Economic Analysis Od Effluent Guidelines (nsps) On The Independent Rendering Industry Updated To 1976 Conditions


EPA-230/2-74-040A (Supp.)
APRIL, 1977
        ECONOMIC IMPACT ANALYSIS
                  OF
      PROPOSED EFFLUENT GUIDELINES


Independent Rendering Segment

       Of The Meat Industry
                 QUANTITY
      U.S. ENVIRONMENTAL PROTECTION AGENCY

          Office of Planning and Evaluation

            Washington, D.C. 2O460
                     \
                     o
                  s

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ECONOMIC ANALYSIS OF
EFFLUENT GUIDELINES (NSPS)
ON THE
INDEPENDENT RENDERING INDUSTRY
UPDATED TO 1976 CONDITIONS
Prepared for
Environmental Protection Agency
Washington, D.C. 20460
Development, Planning and Research Associates, Inc.
P.O. Box 727, Manhattan, Kansas 66502
P. 231 u.S. Environmental Protection A*nC|
April, 1977 Region 5, Library (PL-12J) t
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PREFACE

The attached document is a contractor's study prepared for the Office of
Water Planning and Standards 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 new source performance standards established
under Section 306 of the Federal Hater Pollution Control Act, as amended.

The study supplements the technical study ("EPA Development Document Supplement")
supporting the issuance of regulations under Section 306. The Development
Document Supplement surveys existing and potential waste treatment control
methods and technology within particular industrial source categories and
supports final issuance of new source performance standards based upon on
analysis of the feasibility of these standards in accordance with the re-
quirements of section 306 of the Act. Presented in the Development Document
Supplement are the investment and operating costs associated with the various
control and treatment technologies. The attached document supplements this
analysis by estimating the broader economic effects which might result from
the required application of various control methods and technologies. This
study investigates the effect of alternative approaches in terms of product
price increases, effects upon employment and the potential viability of new
plants, effects on foreign trade, and other competitive effects.

This study has been prepared by Development Planning and Research Associates,
Inc., under the supervision and review of the Office of Water Planning and
Standards, EPA. This report reflects work completed as of April, 1977. The
study was necessitated by a court challenge by the National Renderers Associ-
ation of the new source performance standards which were promulgated by the
EPA on January 3, 1975. The resulting court decision remanded the new plant
standards for further analysis.

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 Supplement and any comments received by EPA on either
document before or during final rule-making proceedings 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 such proceedings as a statement of EPA's views regarding the
subject industry.
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CONTENTS
PREFACE

EXECUTIVE SUMMARY
A. Methodology i
B. Industry Structure ii
C. Supply, Demand and Price iv
D. Model Plants vi
E. Effluent Control Costs vi
F. Impact of New Source Standards vii

I. INTRODUCTION 1-1
A. Background and Objective 1-1
B. Scope 1-1
C. Data Sources 1-2

II. METHODOLOGY II-l
A. Industry Structure and Subcategorization II-2
B. Financial Profile of the Industry II-2
C. Hodel Plants . II-4
D. Pricing Patterns II-5
E. Waste Treatment Techlological Options and Costs 11-5
F. Analysis of Economic Impacts II-5

III. STRUCTURE OF THE INDUSTRY I II-l
A. Characteristics of the Industry III-l
B. Concentration III-7
C. Level of Integration III-l0
D. Variety of Products Processed 111-10
E. Competition in Raw Material Supplies III-ll
F. Employment III-11
G. Ability to Finance New Investment 111-13

IV. SUPPLY DEMAND AND PRICES IV-1
A. Raw Material IV-1
B. Finished Products IV-2
C. Ability to Pass Costs Forward Through the Marketing
System IV-9

V. MODEL PLANTS V-l
A. Types of Plants V-l
B, Capacity, Utilization, Raw Material Distribution
and Yield V-2
C. Value of Assets IV-7
D. Model Plant Income Statements V-9

VI. EFFLUENT CONTROL COSTS VI-1
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CONTENTS (continued
VII. IMPACT OF NEW SOURCE STANDARDS
A. Methodology
B. Economic Impact by Type of Plant
C. Summary of Model Plant Impacts
D. Employment and Community Effects
E. International Trade Effects

VIII. LIMITS OF THE ANALYSIS
A. General Accuracy
B. Range of Error
C. Critical Assumptions

BIBLIOGRAPHY
Page
VII-1
VII-1
VII-3
VII-17
VII-17
VII-17

VIII-1
VIII-1
VIII-2
VIII-3
APPENDIX A - Investment Requirements for Rendering Models
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ECONOMIC ANALYSIS OF EFFLUENT GUIDELINES (NSPS)

ON THE INDEPENDENT RENDERING INDUSTRY UPDATED

TO 1976 CONDITIONS

EXECUTIVE SUMMARY
This study represents an updated analysis of the economic impacts of new
source performance standards (NSPS) on the independent rendering industry.
The analysis was necessitated by a court challenge of the proposed NSPS
guidelines by the National Renderers Association, with the resulting court
decision being that NSPS guidelines be remanded for further analysis.

A. Methodology

The fundamental methodology used in this impact analysis is the same as
that normally used in capital budgeting studies of new investment. Model
plant financial profiles provided the basic data for the analysis. These
models were developed from industry surveys and published data and while
not being expected to precisely represent any single new plant operation,
they do reflect financial and physical characteristics of recent and pro-
spective plants in the industry. Adjustments to the model plant budgets
to reflect pollution control investment ?nd annual operating cost permit
pre- and post- pollution control economic analysis for impacts on prices,
profitability and potential production decisions.

More specifically brief descriptions of the indicators used in this analy-
sis are as follows:

Required Price Increase. This impact indicator reflects the price increase
necessary for the model plants to pay "ir the effluent control systems and
to keep their respective Net Present Values constant. In other words, price
increases are required to return the plant to pre-pollution control levels
of profitability. These required price increases are expressed in tens of
the percent increase required of the base case assumed price.

Financial Indicators. Two primary types of analyses were completed to assess
the financial impacts of the various treatment alternatives' costs on the
model plants-- (1) profitability and (2) the present value of future net in-
come streams.

The profitability impacts included the following:

1. After-tax income
2. After-tax Return on Sales
3. After-tax Return on Invested Capital
4. Estimated Cash Flow
5. Cash Flow as a Percent of Invested Capital
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These indicators were computed both before (base case) and after the imposi-
tion of effluent controls and the resulting expense.

Net Present Value (NPV) Analysis. Another measure of a plant's profitability
is the (NPV) of its projected stream of cost and revenues. If the net pre-
sent value of the cash proceeds (including capital costs at their original
value) are less than zero, then the planned investment should not be made.
The prospective investor would be better off to invest funds elsewhere where
proceeds could earn the cost of capital rate. This analysis assumed the
following:

1. The after-tax cost of capital for the industry was estimated at
8.3 percent.

2. Revenue and expenses were assumed constant over time, i.e., 20
years of operation.

B. Structure of the Industry

The independent rendering industry is a part of SIC 2077 -- Animal and Ma-
rine Fats and Oils. The Census of Manufacturers includes in SIC 2077
establishments engaged in processing animal and marine oils, including in-
edible tallow and grease, fish oil and other marine animal oils and the
by-product, meal industry: fish meal, meat meal, and tankage. This study
deals only with the animal portion of SIC 2077 and specifically excludes
establishments that process primarily marine products.

The independent (or off-site) rendering industry is only a portion of the
total animal rendering industry. The other major segment includes on-site
or captive renderers which are an integral part of meat packing plants.
Effluent guidelines for these on-site renders are incorporated in SIC 2011
Meat Packing Plants. According to the 1972 Census of Manufacturers, the
shipments from SIC 2077 amounted to 68 percent (coverage ratio) of all
animal marine fats and oils shipments.

The independent renderers reprocess discarded animal materials such as fats,
bones, hides, feathers, blood, and offal into saleable by-products, almost
all of which are inedible for human consumption, and "dead stork" (whole
animals that die by accident or through natural causes). From these types
of raw materials, the independent renderer process primarily meat meal and
tankage, and inedible grease and tallow. These two major product categories
account for over 81 percent of the value of shipments for the entire indus-
try classification.
n
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The independent rendering industry consists of a wide diversity of sizes
and types of firms. Firm ownerships ranges from small family owned com-
panies and closely held corporation to large publicly held corporation.
The number of establishments in the industry has declined steadily over
the past decase according to the Census. Because the Census includes
marine renderers in their classification, the exact number of independent
rendering establishment is unknown. Based on the EPA survey data> the
size and type of independent rendering establishment are estimated as
follows:

Type Size range— Number Percent

Batch Process
Small Up to 75 158 45.1
Medium 75-250 83 23.7
Large Over 250 17 4.9
Subtotal 258 73.7

Continuous Process
Medium Up to 250 26 7.4
Large 250-350 26 7.4
X-Large Over 350 19 5.5
Subtotal 71 20.3

Combination Plants
Large Over 250 21 6.C

Total Plants 350 100.0

— 1,000 pounds raw material per day

The independent rendering industry accounts for approximately 68 percent of
the total production of the primary products and the meat packing industry
the remaining 32 percent. Total production figures are available by com-
modity as discussed in Chapter IV from USDA sources, and Census data are
provided below to provide the reader with a perspective of the major pro-
ducts and amounts processed by all industries for 1972.

1972 Production-All Industries
Units Quantity Value
($1,000,000)

Grease and inedible tallow Million Ibs. 6,912 419.4
Meat meal and tankage 1,000 tons 3,380 311.1
Bone meal 1,000 tons 308 29.0
Feather meal 1,000 tons 144 16.3
Other feed & fert. including
dried blood 1,000 tons 282 29.7
Feed and fertilizer 1,000 tons 33 3.1
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Rendering plants are located in a spatially dispersed pattern throughout
the entire United States. Because of the perishability of the raw material
and high transportation, the plants tend to be located near the source of
supply. It is estimated that over 50 percent of the members of the
National Renderers Association are located in rural communities where
small slaughterhouses and locker plants are located. These rendering
plants also process the dead animals from area farms and feedlots.

Concentration ratios for the industry are relatively low and tend to be
reasonably stable over time. In 1972, 22 percent of the value of ship-
ments in SIC 2077 was handled by the four largest companies and 72 percent
was handled by the 50 largest companies.

Basically the independent rendering industry is not integrated backward
to the meat packing industry nor are they integrated forward to the pro-
cessors of their basic products.

Total employment in the inedible rendering industry has decreased over
40 percent from 14,600 employees in 1958 to 10,000 employees in 1972.
Production workers represent approximately 80 percent of the total em-
ployed and would largely be classified as unskilled or semiskilled. Much
of the labor is involved in the collection and the handling of the raw
material.

The rendering industry is in a reasonably good financial position and is
constantly making new capital investment in existing plants. Average
capital investment per plant in 1973 amounted to approximately $87,000,
up from about $20-$32,000 in the I9601?. Plants using the relatively
new continuous process system developed over the last 10 years now account
for approximately 90 of the 350 plants.

C. Supply Demand and Prices

The raw material processed by the inedible rendering industry consists of
discarded animal and poultry materials such as fats, bones, hides, feathers,
blood, offal and "dead stock." Supply sources for these raw materials are
butcher shops, supermarkets, restaurants, poultry processors, slaughter-
houses, meat packing plants, farmers and ranchers. Independent renderers
operate regular daily truck routes to collect the raw material from various
suppliers. Also there are independent haulers who provide this service.

Independent renderers compete for the various sources of supply both in
terms of price and service. Service competition in terms of timely pick
up, etc. tends to be an important factor. Considerable variation exists
in the prices paid by renderers for similar types of raw material.
iv
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Inedible tallow, grease, meatmeal and tankage are the basic products of
the rendering industry. These products are largely undifferentiated and
sold on the commodity markets. Competition from competing products is very
strong and basically the forces of supply and demand prevail.

In 1976 the industry produced 5.8 billion pounds of inedible tallow and
grease which sold at 15 cents per pound for bleachable fancy grade and 13
cents per pound for No. 1 grade. A major competitor of inedible tallow
and grease is palm oil. Production is increasing rapidly, as v/ill imports
to the U.S. Major uses are soap, fatty oils and animal feeds.

Tankage and pieat meal are used primarily as a high protein feed supple-
ment and has a high cross-elasticity of demand with fish meal, soybean
meal and other high protein meal. Tankage oil meat meal amounts to
approximately 9.3 percent of the total high protein animal feeds.

The average meat meal price in 1976 was about 49 percent higher than the
1972 price. Comparative average prices of meat meal, fish meal, and soy-
bean meal 1970-1976 are shown below:

Year

1970
1971
1972
1973
1974
1975
1976
Meat Meal -1
(50%, Chicago)

107.91
94.72
126.90
272.17
184.64
146.40
189.00
Fish Meal -f
(65%, East Coast)

188.83
165.53
193.17
467.95
339.80
232.25
330.67
21
Soybean Meal —
(49-50%, Decatur)

87.10
83.83
114.71
264.34
153.23
142,26
157.68
If USDA, Feed Situation.
2/ USDA, Fats and Oils Situation.
Examination of the competitive structure of the markets in which inedible
tallow and grease and meat meal and tankage suggest that they are highly
competitive with the price established on the basis of supply and demand.
Basically, tne independent renderers are price takers and any increase
from exogenous factors would result in a loss of market share as the
users would substitute other competitive products.
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D. Model Plants

The rendering industry primarily collects various animal wastes and dead
stock to reprocess into saleable by-products; namely meat meal and inedible
tallow and grease. Presently, rendering is accomplished by utilizing one of
two different processes; the batch process or the continuous process.
Renderers aften are categorized by the type of raw material they handle.
The three most common types of renderers are the packinghouse material ren-
derers, the poultry offal renderer and the dead animal render. While the
finished products of these renderer categories are basically the same
(meat meal and inedible tallow and grease), the operating and financial
characteristics do differ. Model plant financial profiles were developed
for the various types, categories, and sizes of plants that were believed
to have the potential for being built after the promulgation of the guide-
lines.

These models served as the basis for the impact analysis. By determining
the effects of various pollution control alternatives on the model plants,
predictions were made about the potential impacts the industry could incur.

E. Effluent Control Costs
Effluent control systems and their respective costs utilized were provided
by the Effluent Guidelines Division of the Environmental Protection Agency
as provided by the technical contractor, Midwest Research Institute, North
Star Division. The control systems utilized for each of the model plants
included three lagoon systems both with and without a mixed media filter
as well as an extended aeration system which is a form of activated sludge.
In all, each model plant was impacted with seven different treatment alter-
natives. These included:

1. Anaerobic - aerobic lagoon system
2. Anaerobic - aerated - aerobic lagoon system
3. Aerated - aerobic lagoon system
4. Extended aeration (activated sludge)
5. Anaerobic - aerobic lagoon plus mixed media filter
6. Anaerobic - aerated - aerobic lagoon plus mixed media filter
7. Aerated - aerobic lagoon plus mixed media filter

The investment requirement and annual operating cost for each of these
treatment alternative varied according to the size and type of model plant.
Expressed as a percent of the models' total invested capital requirements,
the initial expenditure for the different treatment systems ranged from a
low of 2.7 percent to a high of 12.8 percent. Annual treatment costs ex-
pressed as a percent of the models' total sales ranged from a low of 0.5
percent to a high of 5.6 percent.
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F. Impact of New Source Standards

The impacts resulting from the imposition of new source performance stand-
ards on the various model rendering plants are summarized in Exhibit 1.
As indicated in only three cases does it appear that industry growth
may be slightly impeded due to the imposition of controls. It should be
noted, however, that the extent of this potential impacts on growth is
dependent upon the possibility for the effected plants to utilize an
alternate method of effluent discharge (e.g. publically owned treatment
works). If such options are realistic and financially viable, then the
potential impact on growth could be reduced.

The employment and community impacts resulting from the new source dis-
charge requirements are expected to be slight, if at all. This is due to
the fact that overall industry growth is not significantly impacted and
the fact that for those cases where potential plants may incur impacts due
to treatment cost, there may be alternative discharge methods (e.g. muni-
cipal systems).

The effect of new source performance standards on international trade and
the U.S. balance of payments are expected to be minimal with no noticeable
impacts emerging.

Impacts for the various model plants are discussed below.

1. Packinghouse Batch Models

Small plants. Two types of small new source batch packinghouse plants
were analyzed. First a plant profile for a plant constructed with all
new buildings and equipment was developed. Analysis of this model
revealed that it would not be viable even before the imposition of
pollution controls as its returns and net percent value were below an
acceptable level. The imposition of new source controls reduced even
further than the plants marginal profitability.

The second type of model plant considered was a new plant that utilized
existing buildings and used equipment instead of all new materials.
This model's returns were somewhat higher than the all new model's, but
still the used model's returns were not high enough to indicate the
plant should be built even before expenditures for controls. As was
the case for the all new model, the imposition of controls just re-
duced further the used plant's already marginal returns.

Medium plants. Two types of medium sized batch packinghouse plants
were also considered. The all new model appears to be only marginally
viable in the base case (i.e. before pollution controls) but with effec-
tive management there could be the possibility that the all new plant
could succeed. The imposition of controls on an all new plant would
slightly reduce its returns, however, if its management could effective-
ly operate the plant before pollution controls, it is doubtful that the
costs associated with the controls will significantly change the plant's
potential for remaining viable.
Vll
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Exhibit 1. The Independent Rendering Industry, Summary of impacts resulting
from the imposition of effluent controls requirements on model
plants.

Unlikely
to
be built
Base case
Marginally
likely to
be built
Effluent control impact^'
Likely to
be built
Growth
not impeded
Growth
marginally
impeded
Growth
impeded
Packinghouse
Batch
Small - new x
Small - used x
Medium - new x x
Medium - used x x
Large - new x x
Continuous
Medium x x
Large x x
Dead Animal
Batch
Small - new x
Small - used x x
Poultry Offal
Batch
Small - new x
Small - used x
Medium - new x x
Medium - used x x
Large - new x x
Continuous
Medium x x
Large x x

!/ Note that no impact description is provided for those model plants determined
unlikely to be built. This is due to the fact that under the assumed model
plant operating characteristics, no industry growth would occur if it were
unlikely plants would be built.
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The medium plant constructed with used assets appears to be viable
both before and after the imposition of new source controls.

Large Plants. Only the all new asset model was considered for large
packinghouse plants. From the analysis it appears the model plant
will be financially sound both before and after incurring treatment
expenditures.

2. Packinghouse Continuous Models

A medium sized continuous plant with all new assets was considered. Before
being impacted with new source treatment costs, the model indicated its
feasibility would be marginal with the potential for successful operation
dependent on the effectiveness of its management. Imposition of new source
controls result in the plant's net present values becoming negative which
could have an influence on the constructive decision of the plant.

Also a large continuous packinghouse plant with all new assets was considered.
Analysis of this models financial profile revealed it to be viable in the
base case as well as after the imposition of controls.

3. Dead Animal Batch Models

Both an all new and used asset model were developed. As is characteristic
of this type of renderer, the models were considered to be of a relatively
small size. The all new asset model does not appear to be feasible in the
base and subsequently, it is doubtful plants of this type would be built
regardless of new source requirements. The model reflecting used assets
was determined to be only marginally viable in the base case with the im-
position of new source controls reducing even further its viability. Thus,
new source requirement may have a slight effect on the growth of this indus-
try segment.

4. Poultry Batch Models

Small plants. Both the used asset and the all new asset models were
considered for the small batch poultry segment of the industry. In
both cases, low profitability indicates that even without new source
control requirements, the plants would not be feasible. The addition-
al expense of pollution controls would reduce even further the plant
potentials for being viable.

