EPA-230/1-73-OT7
SEPTEMBER, 1973
ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
MEAT PACKING INDUSTRY
QUANTITY
U.S. ENVIRONMENTAL PROTECTION AGENCY
Office of Planning and Evaluation
Washington, D.C. 20460
O
-------
This document is available in limited
quantities through the U.S. Environmental Protection Agency,
Information Center, Room W-327 Waterside Mall,
Washington, D. C. 20460
The document will subsequently be available
through the National Technical Information Service,
Springfield, Virginia 22151
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EPA - 230/1-73-017
ECONOMIC ANALYSIS OF
PROPOSED EFFLUENT GUIDELINES
MEAT PACKING INDUSTRY
Raymond E. Seltzer
James K. Allwood
September, 1973
Prepared for
Office of Planning and Evaluation
Environmental Protection Agency
Washington, D. C. 20460
-------
This report has been reviewed by the Office of Planning
and Evaluation, EPA, and approved for publication.
Approval does not signify that the contents necessarily
reflect the views and polici.es of the Environmental
Protection Agency, nor does mention of trade names or
commercial products constitute endorsement or recom-
mendation for use.
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PREFACE
The attached document is a contractor's study prepared for the Office
of Planning and Evaluation of the Environmental Protection Agency
("EPA"). The purpose of the study is to analyze the economic impact
which could result from the application of alternative effluent limitation
guidelines and standards of performance to be established under sections
304(b) and 306 of the Federal Water Pollution Control Act, as amended.
The study supplements the technical study ("EPA Development Document")
supporting the issuance of proposed regulations under sections 304(b) and
306. The Development Document surveys existing and potential waste
treatment control methods and technology within particular industrial
source categories and supports promulgation of certain effluent limitation
guidelines and standards of performance based upon an analysis of the
feasibility of these guidelines and standards in accordance with the require-
ments of sections 304(b) and 306 of the Act. Presented in the Development
'Document are the investment and operating costs associated with various
alternative contro,! 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 investigate s the effect of alter-
native approaches in terms of product price increases, effects upon em-
ployment and the continued viability of affected plants, effects upon
foreign trade and other competitive effects.
The study has been prepared with the supervision and review of the Office
of Planning and Evaluation of EPA. This report was submitted in fulfill-
ment of Contract No. 68-01-1533, Task Order No. 3 by Development
Planning and Research Associates, Inc. Work was completed as of
September, 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 30o of the Act for the subject point
source category. The study has not been reviewed by EPA and is not
an official EPA publication. The study will be considered along with the
information contained in the Development Document and any comments
received by EPA on either document before or during proposed rule making
proceedings necessary to establish final regulations. Prior to final promul-
gation of regulations, the accompanying study shall have standing in any
EPA proceeding or court proceeding only to the extent that it represents
the views of the contractor who studied the subject industry. It cannot be
cited, referenced, or represented in any respect in any such proceeding
as a statement of EPA's views regarding the subject industry.
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CONTENTS
I INDUSTRY SEGMENTS I-1
Types of Firms and Plants 1-2
Multiple vs. Single-Plant Firms 1-2
.Size of Firms 1-3
Concentration of Ownership 1-4
Level of Integration 1-5
Size of Plants 1-6
Number and Location of Plants 1-8
Geographic Distribution I-11
Multiple vs. Single-Species Plants I-1 1
Estimated Number of Plants Slaughtering Over
2, 000 Pounds Annually 1-17
Very Small Meat Packing and Slaughter Plants I- 18
Frozen Food Locker Plants I- 18
Employment in the Meat Packing Industry 1-21
Number of Employees 1-21
Wages, Labor Organization and Skill Levels 1-22
II FINANCIAL PROFILE OF THE MEAT INDUSTRY II-1
Earnings II- 1
Distribution of Sales Dollar II-6
Industry Annual Cash Flows II-6
Cash Flows and Internal Rates of Return
Representative Plants II-8
Types of Plants II-8
Sizes of Plants II-8
Investment Assumptions II-9
Utilization 11-10
Description of Model Plants and Products Handled 11-10
Beef Slaughter Plants 11-10
Beef/Pork Slaughter Plants 11-11
Meat Packinghouses II-11
Plant Categories 11-11
By-Product Operations - Assumptions 11-12
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CONTENTS (continued)
Page
Annual Throughput 11-14
Annual Profile II- 14
Annual Cash Flow 11-18
Market Value of Assets 11-18
Cost Structure 11-22
Cost Relationships 11-22
III PRICE EFFECTS III-1
Pricing Processes in the Meat Packing Industry III-1
Price Making in the Market III-4
Demand and Supply Response to Price Changes III-4
Likelihood of Price Changes III-9
IV ECONOMIC IMPACT METHODOLOGY IV-1
Fundamental Methodology IV- 1
Benefits IV-6
Investment IV-7
Cost of Capital - After Tax IV-7
Construction of the Cash Flow IV-9
Price Effects IV-9
Financial Effects IV-11
Production Effects IV- 1 1
Employment Effects IV-13
Community Effects IV-13
Other Effects IV-13
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CONTENTS (continued)
Page
V EFFLUENT CONTROL COSTS V-1
Baseline Effluent Control Costs V-2
Incremental Effluent Control Costs V-2
Modified Costs - Effluent Control Systems V-5
Current Status of Effluent Control in the Industry V-5
Discharge into Municipal Systems V-5
Primary Treatment Systems V- 12
Secondary Treatment Systems V- 12
VI IMPACT ANALYSIS VI-1
Price Effects VI- 1
Long-Run Effects VI-1
Short-Run Effects VI-5
Financial Effects VI-6
Pre-tax Income VI-7
Pre-tax Return on Average Invested Capital VI-7
After-tax Return on Average Invested Capital VI-10
After-tax Return on Sales VI-1 0
Estimated Cash Flow as a Percent of Average
Invested Capital VI-10
Estimated Annual Cash Flows VI-13
Production Effects VI-13
Production Curtailment VI-13
Plant Closures VI-1 6
NSPS Guidelines VI-1 7
BPT (1977) VI-19
BAT (1983) VI-21
Very Small Plant Closures VI-25
Employment Effects VI-26
Employment Trends VI-26
Wages VI-2',
Unemployment Associated with Plant Closures VI-27
Possibility of Reemployment in New Plants VI-29
Absorption of Laid-off Employees by Other Plants VI-32
Unemployment Effects on Livestock Feeder VI-32
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CONTENTS (continued)
Community Effects VT-32
Balance of Payment Effects VI-35
Meat Imports VI-35
Meat Exports VI-38
VII LIMITS OF THE ANALYSIS VII-1
General Accuracy VII-1
Range of Error VII-Z
Errors in Data VII-2
Errors in Plant Closure Estimates VII-3
Critical Assumptions VII-4
Industry Structure VII-5
Price Assumptions VII-5
Representative Model Plants VII-5
Water Pollution Control Costs VII-6
Current Status of Municipal Treatment in
the Industry VII-8
Salvage Values VII-8
Shutdown Decisions VII-9
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ECONOMIC ANALYSIS
OF
PROPOSED EFFLUENT GUIDELINES
MEAT PACKING INDUSTRY
I. INDUSTRY SEGMENTS
In an earlier study, "Initial Analysis of the Economic Impact of Water
Pollution Control Costs Upon the Meat Industry," completed in November,
1972 for the Environmental Protection Agency by Development Planning
and Research Associates, Inc. , preliminary estimates were made of the
impact of water pollution controls proposed at that time.
The purpose of this report is to review new effluent guidelines being pro-
posed by the Environmental Protection Agency, to evaluate the impact of
the new guidelines on the meat packing industry and to update, expand
and improve upon the earlier analysis.
This analysis is concerned with meat packing plants and slaughter houses
(SIC 2011) and includes the following types of plants:
1. Meat packinghouses - Slaughter livestock and process meat
and meat products.
2. Slaughter houses - Slaughter livestock but do no processing.
The analysis will be limited to beef and pork operations. The slaughter
of calves (1.5%) and sheep and lambs (1.8%) constitutes but a small part
of the total volume of livestock slaughtered, and since adequate data on
slaughter costs for these species are unavailable, consideration of calf
and sheep and lamb slaughter has been omitted from this study. However,
it is not believed that this omission will significantly influence the results
of the analysis.
1-1
-------
Within the meat packing industry, there exists a variety of firm and plant
situations which will have a bearing on the degree to which individual
plants may be affected by proposed effluent control requirements.
Conditions which would influence the impact of water pollution controls
on firms would include the following:
Types of firms and plants
Size of firms and plants
Level and direction of integration
Degree of specialization
Number and location of plants
Level of technology and efficiency of plants
Employment
Concentration of ownership of plants and of production
Types of Firms and Plants
Multiple vs Single-Plant Firms
The meat packing industry is characterized by a preponderance of single-
plant firms. The number of firms and number of plants as reported by
the Census of Manufactures, 1947-1967 was as follows:
Year Number of Firms Number of Plants Ave. Plants per Firm
1947
1954
1958
1963
1967
1,999
2,228
2,646
2,833
2,529
2, 154
2,367
2,810
2,992
2,697
1.08
1.06
1.06
1.06
1.06
As shown above, the relationship between the number of firms and the
number of plants has been relatively constant over the past 15 years.
1-2
-------
Information on ownership of federally-inspected meat packing plants, which
account for 90 percent of total commercial slaughter indicates the follow-
ing distribution among single-plant and multiple-plant firms in 1972:
Typa of Firm No. Firms % of Total No. Plants % of Total
Single plant 836 96.3 836
2 plants 15 1.7 30
3 plants 6 0. 7 18
4-9 plants 7 0. 8 39
10 or more plants 4_ 0. 5 58
Total 868 100.0 ' 981
These data are restricted to those meat packinghouses and slaughter plants
which kill livestock. In addition, many firms also own specialized process-
ing plants, which do no killing.
Size of Firms
Due to the fact that 96 percentage of the firms represented by the Fed-
erally-inspected plants and virtually all of ths State-inspected firms are
single plant firms, size distribution among firms is closely related to
size distribution among plants. However, multiple-plant firms are gen-
erally, but not always, larger than single plant firms. In recent years,
many of the major meat packers have been acquired by conglomerates
(e.g. Armour acquired by Greyhound, Wilson acquired by LTV Corp. ,
Morell acquired by AMK Corporation) and some have become conglom-
erates themselves through acquisition and diversification (e.g. Swift
and Company, now ESMARK). However, the Packers Consent Decree
(1920) limits the extent to which meat packers can acquire ownership
in closely related businesses.
Meat packing generates a high dollar \ralue of sales. Thirteen meat
packing companies appear in "Fortune's" list of the 500 largest industrial
corporations in the United States. However, the sales volume reported
includes all products (meat and others) sold by these firms. Five out
of the ten highest firms in terms of sales per employee were meat packers,
and only the fact that several of ths major packers are parts of conglom-
erates keep the meat packers from dominating this category. The same
situation exists in terms of sales per dollar of stockholder's equity,
where si>c of the top ten firms were independent meat packers.
1-3
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Concentration of Ownership
When value of shipments ic analyzed by company ownership, an indi-
cation of the concentration in the industry is seen. Out of the 2, 697
plants reported by the 1967 Census, 350, or 13 percent, were owned
by multi-unit companies. However, these multi-unit companies
accounted for a high percentage of the total value of shipments by the
industry.
Table I-1 shows the percent of total value of shipments accounted
for the largest companies for census years, 1947-1967.
Table 1-1. Concentration in the meat packing industry, psrcent of
shipments accounted for by the largest companies _
Value of Shipments
Total Percent accounted for by
No. (million) 4 largest 8 largest 20 largest 50 largest
Year Companies Dollars companies companies companies companies
62
64
65
NA
NA
'Source: U.S. Department of Commerce, Census of Manufactures , 1967.
These data show that the importance of the four leading packers decreased
from 41 percent to 26 percent of total shipments, a loss of 15 percent 1947-
1967. The eight largest decreased 18 percent and the 20 largest decreased
13 percent. This indicates that most of the loss apparently occurred in the
"big 4" and that certain firms in the 20 largest group gained rather than lost
during the period. However, there is still a high degree of concentration in
the meat packing industry since the 20 largest companies (out of a total of
2,529 firms) produced 50 percent of the total value of shipments in 1967.
1967
1963
1958
1954
1947
2,529
2,833
2,646
2,228
1,999
2,220.
1,908.
1,677.
1,394.
977.
5
3
1
5
1
26
31
34
39
41
38
42
46
51
54
50
54
57
60
63
1-4
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Level of Integration
Horizontal integration is common in the meat packing industry. Although
the majority of firms, by number, are single-plant firms, those firms
which do have multiple-plant operations have extended their operations
horizontally through establishing new plants which perform essentially
the same killing and processing functions. However, these plants may,
in some instances, be specialized in terms of slaughter and/or process-
ing operations. The plants normally opsrate as separate cost centers
within the overall corporate organization.
Vertical integration can be either forward toward the consumer or back-
ward toward the suppliers. Meat packers have traditionally integrated
forward through the wholesaling function although there exists, at the
same time within the meat industry, independent meat wholesalers and
meat jobbers. Prior to 1920, packers were becoming involved in the
operation of a variety of related businesses. However, in 1918 the "big1'
packers came under fire from the newly created Federal Trade Commiss-
ion and in February 1920, the 5 major companies signed the now-famous
"Packers Consent Decree". The concessions agreed to by the companies
included the sale of their holdings in stockyards, terminal railroads,
cold-storage warehouses, and market newspapsrs; also they agreed to
discontinue or refrain from handling a long list of non-meat products,
including fresh milk or cream and to operate no retail meat markets in
the United States. The "Consent Decree" thus limited the ability of packers
to integrate toward retail meat sales or to acquire and opsrate businesses
closely related to their industry.
Packers have integrated back toward the producer by feeding cattle for'
their own account, usually in commercial custom feedlots. Packers
contend that such feeding operations contribute to efficiency in the slaught-
ering operation by providing a regular source of supplies on Monday
mornings bsfore supplies can be obtained, or by countering seasonally
short supplies in certain areas. However, cattle feeders see an upward
trend in packer-feeding as s shift of livestock feeding out of traditional
agricultural enterprise into a vertically-integrated production process
such as has occurred in the broiler industry. They also fear that packers
may use ownerership of cattle on feed as a price hedge, or as a device to
depress prices as they negotiate for additional animals in the market.
Packer feeding tends to vary with market conditions, and since 1954 has
ranged between 4 and 8 percent of total fed marketings of cattle. However,
if feeding by "associated interests", including separate feeding by owners,
directors, officers, employees, non-reporting subsidaries and affiliates
1-5
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of packers is included, "packer fed" cattle may account for 8 to 12 percent
of total fed cattle marketings. A study "Packer Feeding of Cattle" pub-
lished by the Packers and Stockyards Division, Consumer and Marketing
Service, U.S. Department of A griculture, in 1966, concluded that feeding
of cattle by packers and associated interests could have a significant
depressive effect on prices on specific markets, but that such feeding
would not significantly affect the overall level of prices in a competitive
market situation.
Size of Plants
For the purposes of this study, meat packers and specialized slaughter
plants were classified into three size groups: large - ZOO million pounds
or greater annual liveweight killed, medium - 25 million to 200 million
pound's and small - 300 thousand pounds to 25 million pounds.
A special tabulation of federally-inspected plants, by size category,
was prepared for this project by the Statistical Reporting Service,
U.S. Department of A griculture. This distribution by plant size by
state, is shown in Table 1-2 In order to avoid disclosure of the identity
of individual plants, it was necessary to combine plant classifications
in 18 states. However, the totals, by size group, for the United States,
are correct as of August, 1971. Plant distribution, by size, for the
U.S. in August, 1971 was as follows:
Non-Fede rally
Size Fede rally-Inspected Inspected Total
Large 84 - 84
Medium 309 - 309
Small 437 3,163 3,600
Large plants are concentrated in Iowa (21), Nebraska (10), Kansas (5),
Colorado(S), Minnesota (5), Illinois (4), Wisconsin (4), Missouri (4),
Indiana (3) and Texas (3); these 10 states accounting for 64 out of the
total of 84 large plants. States having large numbers of small plants,
most of which are state-inspected, include Minnesota (280), Pennsylvania
(234), Ohio (212), Illinois (194), Texas (192), Iowa (182), Indiana (175),
Michigan (172), Kansas (133), Wisconsin (HO), and New York (103).
A substantial percentage of these small plants are frozen food lockers
which kill and process livestock for their customers.
1-6
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Table 1-2. Federally-inspected meat packing plants,
distribution by size, by state, Aug. , 1971.
Number of Plants
State Federally-inspected 1971
Large!/
New England!/
N. Y.
N. J.
Pa.
Ohio
Ind. 3
111. 4
Mich.
Wise. 4
Minn. 5
Iowa 2 1
Mo. 4
N. Dak.
S. Dak.
Nebr. 10
Kans. 5
Del. -Md. -D.C.
Va.
W. Va.
N. C.
S. C.
Ga.
Fla.
Ky.
Tenn.
Ala.
Miss.
Ark.
La.
Okla.
Tex. 3
Mont.
Idaho
Wyo.
Colo. 5
N. Mex.
Ariz.
Utah
Nev.
Wash.
Ore.
Calif.
Haw.
All Other 20
Total 84
Medium^'
4
8
^57
11-
16^7
5
17 .
9
9
8
18
5
8- -
21
12
7-
-
4
6/
S-'
4'
8-
5^-
4
3
4^
37
4
_
8
4
3
-
8
5
40^
-'
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Number and Location of Meatpacking Plants
The number of meat packing and slaughter plants and the characteristics
of the composite of plants which represents the industry changes constant-
ly over time. Estimate of plant numbers and analyses of the character-
istics of plants in the industry are made periodically by various agencies
of the U. S. Department of Agriculture. Certain estimates, e.g., number
of slaughter plants by species slaughtered, are made only every five years.
Other data, e.g., number of livestock slaughtering establishments, are
published on an annual basis , March 1 of each year. In addition, certain
special tabulations are made at other intervals, e.g. , distribution of plants
by size, August, 1971. As a result, data regarding all characteristics of
the industry are not available as of a single point in time and it is impossible
to reconcile the individual point estimates to provide an estimate on all
industry characteristics at any specific single date.
Although this situation makes direct comparisons of plant numbers and
plant characteristics difficult, the data are consistent and reflect changes
which are continuing to occur over time.
There were 5,991 livestock slaughtering plants in the United States as of
March 1, 1973, down from 6, 156 in 1972 and 6,400 in 1971 (Table 1-3).
In contrast to the steady decline in the number of slaughter plants, there
has been a rapid increase in the number of Federally inspected plants as
inspection requirements have been more vigorously enforced. The number
of Federally inspected plants rose from 766 in 1971 to 1 , 364 in 1973. The
increase in Federally inspected plants and the decrease in total number
of plants are related in that enforcement of inspection standards forced
the closure of many plants.
In terms of the total number of slaughtering plants, the 10 leading states,
March 1, 1973 were as follows:
Rank State No. Plants
1 Texas 561
2 Pennsylvania 492
3 Iowa 365
4 Ohio 316
5 Minnesota 275
6 Missouri 275
7 Illinois 249
8 Wisconsin 228
9 Nebraska 205
10 Kansas 204
1-8
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Distribution of Federally-inspected slaughter plants as of March 1, 1973
among the ten leading states was:
Rank State No. F. I. Plants % of^ j'otal Plants
1 Pennsylvania. 336 68
2 Missouri 125 45
3 Nebraska 80 39
4 Texas 75 13
5 California 63 82
6 Oregon 57 90
7 Minnesota 48 17
8 Iowa 45 12
9 Kentucky 44 42
10 North Dakota 37 41
Other states 454 13
Total U. S. 1,364 23
1-9
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Table 1-3. NUMBER OF LIVESTOCK SLAUGHTERING ESTABLISHMENTS, MARCH i, 1971, 1972 and 1973
State
New England
New York
New Jersey
Pennsylvania
Ohio
Indiana
Illinois
Michigan
Wisconsin
Minnesota
Iowa
Missouri
North Dakota
South Dakota
Nebraska
Kansas
Delaware - Maryland
Virginia
West Virginia
North Carolina
South Carolina
Georgia
Florida
Kentucky
Tennessee
Alabama
Mississippi
Arkansas
Louisiana
Oklahoma
Texas
Montana
Idaho
Wyoming
Colorado
New Mexico
Arizona
Utah
Nevada
Washington
Oregon
California
48 States
Hawaii
U. S.
Federal
1971
14
33
12
25
39
14
34
13
18
16
45
23
43
8
34
25
8
20
1
13
4
7
D
18
15
6
5
9
S
11
73
5
8
1
24
16
S
9
1
21
12
64
765
1
766
Under
Inspection
1972 : 1
17
35
12
26
40
15
38
16
19
67
48
25
40
8
102
31
10
22
1
14
5
8
8
48
16
6
7
9
7
12
76
29
8
1
23
16
S
10
2
21
12
68
983 1,
1
984 1,
973
20
32
11
336
36
15
34
17
18
48
45
125
37
7
80
27
9
21
2
12
5
8
6
44
16
7
8
7
7
13
75
30
8
1
23
14
5
10
2
22
57
63
363
1
364
: 1971
130
110
37
391
265
202
235*
174
217
323
353
350
64*
113
188
186
72
66
74
98
58
154
49
109
139
72
116
64
224
176
425
48
47
24
59
15
27
40
5
23
70
20
5,612
22
5,634
Other
1972
83
98
36
387
294
190
215
171
218
249
340
282
62
113
105
176
70
78
69
96
56
138
S3
60
128
91
105
62
205
164
415
19
48
28
61
16
26
38
5
23
64
14
5,151
21
5,172
: 1973
94
90
36
156
280
165
215
164
210
227
320
150
53
90
125
177
54
70
61
106
54
132
52
60
116
100
84
60
174
179
486
16
49
25
52
15
27
36
5
20
6
14
4,605
22
4,627
: 1971
144
143
49
416
304
216
269
187
235
339
398
373
107*
121
222
211
80
86
75
111
62
161
57
127
154
78
121
73
229
187
498
53
55
25
83
31
32
49
6
44*
82
84
6,377
23
6,400
Total
1972 :
100
133
48
413
334
205
253
187
237
316
388
307
102
121
207
207
80
100
70
110
61
146
61
108
144
97
112
71
212
176
491
48
56
29
84
32
31
48
7
44
76
82
6,134
22
6,156
1973
114
122
47
492
316
180
249
181
228
275
365
275
90
97
205
204
63
91
63
118
59
140
58
104
132
107
92
67
181
192
561
46
57
26
75
29
32
46
7
42
63
77
5,968
23
5,991
* Revised.
ANNUAL LIVESTOCK SLAUGHTER, April 1973
Crop Reporting Board, SRS, USDA
I- 10
-------
Substantial differences in the proportion of Federally-inspected plants
exist among states. Oregon has 90 percent Federally-inspected,
California 82 percent and Pennsylvania 68 percent. At the low end,
West Virginia has only three percent of its slaughter plants Federally-
inspected and Louisiana and Wyoming have four percent each.
Pounds of liveweight killed is the best indicator of the total volume of
meat packing in a given state. The ten leading states, for each species
killed and for total kill, in 1972 are shown in Table 1-4.
In terms of total slaughter, Iowa dominates the industry, ranking first
in hog slaughter and second in cattle slaughter with a total annual kill
in 1972 of over 10 billion pounds liveweight. Nebraska ranks second overall
with an annual kill of 5. 7 billion pounds of which 5. 0 billion was repre-
sented by cattle slaughter alone. Texas kills 3. 9 billion pounds--3. 2 billion
from cattle. California, Kansas, Illinois, Colorado and Minnesota follow
in order with annual kills of 3. 0 to 3.4 billion and Wisconsin and Ohio kill
about 2.0 billion pounds annually. Slaughter of calves is concentrated in
the South and East and slaughter of sheep and lambs in the West and
Southwest.
Geographic Distribution--Meat packing plants are found in every state.
Two factors govern their location: (1) concentration of fed livestock for
slaughter and (2) concentration of market demand. The trend in recent
years has been away from major population centers toward areas having
high densities of fed livestock. Figures 1-1,2 and 3 show the number and
location of slaughter plants as of March 1, 1970.
