-------
IPP = index of pesticide prices, and
IPC = index of pesticide costs (see Table 2-2).
The statistics accompanying equation (2) demonstrate that there is a
close relationship between prices and costs. The R2 is 0.989 and shows
that 98.9 percent of the variation in price is associated with variation in
cost. Equation (2) is linear in logarithms, which implies that the esti-
mated coefficients can be interpreted as elasticities. The coefficient of
the cost variable thus implies that a 10 percent rise in pesticide costs
will cause a 11.5 percent rise in pesticide prices. The finding that prices
have risen faster than costs suggests that pesticide producers have been
able to increase profit margins on average over the 1967-1978 period. The
t-statistic of 13.27 indicates that the coefficient of the cost variable is
highly significant. However, the standard error of the cost index coef-
ficient is too large (0.086) to reject the hypo- thesis that the true value
of the coefficient is 1.0.Therefore, we cannot necessarily accept the
implication that prices are rising more rapidly than costs.*
Equation (2) can be criticized for excluding other forces that have a
direct bearing on price. For example, changes in the number of patented
products and changes in the product mix can both affect price. Patents
allow firms to obtain higher prices and hence profits on such products.
Changing the product mix may change both the processes used (and hence the
input cost coefficients) and the profitability of the products. Because
of data limitations, a trend variable (TIME) was selected to approximate
these other forces. The revised equation is presented below:
In IPP = -0.406 + 0.989 In IPC + 0.250 In TIME (3)
(-0.750) (4.821) (0.854)
R2 = 0.990
DW = 1.369
Estimation period: 1967-1978
Estimation technique: OLS with Cochrane-Orcutt
The t-statistic of the trend variable indicates that it is insignificant.
Nevertheless, it is worth examining equation (3). The coefficient attached
to the cost variable has decreased to 0.989. Alone, this coefficient implies
that the pesticide producers pass the cost increases along to the consumer
but do not increase profit margins. (Since the standard error is .205, this
estimate is not significantly different from 1.0.) However, the actual re-
lationship between changes in cost and changes in price depends on what is
imbedded in the trend variable (TIME).
*In addition, equation (2) only shows a relationship of cost and price
indices, not of cost shares. Costs may increase for a variety of reasons
other than price increases, including added regulatory costs, or changes
in the mix or quality of pesticides produced. Therefore, equation (2) is
only a rough indicator of profitability.
2-5
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To the extent that costs have been increasing over time, profit margins
may have been maintained, holding constant for product mix.
Equations (2) and (3) indicate that the elasticity of price with respect
to cost is roughly 1.0. An elasticity of 1.0 is consistent with a mark-up
model of pricing behavior: each percentage increase in costs is accompanied
by the same percentage increase in price. Thus, profits as a percent of
costs remain constant. Although profits may fluctuate in the short run due
to imbalances in supply and demand, they can be expected to even out over
time. In the long-run, all costs are passed through as higher prices, which
is consistent with the elasticity of price to cost of 1.0.
1985 Price Forecasts. Based on the above results, baseline estimates
of 1985 pesticide prices are made using the assumption that all costs are
passed through and that profit remains a constant fraction of price. This
is because all plants in the industry are assumed to face similar increases
in production costs. The 1985 baseline value of each cost component re-
presented in equation (1) is based on assumptions and energy price pro-
jections issued by the U.S. Department of Energy and chemical price pro-
jections by Data Resources Inc. The cost mark-up model derived from 1978
data was used to estimate baseline pesticide chemical prices in 1985.
In addition to a price for the entire industry, price forecasts are made
for the three major groups of pesticides: herbicides, insecticides and
fungicides.
As noted previously, two assumptions are made about increases from the
1985 baseline price due to treatment costs which reflect the fact that only
a fraction of all plants incur added treatment costs. In Case A, average
treatment costs per pound (including plants with no treatment costs) are
added to the baseline price to obtain the post-impact price. Profit mar-
gins are not assumed to increase proportionately; they remain unchanged
from the baseline. In Case B, prices are not assumed to increase. Price
increases are projected for all pesticides and for insecticides, herbi-
cides, and fungicides for each treatment option.
Demand-Production Submodel
Continuing increases in the profitability of pesticide application and a
growing awareness in the farm community of the existence of these benefits
have caused a rapid rise in pesticide demand over the last 20 years. There
are signs, however, that the industry is approaching maturity, with some
markets completely saturated and others not far from it. This impending
maturity makes it dangerous to forecast future pesticide demand by extrapo-
lating from past trends, since it is unlikely that the industry will be able
to sustain similar high growth rates in the future.
Unfortunately, data on pesticide usage by market are available only
for selected years, thus precluding a disaggregated econometric analysis.