Medium plants. The analysis of the medium sized batch poultry model
with all new assets indicate that the plant could be built, although
its long run viability would depend on the capabilites of its manage-
ment. This is caused by the situation of profitable returns coupled
with slightly negative net present values. The imposition of new
source requirement on this plant result in a reduction in the returns,
but not to be extent that would impede growth if the plant were built
in the first place.

The medium model utilizing used assets is financially sound both before
and after expenditures for new source controls.

ix
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Large plants. This plant was developed utilizing all new assets and
the analysis indicates that it is viable before pollution controls
as well as after incurring expenditures for them.

5. Poultry Continuous Models

The analysis of the medium sized continuous poultry model revealed that in
the base case the plant would be considered viable. However, the imposi-
tion of new souce effluent controls on the model caused the plant's return
to decrease slightly and, more importantly, caused the plant's net present
values to become negative. These impacts could slightly retard growth with-
in this industry segment. The level to which growth would be impeded would
depend on the individual plants management capabilities to maintain a viable
operation.

Analysis of the large continuous poultry model plant revealed it to be
financially sound both before and after incurring expenditures for controls.
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I. INTRODUCTION

A. Background and Objective

In July, 1974, the Economic Impact of Effluent Controls on the Independent
Rendering Industry was completed based on effluent control costs as provided
in the Development Document and general economic conditions which existed in
the industry in 1972. On January 3, 1975, the Environmental Protection
Agency (EPA) promulgated final regulations for the independent rendering in-
dustry. These regulations include "guidelines" for existing plants in the
industry to be met by 1977 and 1983, and "standards" to be met by any new
plants constructed after the effective date of the regulations.

The industry's trade association, the National Renderers Association,
challenged the new plant standards in the United States Court of Appeals for
the Eight Circuit. The court's decision resulted in the new plant standards
being remanded for further analysis.

Thus, the objective of this analysis is to update the industry characteristics
described in the previous economic study to 1976 conditions as well as deter-
mine the economic impacts of effluent controls on new source plants (new plants,
yet to be built, that will discharge'directly to navigable waters) considering
the 1976 industry economic conditions plus revised new source control costs
as provided by the EPA.

B. Scope

New Source Performance Standards (NSPS) apply to establishments that discharge
directly to navigable waters which commence construction after the promul-
gation of guidelines. To effectively determine NSPS, it is necessary to
analyze the economic consequences of requiring new plants to meet the standards.

Specifically, this report accomplishes the following tasks:

1. Presents the most recent data available concerning the industry
structure including number, size, and type of plants; concentration
and number of employees.

2. Describes the financial profile of the industry reflecting 1976
conditions insofar as data is available. This includes a complete
updating of the financial profile of model plants.

3. Incorporates financial profiles of new plants that may be built
following the promulgation of the Guidelines.
1-1
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4. Incorporates the revised effluent control costs into the input
analysis.

5. Presents the impact analysis using cost and plant profiles re-
flective of 1976 conditions. This analysis includes:

(a) Price effects
(b) Financial effects

6. Discusses the effect of New Source Performance Standards on
industry growth.

C. Data Sources

Both primary (unpublished) and secondary (published) sources of information
were used in this analysis. A detailed listing of the various sources of
information appears near the end of this report in the Bibliography. Further-
more, to aid in the updating of both the economic analysis as well as the
technical analysis, the EPA conducted a survey of the rendering industry under
the provision of Section 308 of the Clean Hater Act. The results of the sur-
vey were used when applicable throughout this analysis, particularly for the
development of the model rendering plants and the relateu economic and
financial information.

While the industry surveys were primarily utilized for the development of
the model plants (Chapter V), the general industry description chapters
(Chapter Ill-Industry Structure and Chapter IV-Supply Demand and Prices) repre-
sent an update of the previous economic impact analysis of the independent
rendering industry. ]_/ The pollution control costs as described in Chapter VI
were furnished by the EPA and the impacts discussed in Chapter VII were de-
veloped utilizing the methodology as was described in Chapter II.

A supplemental document was also prepared during this analysis which is in-
tended to serve as a guide for individual analyzing in detail the working_
assumptions, methodology and sources of data utilized in this report. This
document is titled, "Working Document for Economic Analysis of Effluent Guide-
lines (NSPS), Independent Rendering Industry, Updated t- 1976 Conditions" and
is available for review at the Environmental Protection Agency, Washington,
D. C.
- The_Ecqnorrii_c _An^J^sis_of_Jj^osed_^f luent_6y \deljne s: Independent.
Rendering Industry, completed~~hy DPRA~ for the U.S. Environmental Protection
Agency under Contract No. 68-01-1533, Task Order No. 9.
1-2
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II. METHODOLOGY
The methodological approach utilized to assess the Tikely economic impact
of proposed new source requirements pursuant to the Federal Water Pollution
Control Act Amendments of 1972 (PL 92-500) on the Independent Rendering
Industry is summarized in this chapter.

In this study, economic impact is defined as the comparison between (1) the
projections of the likely effects on plant, local area and U.S. activity
which would result from an industry's compliance with a given level of new
source controls and (2) projection of industrial activity and changes which
would likely occur in the absence of the Act (baseline).

In particular, the principal economic variables of interest in this study
are:

1. Price effects - including effects upon industry's suppliers and
consumers

2. Profitability, growth and capital availability

3. Number, size and location of plants that can be expected to close
or curtail productions

4. Changes in employment

5. Community impacts

6. Balance of payments consequences

7. Any other impacts

Economic impacts were evaluated for the new source effluent standards to be
applied to all new facilities (that discharge directly to navigable waters)
constructed after the promulgation of the guidelines.

In the case of new source performance standards, economic impacts are assessed
in terms of effects on industry growth, prices, plant location (i.e., domestic
or foreign production) and balance of payments.
— U.S. Environmental Protection Agency, Development Document for Effluent
Limitation Guidelines and New Source Performance Standards for the
Renderer Segment of the Meat Products and Rendering Processing Point
Source Category, January 1975.
II-l
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Several interrelated analyses are used to evaluate likely economic
impacts resulting from effluent controls on the Independent Rendering
Industry. These in-depth analyses include: (1) characterization and sub-
categorization of the technical and economic structure of each industry,
(2) description of the financial profile of each industry, (3) construction
of representative model plants, (4) evaluation of pricing patterns within
each industry, (5) determination of technological options for meeting
designated levels of effluent control and the costs associated with each
option, and (6) analysis of economic impacts.

The analysis, however, •>$ not a simple sequential analysis; rather it em-
ploys interacting feedback steps. The schematic of the analytical approach
is shown in Exhibit II-l. Due to the fundamental causal relationships among
the financial and production effects and other impacts, a greater emphasis
is devoted to plant closure analysis.

A. Industry Structure and Subcategorization

The industry structure and Subcategorization phase of the methodology pri-
marily involves describing and segmenting the industry in terms of past
and current economic characteristics. The purpose of this phase of the
analysis is to provide an information base to be used in subsequent analysis.
In particular, the information on industry characteristics is useful in
determining an appropriate disaggregation design for industry Subcategori-
zation.

Subcategorization involves segmenting the plants within the industry into
relatively homogenous classes with respect to plant, size, regional differ-
ences, technology employed, number of products, existing level of pollution,
scale of technological processes, level of output, or other relevant factors
important for assessing the impact of pollution controls. The delineation
of industry subcategories developed in the early stages of the analysis
serves as the basis for the definition and construction of representative
model plants and the determination of waste treatment technological options
and costs.
B. Financial Profile of the I ndu str_y

The ability of firms within the industry to finance investment for pollu-
tion control is determined in part by past and expected financial conditions
II-2
-------
Industry
Subcate-
gorization
Model Plant
Parameters
Industry
Financial
Data

EPA Poll i.-t-i o
Control Cost

r- - '•
n •-
s

Base . Plant Closures -
Closures Due to Control
r
Employment
Effects
i
Community
Effects
Xs]
Budget Data
Development
* r
Model
Financial
Analyses
•< -
Price
Increases
I
Shutdown
Analysis
i
Production-
Expected
Effects
>p
Foreign
Trade
Effects
Industry

«—
pricing

Financial
Profiles

Exhibit II-l. Schematic of economic impact analysis of effluent control
guidelines.
II-3
-------
of those firms. Under the heading "financial profile of the industry,"
various factors are studied to develop insight into the financial charac-
teristics of actual plants in the industry. Much of the data compiled
in this section is also useful in determining financial profiles of
representative model plants.

Key financial statistics include after-tax profit as a percent of sales,
after-tax profit as a percent of invested capital, sales to total assets
ratios, sales per employee, assets per employee, and after-tax profit to
net worth. Other financial factors are studied with respect to the ability
of firms to generate funds to finance investment for effluent management,
either internally through cash flow or externally through new debt or equity
issues. The data compiled in this phase of the analysis provide an infor-
mation base useful for projecting key technical and economic factors and
for carrying out subsequent economic impact analysis.

C. Model Plants

The model plant concept represents a systematic framework from which to
assess likely economic impacts on individual types and sizes of actual
plants within the industry. Usually more than one model plant is re-
quired for an industry in order to represent various types and sizes of
existing plants or plants which are -likely to be constructed after the
promulgation of the guidelines.

Model plants represent a variety of financial, economic, and technical
variables such as sales, investment, fixed and variable costs, profits,
size, type of process, etc. Model plant profiles are constructed from
data and information gathered in the industry characteristics and sub-
categorization and financial profile phases of the analysis. Additional
data, as required, are generally obtained from industry representatives,
trade publications, and from engineering cost-synthesis methods.

The applicability of utilizing model plant data for assessing expected
economic impacts of water effluent controls rests principally on the
representativeness of the selected model plant(s). For example, the
economic concept of "economies-of-scale" in production is often present
in piocessing plants, e.g., average unit costs of production are usually
lower in large plants as compared with medium or small plants of the same
type. Furthermore, there are expected economies-of-scale in waste treat-
ment, which, in effect, will compound the economies-of-scale relationships
among differing sizes of plants.

In general, economies-of-scale relationships in pollution control' costs
have been demonstrated; and this alone would necessitate multiple model
plant analyses to evaluate differential economic effects.- Other pro-
cessing factors, e.g., type of manufacturing process employed (technology)
may also affect processing costs and/or wasteflows. This again may neces-
sitate further segmentation of an industry and the inclusion of additional
model plants for mare comprehensive analysis.

II-4
-------
D. Pricing Patterns
The analysis of pricing patterns in the Rendering Industry focuses on
factors determining supply and demand. Market structure and the nature
of competition are evaluated. Finally, the ability of impacted plants to
recover the increased costs of controls is assessed.
E. Waste Treatment Technological Options and Costs
Waste treatment options and associated costs are obviously instrumental
in the assessmsnt of economic impacts of water pollution controls. In
general, basic technical and cost data are developed specifically for
the types and sizes of model plants which are identified as direct effluent
dischargers, including new facilities which, in our judgment, are most
likely to be constructed after the promulgation of tha guidelines. In
is
information is partly in the bevelopnient Document and, in part, obtained
from EPA, Effluent Guidelines Division through the technical contractor.

Cost data from the technical contractor normally include estimated incre-
mental investment costs for each model plant and for each abatement level
(I, II and III), plus the estimated annual operating and maintenance costs
based upon normal operating rates or annual production.
F. Analysis of Economic-Impacts
In carrying out an economic impact analysis, it is important to establish
a baseline of industry conditions that are expected without pollution con-
trols and to estimate the impact in terms of the change from this baseline
attributable to the imposition of pollution controls. Thus, in this study
a "dynamic baseline", namely a projection of the industry structure in
terms of number of plants, production, employment and other parameters over
time is used .as opposed to a "static" baseline which assumes a baseline
condition equivalent to that currently present.

Fundamentally, the impact analysis is similar to that usually required
for any capital budgeting study of new investments. The problem is one
of deciding whether a commitment of time or money to a project is worth-
while in terms of the expected benefits. The analysis is complicated by
the fact that benefits and investments will accrue over a period of time
II-5
-------
and that, in practice, the analyst can not reflect all of the required
imponderables, which by definition must deal with future projections. In
the face of imperfect and incomplete information and of time'constraints,
the industry segments are described in the form of financial budgets of
model plants. Key non-quantifiable factors were considered in the inter-
pretation of the quantified data. Actual financial results will deviate
from the model results, and these variances will be considered in inter-
preting the findings based on model plants.

The analysis of anticipated economic impacts of water pollution controls
are described as follows.
Fundamental Core Methodology

The fundamentals for analysis are basic to all impact studies. The core
methodology is described here as a unit with the specific impact analyses
discussed under the appropriate headings following this section.

The core analysis for this study was based upon synthesizing the physical
and financial characteristics of the various industry segments through
representative model plant projections. Estimated financial profiles
and cash flows are presented in the industry reports. The primary factors
involved in assessing the financial and production impact of pollution con-
trol are profitability changes, which are a function of the cost of pollu-
tion control, and the ability to pass along these costs in the form of
higher prices. In reality, closure decisions are seldom made on a sec
of well-defined and documented economic rules. They include a wide
range of personal values, external forces such as the inability to
obtain financing, or the relationship betwee.. a dependent production
unit and its larger cost center whose total costs must be considered.

Such circumstances include but are not limited to the following factors:

1. Inadequate accounting systems or procedures. This is especially
likely to occur in small, independent plants which do not have
effective cost accounting systems.

2. Insufficient production units. This is especially true of
plants where the equipment is old and fully depreciated and
the owner has no intention of replacing or modernizing them.
Production continues as long as labor and materials costs are
covered and/or until the equipment fails entirely.

3. Personal values and goals associated with business ownership
that override or constrain rational economic rules. This com-
plex of factors may be referred to as the value of psychic income.
II-6
-------
4. Production dependence. This is characteristic of a plant that
is a part of a larger integrated entity which either uses raw
materials being produced profitably in another of t\ie firm's
operating units or supplies raw materials to another of the
firm's operations where the source of supply is critical.
When the profitability of the second operation more than off-
sets the losses in the first plant, the unprofitable operation
may continue indefinitely because the total enterprise is pro-
fitable.

5. Temporary unprofitability. This may be found whenever an owner-
operator expects that losses are temporary and that adverse con-
ditions will change. His ability to absorb 'short-term losses
depends upon his access to funds through credit or personal re-
sources not presently utilized.

6. 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.

7. Plant site appreciation. This factor is important in those
situations where the value of the land on which the plant is
located is appreciating at a rate sufficient to offset short-
term losses.

These factors 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 sufficient to provide useful
and reliable insight into potential business responses to required invest-
ment and operating costs in pollution control facilities.

In the simplest case, a plant will be closed when variable costs (Vc)
are greater than revenues (R) since by closing the plant, losses can be
avoided.

In a more probable situation, the variable costs are less than revenues
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
II-7
-------
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 expectations that re-
venues vn'll increase to cover cash outlay. Identification of plants where
variable costs plus cash overhead expenses are greater than revenues, but
variable costs are less than revenues 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.

In another situation the variable costs plus cash overhead expenses
are less than revenues. In this case, it is likely that plant operations
will continue if the net present value (NPV^) of the cash flow 17 at the
firm's (industry) cost of capital (k) is greater than zero. If the net
present value is less than zero, the firm could liquidate, realizing salvage
value (S) 2/ in cash, and reinvest and be financially better off, assuming
reinvesting at least at the firm's (industry) cost of capital.

Computation of net present value involves discounting the cash flow
through the discounting function:

KPV = £ An (1 + k)~n
n=0 n
where:

NPV = net present value
Ap = the cash flow in the nth year
k = discount rate (after-tax cost of capital)
n = number of conversion periods, i.e., 1 year, 2 years, etc.
y = years

The "cash flow" including pollution control investment and annual costs
is described in the subsequent sections.

Construction of the Cash Flow

The cash flow used in the analysis of pretreatment control costs was con-
structed as follows:
Refer to "Construction of the Cash Flow"
2/
—' Salvage value is defined here as the liquidation value of fixed assets
plus working capital.
II-8
-------
1. Initial investment taken in year t0, considered to be outlays
for fixed assets and working capital.

2. After-tax cash proceeds taken for years t-j to tn.

3. Annual replacement investment, equal to annual current deprec-
iation taken for years ti to tn.

4. Terminal value taken in year tn.

5. Investment for pollution control is added to outlays for fixed
assets and working capital in year t0.

6. Annual pollution control operating expenses are taken for years
t-j to tn.

7. Replacement investment taken on pollution investment on
assumption of life of facilities as provided by EPA.

8. No terminal value of pollution facilities to be taken in year
tn. Land value will probably be assumed to be very small and/or
zero, unless the costs provided indicate otherwise.

Baseline cash flow excludes investment and other costs associated with
the effluent controls.

It should be noted that a more common measure of profitability is return
on investment (ROI) where after-tax income (as defined in equation below)
is expressed as a percent of invested capital (book value) or as a percent
of net worth. These measures should not be viewed so much as different
estimates of profitability compared to net present value, but rather these
should be seen as an entirely different profitability .concept.

The data requirements for return on investment and net present value
measures are derived from the same basic financial information, although
the final inputs are handled differently for each.

In the construction of the cash flow for the net present value analysis,
after-tax cash proceeds are defined as:

(1) After-tax income = (1 - t) X (R - E - I - D)

(2) After-tax cash proceeds = (1 - t) X (R - E - D) + D

where
II-9
-------
t * tax rate

R = revenues

E = expenses other than depreciation and interest

I = interest expenses

D = depreciation charges

Depreciation is included only in terms of its tax effect and is then
added back to obtain after-tax cash proceeds.

There is a temptation to include outlays for interest payments v.'hen computing
the cash proceeds of a period. Cash disbursed for interest should not affect
the cash proceeds computation. The interest factor is taken into consider-
ation by the use of the present-value procedure. To also include the cash
disbursement would result in double counting. The effect of interest
payments on income taxes is also excluded from the cash proceeds computa-
tion. This is brought into the analysis when computing the effective rate
of interest of debt sources of capital, which is used in the determination
of the cost of capital.

A tax rate of 22 percent on the first $25,000 income and 48 percent on
amounts over $25,000 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.

Cost of Capital - After-tax

Return on invested capital is a fundamental notion in the U.S. business.
It provides both a measure of the actual performance of a firm as well
as'its expected performance. In the latter case, it is also called the
cost of capital and this, in turn, is defined as the weighted average of
the cost of each type of capital employed by the firm -- in general terms,
equities and interest-bearing liabilities. There is no methodology that
yields the precise cost of capital, but it can be approximated within
reasonable bounds.

The cost of equity capital is 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:
C — FT"
where
11-10
-------
21
c - cost of equity capital
D = dividend yield
P = stock price
g = growth
The E/P method is simply

c = E/P

where

c = cost of equity capital
E = earnings
P = stock price

and is a further simplification of the first. The latter assumes future
earnings as a level, perpetual stream.

The after-tax cost of debt capital was estimated by using an estimated
cost of debt (interest rate) and multiplying it by .52 -- assuming a 48
percent tax rate.

d = .52 i

where

d = after-tax cost of debt capital

i '= before-tax cost of debt (interest rate)

The sum of the cost of equity and debt capital weighted by the respective
equity to total assets and total liabilities to total assets ratios yields
the estimated weighted average cost of capital - after tax (k).