Multiple vs. Single Species Plants
The number of plants slaughtering various combinations of livestock is
shown by states in Table 1-5. Most plants are multiple-species plants,
as shown by the following summary:
March, 1970
Species Killed No. Plants % of Total
Cattle, calves, hogs 1,557 40.0
Cattle, calves, hogs, sheep & lambs 1,477 38.0
Cattle and calves only 465 12. 0
Cattle, calves, sheep &c lambs 206 5.3
Hogs only 169 4. 3
Sheep and lambs only 13 0. 3
Hogs, sheep and lambs 2 0. 1
Total 3,889 100.0
1-11
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Table 1-4. Ranking states in meat packing, by species and total, 000 pounds liveweight killed, 1972.
Rank -
1
2
3
4
5
6
7
8
9
10
Cattle
State
Neb.
Iowa
Texas
Calif.
Kans.
Colo.
Minn.
111.
Wise.
Ohio
Kill
(000 Ibs.)
5, 007, 117
4, 898,258
3, 214,816
2, 830,246
2,657,005
2,642,532
1,635,620
1,492, 812
1, 242,415
1, 094, 925
Hogs
State
Iowa
111.
Minn.
Mich.
Ohio
Ind.
Pa.
Wise.
Va.
Tenn.
Kill
(000 Ibs. )
5,066, 360
1,561,854
1,244,831
940, 060
922, 411
914, 679
893, 892
778, 267
719, 170
691, 187
Calves
State
La.
Texas
N. Dak.
N. Y.
S. Car.
Calif.
Wise.
Tenn.
Pa.
Iowa
Kill
(000 Ibs. )
94,675
93,567
82,404
69, 792
57, 311
46, 211
39, 514
35,609
34,641
29,838
Sheep &; Lambs
State
Colo.
Calif.
Texas
Neb.
N. J.
Utah
Iowa
111.
S. Dak.
Mich.
Kill
(000 Ibs. )
211,553
186, 825
143, 156
96,299
64, 517
56, 207
48, 443
45,967
44, 647
41,588
Total Kill
State
Iowa
Neb.
Texas
Calif.
Kans.
111.
Colo.
Minn.
Wise.
Ohio
Kill
(000 Ibs. )
10, 042,899
5, 744, 857
3, 928, 249
3,405, 070
3, 188,434
3, 117, 793
3, 087, 782
2, 906, 349
2, 060, 542
2, 033, 246
Source: Livestock Slaughte r, Annual Summary, 1972, SRS, USDA.
-------
Table 1-5.
Number of livestock slaughter plants _' by species
slaughtered, by States, March 1970
State 2/
111
Minn
DeJ.-JH
Idaho «...,.,.
TJ > ' -s v
Calif
1*8 Ctatec ...
Hawaii
Plants slaa-rjiterin^
Cattle and
calvec, hoL-,
and sheep
and lanbE
29
67
9
50
101
li*6
107
71
99
35
29
27
31
67
16
19
I''.
5
15
12
25
C
'I
23
57
11
20
12
-a
5
33
or
I,1-"7'
1
1, 77
' Cattle and
calves
only
7
16
56
29
17
18
2U
15
12
23
11
1
it
26
11*
6
2
5
2
3
9
5
2
1
1*
li
11*
15
26
2
5
12
2
6
2
1
10
5
^55
1C
1*65
[ Cattle and
| calves
'and ho^s
: Cattle and
: calves and
: sheep and
: lambs
6 20
1 11
98 31
51* a6
11*2 8
31* 2
15 19
31 6
158 1
11*2
23 2
21 1
9
30 1
59 1
15 13
16 2
23 2
60
78
20 1
29 1
33 2
53
1*9
1*9
SI 2
127 5
6 3
1
2
5 i*
1 1
3 1
2 1
5 '*
1 1*
1 16
1,555
2
1,557
205
1
206
' Ho^s jHogs and
] only ] sheep and
| [ lambs
3
1*
3
11
17
5
12
11
3
2
15
6
2
1
2
1*
3
11
2
7
3
it
9
o
1
3
1
3
7
3
T
165 £
k
169 2
| Sheep and|
lants
] only 1
1
2
1
2
1
3
1
1
1
17
--
13
Total
56
113
27
2U6
228
181
211*
176
272
215
76
52
1*2
91
1L2
1*1
1*1*
89
57
93
U8
53
72
65
51*
58
92
75
223
35
58
13
61
29
22
1*8
6
53
So
88
3,369
20
3.850
I/ Classii'je'I es to c;e~ie:: sla^chtered in 19-C2<, Includes all Federally inspected plants plus all
plants not under r^Iorc.1 irspection -,/ith an output of 3CO,OOD poundG or rtore live weight annually.
2/ He'! En^larJ ir.clu>G ; an re, ."Jev Harr^hlre, Vermont, J'-issachusettL, Rhode Island and Connecticut.
"orr:ercial slaughter ao. ertina-<:ed in Alasl:a.
P^IiTS, I'^y 19TO
Crop Reportins Board, S3S, USDA
1-13
-------
NUMBER AND LOCATION OF FEDERALLY INSPECTED
SLAUGHTER PLANTS , MARCH 1, 1970
-------
EXCLUDES HORSE SLAUGHTERING PLANTS
l| ItAMIKM II
Figure J_2 Non-federally inspected livestock slaughtering plants, * slaughtering over 2, 000, 000
pounds annually.
-------
^
.<£
/r~->£.: -
"EXCLUDES Honst SLAOOHTIRINO PLANTS
1 . ,,_n! i i \\\± plants, ''' }>\
-------
Estimated Number of Plants Slaughtering Over 2,000,000 Pounds Annually
In an effort to restrict the analysis to "commercial" packinghouses, a
decision was made to consider only those plants slaughtering more than
2 million pounds live weight annually. This volume of slaughter is equiva-
lent to an average slaughter of seven 1, 040-pound steer per day for a 260
day working year. This is a very small plant and would represent a lower
limit to a "commercial" slaughter operation.
Based on reported distribution by plant size as estimated by the USDA in
1970, and analysis of plant types from current lists of Federally-Inspected
slaughter plants, plus 1973 USDA reports of the number of livestock
slaughtering plants, Federally-Inspected and other, and historical trends
in the industry, estimates were made of the number of slaughter plants,
by type and size for 1973. Projections were made of demands for meat
1973-1983, taking into account both population growth and income-induced
expansion in demands. Considering historical and projected size distribu-
tion among plants, the number and size of plants required to meet slaughter
demands on plants with annual kill in excess of 2 million pounds was cal-
culated. These plant numbers were used as the baseline case--representa -
tive of the number of plants assuming levels of effluent control presently
prevailing in the industry. Reductions in plant numbers resulting from the
imposition of pollution controls were measured against this base. These
baseline numbers are given in Table 1-6.
Table 1-6. Estimated number of meat packing and slaughter plants, by
size and type, baseline effluent treatment level, 1973, 1977
and 1983.
Number of Plants
Type and Size of Plant 1973 1977 1983
Meat packinghouses
Large and extra large 85 135 195
Medium 305 307 310
Small 750 695 640
Slaughterhouses
Large and extra large 22 30 35
Medium 80 68 55
Small 178 144 110
Total number of plants with over
2 million Ibs. LWK/Yr. 1,420 1,379 1,345
1-17
-------
Very Small Meat Packing and Slaughter Plants
The economic impact analysis, which follows in this report, has been
tocused on those plants which slaughter in excess of two million pounds
iiveweight annually. In addition to the 1,4ZO plants estimated to fall in
this ''commercial" category in 1973, there are approximately 2, 000 very
small meat packers and slaughterers plus an estimated 2, 600 frozen food
locker plants which slaughter for their patrons.
These very small packers and slaughterers include retail butchers who
slaughter, custom slaughterers, institutions (universities, prisons, etc.)
and very small packers. Although there are large numbers of such
slaughterers, their individual volume is small and in the aggregate they
account for less than two percent of the total volume of livestock slaughtered
annually.
These plants are located mainly in small communities. It is estimated that
half of these small killers may be discharging into municipal sewer systems.
The status of effluent disposa: for the remaining plants is unknown.
Frozen Food Locker Plants
r rozen food locker plants exist in every state. Although their primary
function is to rent frozen food storage space to their patrons, many do
custom killing of livestock and process sausage and other meat products
as a service to their customers
The Farmer Cooperative Service, USDA estimates that there are
ipp roximately 6. 500 locker plants in the United States. The estimated
geographic distribution of these plants is shown in Table 1-7. Locker
plants are most numerous in the Midwest and Great Plains.
"he U n leading states, in 'erms of number of frozen food locker plants,
i re as follows:
State No. Plants
Iowa 656
Minnesota 407
Wisconsin 380
Illinois 363
Texas 361
Kansas 347
Missouri 324
California 273
Chi.: 263
-------
Table 1-7. Estimated Number of frozen food locker plants, by state, 1972
I/
State
A labama
Alaska
A rizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
No. Locker
Plants
52
12
22
75
273
117
12
9
41
91
3
122
363
249
656
347
60
22
9
14
14
170
407
53
324
State
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Ve rmont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
No. Locker
Plants
100
330
5
9
26
29
77
72
168
263
187
108
172
5
29
151
65
361
72
26
27
247
14
380
60
Total
6,500
Estimated from analysis of membership of National Institute of Locker
and Freezer Provisioners and from estimates of the Farmer Cooperative
Service, U.S.D.A.
1-19
-------
Slaughtering and Meat Processing - Approximately 40 percent (2600 plants)
slaughter livestock as a service to their members and over 90 percent
process meat and poultry. _ Thirty percent buy livestock for slaughter
and resale to their customers and 65 percent sell packer-slaughtered meat
in wholesale cuts. Ninety percent (included in processing) cut, wrap and
freeze meats on a custom basis.
However, in terms of volume of livestock slaughtered, locker plants
are relatively insignificant. The average plant slaughters less than 1000
head of cattle and calves annually. Assuming that slaughter was 60 percent
hogs and 40 percent cattle (by number), the total annual liveweight kill of
an average locker plant would be approximately a half million pounds per year.
The 2, 600 plants would account for slightly over 2 percent of total U. S.
slaughter in 1972.
Effluent Disposal - No information is available concerning the current
status of effluent disposal by locker plants slaughtering livestock. Locker
plants normally would use more dry clean up practices than would meat
packers who have steam available for equipment cleaning. The prin-
cipal pollutants in the effluents of locker plants would be blood and
wash waters. Those locker plants located in towns and cities having
adequate municipal sewage disposal systems, normally discharge their
liquid wastes into sewers. Plants located in rural areas and in small
towns may dump their effluents into streams or use other ground disposal
systems, with or without pretreatment. Some plants have lagoon systems
although the number of such systems is not known.
Distribution of locker plants, by size of town in which located, in 1965,
was as follows:
Population of Town Percentage of total no. plants
1,000 and under 36
1,001 - 5,000 33
5,001 - 10,000 9
10,001 - 25,000 10
Over 25,000 12
_' Seymour, William R. and Bert D. Miner, "An Appraisal of Frozen
Food Locker and Freezer Provisioning Cooperatives, 1965," General
Report 139, Farmer Cooperative Service, U.S.D.A.
1-20
-------
Employment in the Meat Packing Industry
Employment in the meat packing industry has been dropping during the
past decade as new, more highly automated plants and more efficient
processing systems have increased the productivity of plant labor.
Year
1954
1958
1963
1967
All employees
(000)
220. 2
201. 2
181.0
170. 5
Production workers
(000)
167. 8
150. 9
138. 8
130. 8
Source: U.S. Department of Commerce - Census of Manufactures.
Approximately 77 percent of all employees in the meat packing industry
are classified as "production" workers. This is substantially above the
average for all food industries where production workers represent
approximately 66 percent of total employment.
Selected, labor-related operating ratios further reflect the increasing
productivity of packinghouse labor.
Value added
Production workers Value added Payrolls as per man/hr.of
Year as % of total per employee % of value added prod, workers
1954
1958
1963
1967
76%
75
76
77
$ 6,333
8,702
10,551
12,949
68%
61
60
57
$ 3; 93
5.66
6.60
8. 05
Source: U.S. Department of Commerce - Census of Manufactures.
As shown by these data production workers as a percent of total employment
has risen -- from 76 percent in 1 954 to 77 percent in 1967, value added per
employee has doubled --from $6,333 in 1954 to $12,949 in 1967, payrolls
as a percent of value added have decreased -- from 68 percent in 1954 to
57 percent in 1967, and value added per man hour of production worker
has increased from $3. 93 to $8. 05 over the 1954-1967 period.
A further indication of the increasing productivity of labor in the meat
packing industry is shown by the fact that expenditures for wages and
salaries, as a percentage of the total meat sales dollar, decreased from
13. 1 percent in I960 to 9-6 percent in 1971.
1-21
-------
Table 1-8 shows the distribution of employment by number of employees
per plant for 1958, 1963 and 1967. Over the 1958-1967 period a shift in
employment patterns developed with the very small (under 20 employees)
and the very large (over 1000 employees) plants losing both in terms of
absolute numbers and percentage of total employment and with medium-
sized plants increasing in importance. The greatest relative (6.3) per-
cent) and absolute (2800 employees) gain was made by plants employing
between 100 and 499 employees. The greatest loss (4. 7 percent, 4700
employees) was in the 1000-2499 employees plant size. However, going
back to 1954, a pronounced shift of employment out of the largest size
plant is seen. In 1954, plants with over 2500 employees accounted for
59,700 employees, or 27.1 percent of the total. In 1967, this group of
plants employed only 26, 100 employees or 15. 3 percent of the total, a
decrease of over 50 percent in number of employees 1954 to 1967.
In the meat packing industry, a high proportion of the plants (65 percent
in 1967) employ fewer than 20 employees and account for only 4. 5 percent
of total industry employment. At the other end of the scale, 8 large plants
(0. 3 percent by number) employed 15. 3 percent of the industry total in
1967.
Wages, Labor Organization and Skill Levels
Wages in the meat packing industry are relatively high, averaging 17 percent
above the average for all manufacturing industries. In terms of total pay-
rolls, average annual wages in 1967 ranged from about $5, 300 in small
plants to over $8,000 in large plants. The distribution of wages in 1967
was as follows:
No. employees per plant Average annual wage
1-4 $5,353
5-9 5,500
10-19 5,366
20-49 6,060
50-99 6,450
100-249 6,971
250-499 7,537
500-999 7,701
1,000-2,499 8,044
2,500+ 8,321
Source: U.S. Department of Commerce, Census of Manufacturers.
1-22
-------
Table 1-8- Employment in the meat packing industry, employees per plant, by size group,
1958, 1963, 19671/
i
ro
UJ
Meat Packing
Number of
employees
Less than
20
No.
plants
1,742
1967
Em-
% ployees
(000)
64.6 7.6
No.
% Plants
4.5 2,016
1963
Em-
% ployees
(000)
67.4 9.9
No.
% plants
5.5 1,824
1958
Em-
% ployees
(000)
65.1 10.0
%
5.0
20-99
100-499
500-999
1,000-2,499
2, 500 or more
Total
641 23.8 28.6 16.8
253 9.4 54.3 31.9
30 1.1 22.1 13.0
23 0.8 31.7 18.5
8 0.3 26.1 15.3
2,697 100.0 1,70.5 100.0
677 22.6 29.2 16.1
232 7.8 49.8 27.5
34 1.1 24.7 13.6
24 0.8 36.5 20.1
9 0.3 31.1 17.2
2,992 100.0180.9 100.0
668 23.8 29.0 14.4
231 8.2 51.5 25.6
38 1.4 26.1 13.0
30 1.1 46.5 23.2
10 0.4 37.7 18.8
801 100.0 200.8 100.0
Source: U.S, Department of Commerce, Census of Manufacture 1967, 1963, 1958.
-------
A 40-hour week is typical for most meat packing plants, with time and
a half being paid for work beyond an eight-hour day or a 40-hour week.
Wage differentials are also generally paid to employees working on
late shifts. In addition, labor contracts generally have provisions for
a minimum work week, with pay for 36 hours guaranteed whether worked
or not.
Plants with collective bargaining agreements covering a majority of pro-
duction workers, employ over 80 percent of the workers in the meat
packing industry. Union membership is somewhat higher in the plants
of multi-plant companies than the single-plant firms. The Amalgamated
Meat Cutters and Butchers Workmen of North A merica, the United
Packinghouse, Food and A Hied Workers and the National Brotherhood
of Packinghouse and Dairy Workers are the major unions in the industry.
There is a variety of skill levels required of workers in the industry.
Although many of the operations formerly done by hand have been semi-
mechanized, there are still many processes which demand a high degree
of manual dexterity and skill. Skinning, cutting, trimming, boning,
carcass breaking and similar operations require skilled workers to
achieve efficient operation and to produce a quality product.
1-24
-------
II. FINANCIAL PROFILE OF THE MEAT INDUSTRY
Earnings
Both the meat packing industry and the meat processing industry are
characterized by high dollar volumes of sales and low earnings per
dollar of sales.
Based on an analysis of 40 major industry groups by the First National
City Bank of New York, in 1972 the meat packing industry ranked 40th
in return on sales and 39th in return on net worth.
The American Meat Insti.i' ate collects and analyzes, on an annual basis,
certain financial information concerning the meat industry. Ratios of
earnings to sales, earnings to total assets and earnings to net worth are
calculated for national packers, regional packers, sectional packers
and local packers. Table II-1 shows these earnings ratios for the meat
packing industry, 19?.9-19'71.
Earnings -to-sales - Over the 13 years, 1959 through 1971, meat packers
earned approximately one percent returns on sales, the return in 1972
being 0. 8 percent. There was a small variation in earnings between
different sizes of packers, smaller packers (local and sectional)
averaging slightly higher earnings on sales than the large regional
and national packers (Table II-l). Returns were generally low during
the early 1960's, but 1971 was one of the most profitable years on
record. The favorable 1971 earnings were related to record volumes
of meat processed and a slight decline in costs of raw materials relative
to prices of finished products.
Earnings-to-total-assets -Rates of return on total as sets over the 1959-
1 971 period averaged 5. 23 percent (Table II- 1). Returns to assets of
national packers (3.96 percent) were substantially lower than returns of
regional (5. 58 percent), sectional (6. 37 percent) and local (5. 24 percent)
packers. Again, 1971 was one of the most profitable years on record,
earnings -to-total-assets averaging 7. 59 percent.
Earnings-to-net-worth - The ratio of earnings-to-net-worth for the meat
and packing industry averaged 8. 53 percent over the 1959-1971 period
(Table II-land Figure II-l). Again, earnings of large, national packers
were lower than other groups. Earnings in 1971 were among the highest
on record, averaging 13. 52 percent, but dropped substantially in 1972.
II-l
-------
Table II-1. Earnings ratios for meat packing companies, 1959-1971
I/
G
i
Earnings to sales
National Regional
Year Packers Packers
<
1971 1.
1970 1.
1969
1968
1967 1.
1966
1965
1964 1.
1963
1962
1961
I960
1959
Average .
Source:
57 1.06
19 .75
92 .77
96 .82
02 .98
59 .63
65 .85
09 1.19
70 .88
65 .85
56 .61
78 .81
95 1.11
90 .87
Sectional
Local
Earnings to
National
Packers Packers Packers
1.93
1.23
1.05
1. 16
1.25
.92
1.36
1.32
1. 13
1.04
.75
.86
1. 11
1.16
"Financial Facts About the
1.70
1. 16
.78
.61
1.26
1.21
.56
1. 17
1.18
.93
1. 13
.93
1. 14
1. 06
Meat
6.26
5.25
4. 10
4.25
4.27
2.70
2. 84
4.85
3.18
3.01
2.59
3.61
4.59
3.96
Regional
Packers
7. 15
4.83
5.41
5.49
6.59
4. 38
5.44
7.38
5.31
5. 18
3.67
4.89
6.84
5.58
total assets
Sectional
Packers
9.21
6.37
5.26
6.73
6.76
5.28
7. 59
7.31
6. 11
6.03
4.24
5. 14
6.80
6.37
Local
Packers
7.75
6.20
3.85
2.93
6.08
6.02
2.64
5.63
5.61
4. 51
6.26
4.71
5.96
5. ?4
Earnings to net worth
National
Packe rs
11.53
10.42
8. 19
8.32
8.22
5.07
4.69
8.22
5.34
5.05
4.37
5.92
7.64
7. 15
Regional
Packe rs
13.47
9.46
10.76
9. 50
11. 18
7.87
8.71
11.61
7.87
7.87
5.32
7.08
9.63
9.26
Packing Industry, " American Meat Institute, annual issues,
Sectional
Packers
15.87
10.88
8.75
9.96
10. 70
8. 54
10.61
10.95
8.89
8.93
6.21
7.43
9.61
9.79
1961-1971.
Local
Packers
13.23
10. 45
6.30
5.01
9.23
9. 14
4.22
8.40
7.88
5.74
8. 18
6.65
8.46
7.91
Earnings after tax.
-------
16
14
12 -
10
4 -
Earnings/net worth-
National Packers
Regional Packers
Sectional Packers
Local Packers
Earnings/investment _'
12 Largest companies
1959
1961 1963
1965
1967
1969
1971
Figure II-! Rates of return on net worth and on stockholders'
investment', meat packers, 1959-1971.
I/
Source: "Financial Facts about the Meat Packing Industry",
American Meat Institute.
2/
~ Source: "Report of the Federal Trade Commission on Rates of
Return in Selected Manufacturing Industries, 1961-1970",
Federal Trade Commission.
II-3
-------
Earnings - Major Meat Packing Firms
The Federal Trade Commission publishes information on rates of
return on stockholders' investment for the 12 leading firms in 35
selected industries, including the meat industry. _ These data are
as follows:
Table II-2. Rates of return on stockholders' investment (after taxes)
for major firms in the meat products industryj_/
Year
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
I/ Report
Companies
ranked 1 -4
5.0
5.6
5. 8
8. 2
5.5
6.3
8.0
7.3
8. 3
9.3
of the Federal Trade
Companies
ranked 5-8
4. 5
4. 2
4.6
10. 1
4.0
5. 5
15. 6
14.5
13.4
9-9
Commission on
Companies
ranked 9-12
0. 1
3.6
7.4
7.4
-1.5
-9-2
7.0
8.8
6.1
9-7
Rates of Return
Total
1 2 companies
4.6
5. 2
5.7
8. 5
4. 8
5. 3
8. 8
8. 1
8.9
9-4
in Selected
Manufacturing Industries, 1961-1970, Federal Trade Commission.
II-4
-------
Tabl<= IT-3. Distribution of total sales dollar, expenses and earnings in the meat packing industry, 1959-1971
Total sales
Cost of livestock and other
raw materials
Gross margin
Operating expenses
Wages and salaries _
Employee benefits
Interest
Depreciation
Rents I/
Taxes -'
Supplies and containers
All other expenses
Total operating expenses
Earnings before taxes
Income taxes
Net earnings
1971
100.0
75.5
24.5
9.6
2.0
.3
.8
.3
.3
3.3
5.2
21.8
2.7
1.2
1.5
1970
100.0
77.0
23.0
9.5
1.9
.4
.7
.3
.3
3.2
4.8
21.1
1.9
.9
1.0
1969
100.0
76.8
23.2
9.7
1.9
.3
.7
.3
. 3
3.3
5.0
21. 5
1.7
.8
.9
1968
100.
76.
23.
10.
1.
.
.
'
3.
5.
22.
1.
.
0
1
9
0
9
3
8
3
3
3
3
2
7
8
9
1967
100.0
75.8
24.2
10.0
1.8
.3
.8
.3
. 3
3.4
5.6
22. 5
1.7
.7
1.0
1966
100.0
77.7
22.3
9.b
1.8
.2
.7
.3
.3
3. 1
5. 1
21. 1
1,2
. 5
. 7
Year
1965
100.0
75.0
25.0
10.9
1.8
.2
.8
.4
.3
3. 5
5.7
23.6
1.4
.6
. 8
1964
100.0
72.9
27. 1
11.7
1.9
.2
.8
.4
.3
3.8
6.0
25. 1
2.0
.9
1. 1
1963
100.0
73.7
26.3
11.5
2.0
.2
.8
, 3
. 3
3,8
5.9
24.8
1. 5
.7
.8
1962
100.0
74. 1
25.9
11.5
1.9
.2
.8
.2
. 3
3.7
5.8
24.4
1. 5
.7
.8
1961
100.0
73.7
26.3
12.7
1. 1
.2
.8
. 3
3.9
6. 1
25. 1
1.2
.6
,6
I960
100.
