z million from I960
through 1964, then increased sharply in 1965 and 1966 to $17.3 million.
Expenditures have remained at about that level since with slight declines
in 1967 and 1970 (Table III-3). A closer look at the $17.7 million spent
in 1971 shows $3.5 million or ZO percent used for new structures and
plant additions and 80 percent for new machinery and equipment. Total
expenditures amount to approximately 13 percent of the estimated fixed
assets of the industry or 4 percent of total assets.
In addition to the new plant and equipment expenditures, Census re-
ported purchases of used equipment of $. 5 and $. 9 million for years
1963 and 1967 respectively.
Capital Availability
In summary, it would appear that the industry has been able to maintain
a profitable position in spite of a severely declining volume. During the
past five years the total physical volume of the domestic leather tanning
and finishing industry has declined by approximately 33 percent due pri-
marily to severe international competition.
The industry has a large number of family-owned and operated plants
especially among the small and medium size categories. A number of
the larger plants are divisions of major corporations. The family-owned
plants are largely financed with internal capital and maintain a low level
of long term debt. New expenditures have been modest -- mainly for
equipment and consequently over 70 percent of the physical plants are over
50 years old. There has been an apparent reluctance of outside capital sources
to invest in or lend money to the industry. From January 1, 1968 through
June, 1973 a total of 33 plants were closed and/or liquidated. This in-
cluded large plants as well as small ones.
Problems of the remaining leather tanning and finishing industry have
been intensified by their ability to acquire working capital req 'r rr ints
at current raw material price levels (July, 1973). Industry sources, in-
cluding the Tanners' Council, report very critical scrutiny of industry
prospects by banks and fiduciaries and reluctance to increase lending
commitments to tanners. Another gauge in the situation confronting the
industry is the complete lack of any market for existing facilities. Not
the slightest investment interest could be found in plants closed in 1973 such
such as Griess-Pfleger (Waukegan), Superior (Chicago), or Modern
(Peabody, Mass.). These plants had to be liquidated and equipment sold
at scrap value.
Raw material prices more than doubled from 1971 to 1973. See Table A-6.
11-21
-------
Table III-3. Expenditures for new plant and new equipment in the leather
tanning and finishing industry ($ million)
Year
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
Total new New structures
expenditures and plant additions
6.1
4.7
7.2
6.5 .8
7.8
11.3
17.3
16.7 5.2
16.6
14.4 .3.0
12.7 1.9
17.7 3.5
New machinery
and equipment
6.2
'
12.5
11.4
10.6
14.3
Used plant
and equipment
.5
.9
Source: Census of Manufactures and Annual Survey of Manufactures.
II- 2?.
-------
III. FINANCIAL PROFILE
Financial information regarding the tanning and finishing industry is
particularly difficult to obtain. The industry is largely family-owned
businesses. Only one firm is listed on the stock exchange (Seton
Company) for which leather and leather products make up 72 percent of
sales and 31 percent of pre-tax profits. Six leather enterprises are
subsidiaries or operating divisions of conglomerates (Allied Kid-General
Host; Armour Leather-Ahzona; Gorden State-Walter Kid; Irving Tanney-
Seagrove Corp.; Pfister &; Vogel-Beatrice Food and A. C. Lawrence-
Swift & Company). The remainder of the industry almost without exep-
tion, is held by family groups. As a result, profit and loss statements
are not available to the public or if reported, the information is con-
solidated with other divisions to the point where a financial analysis of
leather tanning and finishing operation is next to impossible to obtain.
Financial information obtained from IRS data published in Troy's Almanac
of Business and Industrial Financial Ratios is consolidated for all firms in
SIC 31. This amounts to approximately 1, 800 firms. Information used to
develop this chapter on the Financial Profile of the industry draws upon
the above named sources where applicable. Additional financial informa-
tion was obtained from the Tanners' Council, recent USDA reports regard-
ing the cost of tanning as well as discussions with persons knowledgeable
of the Tanning and Finishing industry.
A. Plants by Segment
Sufficient information was obtained to develop representative plants for
the major segment of the wet processing industry--pulp hair-chrome tan
with finishing. This accounts for 140 out of 176 of the wet processing
plants recorded with the Tanners' Council. This category along with
category 2 would correspond roughly to the conventional cattle side leather
segment is discussed in more detail in the following segments.
Insufficient data are available from the smaller segments to adequately
define their performance. However, relevant observations can be drawn
from facts submitted by companies representative of the remaining con-
ventional segments to the Tanners' Council.
III-l
-------
Table III- 1. Comparison of net profits as a percent of sales before tax -
model plant and industry data
Source X Small Small
Model Plant Data:
1972 -.7 3.0
IRS Data: -
1967-68 (.5) 2.5
1968-69 <0 2.1
Tanners' Council Survey: Industry
1970 3.9
1971 5.1
1972 3.7
Industry
Medium Large average
6.6 7.4
4.0 5.8 4.3
3.2 5.2 4.2
Cattle side industry
4.8
5.9
4.6
Taken from Troy Almanac of Business and Financial Ratios and includes industry
(SIC 31) of approximately 1890 firms.
Tanners' Council of America, Inc.
Ill-2
-------
Sole Leather
Net losses have been incurred by the segment during the past three years.
Adverse profit levels and huge increase in working capital requirements led to
the liquidation of the Elkland Tannery (June 1973), which was the largest
sole leather plant in the world. Estimated pretax return on sales ranged
from losses by a majority of respondents to 1. 9% in one concern.
Sheep and Lamb Leather
In total, the firms in this group were also in a loss position during the
years 1970-1972 inclusive. Volume of the group continued the decline
which had begun in 1969. By 1972 input of skins fell to 18. 6 million
from 29.7 million in 1968. Only three companies of 16 queried stayed
in the black for the period. Estimated capital loss for the entire group
exceeded $3.5 million. Current problems, 1973, are even more acute
because dollar devaluation severely handicaps U. S. sheepskin
tanners in their attempts to purchase skins from New Zealand, the major
world source.
B. Annual Profit Before Taxes
Net Profit on Sales
A comparison of net profits as a iiercent of sales before tax for the model
plant segments, IRS data and information obtained from the Tanners
Council Survey is shown in Table III-1. Given the differences in sources
and time period, the data from the three sources is roughly compatible.
Net profits before tax as a percent of sales has averaged about 4 to 5
percent over the recent past, with generally the larger firms showing a
higher level of profit according to IRS data. IRS data indicates the small
plants are operating at a loss. Most likely these consist of old plants
largely depreciated out or operating on their depreciation. This, in fact,
suggests that the extra small and small plant would not be replaced when
fully depreciated out or'no longer operative. This conforms with the
generally accepted view, however, that these plants without additional
costs for pollution abatement equipment would most likely remain in
business for a considerable length of time as indicated by the relatively
low closure-rate over the past decade and the age of existing plants.
Return on Investment
Information from the Tanners Council shows pretax profits on investment
of 12 percent for the total industry and 14.7 for cattle side leather for 1972.
Ill-3
-------
The model plant data is as follows: X small, <0; small, 8.8 percent;
medium, 20. 5 percent; and large, 24 percent. Casual observation
suggests the model plant data may be slightly high however since the
greatest percentage of plants would cluster around the small and medium
size plants. The two averages appear to be relatively close (the higher
industry figure of 14.7 is the segment most applicable to the model plant
data).
Annual Cash Flow
Two key facts are not definitively known and can only be estimated for
the entire industry, namely, net income after tax and depreciation.
The estimates given here are derived from data submitted to the Tanners
Council by an extensive sample of representative companies and are aver-
ages for the years 1970-1971-1972.
Net After Tax $18,461,000
Depreciation 7,300,000
Industry Cash Flow $25, 761, 000
A similar estimate for the cattle side leather segment, the major industry
group, yields the following:
Net After Tax $10,422,000
Depreciation 5,800,000
Cash Flow $16,222,000
These data suggest an annual cash flow of as a percent of investment of
8. 8 percent for the industry and 11.8 percent for the cattle side segment.
Model plant data yield an annual cash flow of 4. 5 percent for the X small
plant, 11.1 percent for the small plant, 16. 1 percent for the medium and
17.8 percent for the large plant. Again, the model plant data reflects
a slightly higher annual cash flow than industry figures from the Tanners
Council.
Market (Salvage Value of Assets)
Tanning machinery and equipment is uniquely immobile. With the exep-
tion of motors, controls, or maintenance items generally used in industry,
tanning machines can be used for no other purpose. Vats and pits used
in vegetable tanneries have no conceivable application and, in the event
of plant liquidation, must either be bulldozed or filled in. Tanning drums
or hide processors (concrete mixers) have residual value only as scrap.
Similarly, splitting machines, fleshers, stakers, finishing equipment
cannot be adapted to any other industrial purpose. Embossing presses
III-4
-------
may conceivably be employed for other material but the tanning industry
has been the major user of presses specifically designed for handling
leather. In short, in the absence of any demand for used tannery equip-
ment the market value of the entire range of machine installations in a
tannery can only be described as scrap. Land and building, of course,
have value subject to general market conditions and location.
As with other agriculture processing industries with little or no market
value for wornout facilities such as the dairy processing industry, a
salvage value of equal to 10 percent of the replacement cost was used
as an indication of the scrap value and value of the land.
Cost Structure
Leather tanning and finishing is a raw material oriented industry because
hides and skins are the major components of cost. Information obtained
from the Tanners Council indicates the following general cost structure.
Dependent on type of leather produced and raw material required, the
hide and skin represents 40-60 percent of the cost of finished leather.
Fixed costs include the conventional elements in every manufacturing
or processing industry, i.e., maintenance, administration, supervision,
local taxes, long term interest charges, depreciation and amortization.
The sum of such fixed charges in ratio to total costs per unit of sale
differ considerably with types of leather produced or the number of
stages conducted in the full tanning and finishing process. Sales costs
are for the most part variable but a varied proportion is fixed as sales
administration. Assuming a normal and average level of operation in
ratio to capacity (75%-85%), fixed costs would range from 9% to 12%
of total cost.
Variable costs begin with raw material and cover processing labor,
sales expense, the bulk of power and fuel charges, chemical, tanning
and finishing materials, water and sewage discharge, inbound freight,
raw material brokerage commissions, social security and other employ-
ment taxes, fringe benefits for employees such as vacations and holiday
pay. The composite of these costs amounts to 88% to 91% of the total.
C. Distribution of "Model" Plant Financial Data
In the absence of actual industry data for the respective industry segments
model plant data were developed for the predominate category of plants by
III-5
-------
respective size groupings. These data should be interpreted as being
indicative of the real industry situation. The estimated cash flow for
representative plants in the leather tanning and finishing industry is
shown in Table III-2. The basic source of information came from a
USDA study by Fred Poats "Cattle Hides and Shoe Price" published in
the Marketing Transportation Situation, August, 1972. This was supple-
mented from information contained in the 1967 Cost of Clean Water,
Vol. Ill, Industrial Waste Profile, No. 7, Leather Tanning and Finishing,
IRS data, and personal discussions with industry specialists.
Variable Costs
Raw hide cost consisted of 52 percent of the finished leather price and is
based on the average 1972 price of 32 cents per pound for a green salted
hide. It was estimated that the average green salted hide weighed 61.5
pounds and equalled a brine cured hide of 48 pounds at 41 cents per pound.
Although the published prices reflect the green salted hide in reality 80
percent o'f the hides purchased from packers are the brine cured variety.
Beam house operations accounted for 3. 5 to 4 percent of the sale price
of finished leather. Labor, tanning materials, and brokerage and freight
was estimated to range from 29.5 percent of sales for the large plant to
a high of 32.6 percent for the X small plant. Because of the relatively
low level of automation available in the tanning industry, the economies
of scale do not appear to be as great as in some industries. To achieve
greater throughput larger tanneries duplicate production lines similar to
those found in smaller plants.
Fixed Cost
Fixed costs are defined as those which do not vary directly as functions
of throughput. These include:
Sales, general and administrative
Plant and labor overhead
Taxes and insurance
Maintenance and repair
Separate cost estimates were not available for each of the above mentioned
cost components, therefore, fixed costs were grouped. Fixed cost ranged
from a high of 13.1 percent for the x small plant to a low of 8. 8 percent
of sales for the large.
Interest was considered a fixed cost and was estimated as . 7 percent of
sales. This was taken as the industry average from the IRS data.
Ill-6
-------
Depreciation was estimated at 6. 6 percent of replacement cost and
amounted to 1. 4 to 2. 4 percent of sales. Data from the IRS records in-
dicate an industry average of 1. 2 ranging from a low of . 8 in the small
plant to a high of 2. 7. This also suggests the small plants may be largely
depreciated out.
Replacement cost was taken from "Cost of Clean Water" updated to 1972
with Department of Commerce's Composite Construction Index and adjusted
based on industry discussion.
Gross Working Capital - was derived from IRS data and calculated at 37
percent of sales similar to the 1967-1969 industry average.
Current Liabilities - were also derived from IRS data and calculated at
17 percent of sales.
Ill-7
-------
Table III-2. Estimated cash flow for representative plants hi the leather tanning and finishing industry
Plant utilization
Hours per day
Days per week
Days per year
Utilization rate (percent)
Raw hides U
Salt cured 61.5 Ib. @ $0.32/lb. or
Brine cured 48 Ib. @ $0.41/lb.
64% raw hide (000 Ibs. )
Output ?_/
TR leather gds. 1,2 & 3, upper shoe
(000 sq.ft. )
Split 8 Ib. /hide (000 Ib. )
Sales _' Shoe upper 83.9£/sq.ft.