Investment

In evaluating the feasibility of new plants, investment is thought of as
outlays for fixed assets and working capital. However, in evaluating
closure of an on-going plant, the investment basis is its salvage value
(opportunity cost or shadow price). I/ For this analysis, salvage value
was taken as the sum of liquidation value of fixed assets plus working
capital (current assets less current liabilities) tied up by the plant.
This same amount was taken as a negative investment or "cash out" value
in the terminal year.
- This should not be confused with a simple buy-sell situation which
merely involves a transfer of ownership from one firm to another.
In this instance, the opportunity cost (shadow price) of the invest-
ment may take on a different value.
11-11
-------
The rationale for using total shadov/ priced investment was that the cash
proceeds do not include interest expenses which are reflected in the
weighted cost of capital. This procedure requires the use of total capital
(salvage value) regardless of source. An alternative would be to use as
investment, net cash realization (total less debt retirement) upon liqui-
dation of the plant. In the single plant firm, debt retirement would be
clearly defined. In the case of the multiplant firm, the delineation of
the debt by the plant would likely not be clear. Presumably this could
be reflected in proportioning total debt to i.iie individual plant on some
plant parameter (i.e., capacity or sales). Under this latter procedure,
interest and debt retirement costs would be included in the cash flows.

The two procedures will yield similar results if the cost of capital and •
the interest charges are estimated on" a similar basis. The former procedure,
total salvage va'iue, was used as it gives reasonable answers and simplified
both the computation and explanation of the cash proceeds and salvage values.

Replacement investment was considered to be equal to the annual depreci-
ation. This corresponds to the operating policies of some managements
and serves as a good proxy for replacement in an on-going business.

Investments in pollution control facilities are from estimates provided
by EPA. Only incremental values are.used in order to reflect in-place
facilities. Only the value of the land for control was taken as a nega-
tive investment, or "cash out" value, in the terminal year.
Price and Production Impact Analyses

Price and production impact analyses necessarily have to proceed simul-
taneously. In order to evaluate these impacts, two types of analyses are
used: one is at the micro level utilizing the model plant as the basis
of the analysis to ar.ive at required price impacts to maintain profit-
ability levels; the other is at the industry 'level utilizing supply and
demand analysis.

Application of the preceding DCF procedure to these costs yields 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 approximated by the formula I/

v (PVPJ QOO)
~ """
— The above procedure is conceptually correct where an average tax
rate is used. However, to insure accuracy in the machine program
where the actual tax brackets are incorporated, a more detailed
iterative process is required.
11-12
-------
where 23

«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

T = average tax rate

The required price increase at the-piant level is evaluated in light of
the price elasticities of the commodity involved and the competitive
structure of the industry. This represents the second approach using
supply and deman.i analysis. The supply and demand analysis provides
some insights into likely quantities and supply response to different
prices. This allows a preliminary estimate of the production and price
impact of pollution control costs. Follovn'ng this, further analysis at
the micro level is performed to obtain a more detailed insight into the
plants' response to expected prices, absorption or shutdown. The indi-
cated plant shutdowns are then, aggregated to test whether or not the lost
production could be absorbed by the remaining capacity or v.'hether such
curtailments would increase prices.

Financial Impact Analysi^

The financial impact analysis involves preparation of pro forma income
statements and cash flow statements following the assessment of the
likely price change. The analysis provides estimates of profitability
with and without pollution control costs and also provides information
relative to the ability of the industry to finance this investment and
estimated financial requirements. The ability to finance plant investment
for pollution control may have a definite bearing on judgments and esti-
mates, with regard to likely plant closures.

Plant Closures and Production Effects

Plant closures may result from the inability of less profitable plants
to adequately recover required pollution abatement cost through in-
creased product prices, decreased input prices, or improvements in econ-
omic efficiency. Often closures can be anticipated among older, smaller,
and less efficient plants as a result of economies of scale in pollution
control which would lower the overall costs to a larger operation. Since
the larger plants, whose unit pollution control costs are usually much
less, will be able to afford to sell at a lower price than the high-cost
plants, the high-cost plants will have no recourse other than to sell
11-13
-------
at the long run equilibrium price set by the low-cost plants. Conse-
quently in the long run, it is expected that the older, smaller, less
efficient plants will eventually yield to the dominance of the larger
more efficient units. However, in the short run, it is always possible
that a plant may continue to operate even when economic considerations
indicate closure. Possible exceptions will occur to the extent that
smaller high cost plants are protected by regional markets and other
non-price impediments to competition from the larger low cost plants.
Employment Impact Analysis

This analysis is concerned with estimating likely employment losses due
to curtailed production and/or plant closures as a result of pollution
controls. If the actual plants which are expected to curtail production
and/or close can be identified, employment impacts can be estimated directly.
Otherwise the employment impact analysis involves the application of esti-
mates of employment changes by model plants. Employment changes in model
plants are then generalized according to the number of actual plants repre-
sented by the model plant and aggregated to derive an estimate of tote";
employment effects for the industry. Employment dislocations will be noted
as appropriate.

Community Impact Analysis

This task is designed to identify potential impacts on local community
economies where the impacted plant might represent a major source of
employment arid income. This analysis is based on a knowledge of the
location of plants, particularly threatened plants, and a general under-
standing of the economic base of those communities and the relative im-
portance of threatened plants to local economies.

Balance of Payments Impact Analysis

Balance of payments impact analysis deals with those products that have
competitive positions with regard to imports and exports. The analysis
considers whether or not the estimated price changes would_hinder com-
petitive positions with regard to exports or increase foreign imports.
Where important, estimates on the amount of trade that potentially could
be impacted and total trade levels are presented.

Other Impact Analysis

Other potential impacts may be created by the imposition of pollution
control guidelines. This will likely be unique to given industries
requiring a case-by-case approach. An illustration of the possible type
of impact would be a plant that produces a critical intermediate, an innut
for other industries. The loss of this plant or large price increases
could produce serious backward or forward effects on producers or consumers
To the extent additional impacts are identified and are important, these
will be noted.
11-14
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III. STRUCTURE OF THE INDUSTRY
The independent rendering industry is a part of SIC 2077 ]_/--Animal and
Marine Fats and Oils. The Census of Manufactures includes in SIC 2077
establishments primarily engaged in manufacturing animal oils, including
fish oil and other marine animal oils and by-product meal; and those render-
ing inedible grease and tallows from animal fat, bones and meat scraps. 2/
This study deals with only the animal portion of SIC 2077 and specifically
excludes establishments that process p -imarily marine products.
The independent (or off-site) rendering industry is only a portion of the
total animal rendering industry. The other major segments includes on-site
or captive renderers which are an integral part of meat packing plants.
Effluent guidelines for these on-site renders are incorporated in SIC 2011
Meat Packing Plants. According to the 1972 Census of Manufactures, the
shipments from SIC 2077 amounted to 68 percent (coverage ratio)of all animal
marine fats and oils shipments.

Fish liver oils, crude
Fish meal
Fish oil and firh oil meal
Grease and tallow: Inedible
Meat meal and tankage
Oil, neat's foot
Oils, animal
Oils, fish and marine animal:
herring, menhaden, whale (refined),
sardine
Stearin, animal: Inedible

Of this group, the independent renderers process primarily meat meal and
tankage, and inedible grease and tallow. These two major product categories
account for over 81 percent of the value of shipments for the entire industry
classification.
A. Characteristics of the Industry
The independent rendering industry consists of a wide diversity of types of
firms. Firm ownership ranges from small family-owned companies and closely
held corporations to large publicly-held corporations.
I/

2/
SIC number 2094 was changed to 2077 in o972 with no change in definition.

Establishments primarily engaged in manufacturing lard and edible tallow
and stearin are classified in SIC group 201; those refining marine oils
for medicinal purposes in industry 2833; and those manufacturing fatty
acids in industry 2899.
III-l
-------
General statistics for the industry are shown in Table III-l.

Number of Establishments

The number of establishments in the industry has declined steadily over
the past decade from 617 in 1978 to 511 in 1972. It is estimated that
approximately 70-80 percent of the establishments listed in SIC 2077 are
engaged in animal rendering. The Census of Manufactures does not include
statistics to show what part of the cotal are engaged in animal rendering.

Information obtained during EPA's survey of the industry indicated there
are about 350 independent animal rendering plants in operation in January
of 1977. V

Type and Size of Plants

Independent rendering plants are of two basic types (1) batch process and
(2) continuous process. The batch process type is the older process and
batch plants are generally smaller than the continuous process plants.
Most of the newer installations are using the continuous process type plant
which is somewhat more efficient for larger volumes and with good maintenance,
better quality control can be maintained. The continuous process does not
appear feasible for the small independent rendering operation where new in-
stallation, if any, would probably continue to be the batch-type process.
A third type of plant was identified in the EPA survey, a combination batch-
continuous plant. Generally, this type plant was a batch plant historically,
then added a continuous process cooker.

Based on the EPA survey data, the size and type of independent rendering
plants are estimated as follows:
Type
Batch Process
Small
Medium
Large
Subtotal

Continuous Process
Medium
Large
X-Large
Subtotal

Combination Plants
Size range—
Up to 75
75-250
Over 250
Up to 250
250-350
Over 350
Over 250
Large
Total Plants

— 1,000 pounds raw material per day
Number

158
83
17
258
26
26
19
71
21

350
Percent

45.1
23.7
4.9
73.7
6.0
- Estimates on plant numbers range from 350-400 plants.
350 are used but the exact number is not known.
100.0
In this report,
III-2
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Table III-l. General statistics for the Animal and Marine Fats
and Oils Industry (SIC 077), 1958-72

1—4
»— 1
»— t
CO
Year 1
1958
1963
1967
1972

Total
Estab-
lishments
617
615
588
511

Empl oyees
Number
(1,000)
14.6
14.3
13.7
11.5

Payrol 1
Value
Added
by Manu-
facturer
Cost of
Materials
Value of
Shipment
Capital
Expenditure
New
Gross Value Special -
of Fixed ization
Assets Ratio
Cover-
age
Rate
en nnn nnn
67.9
78.3
91.8
106.0

151.6
193.3
206.0
296.7

238.5 389.3
280.4
349.1
470.4

474.0
557.9
764.6

12.
13.
21.
31.

7
7
7
0

289.5 93
227.8 94
228.4 94
N.A. 94

61
66
67
68

Source: Census of Manufacturers, 1972.
-------
Small batch plants are still the predominant type of plant found in the
industry with 45 percent of the total plants in spite of the historical
trend to replace the small batch plants with large continuous process
units.

An informal distinction should be made between the city and rural renderers.
The rural renderers normally use older processing equipment of lower capacity
and tend to run longer routes with their truck to pick up dead stock and
other types of lower yield raw materials. Also, they would tend to make
smaller pick-ups on their routes.

Another indication of size of plant is obtained from the 1972 Census of
Manufactures (Table III-2). This also includes marine renderers and plant
numbers are based on 1972 data. In this distribution, 62 percent of the
plants have less than 20 employees and would be classified approximately
as small plants. It is significant to note that this 62 percent of the
plants account for only 20.7 percent of the total shipments.

Value of Shipments

Total sales of the independent rendering industry were $764.6 million in
1972 (Table III-3). This compared to $559.9 million in 1967 and $389.3
million in 1958. The increase in total sales has resulted from both an
expansion in the slaughter of livestock and poultry and an increase in the
overall price level.

Of this amount in 1972, primary products (grease and tallow, meat meal and
tankage and ether direct products) amounted to 667 million and secondary
products 45 million (miscellaneous receipts amounted to 52 million). The
specialization ratio (primary products divided by primary products plus
secondary products) was 94 percent, the same as 1967.

1972 Production-All Industries
Units Quantity Value
($1,000,000)

III-4
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Table III-2. Size and structure of the animal and marine fats and oils
industry (SIC 2077) 1972
-
Number
of Em-
ployees
1-4
5-9
10-19
20-49
50-99
1 GO- £4 9
'250-499
TOTAL
Btablj
Number

113
72
130
137
48
10
1
511
shmcr.ts
Percent

22.1
14.1
25.4
26.8
9. *
2.0
0.2
100.0
Value of
Total
$ mill ion
16.9
31.8
109.0
284.7
191.1
131.2
*
764.6
Shipments
"'Pfan't Ave.
(000)
150
442
838
2,078
3,981
11,927
*
1,496
Percent of Total
Shipments

2.2
4.2
14.3
37.2
25.0
17.1
*
100.0
*Withheld to avoid disclosing figures of individual companies. Data
for this category included v/ith the 100 to 249 category data.

Source: U.- S. Department of Commerce, Census of Manufactures, 1972.
III-5
-------
Table III-3. Value of shipments by establishments in Primary Product
Classification, SIC 2077, 1958-1972
Year

1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
Number of establishments in 1972: 511
Source: Annual Survey of Manufactures
Census ot Manufactures
Value of shipments

($ million)
389.3
353.1
318.0
376.3
400.6
474.0
550.4
669.2
765.3
557.9
515.1
608.7
822.5
865.9
764.6

III-6
-------
According to the 1972 Census of Manufactures, average sales per firm amounted
to $1.5 million and value added $580 thousand in 1972 up from $948 thousand
and $350 thousand respectively in 1967 (Table III-4).

Location

The geographic distribution of the independent rendering industry in the
United States is indicated by Table III-5. Again, these data contain marine
renderers. Basically, the independent rendering industry is spatially dis-
persed throughout the U.S. This dispersion reflects the perishability of
the raw material and the high cost of transportation and the necessity,
therefore, to have the rendering facilities near the source of supply.

Independent renderers are located in both urban and rural areas. It is
estimated that over 50 percent of the members of the National Renderers
Association are located in rura'i communities where small slaughterhouses
and locker plants are located. These rendering plants also process the
dead animals from area farms and feedlots.
B. Concentration
The principal products of the rendering industry are (1) grease inedible
tallow and (2) meat meal and tankage. The share of value of shipments of
these two classes of product accounted for by the 4, 8, 20 and 50 largest
companies in 1972 and earlier is shown below:

Total
(mi 1 1 i on
dollars)
Value of Shipments
Percent accounted for by
4 largest 8 largest 20 largest
companies companies companies

50 larges
companies

Grease and inedible tallow
1972
1967
1963
1958
1954
Meat meal and tankage
1972
1967
1963
1958
1954
419.4
302.6
264.2
246.7
182.6

389.2
277.8
246,
174,
169
22
23
26
23
25

19
20
20
22
29
33
33
34
34
36

31
31
29
30
37
51
49
48
47
49

48
47
45
44
52
72
65
64
61
NA

68
66
64
60
NA
Source: 1972 Census of Manufactures,
III-7
-------
Table III-4. Shipments, value added, and employees in the inde-
pendent rendering industry - 1967 and 1972

Number of firms
Value of shipments ($)
Value added ($)
Total employees
1967
588
557.0 mil.
206.0 mil.
13,700
Average
per
firm

948,000
350S000
23.3
1972
511
764.6 mil.
296.7 mil.
11,500
Average
per
firm

1,499,000
581,000
23
Source: Census of Manufactures, 1972.
III-8
-------
Table III-5. Distribution of establishments in the Animal and Marine
Fats and Oils Industry, 1967
No. of Establishments All Employees
Geographic Area

United States
Northeast Region
New England Div.
Middle Atlantic Div.
North Central Region
East North Central Div.
West North Central Div.
South Region
South Atlantic Div.
East South Central Div.
West South Central Div.
West Region
Mountain Div.
Pacific Div.
(D) withheld to avoid disclosing
Total

Fll
95
25
70
162
79
83
159
61
35
63
95
30
65
figures
> 20 Employees Number

196
36
10
26
60
35
25
69
31
14
24
31
9
22
for individual

11,500
2,400
(0)
(0)
3,300
2,000
1,300
3,800
(0)
(0)
(0)
2,000
500
1,500
companies.
Payroll
($ mil.)
106.0
24.0
(0)
(0)
32.7
21.2
11.2
29.0
(0)
(0)
(0)
20.6
4.0
16.6

Value of
Shipments
($ mil.)
764.6
150.6
(D)
(D)
222.8
141.6
81.2
214.5
(D)
(D)
(D)
176.8
33.7
143.1

Source: U.S. Department of Commerce, Census of Manufactures, 1972.
-------
As these ratios suggest, the rendering industry is not highly concentrated.
In fact, the rendering industry is characterized by many small producers
selling on basic commodity markets. Consequently, the rendering industry
has virtually no control over its finished product prices which are
governed largely by supply-demand forces in world fats and oils and protein
food and feed markets.

The rendering industry has little if any control over the supply of raw
material. The raw material is strictly a by-product of the livestock and
poultry slaughter industries with the exception of carcasses collected
directly from farms.
C. Level of Integration

The total inedible rendering industry is basically segmented into the
"captive" sector which is integrated with the meat and poultry processing
industry and the independent sector which operates free-standing plants
apart from any allied industry.

The captive renderers which process approximately 32 percent of the total
raw material are, of course, an integral part of the meat packing plants
in which they are located. Many of these plants would be owned by the
giants in the meat packing industry including Swift, Armour, Wilson, etc.

Basically, the independent industry is not integrated backward to the meat
packing industry nor are they integrated forward to the further processors
of their basic products.

D. Variety of Products Processed

The independent renderers reprocess discarded animal and poultry materials
such as fats, bones, feather, blood and offal into saleable by-products,
all of which are inedible for human consumption. These products are obtained
from slaughterhouses, meat markets, and eating establishments. A typical
1,000-pound beef animal butcherc-d for human consumption would yield approxi-
mately 100 ,.ounds of rendered finished product. The yield would consist of
approximately 62 pounds of tallow, 33 pounds of meat meal and tankage, and
•five and one-half pounds of dried blood. The amount of tallow would vary with
the amount of finish on the animal.

The independent renderers also process cows, horses, sheep, poultry and
.other animals that have died from natural or accidental causes and that
would otherwise have to be disposed of to prevent a public health problem.
Hide curing occurs in a number of rendering plants, essentially as a separate
operation.
111-10
-------
E. Competition in Raw Material Supplies

On-site processors have a captive supply of raw material determined by
primary operations. Raw Material supply for independent renderers may
be arranged by contracts with suppliers. Raw material prices are gener-
ally more stable than finished product on both up and down markets. By
its very nature, raw material is a relatively low-priced item, and'there-
fore, considerable service competition, rather than price competition
exists in the industry. Since raw material is a by-product of processing
meat or poultry, supply is very inelastic. Because of the perishability
of the raw material, soirees of supply are usually limited to a 150-mile
radius of the processing plant.

In fact, the key to success in the independent rendering industry is in
obtaining a good reliable supply of raw material.

F. Employment

Total employment in the inedible rendering industry has decreased over
40 percent from 14,600 employees in 1958 to 10,000 employees in 1972.
Production workers represent approximately 80 percent of total employed,
and during the above period their employment decreased from 10,900 to
8,000. It should be noted that the value of shipments increased from $389
million in 1958 to $910 million in 1972. Although a portion of the
increase in value of shipments can be attributed to an increase in the prices
of the finished products, productivity has also substantially increased.
For instance, the production of tallow and inedible grease increased
from 3.2 billion pounds in 1958 to over 5.2 billion pounds in 1971.
(2) A major portion of the reduction in employees has occurred within
the past five years and this reduction was consequent to the introduction
of continuous process rendering systems and more efficient materials
handling equipment.

Production workers are largely unskilled. Much of the labor is involved
in the collection and the handling of raw material. Average,hours
v/orked by production employees have rema-'ned relatively stable and
totaled 2,125 hours per employee in 1972.