72.
27.
13.
1.
t
4,
6,
25.
1.
.
0
7
3
1
1
2
8
3
0
2
7
6
8
8
1959
100.0
73,5
26.5
12.6
. 9
.2
.8
. 3
3.9
5.8
24.5
2. 0
1.0
1. <"
_L' Source: "Financial Facts About the Meat Packing Industry," American Meat Institute, annual issues.
ZJ Vacation, holidays and sick leave not reported separately until 1962 and was included in wages and salaries in
previous years.
' Rents not reported separately until 1962 and were included in all other expenses in previous years.
A/
Other than social security and income taxes
-------
Federal Trade Commission reports on returns on stockholders invest-
ment for the 1Z largest companies in the meat packing industry show
some interesting relationships:
1. The 4 largest firms were less profitable on the average (6. 9%)
than were the 5th through the 8th largest (8. 6%), but were more
profitable than the 9th - 12th largest firms (3.9%).
2. Although the four largest firms were only average in profitability,
profit levels were more stable than for the other 8 leading firms.
3. During the period 1967-1970, the middle group of firms averaged
13. 4 percent return compared to 8. 2 percent for the first four
firms and 7. 9 percent for the 9th through 12th largest firms.
Distribution of Total Sales Dollar
Distribution of the total sales dollar, in terms of expenses and earnings
for the meat packing industry, is shown in Table II-3.
A characteristic of the meat packing industry is that the cost of raw
materials constitutes a high percentage of total costs (75 percent).
Wages and salaries constitute about half of all other operating expenses.
Over the period since 1959 automation and improved product handling
methods have enabled the meat packing industry to reduce the labor
input from an amount of 13 percent of the sales dollar to 9^ 5 percent.
However, relative increases in the cost of livestock and other raw
materials have offset labor savings.
Annual Cash Flow
Annual cash flow, as used in this report, is the sum of earnings after
tax plus depreciation allowances. Total industry estimates of these
statistics have been calculated by the American Meat Institute since 1947.
These data are shown in Table II-4.
II-6
-------
Table II-4. Annual cash flows, meat packing industry, 1947-1971,
millions
Year
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
I960
Earnings
after tax
$330
2Z7
187
165
178
117
126
165
117
112
84
110
Depreci- Cash
ation flow
$176
165
153
143
136
128
124
112
115
108
109
102
506
392
340
308
314
245
250
277
232
220
193
212
Year
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
Earnings
after tax
$136
77
79
113
105
48
86
52
84
89
61
96
152
Depreci- Cash
ation flow
$100
90
83
78
75
65
61
60
60
52
48
42
32
$236
167
162
191
180
113
147
112
144
141
109
138
184
}J Source: American Meat Institute, "Financial Facts about the Meat
Packing Industry. "
Evaluation of the cash flows shown in Table II-4 indicates a steadily in-
creasing cash flow trend in the industry from $193 million in 1961 to $506
million in 1971. Depreciation has increased steadily, from $32 million
in 1947 to $176 in 1971, an indication of the increasing capital investment
in the industry. Depreciation, as a percent of total sales, increased from
0.4 percent in 1947 and 1948 to the range of 0.7 to 0.8 percent in recent
years. Earnings on sales after tax have been more variable, ranging from
a low of $48 million (0.4 percent) in 1954 to a high of $330 million (1. 5
p ercent) in 1971.
II-7
-------
C. sh Flows and Internal Rates of Return - Representative Plants
In order to provide a base from which to measure the impact of water
pollution controls on the meat industry, it was necessary to establish
"representative" plants and to synthesize investments, operating
costs, working capital requirements, revenues and cash flows for
these plants. Given these data, fully discounted internal rates of
return were calculated for each type of plant with varying assump-
tions as to size and investment cost basis. All plants were assumed
to operate at 85 percent of capacity on a single shift, 5-day week.
Types of Plants
Models were developed for two basic types of plants:
1. Meat packinghouses - kill and process both cattle and hogs.
2. Specialized slaughter plants - kill and sell carcasses and raw
by-products only - do no processing.
a. Cattle slaughter plants
b. Hog Slaughter plants
c. Cattle/hog combined slaughterplants.
Sizes of Plants
For each type of plant, three sizes were specified: large, medium and
small, as follows:
Meat packinghouses
Large - kill 280 million pounds liveweight annually, equivalent to 144
head of cattle and 625 head of hogs per hour and process
50 million pounds of product annually.
II-8
-------
Medium - kill 140 million pounds live-weight annually, equivalent to
72 head of cattle and 312 head of hogs per hour and process
25 million pounds of product annually.
Small - k ill 23 million pounds of liveweight annually, equivalent to
6 head of cattle and 52 head of hogs per hour and process
5 million pounds of product annually.
Specialized slaughter plants
Large - kill 280 million pounds liveweight annually.
Cattle slaughter plants - equivalent to 144 head of cattle per hour.
Combined cattle/hog slaughter plants - equivalent to 72 head
of cattle and 312 head of hogs per hour.
Medium - kill 140 million pounds liveweight annually.
Cattle slaughter plants - equivalent to 72 head of cattle per hour.
Combined cattle/hog slaughter plants - equivalent to 36 head
of cattle and 156 head of hogs.
Sjmall - kill 23 million pounds liveweight annually.
Cattle slaughter plants - equivalent to 12 head of cattle per hour.
Combined cattle/hog slaughter plants - equivalent to 6 head of
cattle per hour and 26 head of hogs per hour.
Investment Assumptions
Cash flows and rates of return were run on the basis of two different
investment assumptions for each plant.
II-9
-------
1. Full replacement cost - equivalent to 100% of the cost of land,
buildings and equipment for a new plant.
2. 10 percent of replacement cost plus original value of land -
equivalent to the salvage value of a plant where the site has an
appreciable value for other uses.
Utilization
For the purposes of this analysis all plants were assumed to operate
at 85 percent of capacity as an average for the industry. It is recognized
that a new, well-located slaughter or meat packing plant may operate at
100 percent of capacity, or even above 100 percent through double shift
operation, but 85 percent was judged to be a reasonable performance rate.
Description of Model Plants and Products Handled
Beef Slaughter Plants
The prototype beef slaughter plants of all three sizes are kill and chill
only. The entire output is shipped as sides of carcass beef. The analysis
is based on 1, 040-pound U. S0 choice slaughter steers. The delivered
purchase cost of $319.70 per head is based on the 1968-72 average price
of $30.74 cwt. for the seven Midwest markets.
The average chilled dressing percentage is taken at 61.06 percent, making
a 635-pound carcass weight. Average carcass sales revenue is $333. 39
per head, based on the 1968-72 average price of $48.80 cwt. at the Mid-
west, Iowa and Missouri River markets. By-product value is taken at
$23.51 per head, based on 1968-72 average prices. The total base slaughter
margin is $13.69 per head.
The small plant is assumed to have slight locational advantages with re-
spect to both livestock supplies and product markets. Livestock costs are
taken at one percent less than the base cost, and product prices are taken
at one percent more than the base sales price.
11-10
-------
Beef/Pork Slaughter Plants
The dual-species slaughter plants are kill and chill only. The small plant
operates with one crew, slaughtering one species for half the shift and
then switching to the other species. The two larger plants operate with
separate and concurrent crews for the two species.
The livestock weights and costs, the yields and the product values are the
same as those for the specialized slaughter plants. Locational advantage
for the small plant is assumed to be two percent on raw material costs
and two percent on product prices. A locational advantage of one percent
on raw material costs is assumed for the medium-sized plant.
Meat Packinghouses
The prototype plants for slaughtering both species plus processing repre-
sent combinations of beef-pork slaughter plants plus processing. The sales
product mix is the same as that shown in Table II-5 plus fresh beef and
pork carcasses.
The revenue for these plants is calculated as Total Sales for Beef-Pork
Slaughter Plant + Total Sales for the Processed Products - Cost of Raw
Materials for processing.
Plant Categories
Slaughterhouses and packinghouses were further categorized based on the
degree to which by-products are processed, as follows;
Simple Slaughterhouse--is defined as a slaughterhouse that does
a very limited amount of processing of by-products (i.e. , secondary
processing). Usually, no more than two secondary processes,
such as rendering, paunch and viscera handling, blood processing,
or hide or hair processing are carried out.
Complex Slaughterhouse--is defined as a slaughterhouse that does
extensive processing of by-products (i.e., secondary processing).
It usually carries out at least three of the secondary processes
listed above.
Low-Processing Packinghouse --is defined as a packinghouse that
normally processes less than the total animals killed at the site,
but may process up to the total killed.
11-11
-------
High-Processing Packinghouse- -is defined as a packinghouse
that processes both the total kill at the site and additional carcasses
from outside sources.
By-Product Operations- -Assumptions
By-product assumptions for the sizes and types of plants analyzed,
were as follows:
1. Simple Slaughterer
a. Small--no by-product processing, sells all of fat and hides
b. Medium--render - inedible, dry process
dry salt hides
c. Large--no large plants in this category.
2. Complex Slaughterer
a. Small--no small plants in this category
b. Medium--edible rendering - dry process
inedible rendering - dry process
dry salt hides
c. Large--edible rendering - dry process
inedible rendering - dry process
dry salt hides
processes blood meal.
3. Low-process Packinghouse
a. Small--edible rendering, dry process
b. Medium--edible rendering, dry process
inedible rendering, dry process
dry salt hides
c. Large--edible rendering, dry process
inedible rendering, dry process
dry salt hides
processes blood meal.
4. High-process Packinghouse
By-product processing - for all sizes - same as low-
process packinghouse. ^
High-process packinghouse limited to firms primarily
engaged in pork processing.
11-12
-------
Table II-5 Product mix and margins for processing plants
Product
Regular hams
Boneless hams
Other smoked products
Fresh sausage
Bacon
Franks
Bologna
Lunch loaf
Canned & misc.
- 1/1.009 x .91
- .825/1.009 x . 91
- I/. 97
d/ , , noo
Volume
(percent)
8.278
9.817
2.695
7. 700
17.710
15.400
9.620
5.780
23.000
100.000
Yield
(percent)
108.91^
89.85-'
108.91-,
103.09^
108. 91^,
120. 05-r,
120.05^
120.05^
108.91-
Sales Price
($/cwt)
47.63
70.00
36.33
40.96
59.75
53.37
39.64
50.52
47.63
Cost Price
($/cwt)
43.54
52.76
29.00 ,
22.94^
37.5^
31. 38
27. 36
25.51
43.54
Gross Margin/
cwt/ sales
($/cwt)
7.65
17..24
9.70
18.71
25.28
27.23
16. 85
29.27
7.65
e/
Lean trim containing a maximum of 50% fat.
Bacon cost price is skinless basis calculated as 105% of the skin on price for seedlings
green bellies.
-------
Annual Throughput
The annual throughput used as basis for the revenue, cost and gross profit
calculations for the prototype slaughter plants is shown in Table II-5.
Three output levels are shown (1) full capacity operation, (Z) 85 percent of
capacity and 70 percent of capacity. All capacity figures are based on one
shift operations, assuming 7,5 hours of productive slaughter time per day.
The small beef-pork slaughter plant operates with one killing crew for both
species, operating each line for four hours. Annual throughput is based
on 250 operating days per year.
Annual throughput for the meat packing plant is based on the following, at
85 percent capacity:
No. Head Million Pounds
Large Plant
Cattle slaughtered 114,750 119.3
Hogs slaughtered 498,047 117.0
Processed meats - 42. 5
Medium Plant
Cattle slaughtered 57,375 59.7
Hogs slaughtered 248,625 58.4
Processed meats - 21.2
Small Plant
Cattle slaughtered 9,562 9.9
Hogs slaughtered 41,438 9.7
Processed meats - 4.2
Annual Profits
Pre-tax income, return on average invested capital before and after taxes
and after tax return on sales, for the types and sizes of slaughter and meat
packing plants analyzed, are shown in Table II-6.
Pre-tax income was derived as follows:
Gross sales
- Raw materials cost (livestock or meat materials)
= Gross margin
- Direct and indirect operating expenses
= Cash earnings
Depreciation and interest
- Pre-tax income
11-14
-------
Table II-5 . Annual throughput conditions for model slaughter plants
Annual Kill Volumej*/
Full Capacity 85% Capacity "" 70% Capacity
Plant Size Capacity No. Head rml.lbs. No. Head mil.lbs. No. Head mil.lbs.
Small
Medium
Large
Small
Medium
Large
(hd/hr)
12
72
144
52
312
625
22,
135,
270,
97,
585,
1, 171,
500
000
000
500
000
875
Beef
23.4
140.4
280. 8
Hog
22.9
137.4
275. 3
Plants
19,
114,
229,
125
750
500
19-
119-
238.
8
3
6
15,
94,
189,
750
500
000
16.3
98.3
196. 5
Plants
82,
497,
996,
875
250
094
19-
116.
234.
4
8
0
68,
409,
820,
250
500
312
16.0
96.2
192.7
Combined Beef and Hog Plants
Small
Beef
Hogs
Total
Medium
Beef
Hogs
Total
Large
Beef
Hogs
Total
6^ 11,250
26- 48,750
36 67,500
156 292,500
72 135,000
312 585,938
11.7
11. 5
23. 2
70. 2
68.7
138. 9
140.4
137.7
278. 1
9,562
41,438
57,375
248,625
114,750
498,047
9-9
9-7
19.6
59-7
58.4
118. 1
119.3
117.0
236.3
7,875
34, 125
47,250
204,750
94,500
410. 157
8.2
8.0
16.2
49. 1
48. 1
97. 2
98.3
96.4
194.7
Throughput calculated on the basis of 7.5 hours of productive operation per day.
These capacities each operated for four hours per day, using the same killing
crew.
11-15
-------
Table II-6. Pre-tax net income and rate of return on average invested capital and after tax return on sales
for meat packing plants
Type and Size of Plan
Simple Beef Slaughter
Small
Medium
Complex Beef Slaughter
Medium
Large
Simple Combined Slaughter
Small
Medium
Complex Combined Slaughter
Medium
Large
Meat Packing House
Small
Medium
Large
Pre-tax
Income
($000)
35
315
322
651
59
322
330
720
125
846
1,998
Pre -tax
ROI*
After
ROI
tax
After tax
return on sales
(%) (%) (%)
8.
14.
14.
15.
12.
14.
14.
18.
10.
16.
21 .
0
0
1
9
0
4
5
2
9
5
7
4.
7.
7.
8.
6.
7.
7.
9.
5.
8.
11.
1
3
3
3
3
5
5
5
7
6
3
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
1.
28
43
44
45
56
52
52
57
80
94
11
Average return on fixed investment calculated by financial statement method.
-------
These data were developed from a combination of published and unpublished
sources and were checked against available information on industry financial
ratios and other measures of industry financial performance, to insure their
credibility.
Average invested capital was calculated as follows:
Average fixed assets (1/2 of replacement cost)
+ Total working capital
Current liabilities
= Average invested capital
Average fixed assets were estimated from previously published research
(updated and adjusted for plant size and type), engineering estimates of
plant and equipment and industry information on new plant costs. These
estimates, developed in the earlier EPA study by DPRA, were checked
with meat plant architects and other knowledgable individuals.
Working capital, for slaughter operations, was calculated from the formula
WC = (2/52 Raw Product Cost) + (1/12 Annual Operating Expense).
Working capital for processing operations was derived WC = (3/52 Raw
Product Cost) + (1/12 Annual Operating Expense).
Current liabilities were estimated from industry performance ratios as
reported by the American Meat Industry and the Almanac of Business and
Industrial Financial Ratios-- 1973, Prentice-Hall, Inc. which develops its
ratios from IRS data.
After-tax return on sales is also reported since this is the measure of
returns commonly quoted by the meat packing industry.
Pre-tax returns on average invested capital varied directly with size of
plant (Table II-6). For slaughter only plants (kill and chill-carcas s sales),
hog slaughter plants were more profitable than beef slaughter plants and the
combined slaughter plant showed returns midway between those of the
specialized plants. The addition of processing operations in the meat packing
plants increased returns substantially above the combined slaughter only
plant. Although pre-tax returns on average invested capital appear high,
comparison of these calculated returns with reports from industry and IRS
data indicate that they are within industry performance ranges.
11-17
-------
Annual Cash Flow
Aggregate cash flow estimates for the meat packing industry, developed
from American Meat Institute estimates, are shown in Table II-4, page
II-7. As indicated, industry cash flows have increased steadily from
1961 to 1971.
Estimated annual cash flows for the types and sizes of plants analyzed in
this study are shown in Table II-7. Cash flow, as calculated, is the sum
of after-tax income plus depreciation.
There was little difference in cash flows generated between equivalent
sizes of slaughter only plants. However, the addition of cutting and
processing operations resulted in cash flows for the meat packing plants
which were double to triple those of the simple slaughter plants. Much
the same situation existed when cash flow was measured as a percentage
of average fixed investment. Although the medium and large packing-
houses showed ratios substantially above those of slaughter plants, the
small packinghouse had a cash flow/fixed investment ratio approximately
equivalent to that of the slaughter-only plants.
Market Value of Assets
The market or salvage value of meat plants will vary widely from
plant to plant, depending on the age of the plant and its equipment,
the condition of the plant and equipment and its location.
In common with most food processing plants, meat packing plants
undergo periodic renovation, continuous repair and maintenance
and equipment items are replaced as they wear out or become obsolete.
In recent years, more stringent enforcement inspection (FDA) re-
quirements and concurrent stiffening of state inspection has forced
many plants to either undergo extensive remodeling or to close. This
is seen in the fact that from 1971 to 1973 the number of slaughter
plants dropped from 6, 400 to 5, 991 but the number of Federally-
inspected plants rose from 766 to 1, 364. As a result of these -require-
ments, existing plants are in a better condition and are better equipped
than was true in past years.
Estimated replacement (new plant and equipment) value and working
capital requirements for meat packing plants are shown in Table II-8.
It is recognized that the market value and/or the salvage value of a
meat packing will, in most instances, be substantially below its
replacement value.
11-18
-------
Table II-7. Estimated cash flow for meat packing plants.
Annual
Cash Flow
Cash Flow on
Average Fixed
Investment
Simple Beef Slaughter
Small
Medium
Complex Beef Slaughter
Medium
Large
Simple Combined Slaughter
Small
Medium
Complex Combined Slaughter
Medium
Large
Meat Packing House
Small
Medium
Large
($000)
48
323
331
617
67
332
342
658
163
886
1, 826
11.0
14.4
14.5
15. 1
13.6
14.8
15.0
16.7
14
17
19.9
11-19
-------
Table II-8. Estimated replacement value and working capital requirements for meat packing plants
Type and size Replacement value of
of plant plant, equipment and site
Simple Beef Slaughter
Small
Medium
Complex Combined Slaughter
Mediurri
Large
Simple Combined Slaughter
V Small
o Medium.
Complex Combined Slaughter
Medium
Large
Meat Packing House
Small
Medium
Large
($000)
586
2,812
2,893
4, 842
728
3, 002
3, 083
4,995
1,797
7,610
13, 139
Total working
capital requirement
($000)
262
1, 517
1, 517
3, 004
233
1, 333
1, 333
2,617
453
2,403
4,729
Current Replacement valu
liabilities of total assets
($000)
117
675
675
1, 337
104
593
593
1, 165
202
1, 069
2, 104
($000)
731
3,654
3,735
6, 509
857
3, 742
3,823
6,447
2, 048
8,944
15,764
-------
Old packing plants were often multi-level with product flow by gravity.
Newer plants are generally essentially single-level plants with powered
conveyor product movement. However, whether old or new, meat
packing and slaughter plants are special-purpose facilities with the
result that their market value (except possibly for refrigerated storage
space) for purposes other than meat packing is normally low. In a
few instances, modern plants which have been shut down by one firm
have been sold to another, e. g. the sale of the new Armour plant at
Emporia, Kansas to Iowa Beef Processors, but even in these situations,
the market value of the plant is usually substantially below its replacement
cost. In many instances, the salvage value of old, obsolete plants will
be equal only to the site value. However, in some instances, e.g. in
Chicago or Kansas City, old, obsolete plants built before 1900 were
occupying land which had relatively high industrial site values.
Where plants are forced to close because they are presently unprofitable,
or because they would become unprofitable if they were forced to assume
the added investments and operating costs required for water pollution
control, then the salvage value of the buildings would be essentially zero,
the equipment might sell from 10 to 50 percent of its original cost and
the value of the site could vary widely, depending on location.
In many instances, the value of a packinghouse, particularly where a
small firm is involved, would be greater to its present owner than it
would be to any potential buyer. In terms of "book value", the physical
facilities and equipment may have been fully depreciated, or nearly so>
but in terms of their "use value" to their present owners, these plants
may represent assets of very tangible valuesmuch greater than their
market or their salvage value.
Since no data are available on actual salvage values for meat packing
plants and since a "market" for plants which would be forced to close,
because of added costs of water pollution control, would be virtually
non-existent, the impact analysis will use arbitrary assumptions. All
operating capital will be recovered intact, land will be valued at its
original cost and buildings and equipment will be valued at 10 percent
of their original value. The combined value of operating capital, land,
buildings, and equipment will represent the salvage value to be used.
11-21
-------
Cost Structure
Revenues and costs for large, medium and small slaughter plants
and meat packinghouses as specified in this project are given in
Tables II-9 through 11-11.
Raw materials costs were developed on the basis of the number and
cost of animals slaughtered and, in the case of the packinghouse,
where processed meats are included, the volume and cost of raw
meat products (trimmings, green pork bellies, skinned raw hams
etc) was included.
The following physical relationships were used:
Cattle -choice 1CKO Ib. steers
61. 06 percent dressed yield
635 pound carcass weight
Hogs - 235 Ib. slaughter barrows and gilts
70.2 percent dressed yield, packer style
165 pound carcass weight
Processed - product mix, costs and prices were
Products as shown on page 11-11 of this report.
Direct and indirect operating costs were developed on the basis of esti-
mates from published studies, up-dated and adjusted to plant types and
sizes indicated, and checked against performance data from industry
sources. In the case of meat packing plants, direct and indirect costs
were aggregated due to lack of data required for allocation between
slaughter and processing operations.
Depreciation and interest for meat packing plants were based on indi-
cated rates from industry sources and from the Almanac of Business and
Industrial Financial Ratios which develops its data from IRS sources.
For slaughter plants depreciation was estimated by straight-line depre-
ciation on estimated replacement cost. Interest was calculated in rela-
tionship to reported industry practices.
Cost Relationships
Raw product costs - livestock and raw materials for meat processing,
constitute the largest single cost item in the meat industry, accounting
for over 90 percent of total costs in slaughter-only plants and 75 to 80
11-22
-------
Table II-9. Estimated costs for beef slaughter plants
Size of Plant
Item
Sales
Raw materials cost
Direct operating cost
Indirect operating cost
Depreciation
i i
ro Interest
Complex
$000
76, 658
73, 371
1,485
698
278
175
Large
(%)
100. 0
95.7
1.9
0.9
0.4
0.2
Complex
$000
38, 325
36, 538
736
456
164
109
Medium
(%)
100.0
95.3
1.9
1.2
0.4
0.3
Simple
$000
38, 313
36,538
736
456
159
109
Medium
(%)
100.0
95.4
1.9
1.2
0.4
0. 3
Simple
$000
6, 385
6, 053
116
121
30
30
Small
(%)
100.0
94.8
1.8
1.9
0.5
0.5
Total before tax cost 76,007 99.2 38,003 99.1 37,998 99.2 6,350 99.5
-------
Table 11-10. Estimated costs for combined beef and hog plants
Item
Sales
Raw materials cost
Direct operating cost
Indirect operating cost
Depreciation
Interest
Total before tax cost
Item
Sales
Raw materials cost
Direct operating cost 1
Indirect operating costj
Depreciation
Interest
Complex Large
$000 (%)
65,971 100.0
62,320 94.5
1,714 2.6
745 1.1
284 0.4
188 0.3
65,251 98.9
'J... le 11-11. E-
Complex
$000
32,959
31, 077
836
425
170
121
32,629
Size
Medium
(%)
100.0
94. 3
2.5
1.3
0.5
0.4
99.0
of Plant
Simple Medium
$000 (%)
32,946 100.0
31,077 94.3
836 2.5
425 1.3
165 0.5
121 0.4
32,624 99.0
Simple
$000
5, 528
5, 122
138
136
36
37
5, 469
Small
(%)
100. 0
92. 7
2.5
2.5
0.7
0.7
98.9
;:ir'i-,_en -os's for packing house plai..-;.