Split
Total sales
4/
Cost of raw hides - 70 Ib. @ 26. 4=18. 45
Beann house: Curing & flecking
Tannery: Labor
Tanning materials
Brokerage & freight
Total Variable Cost
Total Fixed Cost
Cash Earnings
X- Small
Per hide
40
8
33.56
2.00
18.45
1.44
4.43
4.61
1.07
100 hides /day
Percent
Total of sales
8
5
250
75
18,750
900
750
112
629.3
37.5
666.8 100.0
345.9 Si. 9
27.0 4.0
83.1 12.4
86.4 13.0
21.4 3.2
217.1 32.6
87.4 13.1
16.4 2.5
Small 300 hides /day
Percent
Per hide Total of sales
8
5
250
80
60, 000
2,880
2,400
480
33.56 2,013.6
2.00 120.0
2,133.6 100.0
18.45 1,107.0 51.9
1.37 82.2 3.8
4.08 244.8 11.5
4.61 276.6 13.0
1.07 64.2 3.0
667.8 31.3
236.4 11.1
122.4 5.7
Medium 700 hides /^ay
Percent
Per hide Total of sales
8
5
250
80
140,000
6,720
5,600
1, 120
33.56 4,689.4
2.00 280.0
4,969.4 100.0
18.45 2,583.0 52.0
1.25 175.0 3.5
3.55 496.8 10.0
4.61 645.9 13.0
1.07 149.1 3.0
1,466.8 29.5
477.0 9.6
442.6 8.9
Large 2, 000 hides /day
Percent
Per hide Total of sales
8
5
250
85
425,000
20,400
17,000
3,400
33.56 14,263.0
2.00 850.0
15,113.0 100.0
18.45 7,891.3 52.2
1.25 534.2 3.5
1,511.3 10.0
1,964.7 13.0
453.4 3.0
4,463.6 29.5
1,330.0 8.8
1,428.1 9.5
-------
Table III-2. (continued)
X- small
Per hide
Depreciation: Plant
Equipment
Total Depreciation 6. 6% replacement value
Interest . 7% sales
Pre-Tax Income
Income Tax
After-Tax Income
Replacement Values
Land & Building
Equipment
Total Replacement Values
Average Fixed Assets (1/2 replacement cost)
Total Working Capital-' (37% of sales)
8 /
Current Liabilities - (17% of sales)
Net Working Capital
Average Fixed Investment
100 hides /day
Percent
Total of sales
16.1 2.4
4.7 .7
(4.4) .7
_
(4. 4) . 7
Z45
123
247
114
133
256
Small 300 hides /day
Percent
Per hide Total of sales
41.9 2.0
14.9 .7
65.6 3.0
25. 1
40.5 1.9
635,
318
789
362
427
745
Medium 700 hides /day
Percent
Per hide Total of sales
79.2 1.6
34.8 .7
328.6 6.6
150.9
177.7 3.5
1,200
600
1,839
844
995
1,595
Large 2,000
hides /day
Percent
Per hide Total of sales
205.
105.
1, 116.
553.
613.
3, 115
1,557
5,591
2,569
3,022
4,579
6 1.4
8 .7
7 7.4
2
5 4. 1
-------
Footnotes for Table III-2.
Assume 70 pounds per raw hide in would yield 48 Ibs of brine cured hide.
_' Assume output of TR leather - tannery run mixture of grade 1, 2, and 3
side upper shoe leather.
_' Assume cost of cured hide (brine cured) equals 58 percent of finished
leather price (TR leather) or cost of brine cured hide equal to raw
hide price $18.45 plus $1.25 for brine curing.
Finished price = 19-70 x -^- = $33.97
x 100
Brine cured hide weighs 48 pounds and equal to 40 sq. ft. of finished
hide (1.2 lb - 1 sqft)
Finished leather equal to 70.76 cents per pound or 84.9 cents per sq ft.
4/
Raw hide price based on average charge packer hide (salt cured)
price for HNS and LNC for 1972
Fresh hide 70 lbs@26.3£ per lb = $18.43
Processing cost $ 1.25
Salted hide 61.5 Ibs @ 32.0£ per lb = $19.68
or Brined Hidge 48.0 Ibs @ 41.0£ per lb = $19.68
Taken from IRS data from Troy "Almanac of Business and Industrial -
Financial Ratios " "
£' Replacement cost taken from "Cost of Clean Water Volume III Industrial
Waste Profiles No. 7 Leather Tanning and Finishing" and updated to
1972 with Dept. of Commerce's Composite Construction Index.
Z' Working capital derived from IRS data in Troy Almanac - Calculated at
37 percent of sales as average over 1967-1969
g /
Current liabilities derived from IRS data in Troy Almanac - Calculated at
17 percent of sales as average over 1967-1969.
Basic data taken from Poats "Cattle Hide and Shoe Price" MTS 186,
August, 1972.
111-10
-------
IV. PRICING
The price for hides (and skins) is based primarily on the derived demand
resulting from the demand for finished leather used in the manufacture
of shoes. Supply is based on the number of cattle slaughtered both
domestically and in other hide exporting countries such as Argentina,
Brazil and Australia but the number of cattle slaughtered is in no way
related to the demand for hides. Continued strong demand for hides
on the world market, a sharp drop in Argentina's exports and discon-
tinued U. S. production of two major synthetic substitutes in 1971 caused
prices of cattle hides to more than double between August, 1971 and June,
1972
A. Price Determination
1. Demand for Leather
The demand for leather is strongly influenced by the number of shoes pro-
duced in the United States. Table IV-1 indicates that 78 percent of the
cattle hides produced in the U. S. in 197U was used for the production of
shoes. However, to obtain a clearer picture of total demand, several
other factors must be considered.
First, there has been a market substitution of synthetics for leather.
In 1971 the Bureau of Census reported that 66. 9 percent of all shoes
domestically manufactured had all leather uppers. The comparable ratio
for May, 1973 is 56.5 percent. This substitution appears to have been
related to the increase in prices of hides which occurred during that time.
According to the Tanners' Council this change was the primary result of
rigid price grooves existing in the shoe manufacturing and retailing
structure rather than a shift in consumer preference. Both the manu-
facturers and the retailers are reluctant to alter price levels once a
seasons style showings have been made.
Change in components of the shoe is the most generally used method of
holding the price line -- and in the recent case an increased use in syn-
thetics. This occurred in spite of the fact that two major U. S. producers
of synthetics discontinued production. This argument can be strengthened
by observing the historic factory value per pair of shoes (Appendix
Table A-3). Prices for shoes has been increasing at a steady rate of
IV-1
-------
about 5 percent per year. In 1969 the average factory value for a pair of
shoes was $4. 94, by 1972 the price had increased to $5. 56, an increase
of 12.5 percent. During the same time cattle hide prices more than
doubled. This would tend to slightly overstate the case; however, recognizing the
time lag involved between hide and leather price changes and leather
price and finished shoe construction.
The progress made in synthetic technology during the recent years pre-
sents a particular dangerous threat to further erosion of the domestic
leather market.
U. S. shoe manufacturers have also felt the impact of imported shoes.
Domestic shoe production reached a peak in 1968 when 642 million pairs
were produced. This has since declined to 526 million pairs in 1972
with a corresponding increase in the imports of shoes from 175 million
in 1967 to 296 million pairs in 1972 or 36 percent of the total shoes sold
in the U. S. (see Appendix Table A-4).
The market for raw hides is greatly influenced by international trends.
Europe and Japan are the traditional importers of raw hides, but Eastern
Block countries such as Rumania'and Czechoslovakia have recently increased
hide imports from the U.S. (Appendix Table A-10). The Argentine has
traditionally been a large exporter of hides with an average of 8-8. 5 million
hides from 1966 through 1969. Exports began to decline slightly in 1970
then sharply in 1971 and amounted to only 1.3 million in 1972. This has been
caused by their internal production problems and also an attempt to com-
pletely internalize their hide industry a.nd eventually only export finish
leather products. Brazil also internalized the hide tanning industry and
banned exports of raw hides further reducing world supply by two million
hides. This year Brazil has become an importer of raw hides and is now
competing for raw hides on an international basis.
2. Supply of Raw Hides
Cattle numbers in the U. S. and throughout the world are in an upward
trend. According to the Foreign Agricultural Service of the U. S. Depart-
ment of Agriculture, world cattle inventory for 1973 is estimated at
1, 299 million, with a comparable figure for 1964-1968. given as 1,184.6
million. Greater cattle numbers can be equated with greater annual
slaughter and therefore hide supply (Appendix Table A-6). It appears
however that the rate of growth in cattle inventories and potential slaughter
does not match the growth in human population plus the elevation of living
standards.
IV-2
-------
Table IV-1. Apparent U.S. equivalent cattle hide disappearance by major use
Hides used for shoes
Year
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Number
1,000
25,142
25,422
24,991
23,838
24,929
25,351
25,131
23,894
24,151
21,568
19,551
Percent
80.9
77.0
79-2
74.0
68.7
65.2
62.1
62.0
62.4
55.2
51.9
Hides used for gloves
and garments
Number
1,000
3,484
3,778
3,459
4,026
3,772
3,855
3,881
3,940
4,566
3,825
3,790
Percent
11.2
11.4
10. 9
12. 5
10.4
9-9
9.6
10. 2
11. 8
9.8
10. 1
Hides for other
leather uses
Number
1,000
2,001
1,930
1,961
2,177
2,195
2,246
2,153
1,982
2,111
2,096
1,833
Percent
6. 5
5. 8
6.2
6.8
6. 1
5. 8
5. 3
5. 2
5. 5
5.4
4.9
Net hide
Number
1,000
440
1,909
1,155
2,160
5,388
7,419
9,316
8,700
7,842
11,580
12,462
exports Total dis-
appearance
Percent
1.4
5.8
3.7
6.7
14.8
19- 1
23.0
22.6
20.3
29-6
33. 1
Number
1,000
31,067
33,039
31,566
32,201
36,284
38,871
40,481
38,516
38,670
39,069
37,636
Source: Livestock Marketing Situation - 182, November, 1971.
Data on leather production from cattle hides, calf skins, sheep skins and goat skins and net exports of
raw skins from Tanners Council of America converted to equivalent cattle hides.
-------
Table IV-2 presents breakdown of cattle slaughter in the United States
from 1955 through 1972. The sharp increase in cattle numbers can be
attributed to the feedlot system of producing beef and the increased
diversion of calves slaughtered for veal to the feedlots. Even dairy calves
are now used for beef production instead of being retained for milk herds
or slaughtered as veal. This is reflected in Table IV-3. Calfskins and
kipskins tanned in the U. S. have decreased from 10 million in 1955 to
about 1.5 million in 1972.
The spectacular growth of U. S. cattle slaughter in the past two decades
will not be duplicated in the future, many experts believe. This is be-
cause many ranges used for the production of feeder calves are oper-
ating at close to capacity and further expansion of herds must come
from technological innovations and expansion of marginal production
areas heretofore not fully utilized. Future growth in the cattle industry
will come at a slower rate.
Supplies of other types of leather making raw material do not show the
same trend as cattlehides. Calfskin supplies have and are shrinking
drastically throughout the world. Goatskin supplies are limited and de-
clining because more intensive and modern agriculture is inimical to
the maintenance of goat herds. India, of course, is the great exception
to the latter trend for religious reasons. However, the Indian supply of
goatskins has increasingly been sequestered for domestic use by govern-
ment restriction and regulation so that supply available to the U. S.
tanners has become negligible. Sheep and lambskin supply is influenced
by price developments in meat and in wool. Although flocks in the U. S.
have steadily declined for 22 years, world numbers have incresised
slightly due to growth in Australia and New Zealand. Competition from
other countries for the available supply
In summary, the tanning industry of the United States is increasingly based
on cattlehides as its raw material. International competition will most
likely continue to place severe pressure on the industry as world demand
for U. S, produced hides increases and as the production of other leather
continues to decline.
3. Pricing in the Leather Industry
The price basis for tanned and finished leather is the price of raw (salt
or brine cured) hides at the packing house. The raw hide price (for cattle
hides) is a published price and commonly known throughout the trade on a
day to day basis. Tanners -- both domestic and foreign -- purchase the
IV-4
-------
Table IV-2. Cattle slaughter in the United States, 1955-1972
(1, 000 head)
Breakdown of Federal Insoected Slaughter
Cows &
Heifers
7.
Total
Steers
%
Total
Bulls 6c]^ 1
Stags 1 Total
Total
F.I.S.
Total
Commercial
Slaughter
ANNUAL TOTALS
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
9,330
9,460
9,031
7,509
7,538
8,567
8,554
8,670
8,964
10,452
12,712
13,055
12,710
13,771
14,284
13,677
13,856
13,932
48.9
46.9
46.4
42.6
43.2
44.2
42.8
42.6
41.4
41.6
47.8
47.8
45.8
46.5
46.8
44.4
44.1
43.2
9,299
10,311
10,018
9,840
9,681
10,557
11,164
11,447
12,496
14,395
13,488
13,846
14,676
15,361
15,754
16,608
17,003
17,737
48.8
51.1
51.5
55.8
55.4
54.4
55.9
56.3
57.7
57.3
50.7
50.7
52.8
51.9
51.6
53.9
54.1
55.0
427
415
404
293
241
272
250
222
202
286
413
418
384
460
499
508
560
581
2.3
2.0
2.1
1.6
1.4
1.4
1.3
1.1
0.9
1.1
1.5
1.5
1.4
1.6
1.6
1.7
1.8
1.8
19,056
20,186
19,453
17,642
17,460
19,396
19,968
20,339
21,662
25,133
26,613
27,319
27,780
29,592
30,537
30,793
31,419
32,250
25,723
26,862
26,232
23,555
22,931
25,224
25,635
26,083
27,231
30,818
32,347
33,725
33,869
35,026
35,237
35,025
35,585
35,774
Source: Tanners' Council of America, Inc.
-------
Table IV-3. Total hides and skins tanned in the United States, 1955-1972 (000)
Year
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Cattlehides
25,537
' 26,441
24,924
23,690
22,606
22,044
22,271
22,585
21,815
22,799
23,241
23,572
23,607
23,617
21,096
20, 199
20., 189
19,218
Calfskins
and kipskins
10,234
8,346
9,074
7,648
6,394
6,407
6,488
5,757
5,851
6,663
5,745
4,275
4,059
3,854
3,390
2,425
1,120
1,491
Sheep and
lamb skins
24,006
24,713
23,527
25,550
29,753
28,321
29,627
27,697
21,292
28,908
27,786
26,897
26, 180
29,328
23,297
21,868
19,895
18,781
Goat and Total
kid skins ' hides and skins
26, 109
25, 103
22,336
19,992
22,797
18,835
14,865
14,213
14, 182
12,874
14,557
13,372
8,456
6,764
5,856
3,979
3, 148
3,522
85,886
84,603
79,861
76,880
81,550
75,607
73,251
70,252
63, 140
71,244
71,326
68, 116
62,302
63,563
53,639
48,471
44, 352
43,012
Cattlehide
equivalent
31,818
31,414
31,342
32,003
32,364
31,749
30,771
31,740
27,633
25,520
24,993
23,964
Source: Tanners Council of America, Int.
-------
available supply of hides from packers in a relatively open and competitive
market. The one basic price (with exception of course for grade and type)
prevails throughout the industry and is established on the basis of supply
and demand.
A unique feature of this market is that it is strictly a by-product market.