2-6
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Consequently, a hybrid approach developed by A. D. Little, Inc.2 was
used for forecasting pesticide demand. First, an end-use model is used to
project pesticide demand by subgroup based on constant application rates.
The end-use projections are then adjusted to reflect increases in the real
price of pesticides, using an econometrically-derived price elasticity.
In the end-use analysis, herbicide sales are projected for the
following subgroups: (1) corn, (2) soybeans, (3) wheat, (4) cotton, (5)
sorghum, (6) other agricultural uses, (7) non-agricultural and (8) exports.
Insecticide sales are projected for the following subgroups:
(1) cotton, (2) corn, (3) soybeans, (4) wheat, (5) livestock, (6) other
agricultural uses, (7) non-agricultural uses, and (8) exports.
Fungicide sales are projected for the following subgroups: (1) fruits
and vegetables, (2) peanuts, (3) other agricultural uses, (4) non-agri-
cultural uses, and (5) exports.
The approach used to model agricultural usage of pesticides is
generally the same for each market subgroup and is described by the
following identity:
= ACRi x FRACTi X APPLi (4)
where:
= pesticide usage on crop i,
AC% « acreage of crop i planted,
= fraction of acreage of crop i treated with pesticides, and
= pesticide usage per acre for crop i.
Various U.S. Department of Agriculture (USDA) publications provide
1971 and 1976 values for the right-hand variables in equation (4) . The
1985 forecasts of acreage were obtained from the highly detailed National
Inter-Regional Agricultural Projection (NIRAP) model maintained by the
USDA. Projections of the other two variables were developed by Arthur D.
Little Inc.2 pesticide market experts. See Section 5, Tables 5-3 to
5-5, for the forecasts.
Published data on non-agricultural pesticide use are not available.
Imputed values for non-agricultural use were calculated for 1971 and 1976 by
comparing the USDA survey data on agricultural pesticide use with data on
aggregate pesticide production, exports, and imports. 5, 6 (The imputed
non-agricultural values were extremely high; USDA officials indicated that
this was so because the agricultural pesticide usage numbers were under-
stated.) The 1971 and 1976 imputed non-agricultural values are very close,
indicating a stagnating demand that will persist through 1985.
The United States has traditionally been a large exporter of
pesticides, while imports have been insignificant. Trend equations were
2-7
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used to generate initial 1985 forecasts for net exports which were then
modified to reflect institutional factors.
The end-use model described above implicitly assumes that pesticide
demand is not affected by price. Such an assumption is unwarranted as
previous econometric research by Carlson and others has demonstrated.7
In reaction to higher real pesticide prices, farmers are more likely to
adopt integrated pest-management methods which are based on a selective
application of pesticides, along with the use of other pest control
methods. Also, increases in the real price of pesticides might convince
the farmer to forego pesticide application on marginal areas and to defer
application on new areas. Consequently, the end-use analysis must be
augmented to take into account the depressing effects of real pesticide
price increases. The augmented model is written as follows:
PROD = EPROD - (PE x PCPRICE x EPROD) (5)
where
PROD = U.S. production of pesticides in 1985,
EPROD = U.S. production of pesticides in 1985 as forecasted by the
end-use model,
PE = price elasticity of demand for pesticides, and
PCPRICE = percentage change in real pesticide price between 1978
and 1985.
According to equation (5), U.S. production of pesticides in 1985 will
be less than the end-use prediction if the real pesticide price increases
between 1978 and 1985. The amount of this decrease will depend on the
price elasticity and the percentage increase in real price. An
econometric estimate of the price elasticity was made using data on
aggregate U.S. pesticide production, crop acreage, and real active
ingredient price.
Over the period 1967-1978, the application rate of pesticides has
increased due to the advances in technology and increases in crop prices
which made increased pesticide use profitable. Different alternative
demand equations were estimated using a variable for crop acreage to
capture these effects. The following equation shows pesticide demand as a
function of crop acreage and the real price of pesticides:
In PRODt = -6.109 + 2.302 In ACREt - 0.324 In RPRICEt (6)
(-3.185) (6.91) (1.650)
2-8
-------
R2 = 0.83
DW = 2.27
Estimation period: 1967-1978
Estimation technique: OLS with Cochrane-Orcutt
where
PROD = pesticide production (million lb.),
ACRE = acreage of principal crops planted,
RPRICE = real unit price for pesticide active ingredients.*
(IPP in Table 2-2)
Equation (6) is linear in logarithms, which means that the estimated
coefficients can be interpreted as elasticities. The influence of in-
creased insecticide use is seen in the coefficient of In ACRE. The re-
maining effect on demand is through the price of the pesticide. The co-
efficient of -0.324 for the price implies that if real pesticide prices
rise by 10 percent, demand will decrease by 3.24 percent.