Size of Plant
Large
$000
93,923
' , i
! , 90
786
(%)
f 00. 0
' < 'I
1 -. 0
0. ;
0. ' .
$000
'"> , '1
446
Medium
(%)
100. 0
1 . -
1.0
0. :
Small
$000
8, 133
. 3 ; ..
1 , jO
98
:9
(%)
100. 0
78. 1
i '-. . :
1,2
0. -
Total before tax cost
91,925
97.9
46,084
98.2
8, 008
98.5
-------
percent in meat packing plants. In general, raw product costs represent
a slightly higher proportion of total costs in larger plants as adminis-
trative overhead and other fixed operating costs are spread over a
larger volume of production. In meat packing plants, the cutting,
breaking, boning, and processing operations all require additional
amounts of labor and other materials such as containers, spices,
and other non-meat ingredients and supplies associated with the
manufacture of processed meat products.
Direct operating costs for slaughter plants include production labor and
related employee benefits, utilities, miscellaneous supplies and materials
and other variable cost items. Labor is by far the most important com-
ponent of direct operating costs, accounting for over 70 percent of the
total in beef slaughter plants and over 50 percent for hog slaughter plants.
In general, labor accounted for a higher proportion of direct operating
cost in larger plants then it did in smaller plants.
Indirect operating costs for slaughter plants include salaries of officers
and other supervisory or administrative personnel and such other fixed
costs as taxes, insurance, repairs, etc. Again, salaries and related
fringe benefits represent the greatest part of indirect operating costs,
accounting for 70 to 80 percent of indirect costs. Again, the percentage
was higher for small plants than large plants.
Operating expenses for meat packing plants (both direct and indirect)
Accounted for approximately 18 percent of the total packer's sales
dollar as follows:
Percent of packer's sales dollar
Operating cost item
Large Packer
_____
Medium Packer Small Packer
Wages
Employee benefits
Officers' compensation
Repairs
Taxes
Advertising
Other expenses
Total
8. 0
2. 0
0. 8
0. 8
1.4
1. 5
3. 5
18. 0
8. 5
2. 0
1. 0
0. 8
1.4
1. 0
3. 5
18.2
9.0
2. 0
1. 5
0. 8
1. 2
0. 5
3. 5
18. 5
Depreciation and interest were treated as separate cost items and were
based on reported industry rates.
11-25
-------
Constraints on Financing Additional Capital Assets
Constraints on financing additional capital required for water pollution
control facilities will vary greatly from firm-to-firm and from location-
to-location. On the basis of the earlier study of the economic impact
of water pollution controls on the meat industry, _L/ pollution control
investments ranged from less than 10 percent of plant value for large
plants to 20-30 percent for small plants.
In general, it is not anticipated that there will be any serious constraints
in securing capital required for pollution control for large and medium
size meat packing or slaughtering plants. However, in individual situations
where plants are old and obsolete or unprofitable, and where local
conditions may require substantial investments for internal pollution
abatement systems or for participation in expanding capacity of sewer
systems in small communities, meat industry management may
hesitate to make the investments required -- even though capital may
be available.
Capital availability may be a much more serious problem for small
plants which continue to operate primarily because owners have depreciated
out original investment costs, consider their investment in the plant as
"sunk capital" and consider that the plant has a "utility value" if con-
tinued in operation which is greater than the "market value" or "salvage
value" of the plant should they decide to cease operations. For such
plants, the increased investment required for pollution control may be
difficult to obtain and even if available may be unattractive to both the
borrower and the lender. In these situations, the decision to attempt
to obtain additional capital may be based on the desire of the owners
to maintain the business for personal employment reasons rather than
on the expectation of realizing a return on invested capital.
_' Development Planning and Research Associates, Inc. , "Initial Analysis
of the Economic Impact of Water Pollution Control Costs Upon the Meat
Industry," report to Environmental Protection Agency, November, 1972.
11-26
-------
III. PRICE EFFECTS
Pricing Processes in the Meat Packing Industry
Price determination in the meat packing industry is primarily the
result of the interaction of basic supply and demand conditions. In
fact, the industry meets most of the criteria of competitive markets.
On the supply side, meat packers are faced with large numbers of
individual livestock producers, no one of whom is large enough to have
an appreciable influence on supplies and who act independently, based
on their personal opinions concerning present and future market con-
ditions and anticipated prices. On the demand side, the meat packing
industry sells to literally thousands of independent retail food outlets
and supermarket chains. Although large food chains are an important
factor in the retailing of meat and meat products, the food retailing
industry is none-the-less competitive and the demand for meat is still
primarily determined in the marketplace by the demands of millions
of customers. The meat packing industry also meets one other major
test of competition -- there are no artificial barriers to entry or exit
in the industry. Although capita] requirements are high, new firms
do enter the industry, existing firms expand, contract or go out of
existence and the organization, structure and ownership of the industry
changes over time. Concentration in meat packing declined markedly
following World War II, the percentage of total value of shipments
accounted by the four largest firms dropping from 41 percent in 1947
to Z6 percent in 1967.
The sharp increases in meat prices in recent months have become of
increasing concern to consumers and have resulted in "meat boycotts"
and other evidence of consumer resistance. (Figure III-l) Reflecting
their disappointment, consumers have accused feeders, packers and
meat retailers of forcing meat prices up when in fact a strong consumer
demand has been a major factor in recent price increases.
Changes in retail meat prices result from the interaction of a series of
economic factors rather thanf rom arbitrary decisions by farmers, meat
packers, wholesalers and retailers.
Underlying retail meat price increases has been a strong consumer
demand. This has been a major factor in boosting meat prices in recent
years. Based on 1967 = 100, the index of retail meat prices rose to
153 in March 1973. In spite of this substantial increase in prices, red
III-l
-------
Table III-l. Retail price, beef, pork and lamb, U.S. average,
197Z-73.L/
Retail price, cents per pound
Year and month
1972 January
February
March
April
May
June
July
August
September
October
November
December
1973 January
February
March
April
Beef
choice grade
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
11.
15.
15.
12.
1.
3.
7.
5.
1
L* ,
2.
12.
14.
22.
30.
35.
5
8
8
0
4
5
3
8
9
8
3
6
3
3
3
Pork Lamb
retail cuts & sausage choice grade
76.
81.
79-
78.
79-
82.
85.
86.
86.
87.
87.
88.
94.
97.
103.
3
3
4
2
4
0
6
0
6
5
2
5
1
1
0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
13.
15.
15.
15.
15.
18.
20.
20.
20.
20.
21.
24.
25.
31.
3o.
4
1
?
6
2
4
6
-7
1
]
5
4
3
6
3
5
i Source: Livestock and Meat Situation, ERS, USDA.
m-2
-------
O
a,
a
Cfl
tJ
0)
U
r-t
a,
.|H
a
-»->
Qi
145
135-
125
115-
105
95-
85-
15'
0
/ Lamb
// Beef
/» Pork
MAM.J J
1972
A S O N D
Year and month
Figure III-l. Trend in retail meat prices for beef, pork and lamb, 1972-73.
J FM
1973
-------
meat consumption in 1973 is expected to remain near 190 pounds per
capita, up 12 pounds from the 1967 consumption of 178 pounds. Al-
though numerous factors contribute to rising meat demand, the exist-
ence of increasing demand with increasing prices has been primarily
the result of steadily increasing per capita personal income. In numerous
studies, it has been demonstrated that a rising demand for meat resulted
from increases in per capita income. Increasing per capita consumption
of meat, coupled with population growth have combined to keep pressure
on meat supplies during recent years.
Price-making in the Market
Although iri the long-run, the price of meat is established by the interaction
of consumer demand and supplies of available slaughter livestock, dail-y
price offers and quotations for wholesale meats made by packers are based
on the current wholesale meat price, the value of by-products, cold stor-
age holdings of meats and anticipated supplies and prices of slaughter live-
stock. Packers' offers for livestock are based on current wholesale meat
and by-product prices, cold storage holdings of meats and anticipated
prices of Livestock.
This pricing process results in a relatively constant relationship between
prices for live animals and wholesale meat prices (Figure III-2) Most of
the variations which occur from time-to-time can be explained by current
supply-demand conditions. Subject to lags built into the marketing system,
there is a definite inverse relationship between supplies and prices of
slaughter livestock (Figure III-3) which results in a corresponding relation-
ship between livestock supplies and meat prices. The cyclic patterns
evident in Figure III-3 are the result of characteristic cattle and hog pro-
duction cycles. The cattle cycle extends approximately ten years from
peak to peak, the hog cycle four years.
Demand and Supply Response to Price Changes
Increased costs, associated with the implementation of effluent control
guideline-^ must be (1) absorbed by meat packers, (2) passed forward
to consumers in the form of higher meat prices, or (3) passed backward
to slaughter livestock producers in the form of lower prices for slaughter
livestock, or a combination of (1), (2) and (3).
III-4
-------
$55
50
45
*r Choice 700-800 Ib. steer beef
carcasses - Avg. Midwest markets
5:
o
h
1)
a
0)
u
L,
Pu
40
35
30
25
Choice slaughter steers
Avg. 7 Midwest markets
.1
M
M
O
N
D
Figure III-2.
Prices of choice steers and choice steer
beef carcasses, Midwest markets, by
months, 1971.
Ill-5
-------
STEER AND HEIFER BEEF PRODUCTION AND PRICES
POUNDS*
30
Production per capita
1963 1965 1967 1969 1971 1973
*ESTIMATED COMMERCIAL PRODUCTION ^CHOICE STEERS A7 OMAHA
U.S. DE PA RTMENT OF AGRICULTURE NEC E RS 2d7 j - 73 5 ECONOMIC RESEARCH SERVICE
CHANGES IN I20G PRICES AND PORK PRODUCTION
% CHANGE FROM PREVIOUS YEAR
Hog prices
BARROWS AND GILTS AT 7 MARKETS
1963 1965 1967 1969 1971 1973 1975
U.SDEPARTMENTOFACRICUL7URE NEOFPSSl-sij-?! Si FrONf,MI'BfSEAPOiM:aji
Figure III-3. Supply-price relationships, beef and pork production and prices.
III-6
-------
Demand Factors - Consumers' responses to increased meat prices will
be conditioned by price elasticity, which measures the proportionate
change in quantity taken in response to a proportionate change in price.
Two other relationships will also enter in: income elasticity, which
measures the changes in demand related to changes in disposable income
and cross-elasticity which measures the changes in demand associated
with changes in price relationships between various types of meat (beef-
pork, etc.) or between meat and other close substitutes (poultry, eggs,
cheese, etc.).
Elasticity coefficients for m ::at products are shown in Table III-2 . In
terms of price-elasticity, (Section A, Table III-2 ), beef and pork are
relatively inelastic (coefficient less than one) in that changes in quantity
taken are less than proportionate to changes in prices. However, the
demand for lamb (coefficient -Z.35) and veal (1.60) are relatively elastic.
Price-quantity relationships for meat products are further complicated
by c ross-elasticitie s (Section B). For example, the beef-pork coefficient
indicates that a one percent increase in the price of pork would be associ-
ated by a 0. 13 percent increase in the quantity of beef demanded -- indi-
cating a relatively low substitution rate between pork and beef.
Income elasticites for most meat products in the United States are posi-
tive, but less than one (Section C, Table III-2 ). For example, the beef
income elasticity coefficient shown indicates that a one percent rise in
per capita income will be associated with a 0.47 percent increase in per
capita consumption of beef. The income elasticity of demand for pork
is lower than that for other meat products.
Supply Factors - The production responses for cattle and hogs to changes
in slaughter livestock prices are more complex than was found in terms
of demand responses to price changes. The key price factor affecting the
volume of hog production is the hog-feed price ratio, not the hog price
directly. Two price ratios influence cattle production response -- the
cattle-feed price ratio and the feeder cattle-fed cattle price ratio. As
III-7
-------
Table III-2. Elasticity coefficients for meat products
I/
Elasticity measurement
A. Price-elasticity
B. C ross -elasticity
C. Income-elasticity
Product
Beef
Veal
Pork
Lamb
Chicken
Fish
Beef- veal
Beef-pork
Beef-lamb
Beef-chicken
Beef-fish
Pork-beef
Pork-veal
Pork -lamb
Pork-chicken
Pork-fish
Beef
Veal
Pork
Lamb.
Chicken
Fish
Coefficient
- .95
-1.60
- .75
-2.35
-1.16
- .65
. 38
. 13
.62
.23
.02
.10
.19
.41
.16
.02
.47
.58
.32
.65
.37
.42
Source: Brandow, G. E. , "Interrelations Among Demands for
Farm Products and Implications for Control of Market
Supply, " Penn. Agr. Exp. Sta. Bull. 680.
Ill-8
-------
would be expected, favorable price ratios induce increased production
while deteriorating price ratios result in reduced production. However,
the supply responses take time -- about two years for hogs and five
years for fed cattle. Empirical research concerned with livestock
price-supply response indicate supply elasticities of about 0.50 to 0.75
meaning that the adjustment in fed livestock supplies to a one percent
change in price is about 0.50 to 0.75 percent in the same direction.
Likelihood of Price Changes
Potential price impacts of the imposition of stricter water pollution
standards on the meat packing industry are higher retail prices,
lower farm prices for livestock, lower profits for processors and
lower meat production and consumption. The meat packing industry
is already making low profits. Additional costs would tend to be passed
on to the consumer. The relative amount to be passed on depends upon
the extent to which lower-cost meat processing techniques develop
allowing the efficient firms to offset this pollution abatement cost and
forcing through market competition lower returns in the higher cost
plants. vVith no dramatic change in meat packing techniques prcdic'ed.
it is expected that packers will not au.,>orb this added cost.
Figure III-4 demonstrates the market response to increasing packing
costs. Dr is the aggregate demand curve for red meats at the retail
level. Dr is the derived demand curve for red meals at farm level.
This curve is obtained from the relationship between farm price and
retail price. George and King found the following price relationships
using quarterly data:
pfarm = _24. 52 + 0. 9 1 88 Pretail R2^.75
beef beef
Pfarm = -21.58+ 0.9014 Pretal1 R2=.90
pork pork
pfarm = _2 1 . 50 + 0. 8447 Pfarm R2=-7b
lamb lamb
Stronger relationships were not found because farm-retail price margins
do not follow in step with the farm prices during the hog cycle and beef
cycle. Price spreads tend to narrow during the upturn in prices as
III-9
-------
-a
c
fS
«J
a;
(X
q' q
Long run supply
I/
Quantity of Meat '
Farm level quantity based on retail cut equivalent, equal to live weight
quantity times percent retail cut out of live animal.
Figure III- 4 . Impact of increased processing costs.
-------
retail price- increases lag behind farm price increases. Likewise,
when farm prices decline, price spreads increase for the same
reason. Reef pru e spread is Pretal! - Prelaii + 24.52 - 0 9188 Pretail
Prue spread -.- 24,52 * 0.0812 Pret(U|
Plotting the pru < spread on Figure III-5 gives the derived demand for
beef, farm level. The supply of meats is determined by at the farm
level with increased breeding herds. The long run supply curve (S)
reflecting farmers reae tion in the long run to changing farm prices
f(>r livestock also is shown.
With the imposition of stricter effluent standards, processor costs w;ll
increase and are passed on through the wholesaler and reta ler to the
consumer. This additional cost increases the price spread between
t.trm and retail by a S pi-r unit and shifts derived demand at farm
level down by Jh.it amount to D - Prior to the new standards, long-
run price's and quantity were P .. Pj- and q. The new equilibrium is
reached when larm le^ el demand and supply are at the market clearing
price P f' The resulting quantity consumed and retail price are q'
and Pr'. The costs which were not absorbed by the processor resulted
in an increase; in retail beet price from P to P ' and a decrease n
quantity consumed from ; to q' and a reduction in farm price to Pf'-
The relative impact on farm and r(;tail prices i- determined by the
elasticity of supply and elasticity of demand. With a more inelastic
supply, the price impact will be heavier on farmers and conversely.
fn the short-run supply is highly inelastic. Then the price impact will
be heaviest on the livestock producers. As livestock producers reduce
supply in response to this price decline, the cost will be shifted from the
farmer to the consumer in the form of higher prices at both farm arid Detail
level. With supply elastic in the long-run, most, but not all, of the cost
will be shifted to the consumer. The difference between Pr and PJ-' in
the long-run case is the price- impact on livestock producers.
Instances where industry demand and supply are shifting, the effects
illustrated in the stable situation before may not be apparent although
still present. Figure IIJ-5 illustrates the case of expanding demand
and supply. Retail demand shifts from Dj to D in go'ng from period 1
to period 2. Supply likewise shifts from S, to S^. The derived demands
associated with the retail demand curves are d( and d^ prior to the impo-
sition of stricter water quality standards. Following the imposition they
are dj and 62, respectively.
In period one, prior to new standards, quantity, q, is given by the
intersection of d, and Sj. The retail price is R, and the farm price
is P}. WTith no change in standards the diagram depicts increasing
supply and demand and increasing prices resulting from demand shifting
III-10
-------
I/
Quantity of Meat \J
Firm level quantity based on retail cut equivalent, equal to live weight
quantity times percent retail cut out of live animal.
Figure III-5. Impict or price of increased processing costs during
industry expansion.
Ill- lOa
-------
faster than supply. Retail price is R^, farm price is P£, and quantity
is q2.
No\v assume that the new standards are imposed between period 1 and
period 2. In going from period 1 to period 2, the derived demand
curve shifts from d, to d^. The new equilibrium quantity q';> is
greater than q, but less than q,. Farm price, P1 is slightly lower
than P£, with no new standards, but is higher than the previous
period's price. Retail price rises above the price in the no new
standards case. In this situation where demand is increasing faster
than supply, the imposition of new water quality standards resulted
in higher consumer prices, as expected, but also experienced increasing
output and farm prices because the shift in demand was able to more
than offset the impact of the standards (d'2 is to the right of dj). Thus
the ability for the cost to be shifted to the consumer depends upon the
rate at which the market situation is changing. During the past two
years, consumer demand for meat, stimulated by rising consumer
incomes, has outpaced increases in livestock supplies, with the result
being rapidly rising livestock and meat prices. Under conditions similar
to these, and in the absence of price controls, cost increases associated
with water pollution controls would be passed on primarly to the consumer in
in the form of higher meat prices.
Ill-11
-------
IV. ECONOMIC IMPACT ANALYSIS METHODOLOGY
The following economic impact analysis utilizes the ^asic 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 pa rticula rly
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.
IV-1
-------
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 a re a function of the cost of pollution control
and the ability to pass along these costs in higher prices. Admittedly,
in reality, closure decisions are seldom made on a set of well defined
common economic rules, but also include a wide range of personal values,
external forces such as the ability to obtain financing or considering the
production unit as an integrated part of a larger cost center where total
center must be considered.
Such circumstances include but are not limited to the following factors:
1. There is a lack of knowledge on the part of the owner-
operator concerning the actual financial condition of the
operation due to faulty or inadequate accounting systems
or procedures. This is especially likely to occur among
small, independent operators who do not have effective
cost accounting systems.
2. Plant and equipment are old and fully depreciated and the
owner has no intention 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 this complex of factors commonly referred to as a value
of psychic income.
IV-Z
-------
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 an useful and reliable insight into potential business responses
to new investment decisions, as represented by required investment in
pollution control facilities thus, economic analysis will be used as the
core analytical procedure. Given the pricing conditions, the impact on
profitability (and possible closure) can be determined by simply computing
the ROI (or any other profitability measure) under conditions of the new
price and incremental investment in pollution control. The primary con-
sequence of profitability changes is the impact on the plant regarding
plant shutdown rather than making the required investment in meeting
pollution control requirements.
IV-3
-------
In the most fundamental case, a plant will be closed when variable ex-
penses (Vc) are greater than revenues (R) since by closing the plant,
losses can be avoided. However, in practice plants continue to operate
where apparently Vc > R. Reasons for this include:
lack of cost accounting detail to determine when Vc > R.
opportunity cost of labor or some other resource is less
than ma rkr t values. This would be particularly prevalent
in propriecorships where the owner considers his labor as
fixed.
other personal and external financial factors.
expectations that revenues will shortly increase to cover
variable expenses.
A more probable situation is the case where Vc < R but revenues are
less than variable costs plus cash overhead expenses (TCc) which are
fixed in the short run. In this situation a plant would likely continue
to operate as contributions are being made toward covering a portion of
these fixed cash overhead expenses. The firm cannot operate indefinitely
under this condition, but the length of this period is uncertain. Basic to
this strategy of continuing operations is the firm's expectation that re-
venues will increase to cover cash outlay. Factors involved in closure
decisions include:
extent of capital resources. If the owner has other business
interests or debt sources that will supply capital input, the
plant will continue.
lack of cost accounting detail or procedures to know that TCoR,
particularly in multiplant or business situation.
labor or other resources may be considered fixed and the
opportunity cost for these items is less than market value.
Identification of plants where TCc > R, but Vc < R leads to an estimate
of plants that should be closed over some period of time if revenues do
not increase. However, the timing of such closures is difficult to predict
The next level of analysis, where TCc < R, involves estimating the
earnings before and after investment in pollution abatement. So long
as TCc < R it seems likely that investment in pollution control will be
made and plant operations continued so long as the capitalized value
IV-4
-------
of earnings (CV), at the firms (industry) cost of capital, is greater
than the scrap or salvage value (S) of the sunk plant investment. If
S > CV, the firm could realize S in cash and reinvest and be financially
better off. This presumes reinvesting at least at the firms (industry)
cost of capital.
Computation of CV involves discounting the future earnings flow to
present worth through the general discounting function:
t
V = V A (l+i)'n
n=l
whe re
V = present value
An = a future value in n year
i = discount rate as target ROI rate
n = numbe r of conversion products, i.e.,
1 year, 2 years, etc.
It should be noted that a more common measure of rate of return is
the book rate, which measures the after-tax profits as a ratio of in-
vested capital, is net worth or sales. These ratios should not be
viewed as a different estimate of profitability as opposed to DCF
measures (discounted cash flow) but rather an entirely different
profitability concept. The reader is cautioned not to directly compare
the DCF rates with book rates. Although both measures will be reported
in the analyses, the book rate is reported for informational purposes only.
The two primary types of DCF measures of profitability are used. One
is called the internal rate of return or yield and is the computed discount
rate (yield) which produces a zero present value of the cash flow. The
yield is the highest rate of interest the investor could pay if all funds
were borrowed and the loan was returned from cash proceeds of the
investment. The second DCF measure is the net present value concept.
Rather than solve for the yield, a discount rate equivalent to the firms
cost of capital is used. Independent investments with net present values
of above zero are accepted; those below zero are rejected. The concept
of comparing capitalized earnings with the sunk investment value is
a variation of the net present value method.
IV-5
-------
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 afi^r-tax income and for the DCF analysis after-tax cash proceeds,
The computation of each is shown below:
After tax income = (1 - 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 with the dominance of multiplant firms, the
firm's tax rate will be close to the 48 percent rate.
Revenue, expenses, interest and depreciation charges used were those
discussed in Chapter-II and Chapter V for pollution control facilities.
These items were assumed to constant over the period of analysis.
IV-6
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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. Only incremental values
were used, to reflect in-place facilities.
The above discussion refers primarily to the DCF analysis. Investment
used in estimating book rates was taken as invested capital - book value
of assets plus net working capital. In the case of new investment, its
book rate was estimated as 50 percent of the original value.
3. Cost of Capital - After Tax
Return on invested capital is a fundamental notion in U.S. business.
It provides both a measure of actual performance of a firm as well
expected performance. In this latter case, it is also called the cost
of capital. The cost of capital is defined as the weighted average of
the cost of each type of capital employed by the firm, in general terms
equities and inte rest bea ring liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.
The cost of equities wa s estimated by two methods -- the dividend yield
method and the earnings stock price (E/P ratio) method. Both are
simplifications of the more complex DCF methodology. The dividend
method is:
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.