Although the total number of employees declined by 32 percent during
the 1958-1972 time frame, total payroll increased 60 percent from
$67.9 million to $108 million. A doubling of wages per production
worker man hour took place with wages increasing from $1.97 in 1958
to $4.00 in 1972. Value added per production v/orker man hour was quite
volatile (resulting from price fluctuation of final product), but over
the 14-year period it increased from $5.42 to $19.18. Furthermore,
the value of shipments per production v/orker increased from $35,700 to
$113,700 during the same period (See Table 1-6),
III-ll
-------
Table 1-6. Employment statistics for the Animal and Marine Fats and Oils Industry,
SIC: 2094, 1958-1971 I/ and 1972 i/
All Employees
Year No. Payroll
(000) ($mil.)
1958
1959
I960
1961
196Z
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
I/
2/
14. 6
14. 0
13.7
12. 6
13.3
14.3
14.2
14.2
13.3
13.7
13. 1
13. 1
12.9
12.4
10.0
Source: U.
Source: U.
67.9
67. 0
69.9
69. 0
74.2
78.3
84.6
90.2
89.3
91.8
92.8
99.5
108. 6
111.9
108.0
Production Workers
No.
(000)
10. 9
10. 6
10.0
9.4
9.8
10.3
10.4
vO.2
8. 7
9.5
9.2
9.4
9.4
9.0
8.0
S. Department of
S. Department of
Man Krs.
(Mil. )
23. 6
21.8
21.8
20.5
21.2
22. 7
23.9
23.7
19.8
21.7
20. 1
21. 1
22.2
19.5
17.0
Commerce,
Commerce,
Wages
($ mil.
46.4
45.9
46.9
46.5
50. 0
51.3
54.7
56.6
50. 6
58.2
58. 7
63.7
66. 1
68.6
68.0
Annual
Census
Value of
Shipments
per Production
Worker
. ) ($000)
35.
33.
31.
40.
40.
46.
52.
65.
88.
58.
56.
64.
87.
96.
113.
Survey of
7
3
8
0
9
0
9
6
0
7
0
8
5
2
7
Man Hrs.
per
Production
Worker
(000)
2. 165
2. 057
2. 180
2. 181
2. 163
2.204
2.298
2.324
2.276
2.284
2. 185
2.245
2.255
2. 167
2. 125
Wage Per
Production
Worker
Man Hour
($)
1.966
2. 106
2. 151
2.268
2.358
2.260
2.289
2. 388
2.556
2.582
2.920
3.019
3. 118
3.518
4.000
Value Added
Per Production
Worker
Man Hour
($)
6.
6.
5.
8.
7.
8.
8.
10.
15.
9.
9.
10.
13.
14.
19.
42
44
92
00
93
52
82
48
48
49
50
95
73
26
18
Manufacturing, 1971.
of Manufactures,
1972, Advance
Report.

-------
6. Ability to Finance New Investment

The ability of a firm to finance new investment for pollution abatement
is a function of several critical financial and economic factors. In
general terms, new capital must come from one or more of the following
sources: (1) funds borrowed from outside sources, (2) equity capital
through the sale of common or preferred stock, (3) internally generated
funds -- retained earnings and the stream of funds attributed to depre-
ciation of fixed assets.

For each of the three major sources of new investment, the most critical
set of factors is the financial condition of the individual firm. For
debt financing, the firm's credit rating, earnings record over a
period of years, stability of earnings, existing debt-equity ratio and
the lenders' confidence in management will be major considerations.
New equity funds through the sale of securities will depend upon the
firm's future earnings as anticipated by investors, which in turn will
reflect past earnings records. The firm's record, compared to others
in its own industry and to firms in other similar industries, will be a
major determinant of the ease with which new equity capital can be
acquired. In the comparisons, the investor will probably look at the
trend of earnings of the past five or so years.

Internally generated funds depend upon the margin of profitability and
the cash flow from operations. Also, in publicly held corporations,
stockholders must be willing to forego dividends in order to make earnings
available for reinvestment.

The condition of the firm's industry and general economic conditions are
also major consideracions in attracting new capital. The industry will
be compared to other similar industries (i.e., other processing indus-
tries) in terms of net profits on sales and on net worth, supply-demand
relationships, trends in production and consumption, the state of techno-
logy, impact of government regulation, foreign trade and other significant
variables. Declining or depressed industries are not good prospects
for attracting new capital. At the same time, the overall condition
of the domestic and international economy can influence capital markets.
A firm is more likely to attract new capital during a boom period than
during a recession. On the other hand, the cost of new capital will
usually be higher during an expansionary period. Furthermore, the money
markets play a determining role in new financing.

These general guidelines can be applied to the inedible independent
rendering industry by looking at general economic data and industry
performance over the recent past.
111-13
-------
1. General Industry Situation

There are no published sources of data depicting the general financial
picture of the industry. However, it appears from data obtained in the
Industry Survey and other information that the industry is in a relatively
healthy position at the present time. Apparently, the industry has been
alert to adopt changes in technology which have increased productivity
at an above average rate since 1958. The best information on profitability
is demonstrated in the model plant analysis in Chapter V which shows that the
rendering industry is as profitable, if not more so than other agricultural
processing industries.

Because of the inelasticity of supply for raw material and the high cross-
elasticity of demand for final product, profit levels vary widely from
year to year. Profits in 1973 were probably at an all-time high resulting
from the generally high prices for commodities. The higher prices reflected
increased world demand as well as the drastic curtailment of the supply of
fish meal. Supply and demand pressures have reduced prices and increases
in processing costs have added additional pressure on profits.

2. Capital Expenditure

Capital expenditures in the rendering industry are compiled on an annual basis
in the Census of Manufactures and the Annual Survey of Manufactures. These
data are shown in Table III-3. Total industry expenditures for new plants
and equipment have expanded rapidly from $13.9 million in 1960 to $44 million
in 1973. Expenditures were averaging about $20 million per year during the
latter part of the 60's but increased to $28.5 million in 1970, then jumped
to $43 million in 1971 and 1972. On a per plant basis, average expenditures
increased from about $35 thousand to $48.5 thousand in 1970 and $87 thousand
in 1973. This is largely due to the installation of new continuous process
plants which are rapidly replacing the older batch type plants as well as
expenditures for odor control and waste water treatment.

3. Capital Availability

In summary, it would appear that the industry has been able to maintain^
profit position comparable to the average manufacturing plant in the United
States. Another important consideration is that the industry also has been
able to maintain relatively stable to high profit margins over the recent
years. In addition, sales in the industry have been constantly increasing
at a 5 percent rate per year over the decade.

The industry has a large number of single plant firms, many of which are
family-owned and operated. This is especially true among the smaller size
categories. Family-owned plants would tend to have a hiqh ratio of net
worth to total assets.
111-14
-------
Table III-7. Annual expenditures for new plant and equipment in the
independent rendering industry, 1958-1973'
Year

1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
Total industry
expenditures.!'
S.I.C. 20
($1,000)
44.4
31.0
43.4
28.5
19.5
18.7
21.7
22.6
12.7
14.7
13.7
20.6
15.3
13.9
19.2
12.7
Expenditures as
percent of value
of shipments

2.9
4.0
5.0
3.5
3.2
3.6
3.9
3.0
1.9
2.7
2.9
5.2
4. 1
4.4
5.4
3.3
Average expenditures
per plant^'
($1,000)
86.9
60.7
73.8
48.5
33.2
31.8
36.9
38.4
21.6
25.0
23.3
35.0
26.0
23.6
32.7
21.6
Source: 1972 Census of Manufactures and 1973 Annual Survey of Manufactures
111-15
-------
New capital expenditures by the industry have been constantly increasing
over the past 19 years and averaged 87,000 dollars per plant in 1973 for
all plants in the industry.

The rendering industry is in a reasonably good financial position and is
constantly making new capital investment in existing plants. On this basis
it appears that industry does have the ability to raise reasonable amounts
of capital for pollution control equipment, either through retained
earnings or debt capital. It should be recognized, however, that there
are a number of plants operating at profit levels lower than the averages
reported herein that may conceivably incur substantial difficulty in ob-
taining the necessary capital to invest in pollution control equipment.
The lower profit levels would tend to be associated with the rural renderers
and these are the ones that would face limited capital availability.
111-16
-------
IV. SUPPLY DEMAND AND PRICES
Considerable changes have occurred in product and input marketing since
1962 which significantly altered the financial situation of the inde-
pendent rendering industry. Product markets have been highly volatile
reacting to world market pressures while inputs and other costs of doing
business have escalated.
A. Raw Material
The raw material processed by the inedible rendering industry consists of
discarded animal and poultry materials such as fats, bones, hides, feathers,
blood, offal and "dead stock." Supply sources for these raw materials are
butcher shops, supermarkets, restaurants, poultry processors, slaughter-
houses, meat packing plants, farmers and ranchers.

Independent renderers operate regular daily truck routes to collect dis-
carded fat and bone trimmings, meat scraps, bone and offal, blood, feathers,
and entire animal characces from a variety of sources. In some cases, in-
dependent haulers pick up material and sell it on a competitive basis to
two or more rendering plants. These sources are butcher shops, supermarkets,
restaurants, poultry processors, slaughterhouses, meat packing plants,
farmers and ranchers. The independent rendering industry daily processes
over 50 million pounds of animal fat and bone materials as well as dead
animals that would otherwise become sanitation and health problems.

The amount of raw material available for processing is strictly a function
of the amount of livestock and poultry processed in the United States and
the degree of finish put on the livestock. As a result, the demand for
meat meal and tallow would have no influence on the supply of raw material
available for processing.

Little information is available on the prices renderers pay for raw material
and the EPA survey data provides the best insight into the operation of the
raw material markets. These data, however, do not provide a time series on
raw material prices but only provides a cross sectional look at raw material
supplies anJ prices paid.

The average pHces paid by renderers for raw material by major type (packing-
house waste, dead animals and poultry offal) and size of plant is shown in
Table IV-6. The exact composition of raw material for each major type of
renderer is shown in Table IV-3. From thesse data, industry discussions and
the detailed survey data, some conclusions can be drawn.
IV-1
-------
1. Considerable competition exists between renderers for the limited supply
of raw materials and, in fact, the independent renderers look upon their
suppliers as their "customers." For the urban renderers, both price and
non-price competition is keen in order to have adequate supplies for
efficient operations. While the rural renderers nay not be subject to
the degree of price competition experienced by the urban renderers,
they are confronted with other problems. Usually the rural renderers
have a lower quality product (i.e., a percentage of dead stock) and
longer routes for pickup.

2. Considerable variation exists in the prices paid for similar types of
raw material. In general, the small renderers pay less for raw material
than large renderers. This is because small renderers would pick up
from smaller operations and tend to have higher transportation costs per
1,000 pounds and face less competion in bidding for raw materials.
Larger suppliers would be more aware of price changes and solicit more
competitive bids.

3. Prices paid for raw materials tend to be more stable and lag prices re-
ceived for the finished products. This is due partially to the contractual
arrangements many renderers enter into with suppliers and the time it
takes to adjust prices. Larger suppliers of raw material are more aware
of price changes on the commodity markets and tend to bargin for better
prices compared with smaller suppliers who may be interested primarily
in timely removal.

The stability of raw material costs tend to be an advantage to the renderer
during up-markets but they are also disadvantageous at times of declining
prices.

B. Finished Products

The renderer basically sells his products on the commodity markets where
competition from competing products is very strong and the forces of supply
and demand prevail.

Tallow and Grease

Inedible tallow and grease production has increased from 3.6 mil"Hon pounds
in 1960 to 5.8 million pounds in 1976. Over the past 5-year period the pro-
duction of tallow and grease has increased at the average annual rate of
2.6 percent with the 1976 production level the highest on record (Table IV-1).

Domestic disappearance for 1976 is estimated at 3.4 billion pounds, up
slightly from the 1975 level of 3.3 billion pounds. Sustained industrial
activity during 1976 helped maintain tallow disappearances. In 1975, usage
was higher in all major categories—animal feeds, fatty acids, soap, and
lubricants—resulting in an increase in total domestic disappearance of
over 10 percent above the previous year (Table III-2).
IV-2
-------
Table IV-1. Tallow, inedible and grease: supply, disposition, and price, 1960-77
Supply
Year
Beginning
October

1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975 3/
1976 4/
Apparent
Production
11

3,561
3,776
3,829
4,604
4,461
4,419
4,766
4,751
4,601
4,830
5,252
5,095
5,051
5,619
4,908
5,464
5,800
Stocks
Imports October 1

2/
2
2
2
2
1
4
6
4
7
7
2
8
12
16
10
8
Mi men pounds
343
389
365
334
282
351
417
409
377
304
370
410
329
328
451
308
352
Total

3,904
4,167
4,196
4,940
4,743
4,770
5,187
5,166
4,982
5,141
5,629
5,507
5,388
5,959
5,375
5,782
6,160
Disposition
Exports &
Shipments

1,769
1,710
1,736
2,338
2,155
1,962
2,214
2,212
2,009
2,051
2,591
2,448
2,282
2,544
2,189
2,142
2,375
Domestic
Disappearance
Total

1,745
2,093
2,124
2,320
2,239
2,393
2,565
2,577
2,670
2,721
2,628
2,730
2,778
2,964
2,878
3,288
3,400
Per Capita
Pounds
9.7
11.4
11.4
12.2
11.7
12.3
13.0
12.9
13.2
13.3
12.7
13.1
13.2
14.0
13.5
15.3
15.7
Price, per pound
Chicago
Bleachable
Fancy No. 1

6.3
5.5
5.5
6.5
8.4
7.8
5.8
4.9
6.2
7.9
8.1
6.8
12.8
18.7
14.0
15.0
5/15.0
Cents
5.3
4.6
4.5
5.4
7.3
6.8
5.0
4.2
5.4
7.0
6.8
5.9
10.8
15.3
11.8
13.2
5/13.0
-Apparent production computed from census factory consumption, net foreign trade, and change in stocks. 1966-1969
Census reported production. 2/less than 500,000 pounds. 3/ Preliminary. 4/ Forecast. 3/ October-January
average. ~ ~

Source: Fats and Oils Situation, February, 1977.
-------
Table IV-2. Tallow, inedible and grease: utilization, by products, 1960-75
- Year
Beginning
October
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
Soap

732
702
688
660
690
649
665
631
637
601
616
627
574
623
625
769
Animal
Feeds

443
732
774
861
714
855
972
990
1,061
1,093
1,140
1,116
975
1,092
1,275
1,396
Fatty
Acids

351
402
433
478
530
575
547
576
585
610
568
698
760
878
708
817
Lubricants &
Similar Oils
-— Millinn r*n M nH Q —
ill i I tun puuiiub
70
79
78
91
102
107
98
89
98
97
89
83
94
106
110
142
Other

151
177
151
230
203
208
283
291
289
320
214
206
375
265
160
164
Loss Total

1,745
2,093
2,124
2,320
2,239
2,393
2,565
2,577
2,670
2,721
2,628
2,730
2,778
2,964
2,878
2,850
Source: Fats and Oils Situation, February, 1977
IV-4
-------
Exports in 1976 were estimated at 2.4 billion pounds, an increase of
14.3 percent over 1975 exports. Any future improvements in economic
activity in major importing countries—such as" Japan—would tend to
tncourage tallow exports. However, U.S. tallow is expected to encounter
competition from foreign-produced oils such as palm and coconut oils.
Production of palm oil is expected to be up sharply in 1977 and coconut
oil may be down only slightly. These oils are produced primarily in the
Far East, which is our largest export market for U.S. tallow.

The price of bleachable fancy tallow tripled from the fall of 1972 to August,
1973 to reach an all-time high of 24 cents per pound (Chicago market). The
season average for 1973 aiso reached an all time yearly average of 18.7. Since
that time tallow prices have declined to approximately 15.0 cents per pound.
Bleachable fancy tallow generally is priced at about 2 cents per pound over
the number 1 grade.

As shown in Table IV-2, a higher percentage of inedible tallow and grease
is moving into animal feeds. In 1960, for example, only 25 percent of the
domestically consumed inedible tallow and grease was consumed in animal feeds.
In 1974, however, the percentage increased to 44 percent. Whereas the leading
historical market for soap declined from 42 to 22 percent over the same period.

Tankage and Meat Meal

Tankage and meat meal are used primarily as a high protein feed supplement
ans has a high cross-elasticity of demand with fish meal and soybean meal.
Production of tankage and meat meal has remained relatively constant over
the past decadp—2,000 thousand tons (Table IV-3). An indication of the
competitive nature can be obtained from Table IV-3 which shows the production
levels of all high protein by type. Although tankage and meat meal make up
about 65 percent of the animal protein (fish meal and dairy protein make up
the remainder). Tankage and meat meal compose less than 10 percent of the
total supply of high protein feed. This has decreased from 11 percent in
1970 to 9.3 percent in 1976.

Oilseed meal includes: soybean, cottonseed, linseed, peanut and copra. Grain
protein feeds include gluten feed and meal, brewers' dried grains and dis-
tillers' dried grains.

Quantities available for feeding vs. quality feeds are shown in Table IV-4.
It can be noted that approximately 10 percent of the animal proteins are ex-
ported whereas imports are used to balance the oilseed meals and high protein
grain meals.

Like other protein feeds, the price of meat meal reached a high in June of
1973. The price of $395 per ton was more than triple that realized a year
earlier.
4
At the same time, the price of soybean meal soared from $109 per ton in
October, 1972 to over $400 per ton in June, 1973. The price relationship of
meat meal to other high-protein feed supplements is shown graphically in
Exhibit IV-1.

IV-5
-------
Table IV-3. High protein feed availability by type and tankage meat and
meal as percentage of total high protein feed and
animal protein, 1970-1976

1976
1975
1974
1973
1972
1971
1970
Oilseed
Meal

15,500
17,000
14,250
15,799
14,131
15,093
15,277
Grain
Protein

1,300
1,240
1,125
1,202
1,134
1,008
1,095
Animal
Protein

3,150
3,085
3,050
3,012
3,059
3,616
3,539
Total
High
Protein
(1,000 Tons]
19,950
21,325
18,425
20,013
18,324
19,717
18,861
Tankage Meat
& Meal as
Tankage
Meat & Meal
i
i — ___ — _ —
1,988
1,978
1,851
1,732
1,874
2,032
%
Total

9.3
11.0
9.2
9.4
9.5
11.0
% Animal
Protein

64.4
65.0
61.4
56.6
52.0
57.4
Source: U.S.D.A., Feed Situation, November, 1976.
IV-6
-------
Table IV-7. High protein feed: Quantity available for feedina and estimated use
Animal Protein

1976
1975
1974
1973
1972
1971
1970
Quantity

3,150
3,085
3,050
3,012
3,059
3,616
3,539
Estimated
Use for
Feed

2,825
2,790
2,754
2,869
2,881
3,281
3,238
Use as
% of
Quantity

90.0
90.4
90.3
95.2
94.2
90.7
91.5
Quantity

15,500
17,000
14,250
15,799
14,131
15,093
15,227
Oilseed Meal
Estimated
Use for
Feed
-(1,000 Tons)-
15,850
17,269
14,643
16,264
14,689
15,596
15,690
Grain Protein
Use as
% of
Quantity

102.2
101.6
103.0
103.0
104.0
103.3
103.0
Quantity

1,300
1,240
1,125
1,202
1,134
1,008
1,095
Estimated
Use for
Feed

2,325
2,210
2,025
2,167
2,051
1,840
1,979
Use as
% of
Quantity

178.8
178.2
180.0
180.3
181.0
182.5
181.0
Source: U.S.D.A., Feed Situation, November, 1976.
-------
HIGH-PROTEIN FEED PRICES
300

150

0
600

300

400

200
COTTONSEED MEAL
FISH MEAL
OJAJOJAJOJAJOJAJOJAJOJAJ
1971 1972 1973 1974 1975 1976
YEAR BEGINNING OCTOBER
Source: Feed Situation, September, 1976.
Exhibit IV-1. Historical high-protein feed prices, 1971-1976
IV-8
-------
In 1976 meat meal (50 percent protein, Chicago) averaged $189 per ton,
about $40 per ton over a year earlier but yet $89 per ton under the 1973
average. These meat meal prices closely parallel soybean meal prices
which dropped from $264.34 per ton in 1973 to $133.60 in 1974 and then rose
to $157.68 in 1976.