The demand for hides in no way affects the supply of cattle moving to
market. For example, the value of a hide represents approximately
5 percent of the current value of a 1, 000 pound market steer. Ten years
ago when hide prices were considerably lower, it represented approxi-
mately 4.4 percent of the value. Even with the present high hide prices
the demand for hides has a negligible effect on the supply of cattle.
The finished leather price -- with a constant margin for tanning and
finishing -- follows the course of hide and skin prices. There is a
frictional lag on finished leather when hide prices move up and a lag of
shorter duration as hide prices move down as knowledgeable customers
immediately request the benefit of lower raw material costs. The price
for finished leather is not published, however, due to the many types of
finishing that can be applied. Further, approximately 60 percent of the
finished leather is sold under contract.
Although there are no definitive studies available regarding pricing in
the leather tanning industry, some general conclusions can be drawn.
1. Hide and skin prices are widely quoted and well-known to
the industry -- both domestic and international.
2. Leather tanning and finishing is a chemical processing
industry in which continuity of operation is desirable and
interruption is costly in terms of overhead or fixed costs
as well as start up time.
3. Very few operations can be automated to any significant
degree. Tanning is a batch processing industry in which
the hides must be handled individually at various key stages.
Therefore, a large tannery consists of multiples of a smaller
plant without major economies of scale in production.
IV-7
-------
4. Standard costs for leather tanning and finishing in the in-
dustry are well-known. Therefore; the market value of
finished product follows the price of raw material with
a relatively uniform margin for processing.
5. The industry is very competitive and is underutilizing its
present capacity.
6. In an industry that is predominantly family-owned, financial
considerations are frequently less important in operating or
management motivation than the perquisites of ownership,
obligation to associates, employees and community.
B. International Trade
Forces arising from international trade have continued to play an im-
portant role in the operations of the domestic leather tanning and finishing
industry and its prices. Reference is made here to (1) the tremendous
increase in the imports of shoes into the United States during the past
ten years, and (2) the parallel sharp rise in the exports of cattlehides
from the United States. The following comparison indicates the magnitude
of the change that has occurred in the past decade.
U.S. U. S. Net
Shoe Imports Hide Exports
(OOP Pairs) (OOP Hides)
1962 55,057 6,708
1972 296,665 17,303
In terms of dollar value, Table IV-4 shows the great disparity in the value
of hides exported in 1971 compared with the value of leather manufacturers
and footwear -- $156 versus $873 million. In 1972 the value of imported
shoes and leather manufacturers amounted to nearly 1. 2 billion dollars.
Apparently much of the raw material exported from the United States is
the exact equivalent of the finished goods, shoes and other leather products
returning to the United States, from low wage countries.
IV-8
-------
Table IV-4. Summary of value of imports and exports for hides and skins, fur skin, leather
manufacturer and dressed fur and footwear I960 - 1972 (million dollars)
Hides and skins except furs
Fur skins, undressed
Leather manufacturer
dressed furs
Footwear
Total leather and footwear
Hides and skins, except
fur skin
1960
70
96
52
148
200
76
1965
80
113
87
160
247
109
1966
89
126
103
190
293
155
1967
61
92
89
263
352
128
1968
Imports
78
103
114
388
502
Exports
122
1969
62
94
123
488
611
152
1970
51
59
118
629
747
145
1971
52
53
115
758
873
156
1972
334
835
1169
Source: Statistical Abstract of the United States, 1972; 1972 data from Tanners' Council of America.
-------
It is believed the primary reason for the huge exports of raw material
and importation of finished product --a characteristic of developing
nations --is the differential in labor base. Discussions with knowledge-
able individuals indicate that the level of technology in the production of
shoes is universally-based with no country enjoying a competitive edge.
Thus, labor costs appear to be the key factor.
IV-10
-------
V. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The following economic impact analysis utilizes the basic industry infor-
mation developed in Chapters I-III plus the pollution abatement technology
and costs provided by Environmental Protection Agency. The impacts
examined include:
Price effects
Financial effects
Production effects
Employment effects
Community effects
Other effects
Due to the crucial nature of potential plant shutdowns (financial and
production effects) to the other impacts, a disproportionate amount of
time will be devoted to the financial and plant closure analysis.
In general, the approach taken in the impact analysis is the same as that
normally done for any feasibility capital budgeting study of new invest-
ments. In the simplest of terms, it is the problem of deciding whether
a commitment of time or money to a project is worthwhile in terms of
the expected benefits derived. This decision process is complicated by
the fact that benefits will accrue over a period of time and that in prac-
tice the analyst is not sufficiently clairvoyant nor physically able to re-
flect all of the required information, which by definition must deal with
projections of the future, in the cost and benefit analysis. In the face
of imperfect and incomplete information and time constraints, the industry
segments were reduced to money relationships insofar as possible and the
key non-quantifiable factors were incorporated into the analytical thought
process to modify the quantified data. The latter process is particularly
important in view of the use of model plants in the financial analysis. In
practice, actual plants will deviate from the model and these variances
will be considered in interpreting financial results based on model plants.
A. Fundamental Methodology
Much of the underlying analysis regarding prices, financial and produc-
tion effects is common to each kind of impact. Consequently, this case
methodology is described here as a unit with the specific impact interpre-
tations being discussed under the appropriate heading 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 cash flows for these
model plants are summarized in Chapter II. The primary factors involved
in assessing the financial and production impact of pollution control are
profitability changes, which are a function of the cost of pollution control
and the ability to pass along these costs in higher prices. Admittedly,
in reality, closure decisions are seldom made on a set of well defined
common economic rules, but also include a wide range of personal values, and
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
profit must be considered.
Such circumstances include but are not limited to the following factors:
1. There is a lack of knowledge on the part of the owner-
operator concerning the actual financial condition of the
operation due to faulty or inadequate accounting systems
or procedures. This is especially likely to occur among
small, independent operators who do not have effective
cost accounting systems.
2. Plant and equipment are old and fully depreciated and the
owner has no intention of replacing or modernizing them.
He can continue in production as long as he can cover labor
and materials costs and/or until the equipment deteriorates
to an irrepairable and inoperative condition.
3. 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 a complex of factors commonly referred to as a value
of psychic income.
v-;
-------
5. The plant is a part of a larger integrated entity and it either
uses raw materials being produced profitably in another of
the firm's operating units wherein an assured market is
critical or, alternatively, it supplies raw materials to
another of the firm's operations wherein the source of supply
is critical. When the profitability of the second operation
offsets the losses in the first plant, the unprofitable oper-
ation may continue indefinitely because the total enterprise
is profitable.
6. The owner-opera tor expects that losses are temporary and
that adverse conditions will dissipate in the future. His
ability to absorb short-term losses depends upon his access
to funds, through credit or personal resources not presently
utilized in this particular operation.
7. There are very low (approaching zero) opportunity costs for
the fixed assets and for the owner-operator's managerial
skills and/or labor. As long as the operator can meet labor
and materials costs, he will continue to operate. He may
even operate with gross revenues below variable costs until
he has exhausted his working capital and credit.
8. The value of the land on which the plant is located is appreci-
ating at a rate sufficient to offset short-term losses, funds
are available to meet operating needs and opportunity costs
of the owner-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
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 4. R but revenues are
less than variable costs plus cash overhead expenses (TCc) which are
fixed in the short run. In this situation a plant would likely continue
to operate as contributions are being made toward covering a portion of
these fixed cash overhead expenses. The firm cannot operate indefinitely
under this condition, but the length of this period is uncertain. Basic to
this strategy of continuing operations is the firm's expectation that re-
venues will increase to cover cash outlay. Factors involved in closure
decisions include:
extent of capital resources. If the owner has other business
interests or debt sources that will supply capital input, the
plant will continue.
lack of cost accounting detail or procedures to know that TCc>R,
particularly in multiplant or business situation.
labor or other resources may be considered fixed and the
opportunity cost for these items is less than market value.
Identification of plants where TCc > R, but Vc < R leads to an estimate
of plants that should be closed over some period of time if revenues do
not increase. However, the timing of such closures is difficult to predict.
The next level of analysis, where TCc ^, R, involves estimating the
earnings before and after investment in pollution abatement.
If TCc R it seems likely that investment in pollution control will be
made and plant operations continued so long as the capitalized value
V-4
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of earnings (CV), at the firms (industry) cost of capital, is greater
than the scrap or salvage value (S) of the sunk plant investment. If
S > CV, the firm could realize S in cash and reinvest and be financially
better off. This presumes reinvesting at least at the firms (industry)
cost of capital.
Computation of CV involves discounting the future earnings flow to
present worth through the general discounting function:
A (l+i)'n
, n
n=l
where
V = present value
An = a future value in n*" year
i = discount rate as target ROI rate
n = number of conversion products, i.e.,
1 year, 2 years, etc.
It should be noted that a more common measure of rate of return is
the book rate, which measures the after-tax profits as a ratio of in-
vested capital, 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 ca'sh 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
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The data input requirements for book and DCF measures are derived,
to a large extent, from the same basic information although the final
inputs are handled differently for each.
1. Benefits
For purposes of this analysis, benefits for the book analysis have been
called after-tax income and for the DCF analysis after-tax cash proceeds
The computation of each is shown below:
After tax income = (l-T)x(R-E-I-D)
After tax cash proceeds = (1 - T)x(R - E - D) + D
where
T = tax rate
R = revenues'
E = expenses other than depreciation and interest
I = = interest expense
D = depreciation charges
Interest in the cash proceeds computation is omitted since it is reflected
in the discount rate, which is the after-tax cost of capital, and will be
described below. Depreciation is included in the DCF measure only in
terms of its tax effect and is then added back so that a cash flow over
time is obtained.
A tax rate of 48 percent was used throughout the analysis. Accelerated
depreciation methods, investment credits, carry forward and carry back
provisions were not used due to their complexity and special limitations.
It is recognized that in some instances the effective tax rate may be lower
in a single plant situation, but the firm's tax rate will be dote to the
48 percent rate.
Revenue, expenses, interest and depreciation charges used were those
discussed in Chapter II and Chapter V for pollution control facilities.
These items were assumed to
V-6
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2. Investment
Investment is normally thought of as outlays for fixed assets and working
capital. However, in evaluating closure of an on-going plant where the
basic investment is sunk, the value of that investment must be made in
terms of its liquidation or salvage value, that is its opportunity cost or
shadow price. ' For purposes of this analysis, sunk investment was taken
as the sum of equipment salvage value plus land at current market value
plus the value of the net working capital (current assets less current
liabilities) tied up by the plant (see Chapter II for values). This same
amount was taken as a negative investment in the terminal year. 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 V. 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 interest 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 different value,
V-7
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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 2 1. 6 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 Aftertax Weighted
Item Weight cost Tax Rate cost cost
Debt '.60 .08 .48 .0416
Equity .40 .216 .48 .1123
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.)
It was assumed that, for the leather tanning industry, a pre-tax cost
of capital of 7 percent was used for evaluating new projects.
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 to.
2. After tax cash proceeds taken for years ti to ^20'
3. Annual replacement investment, equal to annual current
depreciation taken for years tj to
4. Terminal value equal to sunk investment taken in year
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 tf 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 i^l'
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 decree to which ruqional markets exist, the deare
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
-------
As a 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 such that net income remains constant by using the
following formula:
APC + ID
whe re:
X = required percentage increase in price
APC = annual operating cost for the pollution
control facility
ID = Incremental depreciation for pollution
control facility (based on straight line
20 year depreciation)
C. Financial Effects
In Chapter II, the financial characteristics of model plants were presented.
These data v/ill 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.
-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 quauta^L\c method?.
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 will be compared, to arrive at an estirmte of
closures due to pollution control.
V-ll
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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 aspects
of production effects may be very short-term in nature with the total
impact barely visible from the .viewpoint of the overall community. In
a few cases, the closure of a plant may actually be viewed as a positive
net community effect (e.g., a small plant with a high effluent load in an
area with a labor shortage).
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 Stanley Consultants, Inc. '
These basic data covered seven categories of plants in the leather tanning
and finishing industry, and this information was adapted to the types and
sizes of tanning plants specified in this analysis.
Four effluent control levels were considered in the information provided:
(I) BPT - Best Practicable Control Technology Currently
Available, to be achieved by July 1, 1977
(II) BAT - Best Available Pollution Control Technology
Economically Achievable, to be achieved by
July 1, 1983
(III) NSPS - New Source Performance Standards, apply to
any source for which construction starts after
the publication of the proposed regulations for
the Standards
(IV) Pre- - Pretreatment Requirements, pretreatment of
treatment effluent required for discharge in publicly-
owned wastewater treatment plants.
A. Categories of Leather Tanning and Finishing Plants
The information furnished by EPA in the Development Document provided
a categorization system to classify plants into major categories. Seven
major categories of plants were proposed for the purposes of evaluating
control and treatment technology. Each category represents a common
manufacturing procedure in terms of three primary processes: beamhouse,
tanning and finishing. These seven categories of plants, in terms of the
types of primary processes used, are as follows:
i' Development Document for Effluent Limitations Guidelines and
Standards of Performance -- Leather Tanning and Finishing In-
dustry, Draft Report, Stanley Consultants, Inc., June, 1973.
VI-1
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Industry Categories
Primary Processes
Category Beamhouse Tanning Finishing
1 Pulp Hair Chrome Yes
2 Save Hair Chrome Yes
3 Save Hair Vegetable Yes
, 4 Hair Previously Removed Previously
Tanned Yes
5 Hair Previously Removed
or Retained Chrome Yes
6 Pulp Hair Chrome No
7 Hide Curing No Tanning No
The above categories of plants were evaluated separately from the stand-
point of establishing effluent limitation guidelines which are described
next.
B. Effluent Limitation Guidelines
Based upon information received, a determination was made of the de-
gree of effluent reduction which was attainable through application of
the best practicable control technology currently available. The BPT
effluent limitations guidelines derived are shown in Table VI-1. As in-
dicated, the proposed guidelines vary by category.
As is later discussed, the proposed treatment practices required to
achieve the effluent limitation levels are essentially the same for cate-
gories 1 to 6. Thus, the effluent limitations are varied because of
different wasteflow characteristics of various processes rather than
differences in treatment strategy. Category 7 (hide curing) has very
little wasteflows and either evaporation techniques or primary settling
prior to municipal discharge is recommended to achieve zero discharge.
The BAT guidelines, based on the best available technology econ-
omically achievable, for the leather tanning and finishing industry are
as indicated in Table V-2. These guidelines indicate major removal
of all nitrogen forms in addition to removal of constituents as established
for BPT. Again, the treatment required is essentially the same for
plant categories 1 to 6, although the limitation guidelines differ among
categories.