IV-7
-------
k - -p- + g
where
k = cost of capital
D = dividend yield
P = stock price
g = growth
and the E/P -nethod is simply
k = E/P
where
E = earnings
P = stock price
and is a further simplication of the first. The latter assumes future
earnings as a level, perpetual stream.
The after tax cost of debt capital was estimated by using estimated 7. 5
percent cost of debt and multiplying by . 52 -- assuming a 48 percent
tax rate. These values were weighted by the respective equity to total
asset and total liabilities to total asset ratios.
The average cost of capital for the meat packing industry was estimated
as follows based on various Standard & Poor's industry surveys:
Dividend Yield Plus Growth Method
Capital Weight Cost Growth Cost
Equity .61 .026 .04 .041
Debt .39 .039 -- .015
Average cost of capital . 056
E/P Method
Equity .61 .085
Debt .39 .039
Average cost of capital
As shown in the above computations, the estimated after-tax cost is
5.6 to 6.7 percent. The subsequent analysis was based on 6.0 percent.
The four percent growth factor is roughly equal to inflation expectations.
It is recognized that liabilities contain non-interest bearing liabilities,
but its weight is believed to be an adequate proxy for the weight of debt.
IV-8
-------
It was assumed that, for the meat packing industry, a pre-tax cost of
capital of 11.5 percent was used for evaluating new projects.
4. Construction of the Cash Flow
A thirty- 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 t .
Z. After tax cash proceeds taken for years t to t .
3. Annual replacement investment, equal to annual current
depreciation taken for years t to ton-
4. Terminal value equal to sunk investment taken in year t^,-
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 t to t
for 1977 standards and years t to t for 1983 standards.
7. No replacement investment taken on baseline pollution in-
vestment on assumption of 30-year useful life.
8. Replacement investment taken on Level I incremental in-
vestment in year 25 and on Level II incremental investment
in year 21 based on useful lives of 25 and 15 years,
respectively.
9. Terminal value of pollution facilities equal to 10 percent of
original cost taken in year t .
B. Price Effects
At the outset, it must be recognized that price effects and production
effects are intertwined with one effect having an impact upon the other.
In fact, the very basis of price analysis is the premise that prices and
supplies (production) are functionally related variables which are simul-
taneously resolved.
Solution of this requires knowledge of demand growth, price elasticities,
supply elasticities, the degree to which regional markets exist, the degree
IV-9
-------
of dominance experienced by large firms in the industry, market concen-
tration exhibited by both the industry's suppliers of inputs and purchasers
of outputs, organization and coordination within the industry, relation-
ship of domestic output with the world market, existence and nature of
complementary goods, cyclical trends in the industry, current utilization
of capacity and, exogenous influences upon price determination (e. g. ,
governmental regulation).
In view of the complexity and diversity of factors involved in determin-
ation-of the market price, a purely quantitative approach to the problem
of price effects is not feasible. Hence, the simultaneous considerations
suggested above will be made. The judgment factor will be heavily em-
ployed in determining the supply response to a price change and altern-
ative price changes to be employed.
Asa guide to the analysis of price effects, the estimated price required
to leave the model plant segment as well off will be computed. The re-
quired price increase at the firm level will be evaluated in light of the
relationship of the model plant to the industry and the understanding of
the competitive position of the industry. The required price increase can
be readily computed using the DCF analysis described above, but dealing
only with the incremental pollution investment and cash proceeds.
Application of the above DCF procedure to these costs will yield the present
value of pollution control costs (i.e. , investment plus operating cost less
tax savings). If this is known, the price increase required to pay for
pollution control can readily be calculated by the formula
(PVPJ (100)
.A.
(l-T) (PVR)
where:
X = required percentage increase in price
PVP = present value of pollution control costs
PVR = present value of gross revenue starting in the year
pollution control is imposed
Note that this formula implies that incremental profits resulting from
the price increase will be taxed at a rate of 48 percent.
IV-10
-------
C. Financial Effects
In Chapter II, the financial characteristics of model plants were presented.
These data will serve as the base point for the analysis of financial effects
of pollution control. The primary focus of analysis will be upon profit-
ability in the industry and the ability of the firms to secure external
capital. Hence, it is obvious that this portion of the analysis cannot
be divorced from production effects since profit levels and the ability
to finance pollution abatement facilities will have a direct influence on
supply responses -- utilization of capacity and plant closures.
The measures of profitability utilized will include after-tax book rate
of return on invested capital and cash flow (after-tax profit plus deprec-
iation) will be measured. After-tax profit as a percent of sales will
also be reported to assist in comparing financial data with standard
industrial measures.
In addition to these factors, two additional measures of economic profita-
bility will also be examined: (1) capitalized value of earnings and (2)
present values estimated by the procedures described in Section A above.
Both of these measures will be calculated on pre- and post-pollution control
base s.
Given these financial measurements, the ability of the industry to
finance the required pollution control expenditures will be reexamined
in light of the financial results and the information shown in Chapter II.
This ability will vary from one industry subsector to another due to
differential financial structures, profitability and abatement requirements.
Hence, capital availability and cost will probably have to be examined on
a model plant by model plant basis.
D. Production Effects
Potential production effects include reductions of capacity utilization
rates, plant closures and stagnation of industry growth. It is antici-
pated that reductions in capacity utilization will be estimated via quali-
tative techniques given the analysts' knowledge of the industry. The
same is true for assessing the extent to which plant closures may be
offset by increases in capacity utilization on the part of plants remaining
in operation. Data limitations and time constraints are expected to re-
quire that the impact of pollution control standards upon future growth
of the industry also be estimated via qualitative methods.
IV-11
-------
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.
It is recognized that .he use of model plants to represent an industry is
imperfect and that not all of the relevant factors can be included in the
models. In other words, for any given model plant one would expect to
find some actual plants with profits lower and some higher than shown
for the model plant. In a statistical sense, one can describe this phe-
nomenon via distribution functions. By examining various publications
by Dun and Bradstreet, Inc. , we would estimate the industry-wide
standard deviation of net profit as a percent of sales at 1. 0 if normality
is assumed. However, the industry-wide distribution appears to have
a. definite skew to the right. We feel this shewness is explained by the
fact that a large portion of the industry is composed of packinghouses
which generally show higher than median profits. If one were to segment
the industry and estimate the distribution for each size category in each
segment, we feel the results would closely approximate normality.
For the purpose of analyzing financial and plant closure effects, the dis-
tribution of net present value (discounted) as a percent of sales was
examined. It was assumed that this distribution was normal for each
of the model plants. As a starting point it was noted that the 1. 0
standard deviation of net profits as a percent of sales would equal 13.8
if multiplied by the 6 percent annuity factor for 30 years. Of course,
annual profits for an actual plant vary temporarily and a large part of
the variation is due to plant type and size variations.
Defining the median for the distribution as being the model plant's net
present value (assuming primary effluent treatment) divided by animal
sales and utilizing published data and data in the contractor's files, the
standard deviation of net present value divided by sales was estimated
as 0. 3 times the median. This methodology implicitly assumes that
the model plant represents the median plant for the distribution and that
there will be a different standard deviation associated with each model
plant. Furthermore, the procedure implies that the standard deviation
will be larger for the more profitable industry segments. By utilizing
the net present values calculated under alternative effluent treatment
assumptions, the standard deviations described above and the assump-
tion that plants with a negative ratio for net present value divided by
sales will be forced to close, the percentage of firms closing in each
industry segment can be readily estimated through accepted statistical
techniques.
IV- 12
-------
E. Employment Effects
Given the production effects of estimated production curtailments, plant
closings and changes in industry growth, a major cons iae ra tion 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. Communitv 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 neeced :axe = lor vital
community services mav dwindle. Community pride and spirit mav be
dampened, However. ;n -oinc a .-<:.-, uie no _.i :.vo ^rr:rr.ur.. - :;~>...-:s
of production effects may be very short-term in nature with the total
impact barely visible from 'he viewpoint of the overall oommamty. 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.
IV-13
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V. EFFLUENT CONTROL COSTS
Water pollution control costs used in this analysis were furnished by
the Effluent Guidelines Division of the Environmental Protection
Agency from materials developed in part for the the Environmental
Protection Agency by North Star Research Institute. _' These basic
data were adapted to the types and sizes of slaughter plants and
packinghouses specified in this analysis.
Three effluent guidelines were considered:
BPT - Best Pollution Control Technology Currently
Available, to be achieved by July 1, 1977
BAT - Best Available Pollution Control Technology
Economically Achievable, to be achieved by
July 1, 1983
NSPS - New Source Performance Standards, apply to
any source for which construction starts after
the publication of the proposed regulations for
the Standards
A technical document describing the recommended technology for achiev-
ing the three guidelines will be published as a separate report by EPA.
To avoid duplication and possible confusion, no technical descriptions
of BPT, BAT and NSPS guidelines are given in this report. The interested
reader is referred to EPA's technical report for technology descriptions.
Development Document for Effluent Limitations Guidelines and
Standards of Performance -- Meat Packing Industry, Draft Report,
North Star Research Institute, June, 1973.
V-l
-------
EPA provided effluent treatment costs for four "typical" plants:
1. "Simple" slaughterhouse - kills 484,000 pounds liveweight
basis per day. Does a very limited amount of processing
of by-products (i.e., secondary processing). Usually, no
more than two secondary processes, such as rendering,
paunch and viscera handling, blood processing or hide or
hair processing are carried out.
2. "Complex" slaughterhouse - kills 1,310,000 pounds live-
weight basis daily. Does extensive processing of by-pro-
ducts (i.e., secondary processing). It usually carries out
at least three of the secondary processes listed above.
3. "Low-processing" packinghouse - kills 900,000 pounds live-
weight basis daily. Normally processes less than the total
animals killed at the site but may process up to the total
killed.
4. "High-processing" packinghouse - kills 800, 000 pounds live-
weight basis daily. Normally processes both the total kill
at the site and additional carcasses from outside sources.
Baseline Effluent Control Costs
Effluent control costs for each of the three treatment levels were based
upon an assumotion that baseline pre-BPT treatment included primary
and secondarv systems represented as removal of settleable solids and
grease plus anaerobic and aerobic lagoons. Baseline costs for this
assumed existing treatment system are shown in Table V-3.
Incremental Effluent Control Costs
Given the bast-line effluent control costs shown in Table V-3, which were
assumed to be in place for the "typical" plants specified, estimates were
given for the incremental costs required to achieve effluent controls
adequate to meet BPT and BAT guidelines for the four "typical" plants
(Table V-4). Costs for meeting NSPS guidelines are assumed to equal
BPT costs until 1^83 at which time' they will equal BAT costs.
V-2
-------
Table V-3. Baseline effluent control costs for "typical" types of slaughterhouses and meat
packinghouses, 1971 costs
Cost Item
Simple
slaughterhouse
121 mill Ibs. luk.
Simple
slaughte rhouse
328 mill. Ibs. Iwk.
Low-process
packinghouse
225 mill. Ibs. Iwk.
High-process
packinghouse
200 mill. Ibs. Iwk.
Investment
Annual Cost
Capital
Depreciation
Operating cost
$238, 000
53, 300
23,800
8,800
20,700
$425, 000
85, 600
42, 500
15, 300
27,800
$400,000
80,700
40, 000
14,500
26,200
$475, 000
93,500
47, 500
16,900
29, 100
Source: Development Document for Effluent Limitation Guidelines and Standards of Performance Meat Packing
Industry, Environmental Protection Agency, June, 1973.
-------
NSPS
Table V 4. Incremental efJJucnt control costs for "typical" types of slaughterhouses
etnd meat packinghouses, 1971 costs
Effluent
control level Cost It^m
BPT Investment
Annual C. ost
Capita 1
Dt-pr^t icit on
Opi-ratiiiL- Cu-,t
BA T Inve st ni( nt
Aniiua 1 C o-U
Capita 1
Dcpr.-i . it .1.1
Opi rat nr.; Cn->t
Simple
a la ught er house
121 mill. Ibs. Iwk.
$80, 000
19, 3t,0
h, 000
3, 200
8, 160
42->, 000
1 Ml. 9 30
-12, 500
t-7 , 800
90 , f;^0
Complex
slaughterhouse
328 mill. Ibs. Iwk.
$139,
39,
13,
5,
19,
665,
285,
66 ,
42,
176.
000
360
900
560
900
000
360
500
660
200
Low -process
packinghouse
225 mill. Ibs. Iwk
$131,
33,
13,
5,
15,
629,
249,
b2,
39,
146.
000
750
100
240
410
000
750
900
940
910
Hi gh-Process
packinghouse
200 mill. Ibs. Iwk.
$140,
42.
14,
5 ,
21,
736,
306,
73,
47..
184,
000
000
800
920
280
000
000
600
620
780
1 ! ! 'U nt t rr.it in flit i ut»t t> tor
m ,ur cc- s is a s burned to be t he sa me as
thtt lor il,c In i t'rulii iiiU Control '1 ft hiuil og s CurrentU Avnildble.
Source: D>?"(='lo'3nif tit DiHiniu-nt lur l'itiu.'..t ! unit it; m un uU 11 in-.1 ,t nd bla nd nt.i 1 Prot IM 11. >n -\ Lif ni >. 1 MU- . I'M
-------
Modified Costs - Effluent Control Systems
The effluent control costs provided by EPA were "single point" estimates
in that they applied specifically to a given type of plant with a given annual
liveweight kill volume. Obviously, effluent treatment costs will vary with
wasteflow and, hence, processing volume. Based on discussions with EPA
and North Star Research Institute personnel, DPRA estimated investment
and annual treatment cost data for alternative plant sizes. These estimates
were made by assuming that, for a given treatment level, both investment
and operating costs were a junction of quantity of wasteflow. Given that
assumption, each of the four "typical" plants were plotted on a graph and a
smooth curve was drawn to "fit" the points. Although the points represent-
ing the "typical" plants do not fall precisely on the line, it is believed that
the fit is acceptable. However, a matter of concern is that the four "typical"
plants, specified in the technical report, all had wasteflows exceeding 0. 3
million gallons per day while four of DPRA's model plants have flows of
less than 0.2 million gallons per day. The extrapolations required to
estimate costs for those plants adds to the possible analytical error in the
analysis of small plants.
Having developed baseline and incremental treatment costs for BPT and
BAT controls, it was then necessary to add these costs to get "total" control
costs.
Since the cost data provided to DPRA were based on 1971 costs, they were
updated to 1972 levels by using appropriate inflators (i.e. , Index of Sewage
Treatment Plant Construction Cost for investment and the Implicit Price,
Inflator for GNP for operating costs).
The cost estimates obtained through the procedures described above are
shown in Tables V-5 through V-9. Figure V-1 shows the relationship
oetween wastewater flows and effluent control investment costs for the
baseline case and control levels BPT and BAT.
Current Status of Effluent Control in the Industry
Limited information was available concerning the current status of
effluent treatment and control in the meat industry.
1. Discharge into municipal or other publicly-owned wastewater
treatment systems
There are no recent publications with reliable estimates of the proportion
V-5
-------
Table V-5. Baseline effluent control costs - 1972
A.
B.
C.
D.
Cost Item
Simple slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Complex slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Ope rating
Low-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
High-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
EPA
$256, 000
56, 400
25, 600
9,500
21, 300
457,000
90,800
45,700
16, 500
28, 600
430, 000
85,600
43,000
15, 600
27, 000
511, 000
99, 300
51, 100
18, 200
30, 000
DPR A
Large
$401,000
88, 300
40, 100
14,800
33, 400
457, 000
90,800
45,700
16, 500
28,600
466, 000
92,900
46,600
16, 900
29, 400
550, 000
107, 000
55,000
19,600
32, 400
DPRA
Medium
$289, 000
63,800
28, 900
10,700
24,200
341, 000
67,600
34, 100
12, 300
21,200
350, 000
69,700
35, 000
12,700
22, 000
429, 000
83, 400
42,900
15, 300
25, 200
DPRA
Small
$109,000
24, 000
10, 900
4, 000
9, 100
134, 000
26, 500
13,400
4, 800
8, 300
141, 000
28,200
14, 100
5, 100
9, 000
170, 000
33, 000
17,000
6,000
10, 000
V-6
-------
Table V-6.
BPT, incremental effluent control costs, above baseline, 1972 costs
A.
B.
C.
D.
Cost Item
Simple slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Complex slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Low-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
High-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
EPA
$ 86, 000
20, 500
8, 600
3, 200
8,700
$150, 000
41, 600
15, 000
5,700
20, 900
141, 000
35, 7QO
14, 100
5, 300
16, 300
159, 000
44, 100
15, 900
6, 100
22, 100
DPR A
Large
$132, 000
31, 300
13, 200
5, 000
13, 100
148, 000
41, 000
14,800
5, 600
20, 600
151, 000
38, 100
15, 100
5,600
17,400
174, 000
48,400
17, 400
6,700
24, 300
DPR A
Medium
$ 92, 000
21,800
9, 200
3,400
9,200
110, 000
30,500
11, 000
4, 200
15, 300
117, 000
29, 600
11, 700
4, 400
13, 500
140, 000
38, 300
14, 000
4, 800
19, 500
DPRA
Small
$ 37, 000
8, 900
3, 700
1,400
3,800
44, 000
12, 100
4, 400
1,700
b, 000
47, 000
1 1, 900
4,700
1,700
5, 500
56, 000
15, 600
5, 600
2,200
7,800
V-7
-------
Table V-7.
BAT, Incremental effluent control costs, above baseline, 1972 costs
A.
B.
C.
D.
Cost Item
Simple slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Complex slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Low-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
High-process packinariouse
Investment
Total annual cost
Capital
Depreciation
Operating
EPA
$457, 000
168, 900
45, 700
29, 200
94, 000
716, 000
299, 100
71, 600
45, 800
181, 700
o77, 000
2ol, 500
67, 700
27, 800
Ib6, 000
792, 000
320, 800
79, 200
50, 700
190, 900
DPR A
La rse
$642, 000
237, 000
64, 200
41, 000
131, 800
709, 000
296, 400
70, 900
45, 400
180, 100
721, 000
279, 100
72, 100
46, 200
160, 800
826, 000
334, 600
882, 600
52, 900
199, 100
DPRA
Medium
$473, 000
174, 600
47, 300
30, 200
97, 100
Sfal, 000
234, 30C
56, 100
35,800
142, 400
462., 000
200, oOO
46, 200
32, 800
121, bOO
n75, 000
273, 300
67, 500
43, 100
Ib2, 700
DPRA
Small
$192, 000
71, 100
19, 200
12, 400
39, 500
221, 000
92, 300
22, 100
14, 100
56, 100
233, 000
90, 300
23, 300
14, 900
52, 100
21,7, 000
108, 100
2o, 700
r:, 100
h4, 300
V-8
-------
T.icle V-8. BPT, '.otal offl-ent control costj, 1972 basis
A.
B.
C.
D.
Cost Item
Simple slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Complex slaughterhouse
Investment
Total annual cott
Capital
Depreciation
Operating
Low-process packinghouse
investment
Total annual cost
Capital
Depreciation
Operating
High-proces s packinghouse
Investment
Total annual cost
Capital
Deoreciation
Ope rating
EPA
$342,
. *~ ,
34,
12,
30,
-.07,
132,
" 0 ,
22,
4V,
5M,
121,
57,
20,
43,
-.70,
14.3.
'-">,
"4,
52,
"CC.
900
200
710
000
Cv'O
400
7CO
200
500
000
300
100
?OC
300
000
400
000
300
100
DPR A
Large
$533,
119,
53,
19,
4o,
605,
131,
-0,
22,
4V,
' 17,
131,
^1 =
22,
46,
724,
:553
72
'* O
S ^)
occ
600
300
800
500
000
800
500
100
200
000
000
700
500
800
000
400
400
300
700
DPRA
Medium
$381,
85,
38,
14,
33,
451,
98,
45,
16,
3o,
167,
99,
46,
i7,
55,
569,
121,
56,
20,
44,
000
c.0o
i oo
if:0
400
000
iOO
iCO
500
500
000
300
700
100
500
000
700
900
xOO
7 CM)
DFRA
Small
$14-, 000
52, 900
14, o 00
;, 400
i2. 900
178, 000
38, - 00
}'! . 800
- , 5 00
.4. iOO
i8«, tOC
10. 100
i.'i, oOO
-., .-500
14, 500
226, 000
48. oOO
22, oOO
.-i.,200
17,800
V-9
-------
Table V-9.
BAT, total effluent control costs, 1972 basis
A.
B.
C.
D.
Cost Item
Simple slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Complex slaughterhouse
Investment
Total annual cost
Capital
Depreciation
Operating
Low-process packinghouse
Investment
Total annual cost
Capital
Depreciation
Operating
High-process packinghouse
Investment
Total annual cost
C TJUal
B- r/reciation
O*. - rating
EPA
$ $713,000
225, 300
71,300
38, 700
115, 300
1, 173,000
389,900
117, 300
62, 300
210, 300
1, 107,000
347, 100
110, 700
43,400
193, 000
1, J03, 000
4?-0, 100
i 50, 30f
08, >fH.
^'!, 'K-v
DPRA
Large
$1,043, 000
325, 300
104, 300
55, 800
165, 200
1, 166, 000
387, 200
116, 600
61, 900
208, 700
1, 187, 000
372, 000
118, 700
63, 100
190, 200
1, 376, 000
441, 600
i ;:, 6oo
72, SOU
.'. W, TOO
DPRA
Medium
$762,000
238,400
76,200
40,900
121, 300
902, 000
301, 900
90,200
48, 100
163,600
928, 000
293, 500
92,800
49,700
151,000
1, 104,000
356,, 700
110, 400
58, 100
18?, °00
DPRA
Small
$301,000
95, 100
30, 100
16, 400
48,600
355,000
118,800
35,500
18,900
64, 400
374,000
118, 500
37, 400
20, 000
61, 100
437, 000
141, 100
4i, 700
1.3, 100
74, 3CO
v-10
-------
Investment
Cost ($1000)
800 1
600
400
200
0
.6 .8 I. 0 \.2
Waste v.ater flow (million ga lions/clay)
I. 4
BAT
Incremental
over Baseline
Baseline
BPT
Incremental
over Baseline
I. 6
LEGEND
1. 8
North Star "Typical" Plant
Figure V-l. Baseline, BPT and BAT Effluent Control Investment Costs in 1971 Dollars.
-------
of meat plants which discharge to municipal sewers. The guidelines
analyzed herein apply only to direct discharges. Kence, it was necessary
to divide the industry into municipal dischargers and direct dischargers.
The best information attainable within the limitations imposed upon this
study was based upon surveys conducted by North Star Research Institute
for the Environmental Protection Agency. The estimates are as follows:
Municipal ' Direct
Plant Type Dischargers Dischargers
Simple Slaughterhouse 56 44
Complex Slaughterhouse' 29 71
Low-process Packinghouse 70 30
High-process Packinghouse 59 41
When referencing all packinghouses, collectively, the a.verage of low-
process and high-process percentages was used--6"4; percent.
2. Primary treatment systems
Virtually all plants have primary treatment systems to remove settleable
solids and a large part of the grease. No constituents of the effluent dis-
charge of meat plants were reported which would interfere, pass through,
or otherwise be incompatible with a well-designed and operated publicly-
owned wastewater treatment plant.
Based on a survey of 85 plants, conducted by North Star Research Institute
for EPA, it was found that dissolved air flotation is used as a primary
treatment, either aiov.e or with screens or a catch basin, by about 30
percent of the plants ia the sample. A higher proportion of slaughterhouses
had air flotation aysle^ns than wa.s true for packinghouses.
3. Secondary treatment systems
The survey 01 plants siiowed the following secondary treatment systems
for the plants in the sample.
V- 12
-------
Type of secondary treatment
Anaerobic +
Type of plant Municipal aerobic lagoons Other Total
Simple slaughterhouse 56 33 11 100
Complex slaughterhouse 29 65 6 100
Low-process packing-
house 70 11 19 100
High-process packing-
house 59 14 27 100
All plants 55 28 17 100
This sample distribution shows the major type of treatment to be municipal
systems, except foi the complex slaughterhouse category. It appears
significant that this category utilizes lagoon systems to a much greater
degree (more than double) than do other types of plants many of the complex
slaughterhouse plants are large scale, kill and chill operations which tend
to be newer plants located in the country adjacent to major feeding areas.