The average meat meal price in 1976 was about 49 percent higher than the
1972 price. Comparative average prices of meat meal, fish meal, and soy-
bean meal 1970-1976 are shown below:
Year
Meat Meal -f
T50%, Chicago)'
Fish Meal
-f
(65%7East Coast)
tonj-
2/
Soybean Meal —
(49-50%, Decatur;
1970
1971
1972
1973
1974
1975
1976
107.91
94.72
126.90
272.17
184.64
146.40
189.00
188.83
165.53
193.17
467.95
339.80
232.25
330.67
87.10
83.83
114.71
264.34
153.23
142.26
157.68
If USDA, Feed Situation.
2/ USDA, Fats and Oils Situation.

C. Ability to Pass Costs Forward Through the Marketing System

Examination of the comoetitive structure of the markets in which inedible
tallow and grease and meat meal and tankage suogest that they are highly
competitive with the price established on the basis of supply and demand.
Basically, the independent renderers are price takers and any increase from
exogenous factors would result in a loss of market share as the users
would substitute other processes.

A possibility exists for the renderers to pass increased costs forward to
the supplier. This pass-through is limited especially for rural renderers
as transportation costs ar? a significant item in raw material cost. Also,
these raw materials are associated with lower yield material and, therefore,
downward adjustments would be more limited.
IV-9
-------
V. MODEL PLANTS

The development of representative model rendering plants was based on
information provided in the previous rendering impact analyses as well as
the data derived from the industry surveys (discussed in Chapter I, Part C,
Data Sources). Throughout this chapter an attempt has been made to identify
the source of the data being discussed. Additionally, for individuals
analyzing in detail the working assumptions, methodology or additional
sources of information utilized in this analysis, a supplemental working
document was prepared and is available for review at the Environmental
Protection Agency, Washington, D. C.

A. Types of Plants

As discussed in Chapter III, two types of plant systems, the batch system and
the continuous system, are basic to the rendering industry.

Batch rendering is a cooking and moisture-evaporation operation performed
in a horizontal, steam-jacketed cylindrical "cooker" equipped with an
agitator. A dry rendering process, it cooks raw material without addi-
tional steam or water, and product moisture is removed from the cooker
by evaporation. It is a batch process which repeats the cycle of charging
with raw material, cooking under controlled conditions, and finally dis-
charging material. The average process tiiie per cooker charge is approx-
imately two hours. Plant capacity depends upon the number of "cookers",
usually from 3 to 10.

The continuous rendering system has been introduced within the past 5-10
years. Its advantages are that it provides an uninterrupted flow of material,
improves quality control; better confines odor and fat aerosol particles
within the equipment, needs less cleanup, uses less space, and requires
less labor for operation and maintenance. Continuous systems increase
throughput and sometimes facilitate the consolidation of two or more plants
since all known continuous rendering systems that have been installed are
at least of the medium size category. Investment costs are higher than
batch plants and continuous plants represent a more sophisticated invest-
ment.

The model plants used in this analysis reflect both batch and continuous
process systems.

Also, renderers may differ with respect to the type of raw material that
comprises the majority of their input. Typically, the three most common
raw materials input are packinghouse materials, and shop-fat and grease;
dead animals; and poultry offal. As the raw material cost and product
yields differ according to the composition of the raw material input, this
analysis considered rendering models of all three raw material classes.

V-l
-------
Finally, this analysis also considered the differing operating character-
istics between existing batch and continuous plants, new source batch and
continuous plants with all new buildings and equipment and new source batch
plants with used buildings and equipment. Table V-l depicts the types
and sizes of models developed for this analysis. The model plants depicted
are believed to be representative of the rendering industry. The various
types were developed from conversations with industry members as well as
analysis of the survey data. Sizes of the models were provided by EPA
and are the same as appeared in the previous rendering reports.

B. Capacity, Utilization, Raw Material Distribution and Yield

It is common for rendering plants to operate 2 eight-hour shifts per day
approximately 250 days per year. Time is spent unloading and loading
trucks, performing routine maintenance etc. Actual processing time per
day varies according to seasonal factors, raw material availability, and
location. Processing may occur from 10-14 hours per day under normal
workloads. Here it is assumed that plants process 12 hours per day.

The quantity of raw materials utilized by the individual model rendering
plants were taken from the previous economic analysis -L'as they were still
believed to be representative of the industry. In terms of total pounds
of raw materials, the total inputs of the different classifications
(packinghouse, dead animal or poultry) of the models wer2 the same for
each respective size model. For example, the number of pounds of raw
materials handled per year for the small batch packinghouse model is
the same as the small batch dead animal model as well as the small batch
poultry model. The respective quantities of raw material handled as well
as the utilization characteristics of each model size are shown in Table
V-2.

While for a given model size the quantity of raw material handled is the
same for all classifications of rendering models, the composition of that
quantity differs with respect to the various raw material components.
The raw material distributions utilized in this analysis were derived
from survey responses and are summarized in Table V-3.

As the model's raw material composition differs for the different classifica-
tions, the resulting yields of the raw materials differ. Rendered materials
result in the production of either meat meal or tallow and grease. From
the industry surveys, it was possible to derive the various raw product
yields. These are expressed in terms of the percent of raw material input
that is converted to either meat meal or tallow and grease. These yields
are summarized in Table V-4.

The proportion of the resulting finished meat meal or tallow and grease
are depicted below for the three classifications of renderers. Note that
the proportions are the same for the various sized packinghouse and dead
animal models but differ for the various sized poultry models. These were
also derived from the industry surveys.
I/ Environmental Protection Agency, Economic Impact Analysis of Effluent
~ Guidelines Rendering Segment of the Meat Industry, February. 1976.
Prepared by Donald J. Wissman, and Raymond J. Coleman of Development
Planning and Research Associates.
V-2
-------
Table V-l. Types and sizes of model rendering plants developed

Classification
Packing- Dead Poultry
Model Type house Animal Offal

Batch
--Existing
. Small xxx
. Medium x x
. Large x x

--New Source (New)
. Small xxx
. Medium x x
. Large x x

--New Source (Used)
. Small xxx
. Medium x x

Continuous
--Existing
. Medium x x
. Large x x

--New Source (New)
. Medium x x
. Large x x
V-3
-------
Table V-2. Input and utilization characteristics of model plants in
the meat by-products independent rendering industry

Raw Material
(000) Ibs/hour
(000) Ibs/day
(000) Ibs/year

Small
3.1
37.0
9,250.0
Batch
Medium
9.8
118.0
29,500.0
Continuous
Large
24.5
294.0
73,bOO.O
Medium
14.0
168.0
42,000.0
Large
29.8
357.0
89,250.0
Utilization
Hours/day 12 12 12 12 12
Days/week 555 55
Weeks/year 50 50 50 50 50
V-4
-------
Table V-3. The independent rendering industry, raw
material distribution-
Raw Material
Type

Packinghouse Material
Shop Fat and Grease
Restaurant Grease
Blood
Dead Animals
Poultry Offal
Poultry Feathers
TOTAL
Packinghouse
Renderer

47.0
35.4
8.7
2.7
6.2
0.0
0.0
100.0
Dead
Animal
Renderer

10.2
8.8
2.4
0.0
78.6
0.0
0.0
100.0
Poultry
Offal
Renderer

6.5
2.8
0.0
0.0
3.1
56.7
30.9
100.0
Source: Industry Surveys
V-5
-------
CTl
Table V-4. The Independent Rendering Industry, model
plant raw material yields
Model Type

Packinghouse
Batch - Small
Batch - Medium
Batch - Large
Continuous - Medium
Continuous - Large
Dead Animal
Batch - Small
Poultry Offal
Batch - Small
Batch - Medium
Batch - Large
Continuous - Medium
Continuous - Large
Packing-
house
Materials

47.4
47,4
47.4
47.4
47.4

43.0

40.6
40.6
40.6
40.6
40.6
Shop
Fat and
Grease

57.4
60.7
64.3
60.7
64.3

49.8

50.2
50.2
bO.2
50.2
50.2
Restaurant
Grease

83.4
77.2
67.6
77.2
67.6

70.3

—
—
--
—
*• —
Blood

17.3
17.3
17.3
17.3
17.3

--
_-
--
--
— —
Dead
Animals

41.5
41.5
41.5
41.5
41.5

43.2

39.6
39.6
39.6
39.6
39.6
Poultry
Offal

38.8
38.8
38.8
38/8
38.8

31.7
35.6
43.7
35.6
43.7
Poultry
Feathers

__
--
—
—
—

40.0
33.4
33.4
33.4
33.4
Source: Industry Surveys
-------
Renderer Meat Tallow &
Classification Meal Grease
~~
Packinghouse (all) 47.0 53.0
Dead Animal 63.3 36.7
Poultry Offal
. Small Batch 86.3 13.7
. Medium Batch 78.2 21.8
. Large Batch 76.0 24.0
. Medium Continuous 78.2 21.8
. Large Continuous 76.0 24.0

From the previously discussed ."actors, the respective model plants annual
input-output can be determined. These are summarized in Table V-5.
Note, some plants would also process a few brine cured hides. These
would be obtained from dead animals or in some cases picked up from small
locker plants. The number varies a great deal from plant to plant and
would result in some added revenue. However, because of their minor and
variable role, brined hides were not included in the profile.
C. Value of Assets
Book, salvage and replacement values of assets for the model plants are
shown in Appendix A. Investment requirements for land and buildings were
assumed to be the same for all classifications (packinghouse, dead animal
and poultry) depending on the type and size of the models.

The replacement and salvage value of land was based on $30,000 per acre.
Site sizes ranged from 3-5 acres depending on type and size of plant.
Book value of land was estimated at $10,000 per acre for batch plants and
$15,000 per acre for continuous process plants. Presumably newer con-
tinuous process plants would have a higher original cost of land because
of inflation. Batch process plants were assumed to be 15 years old. Con-
tinuous process plants were assumed to average 5 years old.

The replacement cost of buildings was based on $40 per square foot for
an all new model and $30 per square foot for all used model buildings.
Salvage value"for non-conforming uses (other than rendering) was computed
at 10 percent of replacement cost. Book value of buildings for existing
models was based on an original cost of $25 per square foot depreciated
15 years for batch process plants and 5 years for continuous process
plants. Straight-line depreciation over 20 years life was used for
buildings.

Equipment is commonly depreciated on a 10 year oasis. Replacement of old
worn out equipment with modern equipment and maintenance of old equipment
would tend to hold book value to roughly 50 percent of the original equip-
ment cost. The original equipment cost was determined from data obtained
from the industry surveys.
V-7
-------
Table V-5. The Independent Rendering Industry, input-output of model plants
Packinghouse Material

Raw Material Input
Packinghouse Material
Shop Fat & Grease
Restaurant Grease
Blood
Dead Animals
Poultry Offal
Poultry Feathers
TOTAL

Small
4,348
3,274
805
250
573
0
0
9,250
Batch
Medium
13,865
10,443
2,566
797
1,829
0
0
29,500

Large
34,545
26,019
6,394
1,985
4,557
0
0
73,500
Conti
Medium
19,740
14,868
3,654
1,134
2,604
0
0
42,000
nuous
Large
41,948
31,594
7,765
2,409
5,534
0
0
89,250
Dead Animal
Batch
Small
Poultry Offal

Small
,000 pounds
944 601
814 259
222 0
0
7,270
0
0
9,250
0
287
5,245
2,858
9,250
Batcn
Medium
1,918
826
0
0
914
16,726
9,116
29,500
Continuous
Large
4,778
2,058
0
0
2,278
41,675
22,711
73,500
Medium
2,730
1,176
0
0
1,302
23,814
12,978
42,000
Large
5,801
2,499
0
0
2,767
50,605
27,578
89,250
Finished Product Output
Meat Meal
Tallow & Grease
TOTAL
2,299 7,421 18,640 10,566 22,636
2,593 8,368 21,020 11,914 25,525
4,892 15,789 39,660 22,480 48,161
2,600 2,643 8,254 22,551 11,751 27,383
1,508 451 2,301 7,121 3,276 8,647
4,108 3,294 10,555 29,672 15,027 36,030
-------
For the new source models with all new assets, equipment costs were
estimated from costs obtained from industry engineers, and include
installation for typical configurations found in modern rendering
facilities.

It should be noted that the above investment costs include expenditures
for catch basins and air condensers or shell and tube condensers as nor-
mally installed in new plants.

Because of the high building and equipment cost, a new small and medium
size plant was found to be a marginal type of investment. However,
according to discussions with industry members, it was learned that new
small and medium size plants were being constructed but were constructed
with used equipment salvaged from other operations. To allow for this
possibility, a new source plant was developed using used equipment and
existing buildings. These alternatives were developed based on used
building and investment costs at 60 percent of new cost.

Salvage value of equipment was estimated to be 10 percent of the cost.
Current assets were estimated to be 16.4 percent of sales. Current
liabilities were estimated at 50 percent of current assets reflecting
a two to one current ratio.
D. Model Plant Income Statements
Income statements for all the model rendering plants previously described
are shown in Tables V-8 through V-18. The figures presented are con-
sidered representative of 1976 conditions for the industry and are based
on information ?btained from the industry surveys, contacts with renderers,
published financial records, trade publications and from persons knowledge-
able of the rendering industry.

1. Sales

Sales for each model plant varied directly with volume and composition of
t^e final product mix and no plant was given a market advantage, i.e.,
all plants received the same prices for finished products. The averac,'j
1976 price reported for meat meal was 9.2 cents per pound. For tallow and
grease, the 1976 reported price was 15.0 cents per pound. These prices
were applied to the model plants production depicted in Table V-5.

2. Costs

The format for reporting tot^l costs for the model rendering plants in-
cludes five major sub-categories. They include (1) raw material costs,
(2) direct costs (labor and utilities), (3) indirect costs, (4) interest,
and (5) depreciation.
V-9
-------
Raw material cost. Raw material costs were derived from the industry sur-
veys. The survey data consisted of raw material orice ranges. Mid points
of these ranges were averaged after the surveys had been sorted according
to size and type of the respondent. It should be noted that considerable
variation was reported in the prices paid for raw material and that the
transportation component is included. In general, it was observed that
small plants paid less for raw materials than large plants. This is com-
patible with information obtained from industry experts and basically
results from the competitiveness in bidding for raw material supplier.
Basically, small processors would pick up from smaller suppliers and face
less competition from other renderers. Larger suppliers would be more
aware of price changes and solicit more competitive bids.

The raw material prices used are shown in Table V-6. These prices
were applied to the raw material inputs of each model plant as were
shown in Table V-5.

Direct costs. Direct costs for the models included primarily labor and
utility expenses. These costs were determined from the industry surveys
by expressing the various type and sized respondents' costs in terms of
dollars per pound of average daily input. Again, considerable variation
was reported on the survey forms. Costs used in the development of model
plants were based on reasonableness for the sizes depicted recognizing
that considerable variation may be found in the industry. These averages
are depicted in Table V-7.

Indirect costs. Indirect costs normally include repairs and maintenance,
taxes, general and administrative expenses. For purposes of this analysis,
indirect costs were aggregated. The costs used were developed from the
industry survey: using the same procedures as outlined for direct costs.
The average costs per average pound of daily raw material input are also
shown in Table V-7.

Interest. Interest expenses for existing models consist primarily
of interest charged for short term notes and remaining long term in-
terest charges on equipment and building acquisition loans. For the
existing models, interest charges were estimated to be 2.0, 1.3 and
1.0 percent for the small, medium and large models, respectively. For
new source models, interest charges were computed based on the fol-
lowing assumptions:

Financing--50 percent debt and 50 percent equity
Number of Years--30 year loan
Annual Interest Rate--9.0 percent
Operating Capital Interest Charges--! percent of sales.

Depreciation. Annual depreciation costs were based on straight-line
depreciation of the original asset cost utilizing a 20 year life for the
buildings and a 10 year life for the equipment.
V-10
-------
Table V-6. The Independent Rendering Industry, raw material
Model Type

Packinghouse
Batch - Small
Batch - Medium
Batch - Large
Continuous - Medium
Continuous - Large
Dead Animal
Batch - Small
Poultry Offal
All Models
Packing-
house
Material

29.6
31.7
35.0
31.7
35.0

26.9

29.8
Shop
Fat and
Grease

48.8
51.5
56.5
51.5
56.5

27.6

19.2
Restaurant
Grease
_____ ( Dnl 1 a v'C

57.5
58.3
53.4
58.3
53.4

35.7

—
Blood
nov> T nnn
PCI 1 ,UUU
24.2
30.0
27.5
30.0
27.5

--
Dead
Animals

21.7
20.3
18.0
20.3
18.0

17.2

11.5
Poultry Poultry
Offal Feathers

__
—
—
--
—

—

19.1 17.3
Source: Industry Surveys
-------
Table V-7. The Independent Rendering Industry, various model
plant costs I/
Model Type

Packinghouse
Batch - Small
Batch - Medium
Batch - Large
Continuous - Medium
Continuous - Large
Labor
Expenses

2.00
1.80
1.45
1.80
1.45
Utilities
Expenses
Dnl 1 arc 1 /

1.16
1.08
0.74
1.08
0.74
Indirect
Expenses

1.70
1.40
1.00
1.40
1.00
Dead Animal
Batch - Smal1
2.51
1.12
0.93
Poultry Offal
Batch - Small
Batch - Medium
Batch - Large
Continuous - Medium
Continuous - Large
1.26
0.77
0.60
0.77
0.60
0.95
0.71
0.63
0.71
0.63
0.40
1.03
1.57
1.03
1.57
_!/ Costs are expressed in terms of average dollars per pound of average
daily raw material input.
Source: Industry Surveys /
V-12
-------
3. Income and Cash Flow

The net incomes and cash flows for each of the model plants are shown in
Tables V-8 through V-18. In general, incomes for all existing models
were positive as were cash flows. New plants are generally less profitable
than existing plants because of the high investment cost. In general,
the large batch and large continuous plants are reasonably profitable.
Medium sized plants are marginal if constructed with new buildings and
equipment. However, with used building and equipment, they can present
a profitable investment opportunity. Small plants continue to be mar-
ginal even when constructed with used buildings and equipment. In fact,
it is likely that investments would be made in this type of plant only in
unusual circumstances.
V-13
-------
Table V- 8. The Independent Rendering Industry, income statements
for existing, batch, packinghouse model plants
Small
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
600.5
353.2
74.0
42.9
116.9
62.9
533.0
67.5
12.0
15.9
39.6
8.2
31.4
47.3

Med i urn
Large
(Percent) ($1,000) (Percent) ($1,000) (Percent)
100.0 1,937.9 100.0 4,867.9 100.0
58.5
12.3
7.2
19.5
10.5
88.8
11.2
2.0
2.6
6.6
1.4
5.2
7.9
19.9
1,187.9
212.4
127.4
339.8
165.2
1,692.9
245.0
25.2
44.1
175.7
70.8
104.9
149.0

61.3
11.0
6.6
17.6
8.5
87.4
12.6
1.3
2.3
9.1
3.7
5.4
7.7
25.3
3,157.2
426.3
217.6
643.9
294.0
4,095.1
772.8
48.7
101.2
622.9
285.5
337.4
438.6

64.9
8.8
4.5
13.2
6.0
84.1
15.9
1.0
2.1
12.8
5.9
6.9
9.0
39.5
V-14
-------
Table V- 9. The Independent Rendering Industry, income statements
for new batch, packinghouse model plants
Small
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
600.5
353.2
74.0
42.9
116.9
62.9
533.0
67.5
33.8
74.0
(40.3)
—
(40.3)
33.7

(Percent)
100.0
58.8
12.3
7.2
19.5
10.5
88.8
11.2
5.6
12.3
(6.7)
—
(6.7)
5.6
(4.4)
Medium
($1,000)
1,937.9
1,187.9
212.4
127.4
339.8
165.2
1,692.9
245.0
55.6
96.3
93.1
31.2
61.9
158.2