VI-2
-------
Table VI-1. Best Practicable Control Technology (BPT) effluent
guidelines - July 1, 1977 (complete treatment)
Parameter
BOD5
Total Chromium
Oil and Grease
Suspended Solids
Category
kg/ 1,000 kg hide (lb/ 1,000 Ib hide)
1
2.7
0.05
0.53
3.0
2
3.2
0.06
0.63 .
3.5
3 4
2.5 1.0
0.05 0.02
0.50 0.24
2.8 1.1
5
3.2
0.06
0.63
3.5
6
1.4
0.03
0.34
1.5
±' For all categories pH should range between 6.0 and 9.0 at any time.
Source: EPA, Revised Development Document.
VI-3
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Table VI-2. Best Available Control Technology (BAT) effluent
limitations guidelines - July 1, 1983 (complete treatment)
Parameters
BODg
Total Chromium
Oil and Grease
Gate go ry
kg/ 1 , 000 kg hide ( lb/ 1 , 000 Ib hide)
1
1.35
0.05
0.53
2
1.60
0.06
0.63
3
1.25
0.05
0.50
4
0.50
0.02
0.24
5
1.60
0.06
0.63
6
0.70
0.03
0.34
Sulfide 0.005 0.006 0.005 0.002 0.006 0.003
Suspended Solids 1.5 1.8 1.4 0.6 1.8 0.8
Total Kjeldahl 0.27 0.32 0.25 0.10 0.31 0.14
Nitrogen
' For all categories pH should range between 6.0 and 9.0 at any time.
Source: EPA, Revised Development Document
VI-4
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The new source standards (NSPS) are said to be the same as BPT and
BAT for 1977 and 1983, respectively. Also, separate pretreatment
standards were proposed for this industry for selected pollutants (e. g. ,
chromium, oil and grease, sulfide, and, also ph control). These guide-
lines are not repeated herein, but the proposed control methods and con-
trol costs are evaluated subsequently.
C. Pollution Control Requirements
To achieve the effluent limitations proposed above, the leather tanning
and finishing industry will be required to apply rather extensive waste
treatment practices. A summary of treatment practices expected to be
necessary to achieve both the BPT and BAT guidelines are presented
below.
VI-5
-------
(I) BPT - Best Practicable Control Technology Currently Available
A series of treatment steps are generally expected to be required in the
leather tanning industry to meet the proposed BPT guidelines. Based
upon the best practicable control technology currently available, the
following principal control and treatment operations are generally
needed to meet the BPT limitations:
1. Recycle of chrome and vegetable tan solutions (not in
categories 3 and 4).
2. Fine screening.
3. Equalization to dampen quality and quantity fluctuations
which will impair subsequent processes, particularly
biological units.
4. Primary settling to provide oil and grease separation,
precipitate chromium from rinse waters, and partially
remove BOD5, COD, a~nd suspended solids.
5. Aeration and secondary settling to further reduce BODg,
COD, and suspended solids.
6. Sludge handling (holding tank + on-site disposal).
This summary of treatment steps generally applies to Categories 1
through 6 as presented in the Development Document. Category 7
(hide curing) generally involves very low waste flows. Thus, this
segment will not be considered further in this analysis.
An outline description of the treatment strategy proposed to meet the
BPT guidelines is as follows:
VI-6
-------
BPT: Pret reatment and Activated Sludge
This strategy includes pumping, screening, equalization, and
primary clarification. This is followed with an aeration basin,
secondary clarifier, graded media filter and chlorination. Com-
bined sludge handling includes holding tanks, thickening units,
dewatering and landfill disposal.
(II) BAT - Best Available Technology Economically Achievable
The best available technology economically achievable for the leather
tanning industry includes major removal of all nitrogen forms in addition
to removal of those constituents accounted for in BPT. A general
summary of the major steps required to achieve the BAT complete
treatment guidelines is as follows:
1. Recycle of chrome and vegetable tanning solutions (where
applicable).
2. Collection of beamhouse wastes containing sulfide; oxidation
of sulfide using a catalyst such as manganous sulfate (not in
categories 4 and 5).
3. Fine screening.
4. Equalization to dampen variations in quality and quantity
which will impair subsequent processes, particularly biologic-
al units.
5. Aeration and clarification of solids to remove carbonaceous
BOD^, COD, and suspended solids.
6. Aeration to nitrify organic and ammonia nitrogen followed
by settling.
7. Mixing with a carbon source to cause denitrification; an
aeration flume to assist nitrogen gas removal; and a final
settling tank.
VI-7
-------
8. Filtration of the final effluent using deep-bed, mixed-media
filters or similar devices for final suspended solids removal.
9. Sludge handling (holding tank and on-site disposal).
The treatment steps are again generally applicable for Category 1 to 6
types of plants as defined above. As indicated, selected in-plant modifica-
tions to reduce wasteflows and recycle process waters or solutions are
regarded as essential.
An outline description of the treatment strategy proposed to meet the
BAT guidelines is as follows:
BAT: Pretreatment, Activated Sludge with Nitrification, and
Denitrification
This strategy includes the treatment indicated above for
BPT, plus the addition of a nitrification basin, settling
tanks, covered denitrification basin, and aeration flume.
The proposed NSPS treatment requirements are said to be the same as
BPT for 1977 and BAT for 1983. Pretreatment, if required, will gen-
erally involve major steps. In brief, items 1 to 4 and 6 of the BPT
practices above are expected to be required, plus adjustment of pH
prior to discharge of the municipal system.
The estimated costs to perform these waste treatment practices for
various types and sizes of plants are discussed next.
VI-8
-------
Pollution Control Costs
Pollution control costs estimates were provided by EPA for represen-
tative model plants in each of the seven leather tanning and finishing
categories defined above. Also, \vithin each category a series of alter-
native treatment practices were assessed (corresponding to the pre-
treatment, BPT, BAT, etc. requirements).
Based upon data available in Appendix A of the Development Document,
DPRA generated additional investment and operating cost data as re-
quired for this study. In ps.rticular, data corresponding to different
sizes of plants within category 1 were needed. A summary of estimated
pollution control costs for various sizes of plants as used in this study
are as shown in Table VI-3.
The method used to develop the cost data in Table VI-3 is partially
illustrated by the curves or plotted graphs presented in Figure VI-1.
These graphs reflect capital and O&M cost relationships for a particular
type of tannery (Pulp hair - Chrome tan-Finish) and for a particular level
of treatment (BAT). Similar relationships were derived from data pro-
vided for other major types of plants and alternative treatment levels.
Data required for this study were taken from the graphs so developed.
It is noted that definite economies of scale in waste treatment were
indicated in the data provided. Also, the cost functions for other types
of plants and levels of treatment appeared similar in form to those illus-
trated in Figure VI-1.
VI-9
-------
Table VI-3. Estimated pretreatment, BPT and BAT wastewater effluent treatment
costs for selected types of plants in the leather tanning and finishing
industry.!/ (Pollution Control Costs 1972)
Type of Plant
(w/ finishing)
Pulp Hair -
Chrome tan
Plant
Plant Data
Pretreatment
Size Hides /Day MGD±' Capitald'OfaM -'
X Small
Small
Medium
Large
100
300
700
2,000
' Estimates based upon data provided by
DPRA were used to generate estimates
21
\jrvn i-»a oo,
rl nnnn Hip follow
'in a averages
.02
.06
.14
.40
($000)
242
291
377
581
($000)
28
33
43
67
EPA and Stanley Consultants,
for alternative sized plants.
i for i
orocesses involv
ed: Pult
BPT
BAT
Capital O&M Capital
($000) ($000) ($000)
366
473
667
1, 162
Inc. Cost
>-hair - Ch
42
54
77
134
functions
rome, 4.1
527
721
1,065
1,797
O&M
($000)
61
83
122
207
constructed by
3 gal/lb,
. of hide;
3/
Save hair - Chrome, 6.0 gal/lb.; and Save hair - Vegetable, 5.0 gal/lb. The estimated average hide
weight was 50 Ibs. for purposes of calculating wasteflows.
Capital costs are the sum of individual component costs from EPA and Stanley Consultants, Inc. for the
various sizes based on DPRA cost functions. The costs as given were for 1971. A factor of 1.076 was
used to estimate 1972 costs. The costs include 14% for yardwork, 10% for engineering, and 5% for continencies.
' Operating and maintenance costs are determined as 10% of capital costs for dirett O&M, and 1.5% uf
capital costs for taxes and insurance.
-------
o
o
o
o
o
to
O
O
rt
U
o
o
o
o*
o
20
16
12
8
2.0
1.6
1.2
m .8
O
O
* . 4
Capital Cost
Operating & Maintenance Cost
0.02 .06 .10 .14 .20 .30
Effluent, Million Gallons per Day
.40
Figure VI-1. Estimated capital and operating and maintenance
costs for BAT wastewater treatment. Pulp hair,
chrome tan, finish leather tanning industry plants.
VI-11
-------
Status of Wastewater Treatment in the Industry
There are a declining number of plants in the leather tanning and finishing
industry. There are 176 tanneries (wet process) in operation at the
present time. In addition, there are estimated 180 plants (essentially dry
process) involving leather finishing operations only. These latter plants
do not have significant wastewater effluent problems and are therefore
excluded from further analysis in this study.
Waste treatment practices in the leather tanning and finishing (wet process)
industry vary widely, ranging from no treatment (or only simple screening)
to activated sludge systems. For those plants discharging directly into rivers
or streams, waste treatment facilities are said to be severely lacking in the
industry. No exemplary waste treatment plants handling only tannery wastes
presently exist.
Based upon a partial survey (140 plants) of the industry, it is estimated that
approximately 60 percent of the tanneries discharge into municipal systems.
Further information from EPA indicates that approximately 70 percent of
the X-small and small plants are on municipal systems. This portion of
the industry is also reported to represent about 60 percent of the productive
capacity of the industry. Of those plants discharging to municipal sewers,
both no treatment and pretreatment practices exist. There is a trend,
however, toward at least some pretreatment by all tanneries following
increased effluent restrictions imposed by municipal systems.
It is reported that only few (about 21 as indicated in the Development Document)
of the tanners and finishers have viable secondary waste treatment facilities
at the plant site. Three have activated sludge plants; 15 have either aerobic
or aerobic-anaerobic lagoons; and 3 have treatment systems with trickling
filters. More advanced treatment facilities do not yet exist, although pilot
studies have been made of reverse osmosis and activated carbon techniques.
Based on the total number of plants surveyed (140), then the 21 plants with
secondary treatment systems would represent about 15% of the plants in the
industry. Presumably, most of the plants with secondary treatment facilities
are presently discharging directly into rivers and streams. Hence, a higher
percentage of those plants which discharge directly would have some secondary
treatment facilities, e. g. the ratio of 15% with treatment to 40% directly
discharging would represent over one-third (about 37%) of those which dis-
charge directly.
VI-12
-------
In order to meet the proposed guidelines*, mi .-t tanners will be required -.o
provide additional treatment facilities, including pretreatment for those
discharging into municipal systems. The following factors contributed to
this cone lusion:_/
1. The strength of treated tannery waste with respect to most parameters
i.s higher than that .tor most municipalities and other industries.
2. Consistent removal of waste constitutents by treatment facilities
expressed as a percent of influent quantities is less than that
of most municipalities and industries.
3. Tanneries now having treatment facilities which produce an effluent
approaching the quality desired could make necessary modifications
to meet quality standards at a reasonable capital investment.
Development Document, p. 87.
VI-13
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VII. IMP A C T A NA LYSIS
The impacts of direct discharge effluent guidelines on the leather tanning
and finishing industry are expected to be generally severe--especially for
the X-small and small sized plants. Approximately 40 percent of the
tanneries currently discharge directly into surface waters and only about
one-third of these are estimated to have some secondary waste treatment
facilities. Even these facilities must be upgraded to meet the proposed
BPT and BAT guidelines. The balance of the plants discharging directly
will need extensive waste treatment improvements.
For the 60 percent which discharge into municipal systems, more stringent
pretreatment practices are generally expected to become necessary. This
is expected due to the difficult treatability of particular waste constituents
such as chromium and sulfides. Estimated pretreatment costs are typically
high for various types of plants, e. g. , approximately 60 percent of the
estimated BPT costs. Thus, if most plants discharging into municipal
systems must provide pretreatment, then pollution control impacts will
affect all segments of the leather tanning (wet process) industry.
In this section, the estimated impacts of pretreatment, BPT, BAT
and NSPS standards, as proposed, are discussed. The NSPS standards
are equal to the BPT and BAT cases beginning in 1977 and 1983,
respectively. Estimated impacts are based primarily on expected financial
effects of the pollution control costs on representive 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. Price Effects
Three sizes of model plants which are categorized as "Pulp Hair-Chrome
Tan-With Finishing" have been evaluated. The sizes studied were 300, 700,
VII-1
-------
and Z, 000 hides per day capacities. In addition , an X small plant with
an average capacity of 100 hides per day was included. One analysis was
to estimate the percentage price increase that would be required to cover
the estimated cost of pollution control. For the three sizes of plants,
the estimated price increases required to cover costs for pretreatment,
BPT and BAT standards are summarized as follows with detailed
analysis + 30 percent for various levels of control contained in Table VII-1.
Percent Change in Price Needed J./
Plant Size Pretreatment BPT BAT
100 hd/day 6.0% 9.0% 13.5%
300 hd/day 2.2% 3.6% 5.8%
700 hd/day 1.2% 2.2% 3.7%
2,000 hd/day 0»6% 1.3% 2.0%
I/ Such that the Net Income of the firm remains constant.
These effects would be applicable at the plant level assuming each plant
could pass-through cost increases. However, only the larger plants would
likely recover all levels determined by dominant, larger firms in the
industry.
An analysis of the industry structure and pricing mechanisms suggest
that in an extremely price competitive industry such as leather tanning
and finishing, only the large firms may be expected to pass through the
entire effects. This argument is strengthened by the fact that the large
firms produce approximately 65-75 percent of the total volume. The
target BPT projected increase in price is approximately 1. 3 percent
with a range of 0.9 - 1.7 representing a range of _+ 30 percent in control
costs to meet the BPT standards. This approximates the required price
increase by large plants to maintain the same level of-profit as before
treatment. An additional incremental price increase of .7 percent is
included to cover the BAT guidelines.
t
Another factor affecting expected price changes is that approximately
60 percent of the tanneries are linked to municipal treatment systems.
In these cases, only pretreatment costs are expected to be incurred.