A further estimate, based on the plant survey, indicates the relative
importance of lagoons in relation to the estimated percent of industry flow
treated in 1971, as follows:
Percent of industry flow treated by
Type of plant anaerobic and aerobic lagoons
Simple slaughterhouse 75
Complex slaughterhouse 90
Low-process packinghouse 40
High-process packinghouse 35
Again the greater relative importance of lagoon systems for treatment of
slaughterhouse effluents is apparent.
For the purpose of this analysis, it was assumed that all direct discharges
currently have baseline treatment systems in place. Results of the plant
survey plus discussions with industry specialists indicate this is a reason-
able assumption. It is recognized that a few plants still only have primary
treatment systems (probably less than 5 percent of the direct dischargers)
but, it is believed those plants are probably older and less efficient and
would be forced to close operations in the next few years due to competi-
tive market forces not related to effluent treatment guidelines.
V-13
-------
VI. IMPACT ANALYSIS
The imposition of effluent controls on the livestock slaughtering and
meat packing industry will have both direct and indirect impacts on the
industry, on consumers, on its suppliers and on communities in which
plants are located. An analysis was made, for specified effluent control
levels, in both quantitative and qualitative terms, of the impacts which
are expected.
The following types of impacts have been analyzed:
A. Price Effects
B. Financial Effects
C. Production Effects
D. Employment Effects
F. Community Effects
G. Balance-of-Payment Effects
A. Price Effects
As will be seen in the following section of this report, the role of price
effects in this analysis is critical. The meat packing industry is one with
a low value added and a very low profit margin in relation to sales. A
small change in the wholesale meat price with live animal prices staying
constant results in substantial changes in industry profits. The converse
of this argument is likewise true. Hence, if even a small increase in
packer margins can be expected as a result of mandatory effluent treat-
ment practices, the adverse economic impacts of those controls on the
industry will, be ameliorated or, possibly, eliminated. We expect this
to be the case in the long run under BPT guidelines. However, the
situation under BAT guidelines is less encouraging.
1. Long Run Effects
The theoretical considerations involved in analyzing price effects were
presented earlier and, for brevity, will not be repeated at this point. How-
ever, three critical points should be recalled. First, historical price
movements at the farm and retail level have been highly correlated --
VI-1
-------
indicating that packers have little control over price at either level.
Second, the farm level demand for beef is derived from the consumer
demand at retail. If packers could act in unison, they could effectively
shift the derived farm demand curve to the left while the consumer de-
mand curve remained constant. The seemingly inconsistent viewpoints
are partially explained by the third point. If consumer demand is shift-
ing to the right (e.g. due to population increases or income elasticity
effects) and the long run supply curve is also shifting to the right (e.g.
due to technological advances), increases in packer margins may be
partially masked with both consumer and farm prices increasing. How-
ever, the primary reason packers cannot control price margins is due
to the competitive nature of the industry. As noted earlier, the market
power of the old giant packers has been eroding. Given the current and
anticipated number and diversity of firms in the industry, collective
actions to control long run margins would surely be futile. Ironically,
it is this very characteristic which makes margin increases likely in the
long run under BPT controls.
The incremental costs of BPT treatment described above are very small
when compared to sales volume -- less than 0.2 percent for each of the
model plants (Table VI-1).J_' As a result, the expected number of plant closures
attributable to BPT guidelines are insignificant. The capacity lost due
to such closures could easily be absorbed by the remaining plants.
Even though closures would not reduce capacity sufficiently to induce
price changes, the normal forces of the market system would tend to allow
margins to widen enough to cover BPT effluent treatment costs for large
plants in the long run (assuming production technology remains constant).
The average wholesale price increase required to cover BPT treatment in
the large plants would run about 0. 05 percent, such a small price change
would be most difficult to trace through the market system. However,
we feel the initial price response would develop as a result of decreased
competition for live animals -- packers will try to maintain current
profits by paying less for live animals. The ability of packers to lower
live prices will depend partially upon the hog and cattle cycles. We
feel a price change at the farm level would be more likely when livestock
available for slaughter are increasing. A price reduction at the farm
level would encourage farmers to reduce livestock production which,
eventually, will mean consumers would find meat a little less plentiful
and a little more expensive.
Treatment costs as a percent of sales is calculated on the basis of a 32
year cash flow (30 years of operation) with both treatment costs and
revenues discounted back to year zero prior to calculating the percentage.
VI-2
-------
Table VI-1. Price change required to pay for incremental pollution control1'
Level I
above
Baseline
Simple
beef slaughter
Small
M e dium
0.
0.
13
06
Level II
above
Baseline
1.
0.
07
43
Level II
above
Level I
0.
0.
94
37
Complex beef slaughter
Simple
Medium
Large
beef-hog slaughter
Small
Medium
0.
0.
0.
0.
07
05
15
07
0.
0.
1.
0.
59
37
24
50
0.
0.
I .
0.
52
32
09
43
Complex beef-hog slaughter
Medium
Large
0.
0.
09
06
0.
0.
68
43
0.
0.
59
37
Low-process packinghouse
Small
Medium
Large
0.
0.
0.
14
06
04
1.
0.
0.
07
38
28
0.
0.
0.
93
32
24
Price change is calculated as treatment costs as a percent of sales wnere
a H2 year cash flow (30 years of operation plus i year for start-up and 1
year for shut-down) is used and both treatment, costs and revenues are
discounted back to year zero prior 10 calculating the percentage.
VI-3
-------
Up to this point, the implication has been that all firms in the industry
will face identical standards. That does not appear to be the case.
Plants connected to municipal sewers are not included in the standards
to which this report is addressed. However, we do know of several
plants where substantial pre-treatmeril facilities are in place or being
planned. In addition, those same firms are sharing the cost burden of
the municipal treatment system. We anticipate municipal effluent treat-
ment systems to be upgraded and, hence, more costly to the user. Also,
we expect pre -treatment requirements to be applied in more cases. In
that regard, it is useful to note that the slaughter of a 1, 000 pound steer
in a simple slaughter plant generates a wasteflow of 639 gallons compared
to per capita household wasteflow of about 75-100 gallons. The wasteflow
of a large simple slaughter plant would probably equal that of a residential
community of 7, 000 people (assuming no business establishments were
included in the community). Alternatively, the same plant's wasteflow
would probably equal the total flow of a typical town of about 3, 500 popula-
tion. For a high-process packinghouse, the population equivalents would
be over twice as large as the simple slaughterhouse.
Realizing that meat packing plants connected to sewers will incur a
treatment cost and that those plants are reported by North Star to
represent more than 50 percent of the industry, their influence on price'
determination cannot be ignored. If their treatment costs are lower,
new plants would, inmost cases, locate where sewers were available,
price increases would be smaller, and a disproportional number of non-
sewered plants would close. If their costs were higher, the reverse
trends would be expected. Hence, to complete the price analysis, an
assumption about treatment costs for sewered plants had to be made.
Economies ot scale would suggest mamcipal treatment costs should be
lower than private treatment costs.
Federal subsidies of municipal plants v^ould ;
severed plan:s. However, rr,uni< ipal pJanls
often aren't ^osigned soiejy from. _xn eC'_>n< < ^ :
capacitv in s"*.'ii communities often exceeds
or more -- - .rnetimes as high as 4. Mopes i
whole host of ether factors may enter imo \h<
municipal plants. Hence, some would argue th.it municipal costs would
be higher than private treatment costs. North Star indicates that po-
sition in their draft report. In view of the absence of adequate data to
justify another position, we have assumed that municipal treatment (plus
any required pretreatment) will equal private industrial treatment costs
VI-4
-------
in 1977. It is further assumed that the current market price reflects the
baseline condition (anaerobic + aerobic lagoons) and that the baseline cost
equals currently prevailing treatment costs for sewered plants. Finally,
it is assumed ;hat municipal treatment costs in 1983 will equal 1977
costs and, hence, will be less expensive than BAT treatment costs.
For those plants not discharging to municipal sewers, we feel a weighted
average red meat wholesale price increase oi 0.3 percent should cover
the incremental cost of BAT treatment. However, it is unlikely that such
a price change would prevail in the long run. About 55 percent of the
plants are connected to municipal sewers. Except for possibily a few
isolated areas, the competitive power of those plants should be sufficient
to hold margins down to the levels expected with BPT treatment. Those
firms requiring private treatment systems will be forced to close or absorb
the added cost of BAT treatment. New firms faced with NSPS guidelines
in 1983 would find an added inducement to locate in areas where they
could hook-up to municipal treatment systems.
2. Short Run Effects
The short run impact of pollution controls may differ substantially from
the long run impacts. NSPS guidelines would require new plants to meet
the BPT guideline for existing plants. The BPT guideline implicitly
requires the baseline installation. For firms currently at baseline treat-
ment, BPT should not pose a serious problem in most cases. As we
see it, however, BPT would influence closure of some plants which will
require substantial rejuvination prior to 1983 due to obsolescence. In
'hose cases, the combined effect of remodeling plus BPT treatment may
be excessive in view of anticipated profits.
With PPT controls in place, new smaii plants could probably only be
jusiitied ..n unusiicti circumstances where The r-.ossioility of exercising
rrarke! power is greater than what typically exists in the industry. Most
new plants would probably be of the medium and large categories with
3 high proportion engaged in processing. Plants dropping out would most
likely be small -- especially small slaughter plants. Hence, economies
o/ scale experienced in waste treatment would Lend to dampen price effects
once the new plants were operational.
The short run effects starting in 1982 or 1983 as a result of BAT guide-
lines should be larger than the long run effects. How much larger
depends upon the psychological reaction of the industry to the standards
and technology proposed. If the standards are viewed as totally
VI -5
-------
unrealistic and the technology as unproven and impractical, the short
run closures and price effects could be very large when compared to the
expected long run impacts. At this point in time and within the scope
of this study, the extent to which such a reaction might prevail cannot
be ascertained.
With the existing economies of scale plus the substantial economies of
scale reported above for waste treatment, large short run effects could
vastly alter the structure of the industry. Slaughter only plants would
be placed at a disadvantage as would smaller plants. Unless these
projected economies are offset by increased transportation costs, differ-
ential wage rates, etc., an excessive short run disequilibrium could
mark the entrance of plants two to three times the size we report as
large in 1973 and a substantial reduction of competition in the industry.
Our long run analysis has been based upon the assumption that a massive
short run adjustment will not occur. If such an adjustment did materialize
as a result of BAT, our long run analysis could be in error. Closures
of small and medium plants would be larger than predicted. A few large
firms gained substantial market power, the decreased competition might
also result in an increase in the long run price level.
B. Financial Effects
In order to measure the financial impacts of proposed effluent controls
on the livestock slaughter and meat packing industry, income rates of
return and cash flows were calculated for various sizes and types of
model plants with and without effluent control costs. Rates of return
were calculated on average fixed investment and on sales. Analyses made
include the following:
1. Pre-tax net income
2. Pro-lax ratt of return on average invested c.ifutal
1. After-lax rate of return on average invested capital
4. After-tax rate of return on sales
5. Estimated cash flow as a percent of average invested capital
6. Estimated annual cash flows.
VI -6
-------
1. Pre- Tax Net Income
The impact of alternative effluent treatment levels on specified types and
sizes of model livestock slaughter plants and meat packinghouses is
shown in Table VI-2. In general, imposition of BPT controls result in
a moderate reduction and BAT controls impact severely on incomes.
Slaughter plants are hit harder than packinghouses and small plants
show greater relative reductions in income than do larger plants. The
relative income impacts are as follows:
Percent reduction from "baseline"
income
Type and size of plant BPT BAT
Simple beef slaughter
Small 26 183
Medium 5 46
Complex beef slaughter
Medium 9
Large 6
Simple beef-hog slaughter
Small 15 120
Medium 7 "4
Complex beef-hog slaughter
Medium 9 7i
Larue o 4i
Low - process packinghouse
Small i ii ' *
Medium 4 24
Larye ' 15
2. Pre-Tax Rate of Return on Average Invested Capital
Pre-tax rate of return on average invested capital for specified types and
sizes of plants as affected by alternative effluent control levels is shown
in Table VI-3. The impact of effluent control costs operates in the
same way as was the case for pre-tax income.
/I-7
-------
Table VI-Z. Pre-tax net income for model meat packing plants, alternative
effluent treatment levels, assuming no price change
Simple beef slaughter
Small
Medium
Complex beef slaughter
Medium
Large
Simple beef-hog slaughter
Small
Medium
Complex beef-hog slaughter
Medium
Large
Low-process packinghouse
Small
Medium
Large
Baseline
($000)
35
315
322
651
59
322
330
720
125
846
1,998
BPT
($000)
26
299
292
609
50
301
300
678
113
816
1,960
BAT
($000)
-29
170
88
355
-12
148-
96
424
35
645
1,704
VI-8
-------
Table VI-3. Pre-tax rate of return on average invested capital for model
meat packing plants, alternative effluent treatment levels,
assuming no price change
Simple beef slaughter
Small
Medium
Complex beef slaughter
Medium
La rge
Simple beef-hog slaughter
Small
Medium
Complex beei-hoe slaughter
Medium
La rse
Lovv- process packinghouse
Small
Medium
La rce
Baseline BPT BAT
1%) (%) (%)
8.0 6.2 0
14.0 12.9 7.3
14. 1 12. 7 4.5
15.9 14.7 8.6
12.0 10.2 0
14.4 13.3 6.7
!4.5 13.1 4.9
18.2 16.°' 10.4
i0.f> 9. 7 3. !
ib. 5 15.8 12. i
c 1 . 7 Z ! . 1 18.0
VI -9
-------
Imposition of BPT controls reduces the rate of return somewhat and BAT
controls reduce rates of return to near or below zero for small model
plants.
BPT controls reduce returns, over the Baseline case, by nearly 2 per-
cent for small plants, 1-1.5 percent for medium sized plants and 0.5
to 1. 0 percent for large plants.
BAT controls have substantial impacts on returns of small plants,
dropping returns by 5 percent or more. Medium and large model
slaughter plant returns are reduced by about 6 percent arid medium
and large packinghouse returns drop by about 3 percent.
3. After-Tax Return on Average Invested Capital
After-tax returns on average invested capital are shown in Table VI-4.
Returns are relatively low even in the baseline situation. BPT controls
reduce returns somewhat and BAT controls reduce after-tax returns to
less than 6 percent for all slaughter plants and for small packinghouses.
Only medium and large packinghouses have after-tax returns exceeding 6
percent with BAT controls in place.
4. After-Tax Return on Sales
The meat packing and livestock slaughter industry normally operates on
after-tax returns on sales of one-half to one and one-half percent. Table
VI-5 presents model plant after-tax returns on sales for alternative
effluent control levels. With baseline controls in place, returns for
slaughter only plants average near 0.5 percent and packinghouses average
near 1.0 percent. Imposition of BPT controls reduces returns on sales
only a small amount. BAT controls reduce returns on sales for all
slaughter plants to extremely low (0. 33 or lower) levels. Packinghouses
survive fairly well with BPT controls in place, but BAT controls have a
substantial impact on the small plants.
5. Estimated Cash Flow as a Percent of Average Invested Capital
Estimated cash flows on average invested capital for the model meat
packing plants are shown in Table VI-6. In the baseline case, simple
slaughter plants have cash flows percentages nearly equal complex
plants of the same size and specie. The ratios are slightly more
favorable for the combined beef-hog plants than for beef only. How-
ever, in actual practice, most hogs are cut and processed by the same
firm that does the slaughter. Also, most hog carcasses that are sold
VI-10
-------
Table VI-4. After-tax return on average invested capital for model meat
.:ackin
-------
Table VI-5. After-tax return on sales for model meat packing plants,
alternative treatment levels, assuming no price change
Baseline
BPT
BAT
Simple beef slaughte-
Small
Medium
Complex beef slaughter
Medium
Large
Simple beef-hog slaughter
Small
Medium
Complex beef-hog slaughter
Medium
Large
Low-process packinghouse
Small
Medium
Large
0.28
0.43
0.44
0.45
0. 56
0.52
0.52
0. 57
0.80
9.94
1. 11
0.21
0.40
0.40
0.42
0.48
0.48
0.47
0.53
0.73
0.91
1.08
<0
0.23
0. 12
0.24
-------
by formula pricing. Hence, we may have reflected a small portion of
the processing margin in the carcass price when estimating the typical
formula price (wholesale prices of whole hog carcasses are not published).
The cash flows are higher for processing than for slaughter as is
generally acknowledged in the industry. Cash flow percentages vary
by size within a segment but, not excessively.
BPT and BAT controls reduce the cash flows. Although the BPT cash
flows are only slightly smaller than baseline, the BAT impact is substantial
if no price increases are assumed.
6. Estimated Annual Cash Flows
Estimated cash flows in dollars appear in Table VI-7. These data
verify the conclusions reached with respect to the percentages shown in
Table VI-6. Also, the grossly differential impacts of BAT treatment
requirements can be readily seen when dollar cash flows are examined.
The percentage reduction from baseline to BAT ranges from o percent
for the large packinghouse to 98 percent for the small simple beef
slaughter plant.
C. Production Effects
BPT guidelines are not expected to significantly effect red meat production
volume. The impact of BAT water pollution control requirements on pro-
duction of meat and processed meat products will occur principally through
the closure of small plants where volume of production is such that the
incremental costs required to install additional water pollution control
systems make the continued operation of these plants uneconomic. However,
such plants account for a small part of total industry production.
1. Production Curtailment
No significant long run curtailment in total production resulting from the
imposition of inc reased water pollution control requirements is expected.
Although aggregate volume data by plant size are not available, value of
shipments in relation to employment in 1967 is available and will provide
an indication of the relative volumes of different sizes of plants.
VI-13
-------
Table VI-6. Estimated cash flow on average invested capital for model
meat packing plants, alternative effluent treatment levels,
assuming no price change
Simple beef slaughter
Primary BPT BAT
Small
Medium
Complex beef slaughter
Medium
Large
Simple beef-hog slaughter
Small
Medium
Complex beef-hog slaughter
Medium
Large
Low-process packinghouse
Small
Medium
Large
11.0
14.4
14.5
15. 1
13.6
14.8
15.0
16.7
14.2
17.2
19.9
9.9
13.8
13.7
14.5
12.7
14.2
14.2
16.1
13.6
16.8
19.6
0.2
11.4
10.0
11.7
5.5
11.2
10.5
13. 1
10.7
15.3
18. 1
VI-14
-------
Table VI-7. Estimated cash flow for model meat packing plants, alternative
effluent treatment levels, assuming no price change
Simple beef slaughter
Small
Medium
Complex beef slaughter
Medium
Large
Simple beef-hog slaughter
Small
Medium
Complex beef-hog slaughter
Medium
Large
Low -process packinghouse
Small
Medium
Large
Primary
($000)
48
323
331
617
67
332
342
658
163
886
1,826
BPT
($000)
44
315
319
601
64
324
330
642
159
874
1,812
BAT
($000)
1
275
245
508
25
272
256
549
132
814
1,719
VI - i 5
-------
Meat Packing - 1967
Value of shipments
Number of employees Number of plants Millions of $ % of total
Less than 20 1742 517.4 3.3
20 - 49 420 1235.8 7.9
50 - 99 221 1726.4 11. 1
100 - 249 169 2827.9 18.2
250 - 499 84 3388.9 21.7
500 - 999 30 1835.8 11.8
1000-2499 23 2246.5 14.4
2500 and over 8 1797.4 11. 6
Total 2697 15576, 1 100.0
In terms of the large, medium and small classifications used in this
study, large plants would employ 250 or more employees, medium
plants 50 to 249 and small plants 49 or fewer. Based on these em-
ployment levels, the volume relationships would be as follows:
Small plants 11.2 percent of total shipments
Medium plants 29. 3 percent of total shipments
Large plants 59.5 percent of total shipments
Since the livestock slaughter and meat packing industry commonly operates
at less than 100 percent of capacity (85 percent utilization was assumed
in this report), and since plant closures would occur mainly among small
plants which account for only slightly over 10 percent of total production,
it is anticipated that the remaining plants could easily absorb the volume
which would be lost through plant closures. In reality, the principal
determinant of the volume of livestock slaughtered is the number of
slaughter livestock produced and marketed off farms. To the extent that
it becomes necessary, remaining plants could extend their work week and
start double-shifi operations to pick up the volume of plants which close.
2. Plant Closures
Plant closures in the meat packing and slaughter industry would be
greatest among small plants with a much greater impact on slaughter
only plants than would be the case for meat packinghouses.
It is recognized that in some plants cooler space is not adequate to
allow double shifts for prolonged periods. However, many plants have
enough cooler space for double shifts and most have enough for at
least one and one-half shifts.
VI-16
-------
It becomes difficult to isolate those instances where closures would re -
suit from the imposition of effluent controls from those instances where
plants would have closed due to other reasons (obsolescence, poor man-
agement, etc.). However, in the analysis of projected plant closures,
an allowance was made for historical trends in plant numbers in this industry.
A further complicating factor is that, in spite of declining plant numbers,
total volume of slaughter in the industry has risen rapidly, especially in
recent years. This increasing total demand for meat and meat products has
been the result of two principal factors, (1) increasing population and (2)
increasing per capita consumption. Increasing per capita consumption
has been largely influenced by gains in disposable personal incomes since
the demand for beef is income-elastic.
DPRA estimated base numbers of plants in 1977 and 1983 on the assumption
all existing (1973) plants have controls in place equivalent to baseline
conditions. The DPRA base number of plants, shown for 1977 and 1983
in Tables VI-10, VI-12, and VI-14 reflect changes in plant numbers
related to non-effluent control factors. For example, as substantial
numbers of small plants close and as the total demand for red meats is
expected to continue to increase, it is anticipated that new construction
in the industry will be primarily directed toward large plants, but
some medium-sized plants will continue to be built.
a. NSPS guidelines
Table VI-9 shows the estimated percentage of plants operating in 1973
with profits sufficient to warrant replacement investment under NSPS
treatment levels, assuming no compensating price increase to offset
effluent control costs. Three effluent control conditions are specified --
Baseline, pre - 1 983 and post - 1 983.
Baseline impact - If only baseline effluent controls are speci-
fied, and if all plants are valued at replace-
ment cost, the imposition of these controls
would make unprofitable nearly all small
slaughter plants and meat packinghouses,
approximately 75-80 percent of the medium-
sized plants, 75 percent of the large beef
slaughter plants, over half of the large com-
bined slaughter plants and over 25 percent
of the large packinghouses.
VI-17
-------
Table VI-9. Percentage of plants operating in 1973 with profits sufficient
to warrant replacement investment under NSPS treatment
levels, assuming no price change
Type and size of plant
Simple beef slaughter
Small
Medium
Complex beef slaughter
Medium
Large
Simple beef-hog slaughter
Small
Medium
Complex beef-hog slaughter
Medium
Large
Low-process packinghouse
Small
Medium
Large
Baseline
%
< 1
10
18
26
3
13
12
46
2
31
72
Pre-1983*
%
0
6
4
19
1
9
7
38
1
28
71
Post-1983=
%
0
0
0
1
0
0
0
7
0
12
57
* NSPS guideline costs are assumed equal to BPT until 1983 at which time
they will equal BAT costs.
VI-18
-------
Pre-1983 impact -
Post-1983 impact -
With all values at replacement cost, pre-1983
guidelines would result in additional plants
becoming unprofitable, particularly in the
medium sized plants where an additional 4
percent (about 12 plants) would become
unprofitable. The impact would be less
severe on the large plant category.
The imposition of BAT equivalent controls,
which add substantial investment and
-operating costs, would have a severe impact
on profits if all plants were valued at re-
placement cost. All small plants (both
slaughterhouses and meat packinghouses) would
become unprofitable, as would all medium
sized slaughter plants and 88 percent of
medium packinghouses. Less than 10 per-
cent of the large slaughter plants would
remain profitable, but 57 percent of the
large packinghouses would continue
profitable.