(Percent)
100.0
61.3
11.0
6.6
17.6
8.5
87.4
12.6
2.9
5.0
4.8
1.6
3.2
8.2
4.8
Large
($1,000)
4,867.9
3,157.2
426.3
217.6
643.9
294.0
4,095.1
772.8
101.2
136.0
535.6
243.6
292.0
428.0

(Percent)
100.0
64.9
8.8
4.5
13.2
6.0
84.1
15.9
2.1
2.8
11.0
5.0
6.0
8.8
14.3
V-15
-------
Table V-10. The Independent Rendering Industry, income statements
for new (used equipment and building), batch, packinghouse model plants

Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
Small
($1,000)
600.5
353.2
74.0
42.9
116.9
62.9
533.0
67.5
24.2
45.0
(1.7)
--
(1.7)
43.3

(Percent)
100.0
58.8
12.3
7.2
19.5
10.5
88.8
11.2
4.0
7.5
(0.3)
--
(0.3)
7.2
(0.3)

($1,000)
1,937.9
1,187.9
212.4
127.4
339.8
165.2
1,692.9
245.0
43.0
58.7
143.3
55.3
88.0
146.7

Medium
(Percent)
100.0
61.3
11.0
6.6
17.6
8.5
87.4
12.6
2.2
3.0
7.4
2.9
4.5
7.6
9.8
V-16
-------
Table V-ll. The Independent Rendering Industry, income statements
for existing, continuous, packinghouse model plants
Medium
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
2,759.2
1,691.4
302.4
181.4
483.8
235.2
2,410.4
348.8
35.9
62.0
250.9
106.9
144.0
206.0

(Percent)
100.0
61.3
11.0
6.6
17.6
8.5
87.4
12.6
1.3
2.2
9.1
3.9
5.2
7.5
22.9
Large
($1,000)
5,911.3
3,833.8
517.6
264.2
781.8
357.0
4,972.6
938.7
59.1
118.1
761.5
352.0
409.5
527.6

(Percent)
100.0
64.9
8.7
4.5
13.2
6.0
84.1
15.9
1.0
2.0
12.9
6.0
6.9
8.9
33.8
V-17
-------
Table V-12. The Independent Rendering Industry, income statements
for new continuous, packinghouse model plants

Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
Medi
($1,000)
2,759.2
1,691.4
302.4
181.4
483.8
235.2
2,410.4
348.8
67.4
107.7
173.7
69.9
103.8
211.5

urn
(Percent)
100.0
61.3
11.0
6.6
17.6
8.5
87.4
12.6
2.4
3.9
6.3
2.5
3.8
7.7
7.1
Large
($1,000)
5,911.3
3,833.8
517.6
264.2
781.8
357.0
4,972.6
938.7
113.8
147.0
677.9
311.9
366.0
513.0

(Percent)
100.0
64.9
8.7
4.5
13.2
6.0
84.1
15.9
1.9
2.5
11.5
5.3
6.2
8.7
16.7
V-18
-------
Table V-13. The Independent Rendering Industry, income statements
for batch, dead animal model plants

Exi
sting
Small
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
465.4
180.9
92.9
41.4
134.3
34.4
349.6
115.8
9.3
15.9
90.6
30 0
60.6
76.5

New

Source (New)
Small
New Source
Small
(Used)

(Percent) ($1,000) (Percent) ($1,000) (Percent)
100.0 465.4 100.0 465.4 100.0
38.9
20.0
8.9
28.9
7.4
75.1
24.9
2.0
3.4
19.5
6.5
13.0
16.4
41.2
180.9
92.9
41.4
134.3
34.4
349.6
115.8
32.5
74.0
9.3
1.9
7.4
81.4

38.9
20.0
8.9
28.9
7.4
75.1
24.9
7.0
15.9
2.0
0.4
1.6
17.5
0.8
180.9
92.9
41.4
134.3
34.4
349.6
115.8
22.9
45.0
47.9
10.0
37.9
82.9

38.9
20.0
8.9
28.9
7.4
75.1
24.9
4.9
9.7
10.3
2.1
8.1
17.8
6.2
V-19
-------
Table V- 14. The Independent Rendering Industry, income statements
for existing, batch, poultry model plants
Small
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
Medium
($1,000) (Percent) ($1,000)
310.8 100.0 1,104.6
175.8
46.6
35.2
81.8
14.8
272.4
38.4
6.2
14.7
17.5
3.5
14.0
28.7

56.6
15.0
11.3
26.3
4.8
87.7
12.3
2.0
4.7
5.6
1.1
4.5
9.2
10.8
560.8
90.9
83.8
174.7
121.5
857.0
247.6
14.4
42.1
191.1
78.2
112.9
155.0

Large
(Percent) ($1,000)
100.0 3,142.9
50.8
8.2
7.6
15.8
11.0
77.6
22.4
1.3
3.8
17.3
7.1
10.2
14.0
33.5
1,397.0
176.4
185.2
361.6
461.6
2,220.2
922.7
31.4
92.4
798.9
370.0
428.9
521.3

(Percent)
100.0
44.4
5.6
5.9
11.5
14.7
70.6
29.4
1.0
2.9
25.4
11.8
13.6
16.6
56.4
V-20
-------
Table V-15. The Independent Rendering Industry, income statements
for new, batch, poultry model plants
Small
Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
310.8
175.8
46.6
35.2
81.8
14.8
272.4
38.4
30.9
74.0
(66.5)
-
(66.5)
7.5

(Percent)
100.0
56.6
15.0
11.3
26.3
4.8
86.7
12.3
9.9
23.8
(21.4)
-
(21.4)
2.4
(7.4
Medi
($1,000)
1,104.6
560.8
90.9
83.8
174.7
121.5
857.0
247.6
47.2
96.3
104.1
36.5
67.6
163.9

urn
(Percent)
100.0
50.8
8.2
7.6
15.8
11.0
77.6
22.4
4.3
8.7
9.4
3.3
6.1
14.8
5.5
Large
($1,000)
3,142.9
1,397.0
176.4
185.2
361.6
461.6
2,220.2
922.7
83.9
136.0
702.8
323.8
379.0
515.0

(Percent)
100.0
44.4
5.6
5.9
11.5
14.7
70.6
29.4
2.7
4.3
22.4
10.3
12.1
16.4
20.0
V-21
-------
Table V-16. The Independent Rendering Industry, income statements
for nev/ (used equipment & building), batch, poultry model plants

Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
Small
($1,000)
310.8
175.8
46.6
35.2
81.8
14.8
272.4
38.4
21.3
45.0
(27.9)
—
(27.9)
17.1

(Percent)
100.0
56.6
15.0
11.3
26.3
4.8
87.7
12.3
6.9
14.5
(9.0)
--
(9.0)
5.5
(4.7)
Medi
($1,000)
1,104.6
560.8
90.9
83.8
174.7
121.5
857.0
247.6
34.7
58.7
154.2
60.5
93.7
152.4

urn
(Percent)
100.0
50.8
8.2
7.6
15.8
11.0
77.6
22.4
3.1
5.3
14.0
5.5
8.5
13.8
11.3
V-22
-------
Table V- 17. The Independent Rendering Industry, income statements
for existing, continuous, poultry model plants
Medium

Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
1,572.5
798.3
129.4
119 3
248.7
173.0
1,220.0
352.5
20.4
59.2
272.9
117.5
155.4
214.6

(Percent)
100.0
50.8
8.2
7.6
15.8
11.0
77.6
22.4
1.3
3.7
17.4
7.5
9.9
13.6
30.0
Large
($1,000)
3,816.2
1,696.4
214.2
224.9
439.1
560.5
2,696.0
1,120.2
38.2
107.5
974.5
454.3
520.2
627.7

(Percent)
100.0
44.4
5.6
5.9
11.5
14.7
70.6
29.4
1.0
2.8
25 5
11.9
13.6
16.4
55.6
V-23
-------
Table V-18. The Independent Rendering Industry, income statements
for new,continuous, poultry model plants
Medium

Sales
Raw Material Cost
Direct Costs
Labor
Utilities
TOTAL DIRECT COSTS
Indirect Costs
Total Expenses
Cash Earnings
Less
Interest
Depreciation
Pre-Tax Income
Income Tax
After Tax Income
Cash Flow
After Tax ROI
($1,000)
1,572.5
798.3
129.4
119.3
248.7
173.0
1,220.0
352.5
55.5
107.7
189.3
77.4
111.9
219.6

(Percent)
100.0
50.8
8.2
7.6
15.8
11.0
77.6
22.4
3.5
6.9
12.0
4.9
7.1
14.0
8.2
Large
($1,000)
3,816.2
1,696.4
214.2
224.9
439.1
560.5
2,696.0
1,120.2
92.9
147.0
880.3
409.0
471.3
618.3

(Percent)
100.0
44.4
5.6
5.9
11.5
14.7
70.6
29.4
2.4
3.9
23 1
10.7
12.4
16.2
23.3
V-24
-------
VI. EFFLUENT CONTROL COSTS
The effluent control systems and their respective costs depicted in this
chapter were provided by the Effluent Guidelines Division of the Environ-
mental Protection Agency as provided by the technical contractor, Midwest
Research Institute, North Star Division. It should be noted that the
costs provided are only applicable to the new source models. This is
because only the new source standards were included in the remand.

To avoid duplication and possible confusion, no technical descriptions
of the control systems or costs are given in this roport. These will be
provided in a separate report published by the Effluent Guidelines Division
of EPA.

The control systems utilized in this analysis for each of the model plants
include three lagoon systems both without and with a mixed media filter
as well as an extended aeration system, a form of activated sludge. In
total each model plant was analyzed with seven different treatment alter-
natives. The treatment alternatives are:

1. Anaerobic - aerobic lagoon system
2. Anaerobic - aerated - aerobic lagoon system
3. Aerated - aerobic lagoon system
4. Activated sludge (extended aeration)
5. Anaerobic - aerobic lagoon system plus mixed media filter
6. Anaerobic - aerated - aerobic lagoon system plus mixed media
fi1ter
7. Aerated - aerobic lagoon system plus mixed media filter

The costs for each of these treatment systems were developed for each
type and size of the rendering models described in Chapter V. The same
systems and their respective costs will apply to the appropriate types
and sizes for each of the model classifications (i.e., the cost for an
extended aeration system for a small batch model will be the same for
the packinghouse, dead animal or poultry models).

The investment and operating and maintenance costs for the various systems
were provided by the technical contractor and are shown in Table Vl-1.
Depreciation, for the impact analysis, was determined utilizing the
straight-line method assuming a 20-year life of the treatment systems.
The various systems respective depreciation amounts are also shown in
Table VI-1.

Table VI-2depicts the various treatment alternatives' investment require-
ments as a percent of each model's estimated total invested capital.
As investments for effluent controls will be considered a part of a
plants' total assets, this method of expressing investment costs helps
to illustrate the magnitude of the controls investment requirement.
VI-1
-------
Table VI-1. The Independent Rendering Industry, representative model plant
effluent control cost.
Batch models
Small

Anaerobic-Aerobic Lagoon System
Investment 33.3
Operating & Maintenance 3.4
Depreciation 1.7
Medium

-------
Table VI-2. The Independent Rendering Industry, model plant effluent control costs expressed as a percent of
models' total invested capital
co
Lagoon systems
Model

Packinghouse
Batch
Small New
Small Used
Medium New
Medium Used
Large New
Continuous
Medi urn New
Large New
Dead Animal
Batch
Small New
Small Used
Poultry
Batch
Small New
Small Used
Medium New
Medium Used
Large New
Continuous
Medium New
Large New
Anaerobic
aerobic

3.5
5.4
6.3
9.1
8.7

7.5
9.2

3.7
5.5

3.7
5.6
6.7
9.9
9.4

8.1
9.9
Anaerobic
aerated
aerobic

2.7
4.1
4.7
6.8
6.7

5.6
7.2

2.8
4.2

2.8
4.2
5.0
7.4
7.2

6.0
7.8
Aerated
aerobic

4.0
6.0
6.2
8.9
8.4

7.0
y.o

4.1
6.1

4.1
6.2
6.5
9.6
9.0

7.5
9.8
Activated
sludge
— (percent) •

3.7
5.5
5.1
7.3
6.2

5.7
7.7

3.8
5.6

3.8
5.7
5.4
7.9
6.7

6.1
8.4
Lagoon systems plus mixed media filter
Anaerobic
aerobic

4.2
6.2
8.3
11.9
11.0

9.7
11.7

4.2
6.3

4.3
6.4
8.7
12.8
11.8

10.4
12.7
Anaerobic
aerated
aerobic

3.4
5.1
6.7
9.6
9.0

7.7
9.8

3.5
5.2

3.5
5.3
7.0
10.3
9.6

8.3
10.6
Aerated
aerobic

4.5
6.7
8.1
11.6
10.6

9.2
11.6

4.5
6.8

4.6
6.9
8.5
12.6
11.4

9.9
12.6
-------
As shown in the Table, the treatment alternatives' investments repre-
sent from 2.8 to 12.8 percent of the various model's total invested
capital, with the larger percentages corresponding to the larger render-
ing models. Thus it appears the larger rendering plants are required to
make proportionately larger investments in effluent controls than the
smaller plants.

Total yearly costs of the various treatment systems consist of the annual
operating and maintenance costs, depreciation and interest. The annual
operating and maintenace costs were provided by the technical contractor
and are shown in Table Vl-l Depreciation utilized the straight line
method over tne systems' anticipated 20 year life. Interest charges for
the treatment systems were based on a 9 percent annual interest rate
and were computed as 9 percent of one-half the treatment systems' in-
vestment costs. The various models' annual control costs for the seven
treatment alternatives expressed as a percent of the models' respective
annual sales are shown in Table VI-3. These percentages range from 0.5
to 5.6 percent of the various models' sales with the higher percentages
corresponding to the smaller sized rendering models.
VI-4
-------
Table VI-3. The Independent Rendering Industry, model plant effluent control annual costs expressed as a
percent of model's annual sales
en
Lagoon systems
Model

Packinghouse
Batch
Small New
Small Used
Medium New
Medium Used
Large New
Continuous
Medium New
Large New
Dead Animal
Batch
Small New
Small Used
Poultry
Batch
Small New
Small Used
Medium New
Medium Used
Large New
Continuous
Medium New
Large New
Anaerobic
aerobic

1.1
1.1
0.7
0.7
0.6

0.7
0.5

1.4
1.4

2.1
2.1
1.3
1.3
0.9

1.2
0.3
Anaerobic
aerated
aerobic

1.0
1.0
0.6
0.6
0.5

0.6
0.5

1.3
1.3

1.9
1.9
1.1
1.1
0.8

1.0
0.7
Aerated
aerobic

1.4
1.4
0.9
0.9
0.5

0.8
0.8

1.8
1.8

2.8
2.8
1.6
1.6
0.8

1.5
1.2
Activated
sludge
-- (percent) •

2.9
2.9
1.4
1.4
1.0

1.4
1.0

3.7
3.7

5.6
5.6
2.5
2.5
1.6

2.5
1.6
Lagoon systems plus mixed media filter
Anaerobic
aerobic

1.2
1.2
0.9
0.9
0.7

0.9
0.7

1.6
1.6

2.3
2.3
1.6
1.6
1.1

1.5
1.0
Anaerobic
aerated
aerobic

1.1
1.1
0.8
0.8
0.6

0.7
0.6

1.5
1.5

2.2
2.2
1.4
1.4
1.0

1.3
0.9
Aerated
aerobic

1.5
1.5
1.1
1.1
0.9

1.0
0.9

2.0
2.0

3.0
3.0
1.9
1.9
1 .4

1.8
1.5
-------
VII. IMPACT OF NEW SOURCE STANDARDS
This analysis of the economic impact of effluent standards was limited
to the impacts on new plants in the independent rendering industry built
after the promulgation of the Guidelines.

The future number of plants to be affected by NSPS guidelines is unknown
but it will likely be small as most new plants will likely discharge to
publicly owned treatment systems. However, for those plants which will
be constructed after the promulgation of the guidelines and which will
discharge wastewaters into navigable streams, economic impacts resulting
from the various treatment alternatives have been estimated based on the
new source models described in Chapter V and the estimated control costs
described in Chapter VI.

Specifically, for each model plant and each alternative treatment system
the following impact indicators were analyzed:

1. Required Price Increase
2. After-tax Income
3. After-tax Return on Sales
4. After-tax Return on Invested Capital
5. Estimated Cash Flow
6. Cash Flow as a Percent of Invested Capital
7. Net Present Values

The organization of this impact analysis will be as follows. First a
brief description of the methodology will be presented, with a brief
description of the significant impact indicators will be provided as
used in this analysis. Second each impact on each model type of model
plant will be analyzed. Finally, a summary of the overall impact will
be discussed
A. Methodology

The fundamental methodology used in this impact analysis is the same
as that normally used in capital budgeting studies of new investments.
The specific techniques used are the same as developed by Development
Planning and Research Associates economists Wissman and Coleman in
the previous economic analysis of effluent guidelines on the independent
rendering industry. I/
Wissman, Donald 0. and Raymond J. Coleman, Economic Impact Analysis of
Effluent Guidelines: Independent Rendering Segment of the Meat Industry.
Prepared for EPA, February 1976.
VII-1
-------
The model plant financial profiles provide the basic data for the analysis.
The model plants are not expected to be precisely representative of any
single new plant operation, but'they reflect the financial and physical
characteristics of recent and prospective plants in the industry. Ad-
justments to model plant budgets to reflect pollution control investment
and annual operating costs permit pre-and post-pollution control economic
analysis for impacts on prices, profitability and potential production
decisions.

More specifically a brief description of the indicators used in this
analysis is as follows:

1. Required Price Increase

This impact indicator reflects the price increase necessary for the
model plants to pay for the effluent control systems arid to keep their
respective Net Present Values constant. In other words, price increases are
required to return the plant to pre-pollution control levels of profit-
ability. These required price increases are expressed in terms of the
percent increase required of the base case assumed pirce.

2. Financial Indicators

Two primary types of analyses were completed to assess the financial
impacts of the various treatment alternatives' costs on the model plants--
(1) profitability and (2) the present value of future net income streams.

The profitability impacts included the following:

1. After-tax Income
2. After-tax Return on Sales
3. After-tax Return on Invested Capital
4. Estimated Cash Flow
5. Cash Flow as a Percent of Invested Capital

These indicators were computed both before (base case) and after the
imposition of effluent controls and the resulting expense.

3. Net Present Value (NPV) Analysis

Another measure of a plant's profitability is the (NPV) of its projected
stream of cost and revenues. If the net present value of the cash proceeds
(including capital costs at their original value) are less than zero, then
the planned investment should not be made. The prospective investor would
be better off to invest funds elsewhere where proceeds could earn the cost
of capital rate. This analysis assumed the following:

1. The after-tax cost of capital for the industry was estimated
at 8.3 percent.

2. Revenue and expenses were assumed constant over time, i.e.,
20 years of operation.

VII-2
-------
B. Economic Impact by Type of Plant

For each rendering model plant, the impacts of the various treatment
alternatives were analyzed and a summary table developed. The impacts
on each of the plant types are discussed below.

1. Packinghouse Batch Models

Small Plants. As indicated in Tables VII-1 and VII-2, it appears doubtful
that new small batch packinghouse rendering plants would be built. Even
if the entrepreneur could develop a plant with an existing building and
used equipment, actual construction would be unlikely unless some unique
local situation prevailed, i.e., good low cost source of raw material,
low cost equipment, etc. This determination is based on the rather
large negative net present values as well as the fact that neither plant
would generate a positive income. The imposition of effluent controls
on this type of renderer wauld only reduce further the plants' losses.
It should be noted, however, if a new small batch packinghouse plant
were able to operate under unusually favorable conditions, such an oper-
ation may be viable. The imposition of effluent controls on such a
plant would be expected to result in only nominal impacts and not effect
the plants long term viability.