It is noted that pretreatment costs are expected to change from 1977
to 1983 due to an added sulfide removal requirement as summarized
in Table VII-1. In summary, the projected "actual" industry-wide
VII-2
-------
Table VII-1. Percent increase in prices to keep net income constant
( 1
(Jj
Pretreatment
Plant Size -30 -- +30
100 head/day 4.2 6.0 7.8
300 head /day 1.6 2.2 2.9
700 head /day 0.9 1.2 1.6
2,000 head/day 0.4 0.6 0.8
BPT BAT
-30 -- +30 -30 -- +30
6.3 9.0 11.8 9.5 13.5 17.6
2.5 3.6 4.7 4.0 5.8 7.5
1.6 2.2 2.9 2.6 3.7 4.8
0.9 1.3 1.7 1.4 2.0 2.6
-------
price increases (based on the factors described) are as follows:
Percent Percent Weighted
Period Plants Price Average
Beginning Type of Treatment Requiring Increase/ Increase
1977 Pretreatment 60% 0.6) q(-
BPT 40% 1.3) /0
1983 Pretreatment 60% 0.7 ) j 2%
BAT 40% Z.O )
*/
Target price increase by large firms only.
It is understood that the tanning margin remains generally constant despite
rather marked changes in raw product prices. This suggests that price
increases (due to cost changes) which affect the entire industry would be
possible. However, this assumption does not address the aspect of
foreign competition. Most likely, competitive tanneries in other countries
will not be faced with increase cost due to pollution controls in the fore-
seeable future. Since tanneries obviously have been losing volume to
international competition on the basis of higher labor costs, any increase
in the industry processing costs will only tend to aggravate an already
serious problem. International competition might therefore result in
less price increases than would otherwise be expected. Further data is
needed to make a more definitive assessment of this factor.
B. Financial Effects
Net Profits as a percent of sales are summarized for the various sized
plants in Table VII-2. For the baseline projection, net profits for the X-
small plants are (4.4) representing a -.7 percent of sales. Net profits
for the small - large firms are all positive with a high of 3.9 percent
for the large plant.
The imposition of pollution controls impacts all firms substantially
reducing net income before consideration of any price increases. Net
income is decreased for X-small firms from (4.4) at baseline to (45) for
pretreatment and as high as (94.4) for BAT control. Small firms are
projected to have negative net incomes with BPT and BAT controls if no
price increases occur. Net income for the 700 hide per day plant is re-
duced from $177 thousand to $145 thousand for pretreatment costs and $83
thousand or 1. 7 percent of sales with the imposition of the full BAT standards,
VII-4
-------
Table VII-E. Net profits and return on investment for pulp hair-chrome tan with finishing plants before and after controls
Plant Size
X Small
100 hides/day
Net income
Net as % of
income sales
Before Price Increase
Base Line
P ret reatment
(1 to 5 years)
(5 to 20 years)
BPT Control
BAT Control
After Price Increase '
Pretreatment
(1 to 5 yrs)
(5 to 20 yrs)
BPT Control
BAT Control
J$000)
( 4.4)
( 44.5)
( 52.2)
( 64.7)
( 94.4)
( 38.5)
( 36.5)
( 58.7)
( 86.4)
Small
300 hides /day
Net income
After tax Net as % of After tax
ROI income sales ROI
(%) (%) ($000) (%) (%)
< 0
< 0
< 0
< 0
* 0
< 0
< 0
< 0
< 0
<0 40.
<0 14.
<0 6.
<0 (12.
<0 ( 57.
^0 25.
<0 29.
<0 25.
<0 ( 31.
6 1.9
1 .7
6 .3
0) < 0
5) < 0
9 1.2
2 1.3
6 0.2
9) <0
5.4
1.6
.7
< 0
< 0
2.9
3. 1
0.6
=0
Medium
700 hides /day
2
Net income
Net as % of After tax Net
income sales ROI income
($000)
177.4
145.2
139.4
120.0
82.8
167.9
176.2
143.2
113.8
(%)
3.6
2.9
2.8
2.4
1.7
3.3
3.5
2.8
2.2
(%)
11. 1
8.1
7.8
6.2
3.9
9.4
9.9
7.4
5.3
($000)
587.2
537.3
530.0
487.3
427.4
608.0
631.6
558.0
521.7
Large
, 000 hides/day
Net income
as % of After tax
sales ROI
(%)
3.9
3.6
3.5
3.2
2.8
4.0
4. 1
3.6
3.4
(%)
12.8
11.0
10.8
9.4
7.8
12.4
13.0
10.8
9.5
_' For years 1 to 5, . 9% increase over base; and for years 5 to 20, 1.2% over base.
VII-5
-------
The impact on large firms is not as severe as for smaller firms and
net income as a percent of sales is reduced to 2. 8 percent with BAT
control from the baseline condition of 3.9 percent.
With the projected increases in price (. 9) percent for BPT and an
additional (. 3) percent for BAT, some recovery toward a profitable situation
is made by the small and medium sized plants. By design profits for large
plants with pretreatment facilities is slightly higher than baseline conditions
and slightly less for BPT and BAT standards.
X-small plants still are severely impacted and show no possibility to
operate on a profitable basis after the imposition of BPT or BAT
standards.
After tax return on investment is also shown in Table VII-2. A pattern
similar to the net profit picture emerges from the imposition of controls.
Profit potential on investment in small plants is generally eliminated.
For medium sized plants, the baseline estimate of 11 percent after tax
ROI is reduced to 8.0 with pretreatment facilities and 3. 9 percent
following the imposition of BAT standards. Some recovery can be
expected via projected price increases for the industry on ROI of 5. 3 percent
following the BAT price increases. Large plants' ROI is reduced from
12. 8 percent to 11.0 with pretreatment facilities and down to 9. 4 and
7. 8 with BPT and BAT standards.
Assuming a . 9 percent increase by 1977 and an additional . 3 percent to
cover the 1983 Standards, small plants with pretreatment facilities will
achieve a 1. 3 percent ROI after 1983 but are unable to achieve a positive
return if required to install their own BAT facilities. The low profit-
ability with BPT controls in small plants, combined with negative incomes
with BAT, suggests that small firms will not meet BPT standards only to
be aubject to closure 5 years hence. Medium size plants are somewhat
better off and expect to achieve a 5. 3 percent after tax ROI assuming the
maximum price increase that can be expected. With the maximum price
increase large plants should be able to keep after tax ROI at about 10
percent.
Net Present Value (NPV) - Another measure of the financial capacity
of a plant is the Net Present Value (NPV) of its future streams of costs
and revenues. By discounting at the cost of capital rate, then positive
NPV's would indicate the likelihood of continued plant operation versus
closure. To complete this analysis, the following assumptions were
made:
VII-6
-------
1. The existing plants have sunk investments but they could
be disposed of today for a salvage value and reinvested
elsewhere if the tanning and finishing operations were
discontinued. However, only 10 percent of the estimated
replacement cost is assumed recoverable for this industry.
This relatively low value represents the fact that manu-
facturing equipment has little value outside the leather
industry and is seldom used for replacement within the
industry. Buildings '3 re very old and would have little
or no alternative uses.
2. Revenues and expenses are assumed to remain constant over
time, i.e., 20 vears of operation.
3. The estimated cost of capital for the industry is 7.0 percent
after tax (see V-8).
The net present values were calculated for model plants both with and
without pollution controls. Also a sensitivity analysis was performed
with a change of _+ 30 percent in the proposed control cost. The results
are shown in Table VII-3.
Assuming no price increases after the imposition of controls, then the
target NPV's of X-small and small plants are calculated at less than 0
for both BPT and BAT levels. This indicates these plants are likely
to shut down. However, small plants which require pretreatment only
are expected to continue operation. (X-small plants are expected to
close regardless of type of treatment, including a range in pollution
control costs of + 30 percent).
Medium and large plants are expected to continue operation based on
positive NPV's even without price increases.
A further analysis was made assuming price increases as indicated
previously. That is, an increase of 0.9% was made for 1977-83, cor-
responding to the change required by large firms; and an increase of
1.2% was made for 15 years beginning in 1983. These changes reflect
Pretreatment - BPT and Pretreatment - BAT price increases required
beginning in 1977 and 1983, respectively.
The NPV's as shown in Table VII-3 are well above zero for medium and
large plants and thus no closures are expected. X-small plants still
have negative NPV's under all treatment alternatives and, thus, the
X-small plants are clearly expected to be forced to shutdown.
VII-7
-------
Table VII-3. Net present value of model plant cash flows ($000) before and after projected price increases
I/
X-Small
Before
With
Price
Increase
Before Pollution Control Costs (116)
Pretreatment
+ 30% Target Cost
Target Cost
-30% Target Cost
BPT Control
<; +30% Target Cost
S Target Cost
oo -30% Target Cost
BAT Control
+ 30% Target Cost
Target Cost
-30% Target Cost
(547)
(448)
(349)
(695)
(561)
(428)
(855)
(685)
(514)
(471).
(372)
(272)
(631)
(498)
(364)
(779)
(608)
(438)
Small
Before
214
( 36)
57
130
(265)
( 94)
51
(510)
(282)
( 64)
Medium
With
Price
Increase Before
167
220
256
( 62)
93
195
'(265)
( 44)
151
1,402
1, 199
1,245
1,293
1,077
1, 148
1,224
984
1,079
1, 176
With
Price
Increase
1,495
1,542
1,589
1,318
1,394
1,470
1,278
1,375
1,472
Large
Before
4,813
4,457
4,530
4,601
4,238
4,370
4,504
4,089
4,256
4,423
With
Price
Increase
5,333
5,405
5,478
4,918
5,051
5, 184
4,422
5,090
5,257
Price increases include .9% for years 1 to 5 and 1.2% for 5 to 20, except BPT control which includes only .9%
increase for 20 years.
-------
Small plants are expected to be most sensitive to continued operation
on a marginal basis, i.e. , at low profitability if they remain open.
Based on the NPV analysis it is estimated that small plants linked
with municipal systems can pretreat and continue operation. The
estimated price increases (.9% in 1977 and 1.2% in 1983) help sustain
these operations.
Also, it is noted that small plants might meet the target BPT standards
(if operable for 20 years) assuming that no additional costs were to be
subsequently incurred. However, small plants cannot meet the BAT
treatment requirements, and therefore these plants are expected to
shutdown in 1977. NPV's for small plants operating BPT controls
for only 5 years (1977-83) are negative.
VII-9
-------
C. Production Effects
The leather tanning and processing industry can be accurately described
as a declining industry. After reaching a peak physical volume in 1967
of 32.4 million cattle hide equivalents, volume has dropped sharply each
year. In 1972 volume had declined to 24.0 million cattle hide equivalents
or a decrease of 25 percent from the peak year.
Two major factors have contributed to the decline in the industry:
1. Increased international competition.
2. Increased competition from synthetic leathers both in
terms of physical product and price.
In addition, certain segments of the industry have declined because of
decreasing supply of skins. This is true for certain species such as
reptile, kid, sheep and calf. Cattlehides, however, which accounted
for 81 percent of total volume in 1972, have been increasing in total
domestic supply, but exports of raw hides exparfded from 5.4 million
in 1965 to 12.5 million in 1972.
There are presently 176 wet processing plants in the industry today.
Thirty-three percent of the plants are categorized as large (or extra
large) and handle approximately 73 percent of the total volume. Twenty-
seven percent of the plants are categorized as medium and process an
estimated 17 percent of the volume. The remainder or 70 plants are
small or X-small and produce only 10 percent of the total volume.
1. Baseline Closures
According to the records of the Tanners' Council of America, 33 plants
have shutdown or ceased operation between 1968 and June of this year.
A distribution of these shutdowns was obtained for 3 1 of the 33 plants
and is contained in Table VII-4. When converted to cattlehide capacity
basis this represents capacity to tan approximately 5. 3 million hides.
Of the 31 plants for which descriptive data are available, 9 plants pro-
cessed special type of hides such as reptile, kid, sheep and calf for which
the basic raw material has declined sharply. Seven of the plants pro-
cessed sole leather for which substitutes have made major inroads. For
example, 20 years ago 76 percent of the shoe soles were leather, in 1972
this had declined to 18 percent with no reversal of the trend foreseen.
Fifteen of the plants processed cattle side leathers primarily for shoe
VII-10
-------
Table VII-4. Distribution of historical tanning plant closures by
size and type, 1968-19'V3
Size
Small
Medium
Large
Total
Special -1
4
4
1
9
Sole Leather
1
4
2
7
Cattle side
5
2
8
15
Total
10
10
11
31
Includes reptile, kid, sheep and calf.
Notes: 1. Five of the above have been reopened with a modified
product line.
2. A total of 33 plants closed, two of which are unidentified.
Source: Tanners' Council of America.
VII-H
-------
uppers. Although there has been an abundance of domestically-produced
cattle hides, this group has been subjected to severe pressure from
international competition and the increasing trend for the domestic shoe
industry to use leather substitutes. It is significant to note that slightly
over half of the closures in this category were large plants.
Although it is normally a series of factors that finally force a plant to close
its doors, the general trends of the industry as noted above appear to
have been primary causes. In addition, two of the 31 firms indicated they
were unable to meet the financial requirements resulting from strict local
pollution control regulations.
Because of the problems that beset the industry today, it is clear that
plants will continue to shut down for the following reasons:
increased international competition
increased strides in the production of synthetic leather
higher per unit cost of production in some plants--
especially the smaller size
lower per unit profit
. difficulty in meeting (physically and financially)
occupational safety requirements
plants becoming physically worn out
. inadequate owner income
present owner reaching retirement age
We are estimating closures to continue at the same rate as over the past
five years and will amount to approximately 28 plants through 1977. By
size category this amounts to:
Small 9 plants
Medium 9 plants
Large 10 plants
2. Capital Availability
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) equity capital through
the sale of common or preferred stock, (3) internally generated funds --
retained earnings and the stream of funds attributed to depreciation of
fixed assets.
VII-12
-------
It appears that capital availability will be a severe problem the industry
will encounter when investing in pollution control tacilities. To place
this problem in its proper setting, some of the relevant conclusions as
discussed in Chapter II-C are summarized below:
1. The industry has a large number of family-owned and
operated plants especially among the small and medium
size categories.
2. The family owned plants are largely financed with internal
capital and maintain a low level of long-term debt. The
large firms are likely to possess capital structures sub-
stantially different from those exhibited by the small
companies.
3. New expenditures have been modest and have averaged
about 17 million per year--mainly for equipment.
4. Over 70 percent of the physical plants are over 50 years
old.
5. The industry has had difficulty obtaining capital to cover
their operating requirements because of raw material
price increases since August, 1971.
6. Leather tanning and finishing is a declining industry and
subject to severe international pressure.