In conclusion, NSPS guidelines are expected to have very little, if
any, impact on new packinghouse construction rates. Pre-1983 impacts
on slaughter plants 'would be a larger relative advantage for large
plants. Post-1983 impacts would retard plant construction in non-
sewered areas but, not drastically. However, unless profit margins
widen, it would be nearly impossible to justify construction of new
slaughterhouses in non-sewered areas after 1982.
b. Plant closures, BPT(1977)
Table VI-10 shows projected BPT plant closures. Closures shown are
only those which would result from the imposition of BPT requirements
and thus are in effect incremental above Baseline control levels. The
1977 base numbers are the number of plants projected to exist in 1977
without the imposition of BPT controls. As seen from Table VI-10,
the imposition of BPT is expected to result in one small slaughter
plant closure. Although BPT costs are appreciable and would reduce
profits, they are not generally great enough to result ,a plant shutdowns.
VI-19
-------
Table VI-10. Projected BPT (1977) effluent control-associated plant
closures, meat packing and slaughter plants
Type and size
of plant
1977
numbers
Projected 1977 closures-
% of total Number
Slaughter only plants-
Small
Medium
Large
Packinghouses
Small
Medium
Large
Total
I/
83
39
17
247
109
48
543
< 1
0
0
0
1
0
0
0
0
0
I/
2.1
1973 - 80% of total number of plants are packinghouses.
1977 estimate is that 82.5% of total number of plants would be
packinghouses.
Base numbers include only those plants classified as direct dis-
chargers and, hence, exclude those served by municipal sewers.
VI-20
-------
Table VI-11 shows the combined impact of BPT treatment costs and
other factors in terms of expected changes in plant numbers 1973-1977.
A pronounced shift from small to larger plant sizes results. For
slaughter plants, small operations are reduced in number by 36 plants
or 20 percent as compared to 1973. A loss of 12 medium-size plants
(15 percent) is projected, but a gain of 8 large plants (36 percent) is
projected. The gain in large plants results both from the construction
of new plants and from the expansion of existing medium sized plants
into the large category. The loss in medium plants results both from
plant closures and from expansion of existing plants into the large
category.
d. Plant closures, BAT
Table VI-12 shows projected BAT plant closures. Closures shown are
those above those resulting from the imposition of BPT controls and are
thus incremental in nature. The 1983 base numbers shown in Table VI-12
reflect closures (since 1973) due to imposition of BPT controls as well
as closures due to factors not associated with effluent controls. For the
large category the increase in numbers reflects both new plants and
expansion of plants formerly classified in the "medium" size category.
As seen from Table VI-12, the imposition of BAT controls, without
compensating price increases, results in the closure of 71 percent of
the small slaughter plants, 12 percent of the medium slaughter plants and
7 percent of the small packing plants. Large plants are not severely
impacted. However, BAT controls would result in the expected closure
of 67 plants. BAT control systems involve more complex and technically
sophisticated waste treatment equipment with the results that both in-
vestments and annual costs are substantial. For small plants, invest-
ment per plant would be near $250, 000 (Table V-7, above) with annual
costs of nearly $100, 000. Medium plants would require BAT investments
of over $500, 000 with annual costs of over $250, 000. Large plant in-
vestments would be near $750, 000 and annual costs over $300, 000.
Table VI-13 shows the combined impact of BAT control costs, BPT
costs and other factors as they influence changes in plant numbers 1973-
1983. BAT controls, with no compensating price increases would close
45 small slaughter plants, 4 medium slaughter plants and 1 large slaughter
plant, 16 small packinghouses and 1 medium packinghouse. The cumulative
effect of effluent controls plus the influence of other factors not associated
with effluent controls would result in the closure of 65 percent (115 plants)
of the number of small slaughter plants which existed in 1973 and 36 percent
VI-21
-------
~aMe VT-11. Projected cVianpns in sla",-b.'erho-.. se an-irr^at packing plant numbers, 1973-19V7
d-'e to both affluent controls and other factor s J_'
Type and size of
plant
Slaughter only
Small
Medium
Large
Meat packing
Small
Medium
Large
Total
Estimated
plant nos.
1973
178
80
"? *~
750
305
85
1,420
Change in plant nos. due
to non-effluent factors '
Number
-34
-1"
+ 8
-bb
+ '
+ 50
-41
% of 1973
-19
-15
-1-3 S
- 7
+ 1
+59
-
Change in plant nos.
due to effluent controls
Number
- 2^
0
0
0
0
0
-
% of 1973
-1
0
0
0
0
0
-
Total
change
no. plants
-36
-12
+ 8
-55
+ 2
+50
-43
Plants remaining,
1977
Number
142
68
30
695
307
135
1, 377
of 1973
80
85
136
93
101
159
-
Includes both sewered plants and direct dischargers.
' Anticipated change in plant numbers due to factors not related to effluent control such as obsolescence, poor
management, new plant construction, etc.
Assumes 1 sewered plant and 1 direct discharger will be closed due to incremental treatment costs.
-------
Table VI- 12. Projected BAT (1983) effluent control-associated plant
closures, meat packing and slaughter plants
Type and size
of plant
Slaughter only plants'
Small
Medium
Large and extra large
Packinghouses
Small
Medium
Large and extra large
Total
1983 Base ?-J
numbers
63
3<2
20
227
110
69
521
Projected closures by 1983
% of total Number
71 45
12 4
4 1
7 16
1 1
0 0
67
1973 - 80% of total number o'f plants are packinghouses .
1983 estimate is 85% of total number of plants would be packinghouses.
Includes only those plants classified as direct dischargers.
Assumes plants have met BPT controls in 1977.
-------
Table VI-13. Projected changes <.r slau £/.terhouse ar-d n-.eat packing plant n\,rr<]>ers, l-V3-lv83
due to both effluent controls and other factors /
Type and size of
plant
Slaughter only
Small
Medium
Large
Meat packing
Small
Medium
Large
Total
Estimated
plant nos.
1973
178
80
22
750
305
85
1, 420
Change in plant nos. due
to non-effluent factors.-'
Number
- 68
- 25
+ 13
-110
i 5
+ 110
- V5
% of 1973
- 38
- 31
+ 59
- 15
+ 2
+ 129
-
Change in plant nos.
due to effluent controls
Number
-47 I/
- 4
- 1
-16
- 1
0
-67
% of 1973
-26
- 5
- 5
- 2
0
0
-
Total
change
no. plants
-115
- 29
1- 12
-126
+ 4
-110
-144
Plants remaining,
1983
Nurn !.><- r
63
51
34
624
309
195
1,276
of 1973
35
64
155
83
101
229
-
Includes both sewered plants and direct dishcargers.
_' Anticipated change in plant numbers due to the imposition of factors not related to effluent control such as
obsolescence, poor mana gement, new plant construction, etc.
_' Assumes 1 sewered and 1 direct discharger will be closed due to incremental treatment costs during the period,
1973-1977.
-------
(29 plants) of the medium slaughter plants. However, a 55 percent
increase (12 plants) is projected for large slaughter plants. Primarily
small packinghouses would be shut down by 1983, but the number (126
plants) represents 17 percent of this industry category. Little change
is projected for medium-sized packinghouses, but large packinghouses
are expected to more than double in number by 1983.
e. Very small plant closures
It is estimated that there are approximately 4, 600 very small slaughter-
houses, meat packinghouses, custom butchers and locker plants which
slaughter. These are plants which average less than 2 million pounds
annual kill, which is equivalent to a kill rate of 7-8 1, 040-pound steers
per day for 250 days per year. Many of these plants will kill even smaller
numbers of livestock. For example, it is estimated that there are 2, 600
frozen food locker plants which slaughter for their customers and average
approximately 500, 000 pounds annual kill, less than 2 steer-equivalents
per day. Many other small custom butchers would fall in this category.
It is estimated (by EPA) that 50 percent of these very small plants may
be discharging into municipal sewers. The balance probably either have
lagoon systems, septic tanks or discharge raw effluent.
There are no reliable data on costs of effluent treatment systems for
these plants. EPA estimates an average investment cost of $10, 000
would be required for effluent treatment for locker plants. Estimated
annual costs would total $2, 000, consisting of capital cost $1, 000, de-
preciation 400 and other direct operating costs $600.
A large proportion of these very small slaughterers kill livestock as a
service or as an adjunct to another business. Locker plants, retail
butchers, small sausage processors, custom slaughterers, institutions
(educational and others), specialized food processors and other similar
firms are included in this group together with very small slaughterhouses.
No information exists regarding the relative numbers of such firms, ex-
cept the estimate of locker plants.
In most instances, those firms where slaughter is conducted as a service
(e.g. locker plants) or where slaughter is a necessary, but minor part,
of their overall operations, would survive. This could account for as
many as 3, 600 units. Educational and other institutions (prisons, etc.)
would survive as their costs are supported by public funding. This could
VI-25
-------
add another 200 plants. Of the remaining 800 plants, 400 are estimated
to be on municipal sewers, and due to the low volume of effluent generated
and in view of the possibility of further effluent reductions by improved
in-plant operating procedures, it is expected that these plants would also
survive.
Of the remaining 400 very small slaughterers, the low kill volume (2
to 3 head per day as an average), together with killing and cutting
practices of such small killers would result in low volumes of effluent.
Most of these small killers have established sources of disposal of offal
and blood (often sold to Tenderers) and the volume of liquid wastes
generated could, in most cases, be handled by ordinary septic tank
systems. It is believed that most of these small plants have adequate
septic tank systems. Although some closures would undoubtedly
result where plants are discharging raw sewage into streams, it is
expected that only a small number of plants would be affected and the
impact on production and employment would be insignificant.
D. Employment Effects
1. Employment Trends
Employment in the meat packing industry has declined steadily during the
past 20 years in spite of a steady uptrend in the volume of meat produced
by the industry.
Employment in meat packing-
Year Total employees production workers
(000) (00 0~)
1954 220.2 167.8
1958 201.0 150.9
1963 181.0 138.8
1967 170.5 130.8
_' Source: U.S. Department of Commerce, Census of Manufactures.
Although declining employment and increasing output would mean that pro-
duction per man-hour has increased, it must be recognized that part of
this increase in labor productivity is the result of automation and other
technological improvements in plant and equipment which increase the
output per man-hour.
VI-26
-------
A relatively large proportion (75 percent) of the total employees of meat
packing and meat processing industries are production workers.
Table VI-14shows employment by size of firm. In the meat packing industry
a high proportion of the firms (65 percent in 1967) employ fewer than 20
employees, but account for only a small percent (4. 5 percent in 1967) of
the total industry employment. At the other end of the scale, 8 large firms
(0.3 percent) employed 15.3 percent of the industry total in 1967.
2. Wages
Wages in the meat packing industry are relatively high. In terms of total
payrolls, ave ra ge annual wa ge s in 1972 ranged from about $6 , 700 in small
plants to over $10,000 in large plants. The distribution of wa ges in 1967
was as follows:
No. employees per plant
1-4
5-9
10-19
20-49
50-99
100-249
250-499
500-999
1,000-2,499
2, 500 +
1967.L'
$5,353
Average annual wage
Estimated 1972
5, 500
5,366
6, 060
6,450
6,971
7, 537
7,701
8,044
8,321
$6,700
6,900
6,700
7,600
8, 100
8,700
9,400
600*
100
9
10
10,400
! 1967 wages inflated by 1972 CPI.
' Source: U.S. Department of Commerce, Census of Manufacturers,
3. Unemployment Associated vith Plant Closures^
As indicated in section C, the following plant closures might be antici-
pated as a result of the imposition of water pollution controls on the meat
industry.
VI-27
-------
Table VI-14, Employment in the meat industry, employees per
firm, by size group, 1958, 1963, 1967J./
Meat Packing
1967
Number of
employees
No.
plants
Em-
ployees
1963
No.
plants
(000)
Less than
20
20-99
100-499
500-999
1,000-2,499
2 , 500 or more
Total
1,742
641
253
30
23
8
2,697
7.
28.
54.
22.
31.
26.
170.
6
6
3
1
7
1
5
2,016
677
232
34
24
9
2,992
Em-
ployees
(000)
9.9
29.2
49.8
24.7
36. 5
31. 1
180. 9
1958
No.
plants
Em-
ployee s
(000)
1,824
668
231
38
30
10
2, 801
10.
29.
51.
26.
46.
37.
200.
0
0
5
1
5
7
8
I/ «
Source: U.S. Department of Commerce, Census of Manufacturers.
VI-28
-------
Number Closed
Type &t size of plant
Meat packinghouses
Small
Medium
Slaughter plants
Small
Medium
Large
BPT
No price increase
0
0
1
0
0
BAT
No price increase
16
1
45
4
1
Unemployment and payrolls lost as a result of these plant closures was
estimated to be as shown in Tables VI-15 and VI-16. In summary,
these losses were as follows:
Level of Control
BPT, no price increase
BAT, no price increase
Jobs Lost
25
2,765
Payroll Lost
($000)
$ 130
21,890
4. Possibility of Re employment in New Plants Being Built
There would be little probability that new plants would be built in the
same area to replace small or obsolete plants which were forced to
close because of their inability to add necessary equipment to comply
with water pollution control requirements. Small meat packing,
slaughter or processing plants face substantial disadvantages due to
economies of scale in slaughtering, processing and water pollution
control operations. As a result, it is doubtful that these small plants
would be replaced since medium or large plants are widely distributed
geographically and could absorb the added volume represented by these
small plants. Obsolete plants are most likely to persist in areas where
the meat packing and processing industries are declining and as a result
there would be little inducement to replace plants in these areas.
VI-29
-------
Table VI- 15. Estimated unemployment and wage losses resulting from imposition of BPT
effluent controls on the meat industry, no compensating price increases
Est. employees Est. annual
pe r plant Estimated unemployment salary or wage Estimated wage loss
Est. No. Sup. Sup. Sup. Sup.
closures I/ & sales Prod'n. & sales Prod'n. Total & sales Prod'n. & sales Prod'n. Total
Type and size
of plant
Slaughter plant,
< small
,' medium
20
20
(000) (000) (000)
25 10,000 6,000 $10 $120 $130
Total
20
25
$10 $120 $130
I/
- Assumes plants have already met Baseline effluent control requirements.
-------
Table VI- 16. Estimated unemployment and wage losses resulting from imposition of BAT
effluent controls on the meat industry, no compensating price increases
Est. employees
pe r plant
Type and size
of plant
Meat packinghouse,
<; small
V medium
OJ
Slaughter plant,
small
medium
large
Total
Est. No.
closures ]J
16
1
45
4
1
67
Sup.
& sales
10
40
5
25
50
-
Prod'n.
40
100
20
75
250
-
Est. annual
Estimated unemployment salary or wage
Sup.
& sales
160
40
225
100
50
575
Prod'n.
640
100
900
300
250
2, 190
Total
800
140
1, 125
400
300
2,765
Sup.
& sales
12,500
14,000
10,000
14,000
16,000
-
Prod'n.
7,000
7, 500
6,000
7,500
8, 000
-
Estimated wage loss
Sup.
& sales
(000)
$2,000
560
2,250
1,400
800
$7,010
Prod'n
(000)
$4,480
750
5,400
2,250
2,000
$14,800
Total
(000)
$6,480
1,310
7,650
3,650
2,800
$21,890
I/
Assumes plants have already met Baseline effluent control requirements.
-------
5. Absorption of Laid-off Employees by Other Plants
Little opportunity would exist for absorption of laid-off employees by
other plants in the same area. Although the meat industry is geographi-
cally dispersed, total employment in the meat industry has been declining
during the past ten yoars as larger, more-highly-automated plants have
been built which require fewe r employees per thousand pounds of live-
weight killed or products processed. In addition, many plants operate
only on a single-shif basis at less than 100 percent of capacity. Since
the small plants represent, in aggregate, only slightly over 10 percent
of the total volume of livestock killed or products processed, the volume
represented by these plants could be absorbed by remaining plants
without taking on additional employees.
6. Unemployment Effects on Livestock Feeders
Only minimal unemployment effects on local livestock feeders would be
likely. Feeders have alternative markets to which they can sell their
livestock. Feeders might be faced with higher transportation costs to
move their livestock to alternate markets, but since the market for
livestock and meats is spatially balanced, the transportation differential
would not be great. Feeders would normally continue feeding and no
unemployment should result in the livestock feeding industry as a
result of the closure of small packinghouses or slaughter plants.
E. Community Effects
A high proportion of meat packinghouses and slaughterhouses are
located in relatively small communities where their closure would
have a noticeable impact on the economy of the community and
surrounding area. Table VI-17 shows the distribution of Federally-
inspected slaughtering establishments by size of city in which located.
For the United States, the distribution wa s as follows:
Size of City Number of Plants
(population)
Over 500, 000
100,000 - 499,999
50,000 - 99,999
25,000 - 49,999
10,000 - 24,999
Under 10,000
Total
VI-32
-------
Table VI-17. Meat packing and slaughtering plants, number of federally-inspected plants
classified by size of city in which plants are located, August, 1972
State
Alabama
Arizona
Arkansas
California
Colorado
Del. -Md. -B.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Michigan
Minnesota
Mississippi
Mis souri
Montana
Nebraska
Nevada
New England
New Jersey
New Mexico
New York
N. Carolina
N. Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
S. Carolina
S. Dakota
Tennessee
Texas
Utah
Virginia
Washington
W. Virginia
Wisconsin
Wyoming
Total
Over
500, 000
4
16
9
-
-
-
-
-
9
2
-
4
-
1
8
7
-
11
-
-
-
-
-
1
-
-
6
-
7
-
-
4
16
-
-
1
-
8
-
114
Plants
100,000-
499, 999
2
2
4
4
3
5
1
-
1
-
3
1
2
5
10
1
1
-
-
2
-
19
-
1
5
2
14
1
-
13
3
5
2
2
-
5
12
2
1
3
-
1
-
138
in cities having a population of:
50, 000-
99, 999
1
7
2
-
-
2
-
1
2
1
5
-
3
1
-
-
1
3
4
-
1
2
-
-
3
-
2
1
-
1
3
-
2
-
6
2
1
1
-
3
-
61
25, 000-
49, 999
1
1
1
4
-
-
-
-
1
5
2
5
2
2
1
2
3
-
1
1
1
-
2
-
3
2
1
-
5
3
1
1
-
1
1
4
-
2
2
-
1
-
62
10, 000-
24, 999
1
2
13
3
1
3
3
-
3
5
2
2
8
2
1
2
3
2
2
5
8
-
4
1
2
1
4
2
4
3
2
4
3
5
2
13
-
3
5
-
2
1
133
Under
10, 000
2
1
17
4
4
3
3
-
3
15
5
24
6
23
4
4
48
4
5
20
62
1
9
6
8
18
7
33
9
2
6
11
1
-
2
22
5
17
10
1
6
-
431
VI-33
-------
From this distribution, it is seen that 60 percent of all Federally-inspected
slaughtering establishments were located in cities of less than 25,000
population. If over 4,600 very small slaughter plants, which are not
Federally-inspected, were added to this tabulation, the proportion of
slaughter plants in small communities would be much higher, probably
greater than 75 percent.
The closure of a small plant could result in a reduction in payrolls of over
$400,000 which would be approximately equivalent to 0.65 percent of the total
payroll of a city of 25, 000 (based on 8, 000 employed workers earning $8, 000
each). Assuming a multiplier of 3.5, the loss of a small meat plant could
reduce the economic base of the community by as much as $1,400,000. A
medium-size plant would carry an impact of from $3 , 000, 000 to $5, 000 , 000.
For a city of 8, 000 the loss of a small plant would reduce city payrolls by
5 percent with a corresponding reduction in the economic base of the
community. In addition to the loss in payrolls, the direct loss in purchases
of utilities, transportation services, office supplies, and other items by
the plant would be felt throughout the community.
Other suppliers, i.e. spice companies, container manufacturers, equip-
ment manufacturers, etc. , are usually located in major metropolitan
areas and in most instances would not be located in the communities
where small plant closures would be anticipated.
Other community impacts would be felt in the loss in taxes which would
result from the closure of the plant. In many localities, especially in
recent years, packinghouses have been financed thru use of municipal
revenue bonds and in such instances, closure of a plant results in added
burdens for the city budget.
Although livestock feeders in the area served by the packinghouse and
the community would be able to find alternative markets for their live-
stock, the loss of a strong local livestock market forces these producers
to ship to more distant markets, incurring a greater transportation cost
and resulting in lower net returns at the farm level. The reduction is farm
income would also be felt throughout the community.
VI-34
-------
It is impossible to determine precisely the number and location of the
communities where meat slaughterhouse or packinghouse plant closures
would occur. However, as shown earlier in this section, a high proportion
of these plants are in relatively small communities. Also, it is known that
over 90 percent of firms in the meat industry are single-plant firms and
approximately 85 percent of the plants are owned by single-plant firms.
In addition, virtually all of the small plants would be owned by single-
plant firms. Finally, very few small communities would have more than
a single meat plant. As a result, it would follow that the number of
communities impacted by plant closures would be close (within 10 percent)
to the number of plants closed.
Given this situation, the number of communities impacted by commercial
plant closures would be approximately as follows:
Level I, no price increase - 1 communities impacted
Level II, no price increase - 67 " "
F. Balance of Payments Effects
The United States is not a major exporter of meats, but on the other
hand is importing increasingly large amounts of meats, mainly beef,
mainly from Australia and New Zealand.
Meat Imports
Imports of all red meats for the period 1955 through 1971 are shown in
Figure VI-1 and Table VI-18. Quantities imported rose from 258 million
pounds in 1956 to 2, 387 million in 1970, dropped off slightly in 1971, but
rose to a record of 2, 653 million pounds in 1972.
Of the total quantity imported in 1972, 2, 653 million pounds, beef and
veal accounted for 1,996 million (75.2%), pork 508 million pounds (19.2%)
and lamb, mutton and goat 149 million pounds (5.6%).
The total quantity of red meats net imports in 1972 was equivalent to 7.2
percent of U. S. production. For beef, imports amounted to 8. 7 percent
of U. S. production, for pork 3.7 percent and for lamb and mutton, 27.4
percent. However, for specific classes of meat, e, g. , boned, frozen
lean beef, imports represent a much more important part of total supplies.
VI-35
-------
U.S. IMPORTS 0? RED HEATS
BIL. LB.
LAMB, MUTTON, GOATMEAT
0
1960
1970
U S. OEFARTMtNT OF AGK If. UL Tl'R f
CARCASS WC.GHT EQUIVALENT.
NFC FA1- Jd09 - M 3 '
$ Bl
1.0
0.8
0.6
0.4
0.2
u.s. EIPOSTS c: ;.;V:-TOC:I rcosucTS
L.
r~1 OTHER
FTTH LIVF ANIMALS
K3 VARIETY
123 MEATS RED MEAT
kl.3 HIDES AND SKINS
CD LARD AND TALLOW
/
-"-<^
~^__ .-^^ _ ..- -r,r.j;7 .; ' _,.,-
^ ^. : .-,;" ." ' " - : r~~' - '-:-:'.^
iii&'-&&^'' : :' 'I
-
-
-
-
I
1966 1968 1970 1972 1974
U.S. DEPARTMENT OF AGRICULTURE NE G. F AS J408 - 73 ( 3 > FO REIGN AGRICULTURAL SERVICE
Figure VI-1.
U. S. imports of red meats and exports of livestock
products, 1960-1972
VI-36
-------
Table VI-18. U. S. meat impoi ts, byproduct, 1960-1972-
Year
Product
Beef
Boneless fresh
or frozen
Fresh or frozen
Canned or cured
Total
Veal
Fresh or frozen
Pork
1972
1, 714.
12.
233.
1, 960.
36.
5
3
4
2
1
1971
1,447.4
22. 1
264.2
1,733.7
21,8
1970
1,484.
24.
283.
1,792.
23.
2
3
7
2
5
1969
1, 348. 9
19.6
246. 3
1,614.8
25.7
1968
1,224.7
26.8
248,2
1,499.7
18.3
1967
1, 116.0
11.7
185.8
1, 313. 5
14.2
1966
986.
20.
174.
1, 182.
22.
7
7
8
2
0
1965
734.3
29.3
159.4
923.0
18.8
1964
919.2
17.2
131.3
1,067.7
17.5
1963
1,362.8
19.9
268.4
1,651. 1
26.4
1962
1, 182.
18.
212.
1,414.
25.
9
8
6
3
5
1961
764.8
25, 1
230,8
1,020.7
16.5
I960
556.8
14.7
188.7
760.2
15.3
Fresh 01 frozen 64.4 62=3 55.5 42.9 48.4 47.4 42.0 47.9 39.2 37.0 40.5 36.6 38.4
Hams & shoul-
ders, canned
Other
Total
Lamb
Mutton & Goat
Total red meat
403.