Medium Plants. The impacts for the medium all new model and the medium
used asset model are summarized in Tables VII-3 and VII-4, respectively.
For the all new model it appears that in the base case, the plant could
be built although its ability to remain viable would be somewhat de-
pendent upon effective management. This determination for the all new
model is based on the fact that in the base case the plant generates a
positive annual return (3.2 percent return on sales and 4.8 percent
return on invested capital). However, its net present value is negative.
The imposition of the various control alternatives reduce these financial
indicators slightly but are not expected to significantly change the
viability of the model plant.

The medium model plant constructed with used assets is expected to be
viable both before and after the imposition of the various treatment
alternatives. As in all cases, the annual returns and net present
values are positive (Table VII-4).

Large Plants. Only the all new asset model plant was considered for
the large batch packinghouse rendering model. As depicted in Table
the model plant appears to be financially sound both before and after in-
curring the various treatment alternatives respective costs.
VII-3
-------
Table VII-1.
KEY VALUES OF IMPACT ANALYSIS FOR SMALL
PACKING HOUSE» BATCHt NEV

BASE CASE
ANAEROBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AERC3IC
ACTIVATED SLUDGE (EXTENDED AIP.)
ANAEROBIC AERCBIC «• FILTER
ANAEROBIC AERATED AEROBIC»FILTE
AERCBIC AERATED+FILTER
P*ICE
INCREASE
REQUIRED
__L2J

l.l
1.0
1.5
2.9
1.2
1.2
1.6
AFTER-TAX
INCOME
_JLia221__
-40
-47
-46
-49
-58
-48
-47
-49
Table VII-2.
KEY VALUES OF IMPACT ANALYSIS FOR SMALL PACKING HOUSE ,
BASE CASE
ANAEROBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AER08IC
ACTIVATED SLUDGE (EXTENDED AIR)
ANAEROBIC AER031C «• FILTER
ANAEROBIC AERATED AERC8IC+F IL TE
AERC9IC AERATEOfFILTSR
PRICE
INCREASE
REQUIRED
I2J

1.8
1.6
2.3
2.8
2.0
1.9
2.5
AFTER-TAX
INCOME
_uaoai__
-2
-8
-8
-10
-19
-9
-9
-11
AFTER-TAX
RETURN
ON SALES
—130.
-6.7
-7.8
-7.7
-8.1
-9.6
-7.9
-7.8
-8.2
BATCH, NEW
AFTER-TAX
RETURN
ON SALES
__131_ _
-0.3
-1.4
-1.3
-1.7
-3.2
-1.5
-1.4
-1.8
AFTER-TAX
RETURN ON
INVESTED CAPITAL
-4.4
-5.0
-5.0
-5.2
-6.2
-5.1
-5.0
-5.3
(USED BLDG C EQUIP)
AFTER-TAX
RETURN ON
INVESTED CAPITAL
1?)
-0.3
-1.3
-1.2
-1.6
-3.0
-1.4
-1.3
-1.7
ESTIMATED
CASH
FLOW
Lifi2ai_
34
29
29
27
18
28
28
27

ESTIMATED
CASH
FLOW
IlflQUI-
43
•38
39
37
28
38
38
36
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
3.7
3.1
3.2
2.9
2.0
3.1
3.1
2.9

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
1*1
7.0
6.2
6.2
5.9
4.5
6.1
6.2
5.9
NET
PRESENT
VALUES
_LiJ222J.
-833
-900
-893
-919
-1005
-907
-902
-925

NET
PRESENT
VALUES
-UflMl
-346
-402
-396
-417
-484
-408
-403
-422
-------
Table VII-3.
KEY VALUES OF IMPACT ANALYSIS FOR MEDIUM PACKING HOUSE, BATCH, NEW
I
Ol
BASE CASE
ANAERODIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUDGE (EXTENOEO AIR)
ANAEPC8IC AEROBIC + FILTER
ANAEROBIC AERATED AEROBIC+FILTE
AERCBIC AERATED+FILTER
PRICE
INCREASE
RETJtREO
_12J
0.9
0.8
1.1
1.6
1.2
1.0
1.4
AFTER-TAX
INC'JNE
JLi0flO.JL__
62
A3
49
46
41
46
47
44
Table VII-4.
KEY VALUES OF IMPACT ANALYSIS FOR MEDIUM PACKING HOUSE,
BASE CASE
ANAEROBIC AEROBIC
ANAtRCBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUDGE (EXTENDED AIR)
ANAEfrCSIC AEROBIC » FILTER
ANASRCBIC AERATED AER06IC»F ILTE
AERCBIC AERATED«-FILTER
PRICE
INCREASE
REQUIRED
0.9
0.8
1.1
1.6
l.Z
1.0
1.4
AFTER-TAX
INCOME
_LJflfl31__
88
74
75
72
67
72
73
70
AFTER- TAX
RETURN
ON SALES
__1SJ
3.2
2.5
2.5
2.4
2.1
2.4
2.4
2.3
BATCH, NEW
AFTER-TAX
RETURN
ON SALES
__JL3i
4.5
3.8
3.9
3.7
3.5
3.7
3.8
3.6
AFTER-TAX
RETURN ON
INVESTED CAPITAL
4.8
3.6
3.7
3.5
3.1
3.4
3.5
3.3
(USED 9LDG t EQUIP)
AFTER-TAX
RETURN ON
INVESTED CAPITAL
LSI
9.8
7.9
8.1
7.7
7.2
7.6
7.8
7.4
ESTIMATFO
CASH
FLOW
Li!l:JQl_
158
148
148
146
140
147
147
145

ESTIMATED
CASH
FLOW
LSQ.Q.O.JL-
147
137
137
135
129
136
136
134
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
f*>-
12.3
11.5
11.5
11.3
10.9
11.4
11.4
11.3

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
(*i
16.3
15.2
15.2
15.0
14.4
15.1
15.1
14.9
NET
PRESENT
VALUES
_ilflOOJL
-259
-353
-336
-369
-416
-378
-362
-398

NET
PRESENT
VALUES
-iiOQOJ.
262
16S
184
152
105
143
159
123
-------
I
en
Table VII-5.

KEY VALUES OF IMPACT ANALYSIS FOR LARGE PACKING HOUSEt BATCH, NEW
BASE CASE

ANAERCBIC AEROBIC

ANAEROBIC AERATED AEROBIC

AERATED AERC3IC

ACTIVATED SLUDGE (EXTENDED AIR)

ANAEP.CBIC AEROBIC * FILTER

ANAERCBIC AERATED AEROBIC+FILTE

AEROBIC AERATED+FILTER
PRICE
INCREASE
REQUIRED
LZ1
0.8
0.6
0.9
1.2
1.0
0.8
1.1
AFTER-TAX
INCOME
_i*2aflj
292
270
273
267
259
267
269
263
AFTER-TAX
RETURN
ON SALES
LZJ.
6.0
5.5
5.6
5.5
5.3
5.5
5.5
5. 4
AFTER-TAX
RETURN ON
INVESTED CAPITAL
'*),.,. ,_.,_
14.3
12.7
12.9
12.5
12.3
12.4
12.6
12.2
ESTIMATED
CASH
FLOW
Liflflfll-
428
415
415
411
401
414
414
410
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
21.0
20.4
20.4
20.2
19.7
20.3
20.3
20.1
NET
PRESENT
VALUES
tsoooi
1592
1397
1*33
1364
1298
1350
1386
1313
-------
2. Packinghouse Continuous Models

Medium Plant. The medium model continuous packinghouse plant appears
to be marginally viable in the base case (Table VII-6). while the base
case annual returns are positive, they are somewhat lower than what would
be desirable (3.8 percent return on sales and 7.1 percent return on
invested capita). The base case net present value is also positive but
it is only $7,000. Thus for the base case, the medium plant could be
viable but much of the plant's success would depend on its management's
capabilities. The imposition of effluent control requirements on
such a plant may have a slight influence on the construction decision
of the new plant. The model plant, after incurring treatment costs,
retains positive annual returns, however, its net present value becomes
negative. As stated for the base case, the viability of an impacted plant
depends on the plant's management capability.

Large Plant. The large continuous model appears to be viable in the
base case as well as after incurring expenditures for effluent controls
(Table VII-7). Annual returns and net present values in all cases con-
sidered are positive and financially viable.
VII-7
-------
Table VII-6.
KEY VALUES OF IMPACT ANALYSIS FOR MEDIUM PACKING HOUSE, CONTINUOUS, NEW
I
CO
BASE CASE
ANAEROBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUD3E (EXTENDED AIR)
ANAEP03IC AEROBIC + FILTER
ANAERC3IC AERATED AEROBIC+FI LTE
AERATED AEROBIC * FILTER
Tab!
KEY VALUES OF IMPACT ANALYSIS FOR
BASE CASE
ANAERCBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUDGE (EXTENDED AIR)
ANAEPC8IC AEROBIC » FILTER
ANAERCBIC AERATED AEROBIC+FILTE
AERATtO AERC8IC * FILTER
PRICE
INCREASE
REQUIRED
0.9
0.7
1.0
1.6
1.1
1.0
1.3
e VII-7,
AFTER-TAX
INCOME
_Li2Qil
104
87
89
85
77
85
86
82

LARGE PACKING HOUSE,
PRICE
INCREASE
REQUIRED
_I30
0.7
0.6
1.0
1.2
0.9
0.8
1.2
AFTER-TAX
INCOME
_iiflflO.I__
366
342
345
335
327
338
341
330
AFTER-TAX
RETURN
ON SALES
LSi
3.8
3.2
3.2
3.1
2.8
3.1
3.1
3.0

CONTINUOUS,
AFTER-TAX
RETURN
ON SALES
__LS1
6.2
5.8
5.8
5.7
5.5
5.7
5.8
5.6
AFTER-TAX
RETURN ON
INVESTED CAPITAL
tsi
7.1
5.7
5.9
5.6
5.1
5.5
5.6
5.3

NEW
AFTER-TAX
RETURN ON
INVESTED CAPITAL
131
16.7
14.9
15.2
14.6
14.4
14.5
14.8
14.2
ESTIMATED
CASH
FLOW
— LS£flfll_
212
200
200
198
188
199
200
197

ESTIMATED
CASH
FLOW
UflQflJL
513
466
467
458
449
465
465
457
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
m
14.4
13.6
13.6
13.5
12.8
13.6
13.6
13.4

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
it)
23.4
21.2
21.3
20.9
20.5
21.2
21.2
20. f>
NET
PRESENT
VALUES
.-H OOP)
7
-120
-97
-139
-215
-153
-129
-174

NET
PRESENT
VALUES
..UMSJL
2323
2102
2140
2028
1963
2045
2082
1968
-------
3. Dead Animal Batch Models

Small Plant. The small batch dead animal rendering models' impacts
are summarized in Tables VII-8 and VII-9 for the all new model and the used
asset model respectively. As shown in TableVII-8, it appears doubtful
the all new plant would be built in the base case. This is due to the
negative net present value and the extremely low annual returns. The
possibility does exist, however, that such a plant could be constructed
and successfully operated. This situation would occur only under more
favorable operating conditions than were assumed in the development
of the model plant. The imposition of effluent controls on the all new
model results in declines of the financial indicators of the base case.
However, the amounts of the declines are slight and accordingly the
impacts considered nominal.

The small batch dead animal model built with used buildings and equipment
appears to be marginally viable in the base case (TableVII-9). This
marginality is due to the model's relatively healthy annual returns but
negative net present values. Under improved operating conditions than
were assumed in the model plant development, it is probable that such a
plant could be built and remain financially sound. The imposition of
the various treatment alternatives on the used asset model could influence
the decision as to whether the plant would be built. For the model after-
tax return on sales, it is reduced from 8.1 percent in the base case to
4.8 percent for the most expensive treatment system, extended air.
Return on invested capital is reduced from 6.2 percent (base case) to
3.6 percent (extended air). Reductions of these magnitudes to such low
returns coupled with already negative net present values, under the
model plants assumed operating conditions, may impede growth of this
type of rendering plant. However, as noted above, if the plants can
operate in conditions better than those assumed, ^uch a plant could be
viable and remain so after meeting effluent standards.
VII-9
-------
Table VI1-8,
KEY VALUES OF IMPACT ANALYSIS FOR S." NEW
DEAD ANIMAL. BATCH
BASE CASE
ANAEROBIC AEROdlC
ANAEROBIC AERATED AEROBIC
AERATED AERCSIC
ACTIVATED SLUDGE (EXTENDED AIR)
ANAEFC3IC AEROBIC * FILTER
ANAERC8IC AERATED AERCBI C+F 1 LTE
AERC6IC AERATEO+FILTER

KEY VALUES OF IMPACT ANALYSIS FOR
PRICE
INCREASE AFTER-TAX
REQUIRED INCOME
7
1.8
1.6
2.3
4.1
2.0
1.8
2.4
Table VII-9
SMALL DEAD
2
3
*
-8
2
2
0
«
ANIMAL,
PRICE
INCREASE AFTER-TAX
REQUIRED INCOME
BASE CASE
ANAERCBIC AEROBIC
ANAERCBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUDGE (EXTENDED AIRI
ANAERC3IC AERC3IC * FILTER
ANAERCBIC AERATED AEROBIC+F ILTE
AERCBIC AERATEO+FILTER

1.8
1.6
2.3
4.1
2.0
1.8
2.4
38
28
28
27
22
28
28
27
AFTER-TAX
RETURN
ON SALES
1.6
0.5
0.6
O.I
-1.7
0.3
0.4
0.0

BATCH, NEW
AFTER-TAX
RETURN
ON SALES
8.1
6.0
6.1
5.8
4.8
5.9
6.0
5.7
AFTER-TAX
RETURN JN
INVESTED CAPITAL
0.8
0.2
0.3
0.1
-0.9
0.2
0.2
0.0

(USED BLDG £ EQUIP)
AFTER-TAX
RETURN ON
INVESTED CAPITAL
6.2
4.5
4.6
4.3
3.6
4.4
4.5
4.2
ESTIMATED
CASH
FLOW
81
78
78
76
68
78
78
76

ESTIMATED
CASH
FLOW
S3
75
75
74
69
75
74
74
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
trj
•5.0
8.6
8.6
8.4
7.5
8.5
8.5
8.4

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
(T)
13.6
12.3
12.3
12.1
11.4
12.3
12.2
12.1
NET
PRESENT
VALUES
-376
-418
-413
-429
-474
-423
-419
-433

NET
PRESENT
VALUES
-85
-127
-122
-138
-183
-132
-128
-143
-------
4. Poultry Batch Models

Small Plants. The viability of the small batch poultry Tenderers appear
to follow the same pattern as the small batch packinghouse model plants.
As shown in Tables VII-10 and VII-11 for the all new and used asset models
respectively, it is doubtful such models would be built in the base case
as both the annual returns and the net present values are negative for
both model plants. Granted, plants operating under extremely favorable
conditions could be viable, however, such conditions are not common
throughout the industry. The imposition of effluent controls on the
models result in further deterioration of the returns and net present
values, however, the overall significance of the additional deterioration
is not particularly important, considering the initial unfavorable finan-
cial position of the base case models.

Medium Plants. The medium batch model poultry rendering plant's impacts
are~ summarized in Tables VII-12 and VII-13 for the all new model and the
used asset model respectively. For the all new model it appears, in
the base case, the plant could be built although its viability could be
dependent on its management effectiveness. This cautioned viability is
the result of relatively healthy annual returns but yet slightly nega-
tive net present values. The imposition of the various effluent control
systems on this model result in reductions of the indicators but still
the annual returns remain positive.

The medium poultry model plant constructed with used buildings and equip-
ment is expected to be viable both before and after incurring expenditures
for effluent treatment systems (Table VII-13).

Large Plant. As was the case for the packinghouse, large batch model,
only the all new asset model was considered for the large batch poultry
rendering model. The financial indicators o, this model are summarized
in Table Vll-14and as shown the model appears to be viable both before
and after the imposition of effluent control requirements.
VII-11
-------
I
ro
Table VII-10.
KEY VALUES OF IMPACT ANALYSIS FOR SPALL
PCULTRYt BATCH, NEW
BASE CASE

ANAEROBIC AEROBIC

ANAEROBIC AERATED AEROBIC

AERATED AERCBIC

ACTIVATED SLUDGE (EXTENDED AIR)

AI^AEPCBIC AEROBIC * FILTER

ANAEROBIC AERATED AEROBIC+FILTE

AERCbIC AERATED+FILTER
PRICE
INCREASE"
REQUIRED
2.2
2.0
2.B
5.7
2.*
2.3
3.0
AFTER-TAX
INCOME
_U3£UJ
-67
-73
-72
-75
-84
-74
-73
-76
/IFTER-TAX
RETURN
ON SALES
_I3J.
-21.4
-23.5
-23.3
-24.2
-27.0
-23.7
-23.6
-24.3
AFTER-TAX
RETURN ON
INVESTED CAPITAL
121
-7.4
-8.0
-8.0
-a. 2
-9.2
-8.1
-8.0
-3.3
ESTIMATED
CASH
FLOW
— itflflflJL-
8
3
3
1
-8
2
2
0
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
IT)
0.8
0.3
0.3
0.1
-o.
-------
Table VII-11.
KEY VALUES OF IMPACT ANALYSIS FGR iPALL PCULTRY, BATCH, NEW (USED SLOG C EQUIP)
I
OJ
BASE CASE

ANAERC8IC AERCBIC

ANAEROBIC AERATED AEROBIC
AERATED AERCBIC
ACTIVATED SLUDGE (EXTENDED AIR)
AMAESC3IC AER09IC * FILTER
ANAEROBIC AERATtD AER081C»FILTE
AERCBIC AERATED*FILTER
KEY VALUES OF IMPACT ANALYSIS FOR MEDIUM
BASE CASE
ANAEROBIC AEROBIC
ANAERCBIC AERATED AEROBIC
AERATED AERCBIC
ACTIVATED SLUDGE (EXTENDED AIR)
ASAEFC3IC AERC3IC * FILTER
ANAERCBIC AERATED AERCBIC+FILTE
AERCBIC AERATED+FILTER
PRICE
INCREASE
REQUIRED
2.2
2.0
2.8
5.7
2.4
2.3
3.0
-12.
: MEDIUM
PRICE
INCREASE
REQUIRED
—i.21

1.7
1.4
1.9
2.8
2.1
1.8
2.5
AFTER-TAX
INCOME
-28
-34
-34
-36
-45
-35
-35
-37

PCULTRY, BATCH
AFTER-TAX
INCOME
68
53
54
52
47
52
53
49
AFTER-TAX
RETURN
ON SALES
-9.0
-11.1
-10.9
-11.7
-14.6
-11.3
-11.2
-11.9

, NEW
AFTER-TAX
RETURN
ON SALES
6.1
4.8
4.9
4.7
4.2
4.7
4.8
4.5
AFTER-TAX
RETURN ON
INVESTED CAPITAL
ts i
-4.7
-5.6
-5.6
-5.9
-7.4
-5.7
-5.7
-6.0

AFTER-TAX
RETURN ON
INVESTED CAPITAL
LSJ
5.5
4.2
4.3
4.1
3.7
4.0
4.2
3.9
ESTIMATED
CASH
FLOW
17
12
12
10
1
12
12
10

ESTIMATED
CASH
FLOW
164
154
154
152
146
153
153
151
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
2.9
2.0
2.1
1.8
0.2
2.0
2.0
1.7

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
13.4
12.6
12.6
12.4
12.0
12.5
12.5
12.4
NET
PRESENT
VALUES
-UQaOJL
-564
-630
-624
-650
-736
-637
-633
-656