7. There has been an apparent reluctance of outside capital
sources to invest in or lend money to the industry.
According to the Development Document the BPT total investment required
in pollution control equipment to meet the BPT guidelines amounts to $28
million and an additional investment of $14.5 million to meet BAT guide-
lines .
Total fixed investment in the industry is estimated at roughly $130 to $140
million. Therefore the estimated investment cost required to meet BPT
and BAT Standards amounts to approximately one-third of the present
total fixed investment in the industry.
VII-13
-------
A further indication of the financing problems the industry will face
can be obtained by comparing the estimated capital investment for con-
trol facilities to meet the 1977 guidelines with the estimated replacement
value for the respective plants. These data are for Category 1 -- pulp
hair with chrome tanning -- with finishing.
BPT Level Plant Replacement Value
$ Thousand $ Thousand
X-small 366 245
Small 473 635
Medium 667 1,200
Large 1,162 3,115
It is clear from these illustrations and the general condition of the industry
that the leather tanning and finishing industry will have difficulty obtaining
capital to finance the facilities to meet the proposed guidelines.
3. Plant Shutdowns Resulting From Pollution Control Guidelines
The plants' ability to finance and install new pollution control equipment
was viewed primarily from two analyses. Net profit as a percent of sales
and as a percent of investment with and without pollution control equipment
was viewed as a firm's ability to recover capital expenditure in pollution
control equipment and operation. The NPV analysis was used to view the
future earnings of the company with the imposition of controls compared
to salvage value of the firm.
Without Municipal Exemption
The imposition of the proposed BPT and BAT Standards will impact
X-small and small plants very severely to the point of shutdown. Although
small plants disposing into municipal systems will be impacted, they
should be in a position to recover substantially as a result of the projected
price increase. This will include 40 of the small plants that are reported
by EPA to be on municipal treatment systems. Small plants not on munici-
pal treatment systems presently number 17. We are projecting all 17 of
these plants will be forced to close. Although these 17 plants show a slight
positive NPV with the projected price increase in Table VII-3, the NPV
for the BPT level of control was calculated using a 20 year cash flow.
If BAT costs are applied in the proper sequence (1983) or if the NPV for
BPT level of control is run for 5 years only, the result is a negative NPV.
On this basis we are projecting the plants will shut down with the imposition
of BPT Standards.
VII-14
-------
There are 48 medium sized plants of which 9 are expected to close for
baseline reasons. Of the remaining group, 20 are assumed to be on
municipal treatment system. Although these may be some of the medium
size plants not on municipal treatment system unable to develop sufficient
capital to install BPT and BAT control facilities, we are not projecting any
shutdowns from this group.
Likewise, there may be some of the large plants unable to develop the
capital necessary to install pollution control facilities, however, we
are not projecting any closures from this group.
In summary, we are projecting a total of Z 1 plants will close due to the
proposed guideline assuming no exemption for plants disposing in munici-
pal systems. This includes 4 X-small plants and 17 small plants. These
numbers are summarized in Table VII-5.
With Municipal Exemption
According to information received'from EPA, any plant with less than
50, 000 gallons of water flow per day that does not constitute more than
5 percent of total effluent going into the municipal system, provides no
toxic materials and/or the aggregate of all small plants is not significant,
is exempt from the pretreatment requirements.
At the present time chromium is not classified as a toxic material. Thus,
under present regulations certain leather tanning plants would be exempted
from pretreatment requirements. The impact on the leather industry was
then assessed assuming the present pretreatment requirements. However,
it is well to note that chromium may be added to the list of toxic materials
in the future.
VII-15
-------
Table V1I-5. Estimated plant closures in the wet process leather tanning industry resulting from pollution
control guidelines
Without municipal exemption
Size
X- small
Small
Medium
Large
X-large
Total
Current
plant no.
6
64
48
43
15
176
Baseline
closures
2
7
9
8
2
28
Plants
remaining
before controls
4
57
39
35
13
148
Closures
from
guidelines
4
17
0
0
0
31
Plants
remaining
after controls
0
40
39
35
13
127
With municipal exemption
Closures
from
guide line s
1
17
0
0
0
18
Plants
remaining
after controls
3
40
39
35
13
130
-------
The X-small and small plants would generally meet the present pre-
treatment exemption requirements or with some internal production re-
quirements can reduce their waste water flow to less than 50,000 gallons
per day. EPA estimates that 70 percent of the X-small and small plants
now dump into municipal systems. On this basis the only reduction in
shutdown would be the three X-small plants now assumed to be hooked
up to municipal systems. Therefore shutdown would be reduced from
21 with no municipal exemptions to 18 if the municipal exemption
clause should remain in effect.
4. Total Production Lost Due to Guidelines
The estimated production lost from the 2 1 plant shutdowns, assuming no
municipal exemption, from the imposition of control standards is estim-
ated at 2.8 percent of the present physical volume of the industry or 3.4
percent of the projected volume of 1976. (Based on recent trends, the pro-
jected volume of the industry can be expected to decline by 16 percent by
1976 resulting'from baseline closures.) Total capacity lost from pollution
control closures is relatively low compared with number of plants closing
(12 percent) because of the size structure of the plants involved.
The estimated production lost from the 17 plant shutdowns, assuming the
municipal exemption holds true, is estimated at 2. 6 percent of the present
physical volume of the industry or 3.2 percent of the projected volume of
1976. Again, total capacity lost from pollution control closures is rela-
tively low compared with number of plants closing (10 percent).
In 1972, total leather production in the U. S. amounted to the equivalent of
24.7 million cattle hide units (equivalents). This leather was used in the
production of 527 million pair of shoes. However, not all shoes are made
of leather. In 1972, 67 percent or 353 million pair of shoes produced
domestically were constructed of leather or part leather uppers. On this
basis, a loss of 2. 8 percent of present production would eliminate the
leather required for 10.0 million pair of shoes and commensurate quantities
of leather garments, upholstery, small leather goods, etc. The 2. 6 per-
cent of production loss resulting from the municipal exemptions would
eliminate the leather required for 9.2 million pair of shoes.
The question then arises regarding what percent of production lost due to
pollution related closures would be absorbed by the remaining firms in
the industry vs the percent lost to overseas competitors. Unfortunately,
the economic data necessary to accurately assess this question are simply
not available. Basically, we are in a demand pull situation for raw hides.
VII-17
-------
Foreign demand for our raw hides which now take 52 percent of total
U.S. produced cattlehides will continue. In fact, it most likely will
increase as the two leading nations (second and third to the U.S.) in
the export of raw hides, Argentina and Brazil, are in the process or
have prohibited the exporting of raw hides as rapidly as their industries
can be developed to process them. Brazil has now already switched
from a major exporter to an importer and have imported 200 thousand
hides this year. Japan's imports of hides from the U.S. have nearly
doubled from 1965 to 1972 increasing from 3. 8 million to 7. 3 in 1972.
Communist Bloc countries such as Poland, Yugoslavia, Rumania and
Czechoslovakia have more than doubled their imports of raw hides since
1965. As a result, we see increasing international competition for our
raw hides.
On the other hand, the demand for shoes is basically a derived demand
resulting from the demand for shoes. Thus, historically the domestic
demand for shoes has tended to control the number of hides tanned in
the U. S. However, because of the increased international competition
and expected drop in the production of tanned leather in 1977, we
expect to see a reversal of this historical trend. In fact, we are arguing
that the closing of tanneries in 1977 will cause a shortfall of tanned
leather required by the shoe industry.
The U. S. shoe industry has also been losing out to foreign competition.
Shoe imports have increased from 14 percent of total shoes sold in the
U. S. in 1965 to 36 percent in 1972. In addition, the shoe industry is
utilizing more leather substitutes -- particularly for women and children's
shoes.
In summary, we are estimating that approximately 50 percent of the pro-
duction loss from Guideline closures will be lost to overseas competition
and the remaining lost production will be picked up by other U. S. tanneries.
A net loss of 1.4 percent of total hide production will result in a loss of
raw material for the manufacture of 5.0 million pair of shoes and com-
mensurate quantities of leather garments, upholstery, small leather goods,
etc. Likewise, if the loss amounts to 1. 3 percent because of the municipal
exemption, the reduction in leather shoes produced would amount to
4. 6 million pair.
VII-18
-------
D. Employment Effect
The estimated number of employees in the leather tanning and finishing
industry is estimated at 23. 7 thousand in 1972 down from 30.7 thousand
in 1967. Baseline closures over the next five years are estimated to
eliminate jobs directly for 3, 700 employees in the industry.
Closures resulting from pollution control guidelines are estimated to
eliminate 950 jobs by 1977, or if the municipal exemption still
exists, 875. This considers only direct employees, many of which
are from minority groups whose economic integration is sociologically
important in the United States. Because of the declining nature of the
industry, it is doubtful if they could obtain employment in other tanneries.
Based on information obtained from the Tanners' Council, minority em-
ployees compose approximately 35-40 percent of the 23.7 thousand
workers in 1973. This can be broken down by region as follows:
Approximate Percent
Region Minority Employees
New England 16
Mid Atlantic 62
Chicago area 70
Milwaukee area 60
St. Louis area 60
West Coast 30
Other 30
In 1967 there were 328,700 employed in the leather tanning and
leather products industry (SIC 31) (rubber footware and miscellaneous
plastic products not included). This number declined to 273,800 by 1971
largely reflecting a decline in leather tanning and finishing and footwear.
Further examination indicates that for each person employed in tanning
and finishing, approximately 10 are employed in the leather consuming end
of the industry (Table VII-6).
VII-19
-------
Table VII-6. Number of employees in leather and leather products industry
(SIC 31) 1963-1971
1963
1967
1970
1971
31
Leather & Leather Products
3111 Leather Tanning 8t Finishing
Wet Process
Dry Process
Industrial Leather Belting
Footwear Cut Stock
Footwear, Except Rubber
House Slippers
Leather Gloves & Mittens
Luggage
Women's Handbags
Personal Leather Goods
Leather Goods n.e.c.
Total
327.3
31.4
328.7
30.7
295.8
24. 1
273.8
24.5
2.9
14.3
201.7
11.0
7.7
16.4
24.5
12.4
5.0
2.7
13.7
198.5
12.5
6.3
21.4
24.1
12.7
6. 1
2. 1
12.6
180.5
11. 3
5.5
16.6
21.4
15.0
6.7
22.6
1.9
2.0
11. 0
166.5
10.9
4.9
14.8
19.6
12.8
6.8
327.3
328.7
295.8
273.8
VII-20
-------
It is difficult to predict the loss of employment in the leather manufacturing
segments, but using the direct ratio of 1:10, a loss of 950 in the tanning
industry would lead to a loss of 9, 500 jobs in the leather consuming industry
(manufacturing only). However, not all of the employment in the leather
manufacturing industry is dependent upon leather as a basic raw material.
For example, in 1972, 67 percent of the shoes manufactured in the U. S.
had leather or part leather uppers. Using this percentage as an indication
of the dependence of the leather consuming industry on the tanning industry
and our earlier estimate that 50 percent of lost production will be absorbed
by the remaining industry, a loss of 950 jobs in the tanning industry could
lead to an additional loss of 3, 182 jobs in the leather consuming industry.
If you assumed leather substitutes will increase in usage and be used in 40
percent of the shoes (uppers) rather than the current 33 percent, the loss
of employment would amount to 2, 850.
Considering the case with municipal exemption and the same set of
assumptions as used in the above, we would expect a loss of 875 jobs
in the tanning industry. This would subsequently lead to a loss of 2,932
jobs in the leather consuming industry or 2, 625 if you assumed leather
substitutes to be used in 40 percent of the shoes.
E. Community Effects
The exact location of the tanning plants subject to closure is not known
at this time. With the exception of Chicago, Boston, Milwaukee, Newark
and San Francisco, leather production is located primarily in small com-
munities. Appendix Table A-12 gives the distribution of wet process plants
by size and location. Both Massachusetts and New York have heavy con-
centrations of small to medium size plants with 34 and 23 respectively.
Wisconsin has 12, New Jersey 10 and New Hampshire 7. The remaining
small to medium size plants are scattered over a wide area. In many
instances tanning plants are the principal employers or payroll sources.
Consequently, the closing of a number of small plants would directly
impact a number of small communities.
The multiplier effect resulting from the loss of raw material would impact
a number of finishers and manufacturers of shoes, handbags, etc. This
impact would be more widespread but fall the heaviest on the same states.
VII-21
-------
F. International Trade
The impact of pollution controls will have a direct impact on the balance
of payments. As discussed in earlier sections, the tanning industry has
been rapidly losing volume to international competition. It can be ex-
pected that if production capacity is lost due to pollution control guidelines,
an increase in the exports of raw hides will resultat least in the short
run. It is doubtful if U.S. shoe manufacturers would import tanned hides,
but most likely the present trends will continue in that the U.S. would
increase its purchases of foreign manufactured shoes and other leather
goods.
In 1972, 1.2 billion dollars worth of shoes (296,000,000 pairs) and
leather goods were imported (Table IV-4). A projected loss of 1.4
percent of domestic capacity would amount to 5.0 million pair of shoes
and related leather goods or approximately $30 million dollars worth
of finished leather products. Raw hides constitute approximately 20
percent of the finished price of shoes. Therefore, we could expect to
export an additional 6 million dollars worth of hides for a net balance
of payments loss of $24 million.
Using the lower production resulting from the municipal exemptions, a
projected loss of 1.3 percent of domestic capacity would amount to 4.6
million pairs of shoes and related leather goods or approximately $27.2
million dollars worth of finished leather products. With an increase in
raw hide exports of $5.4 million, the net balance of payments loss would
amount to $21.8 million.
VII-22
-------
VIII. LIMITS OF THE ANALYSIS
There is little published information regarding the structure, pricing,
and economic data regarding the leather tanning and finishing industry.
Much of the descriptive data used in this report was compiled by the
Tanners' Council and is considered to be the most complete and accurate
source available. Nevertheless, much of the information required to
develop this report did not exist in quantifiable form but was derived
from personal discussion with individuals knowledgeable of the industry.
This chapter discusses the general accuracy of the report and some of
the key assumptions involved.
A. Accuracy
The analysis was done under very tight time constraints (two months)
and time did not permit the development of all aspects of the project in
the detail that would be desirable. As a basis for the model plants, we
depended upon brief reports published by the USDA and a number of in-
formal discussions (telephone and personal) with knowledgeable individuals
in the industry. Data relating to the industry, particularly to size of
plant, were fragmentary and numerous assumptions and extrapolations
were required. Financial information on the industry is particularly
difficult to obtain for reasons explained in the report. In all cases an
attempt was made to evaluate available information with second sources
to help insure that data and information used were as reliable and repre-
sentative as possible.