40.
508.
37.
1 11.
2, 653.
6
2
2
3
2
0
357,
38,
458.
38.
64.
2, 316.
4
9
6
2
6
9
339.
53.
448.
43.
79.
2,386.
7
2
4
5
0
6
314.
51.
408.
43.
108.
2;201.
7
2
8
9
4
6
306,
61.
416.
22.
124.
2,081.
5
2
1
9
0
0
284.
60.
392.
12.
108.
1, 841.
6
5
5
3
6
1
267.6
71.7
381.3
14,9
121. 1
1,721. 5
236.
48.
333.
12.
60.
1,347.
7
4
0
5
0
3
189.
38.
267.
10.
68.
1,431.
7
5
4
4
6
6
165.
22.
225.
18.
125.
2,047.
2
8
0
9
8
2
154. 9
20.4
215.8
13.2
130.0
1,798.8
135.6
15.0
187.2
10.9
89.8
1,325. 1
133.
13,
185.
12.
74.
1,048.
3
9
6
4
6
2
Sources: Livestock and Meat Situation, ERS, USDA, various issues.
-------
Imports of beef have nearly tripled since I960 (Table VI-18),with virtually
all of the increase being imports of boneless beef for use in hamburger
and other fabricated beef products. Veal imports have remained relatively
stable. Pork imports have increased 175 percent with the bulk of the in-
crease represented by imports of canned hams and shoulders. Imports of
lamb were relatively constant until 1967, but have tripled since that time.
Imports of mutton and goat declined through 1971, but rose sharply in 1972.
In 1972 Australia and New Zealand together supplied 52. 0 percent of total
U. So meat imports, mainly beef, lamb and mutton. Denmark and the
Netherlands supplied 12.5 percent, mainly hams and bacon, 6.4 percent
came from Canada, 4. 7 percent from Argentina and 4. 3 percent from
Mexico. Other important sources include Poland, Ireland and Brazil
(Table VI-19).
Meat Exports
U. S. exports of meats are relatively small, 168.8 million pounds in 1972
and a substantial part of this total is meat by-products. Total exports
equal five-tenths of one percent of U. S. production and are equal to only
4. 8 percent of meat imports.
Exports go primarily to Canada and the Caribbean although Japan has be-
come an increasingly important market in recent years (Table VI-20).
In 1972 Canada took 41.9 percent of total U. S. meat exports, the Bahamas
and Jamaica 9.5 percent, Japan 28.9 percent and the remaining 19.7 per-
cent to other countries.
In December, 1972 meat-import quotas were suspended for 1973, ex-
tending an action taken in June 1972 to help check rising food costs.
It was expected that the strong economic expansion expected to continue
during 1973 would lift demand for meat, putting "upward pressure" on
prices. Suspension of the quotas was designed to moderate those in-
flationary pressures by encouraging increased imports of meat into the
U.S.
PL 88-482 thus provides a barrier to substantial increases in the imports
of red meats and would tend to dampen a tendency toward increased meat
imports which might result if the wholesale price of meats in the U. S.
were forced upward by increased costs associated with water pollution
control requirements.
VI-38
-------
Table VI-19. U.S. meat imports, by country of origin, 1950 and I960 and 1962-1972,
million pounds product '
Country of origin
Australia
New Zealand
Canada
Argentina
Denmark
Netherlands
Mexico
Poland
Ireland
Brazil
All others
1972
747. 9
286.7
127. 5
94. 2
172. 1
75.7
85.9
66.7
31.3
48. 0
253. 9
1971
563.8
254.2
149.6
88.4
137.3
82.6
79.1
54.9
64. 1
63. 1
208.5
1970
596.2
263.8
144.4
141. 1
130.4
86.7
78.6
56.0
69.1
28.8
196. 1
1969
565.2
247. 1
94.6
130. 1
108.8
85.6
66.5
53.6
66.2
34.3
178.3
1968
506.4
203.8
102.2
132.6
112. 1
82.2
65.6
55.2
56.9
31.7
166.4
Yea
1967
482.5
180.3
81.7
108.6
102.4
74.6
47.8
57.2
80.8
9.6
127.0
r
1966
467.9
156. 1
105.0
80.5
117.0
65. 1
57. 1
51.7
40.0
18.3
108.3
1965
337.7
115.0
125.9
54.8
85.4
46.3
46.3
53.0
10.0
24.7
106.9
1964
411.5
176.9
80. 1
54.4
66.5
38.2
48.9
44.0
20.3
10.4
104.5
1963
582.8
250.6
63.8
87.4
77. 1
43.0
73.0
41. 1
74.2
10.9
110.8
1962
507.6
224.8
66.7
56.0
71.5
43,5
59.3
40.2
72.9
17.2
89.8
1961
278.5
165.2
77. 1
65.2
52.7
42. 1
53.5
34.8
64.6
16.3
68.7
I960
183.2
139.9
66.3
52.7
45.2
42. 1
39. 1
35. 1
53.0
9.0
Total
1,989.9 1,745.6 1,791.2 1,639.1 1,544.6 1,352.5 1,267.0 1,006.0 1,055.7 1,414.7 1,249.5 918.7 733.6
Sources: Livestock and Meat Situation, ERS, USDA and Agricultural Statistics, USDA, various issues.
-------
Table VI-20. U.S. meat exports, by country of destination, 1950 and I960 and 1962-1972,
million pounds productj.'
Country of
destination
C ana da
Japan
Bahamas
Jamaica
All othe rs
Total
1972
70.7
48.7
12.2
3.8
33.4
168.8
1971
42.6
28.3
12.5
4.2
37.4
125.0
1970
38.9
17.8
12.9
3.7
34.4
107.7
1969
78. 1
58.6
14.5
3.7
35. 1
190.0
1968
50.9
26. 1
13.7
5.0
35.4
131. 1
1967
47.8
1.4
11.6
5.0
34.2
100.0
Year
1966
44.2
.6
7.6
4.4
39.8
96.6
1965
39.7
.8
6.8
5.0
10.7
108.4
1965
69.8
8.6
6.8
6.6
107.3
199. 1
1963
100.4
15.8
5. 1
5.8
44.0
171. 1
1962
51.7
. 1
4.0
4.9
37. 1
97.8
1961
56.2
.8
4. 1
4.6
39.9
105.6
I960
37.2
3.5
4.3
4. 1
107.6
Sources: Livestock and Meat Situation, ERS, USDA and Agricultural Statistic s, USDA, various issues.
-------
In view of the role which PL, 88-482 would have in controlling volume of
imports, the major impact which increased costs and prices \\ould have
on balance of payments would be through an increase in prices on the quota
tonnage of beef imported.
A recent study, completed by the Economic Research Service, U. S.
Department of Agriculture^.' evaluated the effects of alternative beef im-
port policies on U. S. beef and pork production. Under the assumption
that PL 88-482 will remain in effect, this study projected (to 1980) a con-
tinued increase in prices of U. S. slaughter cattle and hogs, a continuing
increase in per capita fed beef consumption, no change in per capita pork
supplies and a gradual decrease in per capita non-fed beef supplies, part
of which would be offset by increases in beef imports which are allowed
to increase proportionate to increases in domestic beef production.
Figure VI-2 shows the trends in selected, relevant va riables.
This study further reinforces the conclusion that the impact of increased
meat costs, resulting from the imposition of water pollution controls on
the meat industry, would have a negligible effect on imports and exports
of meat and balance of payments associated with the meat industry.
Effects of Alternative Beef Import Policies on the Beef and Pork Sectors,
Agr. Econ. Report No. 233, ERS, USDA, October 1972.
VI - 41
-------
(A) PER CAPITA NONFED BEEF SUPPLY (B) PER CAPITA PORK SUPPLY
LB.
20
18
16
-1 14
LB.
12
10
8
6
HEAD
(MIL)
50
-
r** {
I " *
_; ; .* ;
* ' i !
-*/'"' "; A -
/ j \
y
tii 11
(C) JAN. 1 BEEF COW INVENTORY
-
i \ : .'. .;
J L
l i I
(E) CHOICE STEER PRICE
:. . ."-
i . .* «*
I I I I I I I I L
$PER
CWT.
25
20
15
(F) BARROWS & GILTS PRICE
I I I J I L.
71 73 75 77 79
'71 73 75 77 79
Figure VI-2. Projections of selected beef and pork variables, 1971-1980,
assuming a continuation of regulation of beef imports under
PL 88-482.
Source: Effects of Alternative Beef Import Policies on the Beef and Pork
Sectors, ERS, USDA, Agricultural Economic Report No. 233,
October, 1972.
VI-42
-------
VII. LIMITS OF THE ANALYSIS
A. General Accuracy
The livestock slaughtering and meat packing industry is complex in
terms of the number, ownership and geographic distribution of firms
as well as the sizes and types of plants.
Detailed data on size distribution by types of plants is not available.
Financial information concerned with investments, operating costs and
returns was not available for individual plants or firms. As a result,
the financial aspects of the impact analysis were, of necessity, based
on synthesized costs and returns for "representative" types and sizes
of model plants. These costs and returns were developed from a variety
of sources including published research from universities and govern-
ment agencies, previous studies done by the contractor, information
obtained from operating firms in the meat industry, published financial
performance data and discussions with meat processing consultants,
meat plant architects and other knowledgeable individuals.
Published information from the Internal Revenue Service, such refer-
ences as Standard and Poors, Dun and Bradstreet, and other sources
of data on financial ratios and financial performance were used as
checks on the reasonableness of results obtained in the financial analysis
of representative plants.
Throughout the study, an effort was made to evaluate the data and other
information used and to update these materials wherever possible.
Checks were made with informed sources in both industry and govern-
ment to help insure that data and information used were as reliable and
as representative as possible. For example, construction costs were
checked with established meat plant architects, working capital require-
ments were checked with the comptroller of a major meat packing firm,
rendering equipment costs were based on a firm quote from an equip-
ment supplier for a plant similar to one used in the analysis. The con-
struction of published product prices was checked with the Market News
Service, U.S.D.A. which constructs and publishes these price series.
Efforts were made to use the latest available data.
VII-1
-------
Water pollution control costs were furnished by EPA, Effluent
Guidelines Division and resulted from costs developed for EPA by
North Star Research Institute. These costs were developed for four
"typical" meat processing plants as described earlier in this report.
It was necessary to adapt these costs to the types and sizes
of model plants used in this analysis. This adaption process
required the making of assumptions and adjustments related to these
data \vhich are critical to the impact analysis. In addition, it was
necessary to make specific assumptions regarding the current status
of effluent disposal and treatment in the meat packing industry. These
assumptions are described in detail in the "Critical Assumptions"
section of this report. The validity of these assumptions and of the
effluent control costs which result introduce an additional element of
uncertainty and possible inaccuracy.
However, given the accuracy of the pollution control costs to be
acceptable, it is believed that the analysis represents a usefully
accurate evaluation of the economic impact of the proposed effluent
guidelines on the livestock slaughtering and meat packing industry.
B. Range of Error
Different data series and different sections of the analysis will have
different possible ranges of error.
1. Errors in Data - Estimated data error ranges as an average for
the industry are as follows:
Error Range
%
1. Information regarding the organization
and structure of the industry, number
location and size of plants, and other f 10
information descriptive of industry
segments
2. Price information for products and raw
materials
3. Cost information for plant investments
and operating costs
VII-2
-------
4. Financial information concerning the _+ 10
meat industry
5. Salvage values of plants and equipment _+ 20
I/
6. Effluent treatment costs
a. Small plants _+ 50
b. Medium plants + 25
c. Large plants + 10
2. Errors in Plant Closure Estimates - In Chapter VI, expected plant
closure numbers were presented. Based on the best information avail-
able to the contractor, those numbers represent the most probable
number of closures. Given the above described error ranges in the
supportive data, it is very important to recognize that the closures
presented in the impact chapter are subject to similar error ranges.
Closure numbers under the best possible and worst possible conditions
with respect to supportive data errors are described below. However,
it is believed that the possibility of either of these extreme conditions
prevailing is unlikely.
Best possible situation: Under the best possible conditions, errors in
supportive data would be:
1. 10 Percent fewer plants would be direct dischargers
2. 10 Percent fewer plants would be small
3. 10 Percent fewer plants would be slaughter only
4. Profits would be 25 percent higher than those used in
the analysis
5. Plant salvage values would be 20 percent lower than
those used in the analysis
6. Estimated effluent treatment costs would be too high by:
Small plants 50%
Medium plants 25%
Large plants 10%
7. Capital availability would not be a determining factor
8. Cost of capital would be 5 percent rather than 6 percent
Under these best possible conditions, no plants would close under BPT
guidelines and only 20 (all small) plants would be forced to close due to
imposition of BAT guidelines.
Error ranges for effluent treatment costs are the contractor's
estimate. EPA did not provide error ranges.
VII-3
-------
Worst possible situation: Under the worst possible conditions, errors
in the supportive data would be:
1. 10 Percent more plants would be direct dischargers
2. 10 Percent more plants would be small
3. 10 Percent more plants would be slaughter only
4. Profits would be 25 percent lower than those used in
the analysis
5. Plant salvage values would be 20 percent higher than
those used in the analysis
6. Effluent treatment costs would be too low by:
Small plants 50%
Medium plants 25%
Large plants 10%
7. Capital would not be available to finance effluent treatment
investment costs unless net present value of future earn-
ings less costs (including treatment costs) exceeds 10
percent of the plant salvage value (prior to installation
of BPT and BAT treatment systems)
8. Cost of capital would be 7 percent instead of 6 percent
Under these worst possible conditions, we would feel 25 (all small) plants
would be forced to close due to BPT guidelines and 360 plants due to BAT
guidelines.
C. Critical Assumptions
The complex of types and sizes of slaughter and meat packing plants,
processes involved and effluent control levels and systems proposed
to meet these levels, all required the making of a series of assumptions
required to keep the analysis withi manageable limits and to specify
"representative" situations which would permit further development of
industry-wide impacts. These assumptions fall into seven general areas:
1. Assumptions regarding industry structure
2. Assumptions concerning raw material and product prices
3. Assumptions concerning "representative" model plants
4. Assumptions concerning water pollution control costs
5. Assumptions concerning current status of effluent disposal
systems in use by the industry
6. Assumptions concerning the salvage value of plants and
equipment
7. Assumptions concerning "shutdown" decisions of slaughters
and meat packers.
VII-4
-------
1. Industry structure - The meat industry is both large and complex
in its organization. A critical factor affecting the analysis is the number
and size of plants. Detailed data are not available on volume of slaughter
by individual plants. However, a tabulation by state, by size class --
large, medium and small -- of Federally-inspected plants was made by
the Statistical Reporting Service, USDA especially, for this project.
In addition to the 1, 364 plants under Federal meat inspection in 1973
there were approximately 4, 627 plants operating under State inspection.
It was assumed that all of these non-Federally inspected plants would
fall into the small category, that is that these plants would kill less
than 25 million pounds annually. It is believed that, with few exceptions,
this assumption is correct. The distribution of Federally-inspected
slaughter plants was based on 1971 data. However, since that time
more rigid enforcement of inspection requirements has resulted in
an increase in the number of Federally-inspected plants from 766 in 1971
to 1, 364 in 1973. Since this increase was primarily due to a shift
from State-inspected to Federally-inspected status, it was assumed
that these new Federally-inspected plants would be in the "small"
category.
2^ Price assumptions - Prices for livestock, meat, meat products and
by-products were based on published prices, mainly from the Market
News Service, Agricultural Marketing Service, U.S.D.A. Live hog
carcass values were estimated by DPRA by applying a commonly-used
industry formula to live hog prices. For some specialized, processed
products, not quoted by the USDA, prices published in the National
Provisione r, a trade magazine, were used. The basis for the develop-
ment of these prices, e. g. hide and offal values, was discussed with
Market News Service representatives responsible for the development
of these price series to determine the applicability of the prices to the
types of plants and situations used in the analysis. As a result, it is
believed that the price series used are generally applicable to the types
of plants and products used in the analysis.
3. "Representative" model plants - No single plant is "representative"
of the complex of types and sizes of plants which constitute the livestock
slaughter and meat packing industry. DPRA classified plants as "slaughter
only" (no processing) and as meat packinghouses (slaughter and processing),
In addition, the slaughter only plants were classed as beef slaughter only
and combined beef and pork slaughter. Three sizes of plants, large,
medium and small, were specified since it was assumed that there were
economies of scale in effluent treatment as well as slaughtering and meat
packing operations. In addition to these type and size classifications, the
Effluent Guidelines Division of EPA (through their contract with North
Star Research Institute) classified slaughter plants as "simple" and
VII-5
-------
"complex" and meat packinghouses as "low-process" and "high-process"
plants. The types and sizes of model plants used are shown in Figure
VII-1. This classification results in a total of 18 "model" plants of which
11 were analyzed by DPRA. Those plants not analyzed, e.g. "large,
simple slaughter" were excluded for the reason that few, if any, plants in
this category were believed to exist.
It is recognized that this classification of plants does not approach the
variety of types and ',izes of plants which exist in this industry. In reality,
each plant is individually e ngineered and equipped to meet the requirements
of a particular site and location. In addition, the product mix will vary
from plant to plant and from time to time within a given plant.
The need to classify plants into a manageable number of types and sizes
constitutes a limiting, but necessary assumption. Based on previous
studies completed by DPRA, it was known that the smaller plants would
be impacted to a greater degree than would those in the medium and
large size categories. The model "small" plant analyzed by DPRA was
in the upper end (23 million pounds annual kill) of the "small" size cate-
gory. The very small plants (under Z million pounds annual kill) were
excluded from this analysis of commercial plants since adequate pollution
control costs were not available for these plants. However, the probable
impact on these very small plants was discussed in the analytical section
of the report.
4. Water pollution control costs - Data on water pollution control costs
were supplied to DPRA by the Effluent Guidelines Division of EPA.
Critical limitations regarding the applicability of these water pollution
control costs include the following:
a. The segmentation of the industry into "simple" and "complex"
slaughter plants and "low" and "high processing" meat pack-
inghouses, according to effluent characteristics permits an
adequate classification of the industry for the purpose of
differentiating economic impacts of water pollution control
costs.
b. Although EPA presented the costs of effluent control as
"average total costs," discussions with EPA and North Star
led to the conclusion that these costs were in reality "incre-
mental" over a baseline situation which assumed that plants
had in-place equipment to control settleable solids and grease
and also had an anaerobic + aerobic lagoon system. Accord-
ingly, DPRA developed a cost series which assumes all
VIT-6
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1
L
Beef
Slaughter Plants
1
Sirpplc
1 Combined
Reef
J_ _L _L _L _
|M|
S
[T M [sj |_L]
M
Complex
1
Combined
\ .. _L
S
I, M S
Meat Packinghouses
Low Process
1
L
M]
S
I ligh Process
71
M
S
Figure VII-1 .
Types and sixes of "model" plants used in
impact analysis.
VII- 7
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plants currently have baseline treatment systems in place.
These costs were applied to each of the types and sizes of
plants specified in the DPRA report.
c. Wastewater treatment costs, as provided by EPA, were
for one size plant, for each of the four plant categories
specified in their report. It was necessary to develop
basic wastewater flow-relationships for the Baseline and
BPT and BAT controls. This required the use of background
data to develop the relevant cost curves. Information from
EPA and North Star indicated that the capacity-cost relation-
ships would be the same regardless of the type of plant
(slaughter-packinghouse) considered. Although data were
available for only four plants, cost curves were developed
and estimates of investment and annual costs were made
for large, medium and small plants as defined in this report.
The limited number of observations available does not permit
an evaluation of the accuracy of these cost estimates--
especially at the lower ranges of waste-flow value.
d. Lacking background information regarding effluent control
technologies specifically included in the control cost estimates
for each type of plant and control level, DPRA has used the
effluent control costs supplied by EPA adjusting these costs
insofar as possible to the types and sizes of plants analyzed
and updating the costs to 1972 levels by applying appropriate
cost index inflators.
5. Current status oi municipal treatment in the industry - Only limited
information is available concerning the current status of effluent control
in the meat packing and slaughter industry. The DPRA report made the
assumption that 85 percent oi commercial-sized plants in the meat
industry discharge into publicly-owned wastewater treatment systems
and that 50 percent of the very small processors and frozen food locker
plants which slaughter discharge into municipal systems.
6. Salvage values - Salvage values of buildings, equipment and land will
vary greatly from one location to another and with the type and condition
of structures and equipment.
In order to avoid problems which would be inherent in attempting to es-
tablish differential salvage values, a set of "standard" assumptions con-
cerning salvage values was developed.
a. Land was salvaged at its 1972 value
o
b. Buildings and equipment were salvaged at a net amount
equivalent to 10 percent of their 1972 replacement value
c. Net operating capital was recovered intact.
VII-8
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7 . "Shutdown" decisions - The general purpose of the "shutdown"
model is to examine profitability of the model plants before and after
the imposition of effluent limitation guidelines, to determine the profit-
ability of forced closures which would result and to calculate the price
changes required to cover the added effluent control costs.
The model required assumptions relative to numerous factors.
These assumptions are described in detail in previous sections of this
report. Assumptions used, while arbitrary, were made in accordance
with estimates of conditions prevailing in the livestock slaughter and
meat packing industries.
VII-9
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BIBLIOGRAPHIC DATA ' R^'P"" No- 2-
SHEET ' EPA-23C/1-73-C14
4. 1 ulc ana Subtitle
Economic Analysis of Proposed Effluent Guidelines -
Meat Packing Industry
7. Author(s)
Raymond E. Seltzer, James K. Allwood
9. Performing Organization, Name and Address
Development Planning and Research Associates, Inc.
P. O. Box 727
Manhattan, Kansas 665C2
12. Sponsoring Organization Name and Address
Environmental Protection Agency
Waterside Mall
4th and M Street, S. W.
Washington, D. C. 20460
3. Recipient's Accession No.
S. Report Date
September, 1973
6.
8- Performing Organization Kept.
No. n9
10. Project/! 'ask/Uork Unit No.
Task Order No. 3
11. Contract/Grant No.
Contract No.
68-01 -1533
13. Type ot Report & Period
Covered
Final Report
14.
15. Supplementary Notes
16. Abstracts
The economic impacts of proposed effluent guidelines on livestock slaughtering
and meat packing (slaughter and processing) plants are assessed. The analysis
includes description and statistical corr pilauons regarding the nurrber, location
and characteristics of types of firms and plants; financial profiles, investments,
operating costs and returns for industry segments analyzed; evaluation of product
prices, pricing mechanisms and price relationships; description of analytical pro-
cedures employed; evaluation of costs of proposed effluent treatment technology;
economic impacts resulting from imposition of effluent guidelines in terms of effects
on prices, industry returns, volume of production, employment, community
economies, and foreign crade. Limits of .he analysis are stated.
(continued)
17. Key -o:JS anj Doc ur-.'J r.t Ana.ysis. i/o. Descriptors
Pollu'ion, \vater polluticr, industrial wastes, meat packing, economic s,
economic analysis, discounted cash flov, , demand, supply, prices, fixed
costs, variable cos;s, comrr.unity, production capacity, fixed investment
17b. Identifiers/ Open-Ended Terms
05 Re.iavioral and social sciences, C-econon ics
06 Biological and medical sciences, H-food
N-v4T->al Technical Information Service
Springfield, Virginia 22l51
138
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16. Abstracts (Continued)
Imposition of BPT level controls (1977) would have a negligible impact
on the industry if the current effluent control status (virtually all plants
having primary and secondary treatment facilities in place) is as reported
and if control costs are as stated by EPA. Compliance with BAT ( 1983)
level controls could result in the closure of 65-70 commercial plants
(10 percent of plants not on municipal sewers) under conditions assumed
in the analysis, with a loss of 2, 700-2, 800 jobs, a reduction of $2 1 -ZZ
million in payrolls and corresponding impacts on affected communities.
Production would not be reduced and there would be little impact on
foreign trade. However, if assumptions regarding existing status of
treatment, projected pollution control costs, and industry costs and
returns are less favorable than those used in the analysis, the impact
on the industry could be much more severe and would result in closure
of a large percentage of plants not served by municipal treatment systems.
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