NET
PRESENT
VALUES
. (50QQ1
-174
-267
-251
-283
-331
-293
-277
-313
-------
Table VII-13.
KEY VALUES OF IMPACT ANALYSIS FOR PEOIUM POULTRY, BATCH, NEW (USED 6LOS C EQUIP)
BASE CASE

ANAEROBIC AEROBIC

ANAEROBIC AERATED AEROBIC

AERATED AEROBIC

ACTIVATED SLUDGE «EXTENOED AIR)

ANAEPCBIC AER06IC * FILTER

ANAEPCBIC AERATED AERCBIC+FILTE

AERCBIC AERATEDtMLTER
KEY VALUES OF IMPACT ANALYSIS FOR LARGE
BASE CASE

ANAEROBIC AEROBIC

ANAEROBIC AERATED AEP03IC

AERATED AEROBIC

ACTIVATED SLUDGE (EXTENDED AIR)

ANAEROBIC AERCBIC * FILTER

ANAEPOBIC AERATED AERCBIC+FILTE

AERCBIC AERATED»FILTER
PRICE
INCREASE
REQUIRED
1.7
1.4
1.9
2.8
2.1
1.8
2.5
-14.
LARGE
PRICE
INCREASE
REQUIRED
1.2
1.0
1.4
1.8
1.5
1.3
1.7
AFTER-TAX
INCOME
..UUOiJ
94
79
81
78
73
73
79
76

POULTRY, BATCH,
AFTER-TAX
INCOME
_UU2Q.L._
379
357
360
353
346
354
356
350
AFTER-TAX
RETURN
ON SALES
_in —
8.5
7.2
7.3
7.0
6.6
7.0
7.1
6.3

NEW
AFTER-TAX
RETURN
ON SALES
__i2i
12. t
11.4
11.4
11.2
11.0
11.3
U.3
11. 1
AFTER-TAX
RETURN ON
INVESTED CAPITAL
LSI
U.3
9.1
9.4
8.9
8.4
8.8
9.0
8.6

AFTER-TAX
RETURN ON
INVESTED CAPITAL
JLSJL
20.0
18.0
18.3
17.8
17.6
17.6
17.9
17.4
ESTIMATED
CASH
FLOW
LiMflJU
152
142
142
140
135
142
142
139

ESTIMATED
CASH
FLOW
Ufl2fli_
515
502
502
493
488
501
501
497
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
"1 --T -T
18.4
17.1
17.1
16.9
16.2
17.1
17.1
16.8

CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
(Tl
27.1
26.4
26.5
26.2
25.7
26.4
26.4
26.2
NET
PRESENT
VALUES
,, It 0001
330
236
253
220
173
211
227
191

NET
PRESENT
VALUES
-U.QQOJ.
2470
2274
2310
2241
2176
2227
2263
2191
-------
5. Poultry Continuous Models

Medium Plant. As shown in TableVII-15, the medium continuous poultry
model plant appears to be viable in the base case as it generates both
positive annual returns and net present values. The imposition of the
various treatment alternatives on this model result in the plant becoming
only marginally viable. The annual returns are decreased slightly by
the imposition of effluent controls but still for all the alternatives,
the returns remain positive and reasonably healthy. The factor leading
to the plant becoming only marginally viable after controls is that the
net present values become negative for all but one treatment alternative
(the exception being anaerobic-aerated-aerobic lagoons where the NPV
becomes $1,000). This could result in some plants not being built, how-
ever, if operating conditions are only slightly more favorable than originally
assumed, it is probable the imposition of effluent control requirements
would not impede growth of this type of plant.

Large Plant. The large continuous poultry model rendering plant appears
to be viable both before and after the imposition of effluent controls.
As shown in Table VII-16,the annual returns and the net present values
are positive in all cases considered.
VII-15
-------
Table VII-15.
KEY VALUES OF IMPACT ANALYSIS FOR MEDIUM POULTRY, CONTINUOUS, NEW
I

CTl
BASE CASE
ANAEROBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AERCBIC
ACTIVATED SLUDGE (EXTENDED AID
AMAECOBIC AER09IC + FILTER
ANAfcRCSIC AERATED AEROBIC+F ILTE
AERATED AERCBIC * FILTER
PRICE
INCREASE AFTER-TAX
REQUIRED INCOME
— LSJi _ii-iaj
112
1.6
1.3
1.8
2.8
2.0
1.7
2.3
95
97
93
85
93
94
90
AFTER-TAX
RETURN
ON SALES
LSI
7.1
6.0
6.1
5.9
5.4
5.9
6.0
5.7
AFTER-TAX ESTIMATED
RETURN ON CASH
INVESTED CAPITAL FLOW
m _i*fiflflJL_
8.2 220
6.7 208
6.8 208
6.5 206
6.0 197
6.4 208
6.6 208
6.3 205
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
IT)
16.0
15.2
15.2
15.0
14.3
15.1
15.1
14.9
NET
PRESENT
VALUES
105
-23
I
-41
-118
-55
-31
-76
Table VII-16.
KEY VALUES OF IMPACT ANALYSIS FOR

BASE CASE
ANAEROBIC AEROBIC
ANAEROBIC AERATED AEROBIC
AERATED AEROBIC
ACTIVATED SLUDGE (EXTENDED AIR)
ANAEROBIC AER03IC + FILTER
ANAEROBIC AERATED AER08IC+FILTE
AERATED AEROBIC » FILTER
LARGE
PRICE
INCREASE
REQUIRED

1.1
0.9
1.5
1.9
1.4
1.2
1.8
POULTRY, CONTINUOUS, NEW
AFTER-TAX
INCOME
471
448
450
440
432
443
446
435
AFTER-TAX
RETURN
ON SALES
12.3
11.7
11.8
11.5
11.3
11.6
11.7
11.4
AFTER-TAX ESTIMATED
RETURN CN CASH
INVESTED CAPITAL FLOW
23.3 618
21.1 605
21.4 605
Z0.7 597
20.5 588
20.6 603
20.9 604
20.2 595
CASH FLOW
AS PERCENT OF
INVESTED CAPITAL
30.6
29.9
29.9
29.5
?9. I
29.8
29.8
29.4
NET
PRESENT
VALUES
3250
3029
3067
2956
2890
2972
3009
2895
-------
C. Summary of Model Plant Impacts

Predicated on the previously described analysis, it appears the imposition
of effluent control requirements on new source plants would not seriously
impede industry growth by making it prohibitively expensive to build a new
plant and meet new source standards. In the analysis, consideration was
first given to determine whether new plants would be built in the future
without having to install effluent controls. For those plants determined
to be viable, a second determination was made to ascertain whether such
viable plants could remain viable after incurring expenditures for effluent
controls. In only three cases model plant impacts indicated that growth
of a particular model size, type and class may be slightly impeded due
to effluent control requirements. These models were the medium sized
continuous packinghouse model plant,the small batch dead animal plant
built with used buildings and equipment and medium sized continuous
poultry offal model plant. It should be noted that the extent of the
impeded growth was considered only marginal and that no models indicated
growth of a particular size, type and class would definitely be impeded.
A summary of the model plant impacts is shown in Table VII-17.

D. Employment and Community Effects

Considering the nature of this impact analysis—that of the potential impacts
on new plants built after the promulgation of NSPS guidelines—it is doubt-
ful existing jobs would be lost due to the NSPA guidelines. There is, how-
ever, the possibility that future employment opportunities may be affected
if the potential impacts are severe enough to result in management's decision
not to build the new plant. As noted in the previous section, in only
three cases model plant impacts indicated that growth of a particular model
size, type, and class of renderer may be slightly impeded due to NSPS control
requirements. However, the extent of the impeded growth was considered only
marginal with no models indicating growth would definitely be impeded. Thus,
it appears the employment and community effects of NSPS guidelines would be
slight, if they are affected at all.

The potential for employment and community impacts may be even further re-
duced when one considers the fact that if management desires to construct
a new rendering plant they may have the ootion of discharging to a publicly-
owned treatment works, thus avoiding the requirements of NSPS guidelines
(to make such a decision, management will have to consider the cost of any
municipal pretreatment requirements as well as user charges).

E. International Trade Effects

While international trade plays a vital role in the marketing of inedible
tallow and grease, it is doubtful the imposition of NSPS guidelines on the
independent rendering industry will result any significant impacts on the
U.S. international trade or its balance of payments as there are no pro-
jected price increases resulting from the imposition of the guidelines.

VII-17
-------
Table VII-17. The Independent Rendering Industry, Summary of impacts resulting
from the imposition of effluent controls requirements on model
plants.

Unlikely
to
be built
Base case
Marginally
likely to
be built

Likely to
be built
Effluent
Growth
not impeded
control impact-
Growth
marginally
impeded
Growth
impeded
Packinghouse
Batch
Small - new x
Small - used x
Medium - new x x
Medium - used x x
Large - new x x
Continuous
Medium x x
Large x x

Dead Animal
Batch
Small - new x
Small - used x x

Poultry Offal
Batch
Small - new x
Small - used x
Medium - new x x
Medium - used x x
Large - new x x
Continuous
Medium x x
Large x x

I/ Note that no impact description is provided for those model plants .determined
unlikely to be built. This is due to the fact that under the assumed model
plant operating characteristics, no industry growth would occur if it were
unlikely plants would be built.
VII-18
-------
VIII. LIMITS OF THE ANALYSIS
There is little published information regarding the structure, pricing,
and economic data of the independent rendering industry. Much of the
descriptive data used in this report was originally compiled by the Na-
tional Renderers Association for inclusion in the previous Environmental
Protection Agency reports concerning the rendering industry which was, at
the time, considered to be the most complete and accurate source available.
This information has been updated for utilization in this report. Never-
theless, much of the information required to develop this report did not
exist in quantifiable f^rm, but was derived from personal discussions with
individual knowledgeable of the industry. This chapter discusses the
general accuracy of the report and some of the Key assumptions involved.

A. General Accuracy

The data and other information used in this study were drawn from published
governmental reports, the industry trade association, the industry survey
data, and from contacts with individuals associated with the industry.
Information on the status of effluent discharge, recommended treatment sys-
tems and costs were furnished by EPA. Every effort was m?de to verify the
data and other information used.

Detailed data on size distribution by types of plants are not available.
Using industry size distributions from the Census fo Manufactures, together
with information obtained from the National Renderers Association, the tech-
nical contractor, and the industry surveys, segmentation of size and type
of plants were made for each industry.

Financial information concerned with investments, operating costs and re-
turns was not available for individual plants or firms. As a result, the
financial aspects of the impact analysis were, of necessity, based on syn-
thesized costs and returns for "representative" types of model plants.
These costs and returns were developed from a variety of sources including
published research from universities and government agencies, information
obtained from the industry surveys, published financial performance data,
equipment suppliers, and plant architects.

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, government and universities
to help insure that data and information used were as reliable and as repre-
sentative as possible. For example, construction costs, working capital
requirements, proportions of capital financed through debt and equity and
profitability ratios were checked with the appropriate persons in industry
firms who are experienced and knowledgeable in these matters. Efforts were
made to use the latest data available.
VIII-1
-------
Specifications of the contract require the Contractor to use NSPS control
costs provided by EPA. The Effluent Guidelines Division, EPA, together
with its technical contractor, provided recommended alternative effluent
control systems, investment costs and annual operating costs adapted to the
types and sizes of "representative" model plants used in this analysis.

Given the accuracy of the pretreatment control costs, it is believed that
the analysis represents a usefully accurate evaluation of the economic
impact of the proposed NSPS guidelines.

B. Range of Error

Different data series and different sections of the analysis will have
different possible ranges of error.

Errors in Data - Estimated data error ranges as an average for the in-
dustry are as follows:

Error Range
(Percent)
1. Information regarding the organization and
structure of the industry, number, location
and size of plants, and other information
descriptive of industry segments +. 10

2. Price information for products and raw
materials +. 15

3. Cost information for plant investments and
operating costs +. 15

4. Financial information concerning the industry +_ 10

5. Alternative treatment costs I/
•!/ Error ranges for treatment costs were not estimated because the costs
were furnished by the EPA and we are not technically qualified to judge
the accuracy of them.
VIII-2
-------
C. Critical Assumptions

In an economic impact analysis of most any industry, it is inevitable that
simplifying assumptions must be made to bring the problem into a framework
of analysis consistent with the constraints of time, budget and data avail-
ability. The major critical assumptions used in this analysis are as fol-
lows:
1. Types and sizes of the model plants are representative of plants
actually existing in the industry and of plants expected to be
built in the future.

2. It is assumed the financial data are representative of costs and
returns of existing plants or new plants to be constructed after
promulgation of proposed guidelines.

3. Levels of profitability reflected in model plant profiles will be
the same in the future.

4. It was assumed that the economic impacts of NSPS controls on those
plants not included in the analysis of "representative" plants
could be evaluated in general terms through associating them with
those "representative" model plants for which analyses were made.
This association was based primarily on the fact that models were
developed for a single process plant which represented a majority
of industry segment's production.

5. NSPS control costs and control status estimates were supplied by
the Effluent Guidelines Division, EPA. It is assumed that these
data are realistic in terms of:

(a) Applicability of effluent treatment systems recommended.
(b) Investment and annual operating costs for systems.
VIII-3
-------
BIBLIOGRAPHY
1. Prokoff, William, National Renderers Association, personal com-
munication.

2. Kropf, Dr. Donald, Department of Animal Science and Industry, Kansas
State University, personal communication.

3. U.S. Department of Agriculture, Fats and Oils Situation, Economic
Research Service, various issues.

4. U.S. Department of Agriculture, Feed Situation, Economic Research
Service, various issues.

5. U.S. Department of Commerce, Census of Manufacturers - 1972, Bureau
of U.S. Census, U.S. Government Printing Office, Washington, D.C.

6. U.S. Department of Commerce, Annual Survey of Manufacturers, 1973
and earlier, Bureau of the Census, U.S. Government Printing
Office, Washington, D.C.

7. U.S. Environmental Protection Agency, Development Document for
Effluent Limitations Guidelines and New Source Performance
Standards for the Renderer Segment of the Meat Products and
Rendering Processing Point Source Category, Effluent Guidelines
Division, January, 1975.

8. U.S. Environmental Protection Agency, The Economic Analysis of Pro-
posed Effluent Guidelines: Independent Rendering Industry,
completed by DPRA for the EPA under Contract No. 68-01-1533,
Task Order No. 9.

9. U.S. Environmental Protection Agency, Rendering Industry Plant
Surveys.

10. U.S. Environmental Protection Agency, "New Source Treatment Costs"
provided to DPRA by EPA's technical contractor, Midwest Research
Institute, North Star Division.

11. National Commission on Water Quality, Economic Impact of Water Pollu-
tion Controls on Selected Food Industries, Volume V Meat Products,
Part 4--The Independent Rendering Industry, completed by DPRA,
June, 1975.
-------
APPENDIX A.
Investment Requirements for Rendering Models
-------
Table A-l. Investment requirements for packinghouse, small batch models.

Land ( 3 Acres)
Cost
Building (2000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

30
12
67
109
98
49
49
Existing
Salvage

90
1
7
98
98
49
49
New Source (New)
Book

90
80
700
870
98
49
49
Salvage
-------
Table A-2. Investment requirements for packinghouse, medium batch models.

Land (3.5 Acres)
Cost
Building (3150 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

35
20
201
256
318
159
159
Existing
Salvage

105
2
20
127
318
159
159
New Source (New)
Book
<
105
126
900
1,131
318
159
159
Salvage
ki nnn _ _
105
13
90
208
318
159
159
(New
Book

105
94
540
739
318
159
159
Source (Used
Salvaqe

105
9
54
168
318
159
159
Total Invested Capital
415
286
1,290
367
898
327
-------
Table A-3. Investment requirements for packinghouse, large batch models.

Land ( 4 Acres)
Cost
Building (8000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

40
50
456
546
798
399
399
Existing
Salvage

120
5
46
171
798
399
399
New Source (New) (New Source (Used
Book
*
_j,
120
320
1,200
1,640
798
399
399
Salvage Book Salvage
innn
120
32
120
272
798
399
399
Total Invested Capital 855 570 2,039 671
-------
Table A-4. Investment requirements for packinghouse, medium continuous models.

Land ( 3 Acres)
Cost
Building (3340 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

45
72
286
403
452
226
226
Existing
Salvage

90
7
29
126
452
226
226
New Source (New)
Book

90
154
1,000
1,244
452
226
226
Salvage
•tinnn
90
15
100
205
452
226
226
(New Source (Used
Book Salvage

Total Invested Capital 629 352 1,470 431
-------
Table A-5. Investment requirements for packinghouse, large continuous models.

Land ( 4 Acres)
Cost
Building (6000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

60
112
553
725
970
485
485
Existing
Salvage

120
11
55
186
970
485
485
New Source (New) (New Source (Used'
Book

120
240
1,350
1,710
970
485
485
Salvage Book Salvage
•tinnn
120
24
135
279
970
485
485
Total Invested Capital 1,210 671 2,195 764
-------
Table A-6. Investment requirements for dead animal, small batch models.
Existing

Land ( 3 Acres)
Cost
Building (2000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Wnrkina Canital
Book

30
12
67
109
76
38
38
Salvage

90
1
7
98
76
38
38
New Source (New)
Book

90
80
700
870
76
38
38
Salvage
-------
Table A-7. Investment requirements for poultry, small batch models.

Land ( 3 Acres)
Cost
Building (2000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

30
12
62
104
51
25
26
Existing
Salvage

90
1
6
97
51
25
26
New Source (New)
Book

90
80
700
870
51
25
26
Salvage
-------
Table A-8. Investment requirements for poultry, medium batch models.

Land ( 3.5 Acres)
Cost
Building (3150 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

35
20
191
246
181
90
91
Existing
Salvage

105
2
19
126-
181
90
91
New Source (New)
Book
<;
V
105
126
900
1,131
181
90
91
Salvage
i nnn _
105
13
90
208
181
90
91
(Nev/ Source
Book Sa

105
94
540
739
181
90
91
(Used
V'age

105
9
54
168
181
90
91
Total Invested Capital
337
217
1,222
389
830
259
-------
Table A-9. Investment requirements for poultry, large batch models.

Land ( 4 Acres)
Cost
Building (8000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital

Book

40
50
412
502
515
257
258
Existing
Salvage

120
5
41
166
515
257
258
New Source (New) (New Source (Used
Book
<
120
320
1,200
1,640
515
257
258
Salvage Book Salvaae
M nnn _- _
120
32
120
272
515
257
258
Total Invested Capital 760 424 1,898 530
-------
Table A-10. Investment requirements for poultry, medium continuous models.

Land (3 Acres)
Cost
Building (3840 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net l/nrkina Caoital
Exi
Book

45
72
272
389
258
129
129
sting
Salvage

90
7
27
124
258
129
129
New Source (New) (New Source (Used
Book
<
90
154
1,000
1,244
258
129
129
Salvage Book Salvage
innn
90
15
100
205
258
129
129
Total Invested Capital 518 253 1,373 334
-------
Table A-ll. Investment requirements for poultry, large continuous models.

Land (4 Acres)
Cost
Building (6000 Sq.Ft.)
Cost
Equipment
Total Fixed Assets
Current Assets
Current Liabilities
Net Working Capital
Total Invested Capital

Book

60
112
450
622
626
313
313
935
Existing
Salvage

120
11
45
176
626
313
313
489
New Source (New) (New Source (Used)
Book
<
T,
120
240
1,350
1,710
626
313
313
2,023
Salvage Book Sal'^ge
i nnn __ _- -- - - -
1 UUu — — - — — - — — — — — -- — — — ---•- — ---
120
24
135
279
626
313
313
592
il U.S. GOVERNMENT PRINTING OFFICE: 1977—235-533/6292
-------