It is believed that the results as presented earlier are generally correct
and indicate the proper order of magnitude for the economic impacts of
mandatory pollution abatement standards on the leather tanning and
finishing industry. Data limitations prohibit a precise quantitative
assessment of the impacts of pollution abatement standards.
B. Range of Error
Different data series and different sections of the analysis will have
different error ranges. Estimated ranges of error are as follows:
VIII-1
-------
Error Range
Number of facilities _+ 5
Size of operating plants _+20
Projection number of facilities jt ^
Employment i^O
Price information for products and
raw materials +_10
Processing cost ±10
Replacement costs for facilities jt^O
Plant closures due to water pollution
control costs + 30
C Critical Assumptions
In order to establish model plants representative of the industry,
several key assumptions had to be made.
1. Profitability
Industry statistics indicate that generally large plants are more profit-
able than small and this assumption was used. However, specific plants
may not follow this generalization. For example, small plants may handle
specialty products which would not be in competition with large plants.
The resulting effect would be a more profitable operation than if they were
competing directly with large tanneries.
2. Products
There are many different types of leather products produced through
various processes. We constructed the model plants around the production
of Tannery Run upper shoe leather which is the most prevalent form.
3. Other Types of Leather
Only cattlehides were considered in the model plant data. Because of a
lack of information, pigskins, goatskins and sheepshins and others were
not considered. Results of the model plant analysis were generalized for
the entire industry. Indications are that the other segments of the in-
dustry may be less profitable.
VIII-2
-------
4. Leather Conversion Rate
Conversion from raw hide to finished leather was based on generally
accepted conversion ratios.
5. Complex Plants
The assumption was made that the model plants produced only one basic
product. This would seldom be true. However, the average operation
should not be greatly different than is reflected in the model plants.
6. Prices
Published prices for cattlehides were used, but published prices do not
exist for finished leather. These had to be estimated.
D. Remaining Issues
Forecasts of industry performance were based on historical trends and
expected occurrences. The decline of the industry as seen most vividly
over the past five years is projected to continue. This situation could
be greatly altered with changes in our international trading regulations.
In turn, this would greatly alter the balance of payments impact that can
be expected under present trading regulations.
Very little is known with regard to foreign competition with the exception
that they have, obviously, lower labor cost. It is not known if they have
or are considering similar pollution control regulations or similar occu-
pational safety requirements. Since they obviously have made great
strides in capturing the U. S. market, it is expected they will continue
to do so.
There has been some discussion of internal production alterations which
would reduce and/or change the composition of the waste flow effluent.
This may, in fact, represent a more desirable alternative than investing
tremendous capital resources in end-of-pipe facilities which have no
productive value to the plant. Since investment in end-of-pipe treatment
ranges from one third to over 100 percent of the replacement value of
the plants-depending on the specific plant size-this is certainly an alter-
native which plants must consider. This whole area was not considered
within the scope of work for this report.
VIII-3
-------
APPENDIX
-------
Table A-1. General statistics for the leather tanning and finishing industry
All Employees
Year
1958 Census
1959 ASM
I960 ASM
1961 ASM
1962 ASM
1963 Census
1964 ASM
1965 ASM
1966 ASM
1967 Census
1968 ASM
1969 ASM
1970 ASM
1971
1972
Number
(1,000)
37. 1
37. 1
34. 5
33.2
31.7
31.4
31. 2
32. 0
32.7
30.7
31. 1
28.8
23.7
Payroll
(million
dollars)
165. 5
173. 6
163. 9
157.9
157. 2
163. 3
169- 0
180. 0
189- 2
186.4
196.0
188. 1
169.2
Production Workers
Number
(1,000)
Value
added by
Man-hours Wages Manufacture
(millions)
(million
dollars)
32. 5
32.4
30. 0
28. 7
27. 3
27. 3
27. 1
27.9
28. 2
26.4
26.7
24.4
20. 1
63.4
62.6
57. 6
55. 0
53. 3
54.6
54. 6
56.9
57. 5
52. 8
53.0
47.4
39.8
133.
137.
128.
124.
123.
129-
131.
139-
. 144.
142.
151.
142.
128.
2
1
9
0
1
8
5
0
4
5
2
8
2
(million
dollars)
275.
337.
278.
267.
263.
273.
300.
327.
326.
319-
349.
331.
318.
8
5
5
5
6
1
2
0
4
4
5
2
4
Cost of
materials
(million
dollars)
464.
558.
508.
486.
491.
480.
481.
535.
614.
547.
524.
514.
466.
9
9
5
7
0
5
3
6
1
0
5
9
9
Value of
shipments
(million
dollars)
743. 1
886. 9
790. 7
761. 1
765.9
758.4
783. 6
856. 7
940. 5
870. 1
877.9
853.9
793.3
New Capital
Expenditures
(million
dollars)
7.
7.
6.
4.
7.
6.
7.
11.
17.
16.
16.
14.
12.
9
6
1
7
2
5
8
3
3
7
6
4
6
Source: Census of Manufactures and annual Survey of Manufacture.
-------
Table A-2. Value of shipments byproduct class 1969-1971
1969
3111-
31111*
31112*
31113*
31114*
31115*
31110
31119
Item
Tanned and finished leather
Finished cattle hide and kip side leathers
Finished calf and whole kip leathers
Finished sheep and lamb leathers
Other finished leathers, n.e.c
Rough, russet, and crust leather (not
finished in this establishment)
Tanned and finished leather, n. s.k.
Contract and commission receipts for
tanning and finishing leather owned
by others
Total
802.6
524.7
34.5
57.9
48. 1
29.9
29.1
78.4
Percent
100
65
4
7
6
4
4
10
1970
Total
765.9
481.0
40.3 '
55.1
51.2
31.6
(29.8)
76.9
Percent
100
63
5
7
7
4
4
10
1971
Total
830.8
503.9
33.0
70.6
73.2
31.2
27.2.
91.7
Percent
100
62
4
8
9
4
3
10
Source: Annual Survey of Manufacturers.
-------
Table A-3. Shoe prices -- estimated average factory value per pair
1955
1956
1957
1958
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Jan.
3.49
3.55
3.67
3.57
3.61
3.74
3.82
3.83
4.00
4.02
4.03
4.37
4.57
4.75
4.80
5.11
5.39
5.45
Feb.
3.54
3.55
3.57
3.58
3.55
3.82
3.74
3.79
3.85
3.97
3.Q9
4.35
4.52
4.66
4.86
5.18
5.37
5.48
Mar.
3.46
3.58
3.57
3.50
3.57
3.73
3.69
3.72
3.83
3.90
3.91
4.26
4.57
4.70
4.89
5.36
5.41
5.54
Apr.
3.39
3.59
3.55
3.46
3.57
3.70
3.66
3.73
3,84
3.89
3.95
4.23
4.64
4.66
5.04
5.20
5.40
5.67
May
3.26
3.47
3.37
3.30
3.46
3.58
3.65
3.57
3.80
3.91
3.93
4.30
4.57
4,68
4.84
4.97
5.18
5.48
June
3.32
3.50
3.45
3.38
3.59
3.59
3.63
3.70
3.82
3.89
3.88
4,22
4.51
4.64
4.91
5.02
5.21
5.52
July
3.39
3.72
3.69
3.59
3.82
3.81
3.81
3.91
3.90
4.00
3.99
4.28
4.61
4.81
4.90
5.10
5.38
5.75
Aug.
3.53
3.74
3.69
3.69
3.88
3.89
3.85
3.69
3,88
4.04
4.06
4.41
4.58
4.77
4.99
5.23
5.21
5.59
Sep.
3.46
3.65
3.57
3.62
3.77
3.80
3.78
3.85
3.84
3.98
4.02
4.40
4.57
4.78
5..06
5.15
5.16
5.55
Oct.
3.40
3.56
3.51
3.52
3.73
3.67
3.65
3.81
3.79
3.83
3.94
4.31
4.53
4.61
4.94
5.09
5.17
5.41
Nov.
3.33
3.54
3.52
3.54
3.75
3.65
3.63
3.81
3.79
3.93
3o98
4.36
4.54
4.58
4.93
5.11
5.13
5.39
Dec.
3.56
3.71
3.70
3.77
3.92
3.88
3.91
4.09
4.01
4.10
4.16
4,65
4.73
4.88
5.22
5.54
5.45
b.OO
Aver.
3.43
3.60
3.57
3.55
3.69
3.74
3.73
3.80
3.86
3.99
3.99
4.34
4.58
4.71
4.94
5.17
5.29
5.56
Source: Tanners' Council of America, Inc.
-------
Table A-4. The shoe market'
(1.000 Patrs^
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
U. S. Production
Men's
103,336
112,729
110,703
119,859
118,195
126,903
123,720
126,259
117,563
119,738
117,672
126,562
Women s &
Misses'
312,613
325,021
310,725
308,137
316,420
320,082
285,583
316,680
265,525
253,387
232,447
218,391
Juvenile
91,687
95,032
88,294
88,658
91,575
90,696
86,077
83,641
79,143
78,691
75,756
72,651
Slippers
& Misc.
85,271
100,456
94,606
96,136
100,039
104,015
104,584
115,847
114,731
110,502
109,902
109,051
Mili-
tary//
4,500
5,900
5,200
6,500
7,690
15,784
14,800
9,900
6,551
4,770
4,614
3,800
Total
592,907
633,238
604,328
612,790
626,229
641,696
599,964
642,427
576,961
'562,313
535,777
526,655
Total*
Imports
36,668
55,057
62,820
75,372
87,632
96,135
129,137
175,292
202,040
241,560
268,569
296,665
7. Imports
of U. S.
Production
6.2
8.7
10.4
12.3
14.0
15.0
21.5
27.3
35.0
43.0
50.1
56.3
Non-rubber footwear.
jU
w Included in men's shoe production.
Source: Tanners' Council of American, Inc.
-------
Table A-5. World cattle numbers (1,000 head)
Canada
United States
Mexico
Total No. America
Argentina
Brazil
Colombia
Total So. America
West Europe
East Europe
U.S.S.R.
(Europe & Asia)
Africa
Asia
Oceania
TOTAL WORLD
1961-1965
Average
11,332
103,892
20,210
151,551
43,341
78,718
15,780
168,937
83,538
32,964
83,493
124,453
405,650
25,338
1,075,924
1969
11,475
109,885
24,876
165,661
48,298
92,845
19,576
193,505
88,895
34,675
95,735
135,296
446,235
29,622
1,189,624
1970
11,828
112,303
25,123
169,084
48,440
95,268
20,359
197,123
88,443
34,054
95,162
135,801
447,507
31,354
1,198,528
1
1971(1) 1972(2)
12,217
114,578
26,081
173,185
47,786
96,576
21,173
200,815
87,122
34,688
99,225
137,618
448,632
33,616
1,214,901
12,633
117,862
26,830
178,204
n.a.
n.a.
21,798
202,263
86,911
35,270
102,500
139,057
449,404
36,135
1,229,744
Sourc_. Foreign Agricultural Service, U. S. Department of Agriculture.
-------
Table A-6. Packer hide and skin prices: Average per pound, Chicago,
1959 to date!/
Steers
Year
1959
I960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Heavy
native
Cents
19- 16
13. 72
14. 91
15. 19
11. 23
10. 32
13. 93
17. 42
11. 73
11. 84
14. 38
12. 85
14. 53
29.70
31.60
Heavy
Texas
Cents
16.97
11. 36
12.73
13. 56
9-76
8. 18
12.07
16. 17
--
--
--
--
--
Butt
branded
Cents
17. 22
11. 77
13. 00
13. 64
9- 74
8. 47
12. 39
16. 33
10. 31
9- 51
12.48
11. 80
11. 95
27.20
29.36
Colo-
rados
Cents
16. 28
10.62
11.95
12.69
8.86
7.59
11. 58
15.64
9-60
8.51
11.59
9-95
10. 80
--
Heavy
native
Cents
21. 60
15. 13
16. 02
15. 80
11. 80
11. 20
14. 00
18. 12
12. 43
11.75
14. 85
13.44
14. 17
--
Cows
Light
native
Cents
25. 61
18. 81
19- 54
18. 50
12. 83
13. 23
15. 60
20. 21
16. 34
15. 73
18. 35
16. 98
17. 03
34.40
46.30
Bulls
Branded
Cents
20.45
13. 58
14.78
14.85
10. 54
8. 95
12. 57
16.65
10. 80
9- 64
12. 95
11. 35
11.63
--
Native
Cents
15. 20
10. 88
11. 09
11. 07
8. 00
7.44
9- 17
12. 28
--
--
--
_ _
Branded
Cents
14. 20
9. 93
10, 17
10. 07
7. 00
6.44
8. 17
11. 28
-_
--
--
--
_ _
Calf-
skins
Cents
64. 95
55. 64
62. 16
61. 08
36. 61
40. 63
53. 29
59-09
46. 51
54. 85
56. 33
33. 55
30. 17
51.77
65.50
Kip-
skins
Cents
52. 32
43. 92
51. 70
44.48
29. 99
32. 34
34. 09
45. 67
33. 11
32. 96
35. 10
27. 81
22. 70
..
Prices for packer steer, cow and bull hides obtained from Livestock Market News publication beginning in 1967.
Data for calfskins and kipskins compiled from National Provisioner weekly publication. Calfskins classified as
(North) 10-15 Ib. , kipskins classified as (North) 15-25 Ib.
2/
January, February, March only.
Source: USDA Livestock and Meat Statistics, 1971 and earlier. 1972 Tanners' Council of America.
-------
Table A-7. Movement into sight of cattlehides
(1, 000 hides)
Estimated
Total
Slaughter
Exports
and
Re-exports
Imports
Net
Exports
Total
Movement
To Tanner s(l)
ANNUAL TOTALS
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
28,257
29,242
28,514
25,880
25,223
27,590
28,012
28,516
29,800
33,262
34,550
35,260
35,381
36,076
36,118
35,740
36,280
36,480
5,863
4,943
6,518
5,434
4,107
6,899
7,645
7,121
7,972
11,540
13,320
14,205
11,866
12,853
14,790
15,229
15,969
17,595
333
340
167
417
1,025
331
294
413
360
314
301
221
232
494
277
385
275
292
5,530
4,603
6,351
5,017
3,082
6,568
7,351
6,708
7,612
11,226
13,019
13,984
11,634
12,359
14,513
14,844
15,694
17,303
25,537
26,441
24,924
23,690
22,606
22,044
22,271
22,585
21,815
22,799
23,241
23,572
23,607
23,617
21,096
20,199
20,189
19,218
Includes both domestic and foreign hides and side leather kips.
Source: Tanners' Council of America, Inc.
-------
Table A-8. . Movement into sight of all calfskins and kips
(1, 000 skins)
Federal
Inspected
Slaughter
Total
Commercial
Slaughter
Exports & Re-exports
Calf
Kip
Total
Imports
Calf
Kip
Total
Movement Calf
and 'Whole Kip
To Tanners (1)
ANNUAL TOTALS
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
7,499
7,843
7,324
5,672
4,875
5,260
5,005
4,979
4,535
4,820
5,077
4,432
4,001
3,876
3,637
3,025
2,806
2,420
12,377
12,512
11,904
9,315
7,683
8,225
7,701
7,494
6,833
7,254
7,419
6,647
5,919
5,443
4,863
4,072
3,689
3,051
1,815
1,851
2,076
2,362
1,422
1,648
1,994
1,715
1,611
2,118
2,010
2,087
1,973
1,852
1,238
1,076
1,974
1,613
1,765
1,259
1,226
7-19
483
481
557
345
253
280
474
519
495
382
414
241
254
451
3,580
3,110
3,302
3,081
1,905
2,129
2,551
2,060
1,864
2,398
2,484
2,606
2,468
2,234
1,656
1,317
2,228
2,064
1,189
924
1,103
555
1,103
860
763
669
875
926
458
242
480
509
356
189
67
87
288
272
269
353
462
503
661
778
1,037
1,084
607
438
357
285
334
353
168
174
1,492.
1,196
1,372
908
1,565
1,363
1,424
1,447
1,912
2,010
1,065
680
837
794
690
542
235
261
10,234
8,346
9,074
7,648
6,394
6,407
6,488
5,757
5,851
6,663
5,745
4,275
4,059
3,854
3,390
2,425
1,120
1,491
I/
Includes both domestic and foreign skins; excludes kips for side leather.
Source: Tanners' Council of America, Inc.
-------
Table A-9. All sheep and lamb leathers, 1955 - 1972
(1, 000 skins)
Federal
Inspected
Slauahter
Net
Imports
Input
Total
Shear-
linRS
All
Other
Excluding Shearlings
Produc-
tion
Deliv-
eries .
ANNUAL TOTALS
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
14,384
14,228
13,234
12,397
13,466
14,036
15,036
14,692
13,955
12,947
11,710
11,553
11,516
10.888
10,070
10,010
10,256
9,903
19,247
25,825
20,487
22,404
29,865
23,475
23,288
23,461
21,555
25,952
25,167
23,464
15,005
25,580
15,513
13,507
12,073
10,470
26,597
27,119
25,517
27,368
32,731
30,905
31,898
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
2,437
2,561
1,987
1,892
2,307
2,179
2,200
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
24,160
24,558
23,530
25,476
30,424
28,726
29,698
27,622
30,980
28,753
27,578
27,176
25,669
29,679
23,444
21,310
20,008
18,641
24,006
24,713
23,527
25,550
29,753
28,321
29,627
27,697
21,292
28,908
27,786
26,897
26,180
29,328
23,297
21,868
19,895
18,781
24,568
24,793
23,350
25,874
29,859
28,060
29,959
27,814
31,485
28,981
27,896
26,702
26,461
29,241
23,106
22,177
19,870
18,731
Source: Tanners' Council of America, Inc.
-------
Table A-10.
All goat and kid skins and leather, 1955 - 1972
(1, 000 skins)
Net
Imports
Raw Skins
Wettings
Your
7.
Production
Deliveries
Leather
Exports Imports
(1,000 Sq. Ft.)
ANNUAL TOTALS
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
28,504
27,004
20,292
19,550
25,414
19,254
14,740
14,370
14,774
12,882
14,079
9,882
6,731
4,914
4,708
2,597
1,532
2,995
26,879
24,498
22,211
19,882
22,827
17,973
14,572
14,101
14,660
13,172 .
15,475
12,061
8,185
6,457
5,727
3,675
2,417
2,947
26,109
25,103
22,336
19,992
22,797
18, 83^
14,865
14,213
14,182
12,874
14,557
13,372
8,456
6,764
5,856
3,979
3,148
3,522
27,005
23,973
22,265
21,264
22,781
18,114
15,162
15,266
14,423
13,619
15,228
13,090
8,856
7,031
6,196
3,938
3,659
4,022
4,348
4,124
4,013
3,713
4,942
5,150
6,309
3,385
7,442
6,219
8,456
4,974
2,541
3,083
2,051
1,837
2,750
4,766
7,133
7,739
9,666
9,574
14,789
12,114
13,761
12,404
12,080
11,348
16,096
19,952
17,082
15,219
13,980
17,437
17,330
26,961
Source: Tanners' Council of America, Inc.
-------
Table A-11. U. S. cattlehide exports by countries (1, 000 pieces)
Country of Destination
Canada
Mexico
Honduras
Colombia
Venezuela
Salvador
Chile
Peru
Other Latin America
West Germany
Sweden
United Kingdom
Netherlands
Denmark
Belgium
Norway
Finland
France
Switzerland
Italy
Portugal
Greece
Spain
Austria
Bulgaria
Hungary
E. Germany
Poland
Yugoslavia
U.S.S.R.
Rumania
Czechoslovakia
Other Europe
Tunisia
Iraq
Turkey
Israel
Japan
Australia
Hong Kong
Philippine Republic
Korea Republic
China Taiwan
Iran
Other Asia
Other
Total U.S.
1965 1966
1967
676 1,720 850
1,217 j 803
-
-
47
12
-
-
16
1,235
54
606
1,705
16
84
24
27
126
95
624
17
37
363
48
-
97
-
227
112
922
241
222
9
-
13
351
134
3,777
6
20
57
34
40
-
12
6
13,309
2
32
2
-
-
5
8
775
55
504
1,150
24
85
30
25
234
29
710
14
74
368
45
_
42
-
349
269
1,230
474
257
18
4
4
440
86
3,994
7
69
57
142
28
3
2
20
4,189
1,551
12
4
1
_
-
-
1
575
30
99
323
7
29
11
3
207
4
57
15
18
271
42
_
4
-
218
311
1,836
145
191
6
14
-
375
98
4,197
3
3
84
170
72
1
7
8
11,853
i
1968 1969
1,030
I 1,540
21
1
5
-
-
-
-
790
33
289
594
3
22
15
24
297
14
203
17
17
317
55
_
25
-
243
147
383
76
297
9
39
-
109
113
5,259
2
5
88
333
104
-
20
1
12,840
1,013
1,721
8
1
4
_
.
-
-
760
37
328
537
4
37
17
21
263
21
431
11
33
262
40
m
5
6
274
272
1,223
379
312
-
9
.
124
127
6,006
4
25
64
257
125
1
10
6
14,778
1970
761
2,046
10
-
1
_
-
-
2
714
25
166
332
_
25
7
20
287
12
335
5
29
260
59
_
36
25
152
459
1,492
449
499
-
15
_
113
109
6,206
2
33
63
271
188
_
13
1
15,222
1971
883
2,195
4
1
13
_
-
^
14
576
7
171
306
9
29
4
13
544
18
62
5
8
842
11
5
130
20
472
229
1,252
571
694
-
5
_
69
107
6,010
3
29
43
357
247
3
-
15,963
. 1972
894
1,776
-
_
12
_
261
20
27
588
6
189
306
_
78
_
13
753
3
179
42
19
758
23
65
93
545
210
523
1,201
852
18
20
_
42
117
7,246
-
64
10
414
215
_
2
5
17,589
Argentine exports 6,811 8,125 8,658 8,302 8,265 7,506 3,363 1 344
Source: Tanners' Council of America, Inc.
-------
Table A-12. Wet process leather tanning plants
by size and location
x-s
New England
Delaware
Maine
Massachusetts
New Hampshire
Vermont
Mid Atlantic
New York
New Jersey 1
Pennsylvania
Maryland
T
South
Georgia
Florida
Kentucky
North Carolina
Tennessee
West Virginia
Virginia
Texas
Mid West
Illinois 4
Indiana
Iowa
Michigan
Minne s ota
Missouri
Ohio
Wisconsin
4
West Coast
California
Oregon 1
1
Total 6
S
-
4
23
4
-
31
17
5
7
1
30
1
1
2
1
3
1
1
1
11
5
. 2
1
-
1
2
2
9
22
3
1
4
98
M
1
_
11
3
1
16
6
4
1
-
IT
-
-
-
i
3
-
-
-
4
1
-
1
1
-
-
1
3
7
4
1
5
43
L
-
3
3
2
-
8
2
2
4
-
~~8
-
-
1
- .
1
2
1
-
"5
1
-
-
2
-
-
-
2
5
2
-
2
28
X-L Total
1
7
37 I/
9
1
55
25 U
12
12
1
so"
1
1
3
2
7
3
2
1
20"
11
2
2
3
1 2
1 3
3
. 3 17
5 43
9
3
12
5 180
_ 28-30 plants in Boston Metropolitan area
_' 20 plants located in Fulton County
-------
SELECTED REFERENCES
-------
Selected References
1. USDI, Federal Water Pollution Control Administration, The Cost of
Clear Water ."Volume III Industrial Waste Profile No. 7 -- Leather
Tanning and Finishing, " September, 1967.
2. The President's Council on Environmental Quality, The Leather
Industry--a Stud, of the Impact of Pollution Control Costs, prepared
by Urban Systems Research and Engineering, Inc. , December, 1971.
3. U. S. Environmental Protection Agency, Development Document for
Effluent Limitation Guidelines and Standards of Performance - Draft.
Prepared by Stanley Consultants, Inc. , June, 1973.
4. USDC, Census of Manufactures 1967 and Earlier, Bureau of the Census,
U. S. Government Printing Office, Washington, D. C., 1971.
5. USDC, Annual Survey of Manufacture rs, 1971 and earlier, Bureau of
the Census, Washington, D. C. , 1972.
6. Tanners' Council of America, "Membership Bulletin Leather Industry
Statistics, 1955-1972," Trade Survey Bureau, Tanners' Council of
America Inc., New York, New York, 1973.
7. Poats, Fred. "Cattle Hides and Shoe Prices," Marketing and Trans-
portation Situation, Marketing Economic Division, USDA, Washington,
D. C. , August", 1972.
8. Baker, Allen J. , "Hides and Skins, " Livestock Marketing Situation,
Economic Research Service, USDA, Washington, D. C. , November,
1971.
9. Thompson, John W. , "Marketing Spreads for Leather Products, "
Marketing and Transportation Situation, Marketing Economic Division,
Economic Research Service, USDA, Washington, D. C. , February,
1965.
10. Thompson, John W. and Poats, Frederick J. , "Economics of Segment-
ing Cattle Hides," Marketing Economics Division, Economic Research
Service, USDA, Washington, D. C. , 1965.
11. Poats, Frederick J. and Thompson, John W. , "Alternative Markets
for Cattle Hide Trim," Marketing Economics Division, Economic
Research Service, USDA, Washington, D. C. , February, 1965.
12. New England Tanners Club, " Leather Facts, " Peabody, Mass., 1972.
-------
3IBUCGFAPHIC DATA
SHE? T
EPA-230/l-73-Qlfa
4. 1 I.It 1T.J >ubl 1C 1C
'-"conomi.c Analysis of Proposed Effluent Guidelines
Leather Tanning and Finishing Industry
7. Author(s)
Donald J. Wissman
3. Recipient's Accession No.
5. Kepotc Due
September, i 973
6.
8. Pcriorming Organization Kept.
No.
9- Performing Organization, Name and Address
Development Planning and Research Associates, Inc.
P. O. Box 727, 200 Research Drive
Manhattan, Kansas 66502
10. Project/Task/ *ork Unit No.
Task Order No. 8
11. Contract/Grant No.
Contract No. 68-01-153
12. Sponsoring Organization N'ame and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S. W.
Washington. D. C. 20460
13. Type ot Report & Period
Covered
Final Report
14.
15. Supplementary Notes
16. Abstracts
The economic impacts of proposed effluent guidelines on leather tanning and finishing
industry are assessed. The analysis includes classification and description of types
of firms and plants; financial profiles, investments and operating costs, and profits
for selected model plants; evaluation of pricing mechanisms and price relationships
and description of analytical procedures employed. The financial impact of proposed
effluent treatment technology was assessed in terms of prices, industry returns,
volume of production, employment, community impact and international trade.
Imposition of the BPT level controls (1977) will have serious impact on the industry
if control costs are as stated by EPA. An estimated 18 of the 176 wet processing
tanning plants will be forced to close assuming that small plants with less than
5G, OOP GPD of wastewater and disposing into municipal treatment systems will be
17. Key Vor-s anj Dccurv-'nt Arutysis. 17o. Descriptors
Water pollution, economic analysis, leather tanning, tanneries, wet process
tanneries, chromium, rawhides, finished leather, pollution, indust rial wastes,
economic demand, supply, prices, variable costs, fixed costs, fixed investment,
discounted cash flow.
7b. Idcmifiers/Open-Ended Terms
02 Agriculture, B-Agriculture economics
05 Behavioral and Social Sciences, C-economics
7c. OiMTl F:eM/Or up
j . l t ,.
115
20. *(.,. ,mty > i.i- .-. ii',.
)'_, c
\.'-l ' II II II
-------
16. Abstracts (continued)
exempt from pretreatment requirements (according to EPA approxi-
mately 70 percent of the small plants discharge into municipal facil-
ities and 60 percent of the larger plants). This represents 2. 6 per-
cent of the productive capacity of the industry and employment for
875 persons. If the municipal exemption is eliminated, it will mean
the loss of 2 1 plants representing 2. 8 percent of the industry capacity
and an estimated 950 jobs.
Price increase as a result of BPT Standards is estimated at 0.9 percent
with an additional price increase of . 3 percent as the result of BAT
Standards. No plant closures are projected for BAT Standards.
The loss of production will impact the leather consuming industries,
principally shoe production. The lower impact will result in an esti-
mated loss of tanned leather for 4.6 million pair of shoes and commensurate
quantities of other leather goods and an additional loss of employment esti-
mated at 2, 900 jobs. Without the municipal exemption, the resulting loss
in the leather consuming industry is estimated at 5.0 million pair of shoes
and other leather goods and 3,200 jobs.
The proposed guidelines will adversely affect the balance of payment
situation with an estimated net loss of $22 million with the municipal
exemption and $24 without.
------- |