The t-statistics, which are enclosed in the parentheses beneath the
coefficients, indicate that there is a 90 percent probability that the
variables do have some impact. The R2 value indicates that 83 percent
of the variation in pesticide production can be explained by variation in
crop acreage and pesticide price.
Equation (6) is relatively simple in that it employs a static
formulation and was estimated by ordinary least squares (OLS) with a
Cochrane-Orcutt correction for autocorrelation. Such an approach can be
criticized for ignoring dynamics and the simultaneity bias problem
inherent in estimating a demand/supply system. Equation (7) , which
addresses both these issues, is presented below. It contains a dynamic
Koyck lag structure and was estimated by two-stage least squares (TSLS)
with a Cochrane-Orcutt correction for autocorrelation:
In PROD = -4.357 + 1.437 In ACRE1 - 0.296 In RPRICE +
(-2.002) (2.459)
0.453 In PRODt^ (7)
R2 = 0.859
DW = 2.371
Estimation Period: 1968-1978
Estimation Technique: TSLS with Cochrane-Orcutt
Instruments: Constant, ACRE, PROD, and IPC (pesticide manufacture
cost index)
*Using the overall price index assumes that insecticide prices increase
at the same rate over the period 1978-85 as does the overall pesticide
price.
2-9
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In equation (7)/ the short-run price elasticity is -0.296 and the
long-run price elasticity is -0.541 (calculated by dividing -0.296 by
1-0.453).* This implies that a 10 percent rise in real pesticide price
will cause a 2.96 percent decrease in pesticide demand in that year, and
if the price remains at the higher level, demand will drop another 2.45
percent in subsequent years relative to the forecast based on a constant
real price.
For the projections, a price elasticity of -0.43 was used, which is
the average of the elasticities from equations (6) and (7).
Employment
Reliable data on employment in the pesticides industry are not available.
Therefore, industry employment was estimated for the 1985 baseline based on
value of shipments per employee in 1977 for the SIC group 28694 (Pesticides
and other Organic Agricultural Chemicals, Except Preparations). This value
was then applied to the value of active ingredient pesticide chemicals manu-
factured to obtain a 1977 employment estimate. The 1985 baseline employment
estimate was then derived by applying a production ratio (i.e. , projected
1985 production/1977 production) to the 1977 employment estimate. The
impact of treatment options on employment was derived from the 1985 pro-
duction impacts using the cost-price and demand-production submodels. That
is, the impact on employment is baseline employment multiplied by the
percentage output reduction.
Profits
For the projected baseline, industry profit is estimated from the cost
mark-up model. With regulations imposed on the industry, profits are
estimated for two assumed cases. In Case A, the dollar profit per pound
of pesticide is the same as in the baseline and only the costs associated
with regulations are passed along as price increases. The impact on total
profits results from the reduction in output. In Case B, producers are
assumed to completely absorb the additional treatment cost, i.e. , no price
increase. In the second case, production quantities do not change from
the baseline level, but profit margins are more severely affected compared
to the first case.
Plant Impact Analysis: Closure
The Technical Contractor estimated costs of compliance for each plant
in the study. To determine whether these costs impose a significant
burden on individual plants, costs of compliance are compared with the
value of pesticides production at each plant. A cutoff value of four
*The Koyck lag structure implies this relationship between the annual
elasticity in equation (7) and the long-run elasticity.
2-10
-------
percent for the ratio of treatment costs to product value is used to
identify plants which may close. All available data on these plants,
including products produced, patents, and relation to other company
business, are reviewed to assess whether the plant is likely to close as
a result of compliance costs. In some cases, only one product line at a
plant rather than the entire plant may shut down.
Information developed by the Technical Contractor12 for plants
manufacturing pesticide active ingredients included capital and annual
operating costs for different treatment levels. The costs are expressed
as an annualized cost by converting the capital cost to an annualized
equivalent and adding it to the annual operating cost. Capital costs are
converted to an annual equivalent by multiplying by a capital recovery
factor which measures the annual rate of return an investment must achieve
each year to cover the cost of the investment and maintain net earnings,
including depreciation and taxes.
A capital recovery factor of 0.218, which was computed for the organic
chemical industry by Meta Systems Inc, was assumed to be applicable to the
production of active pesticide ingredients. The capital recovery factor
is based on a 10 year life for the treatment equipment, a 13 percent cost
of capital and five year depreciation life. The derivation of the capital
recovery factor is given in Appendix B.
Information was obtained^ on the annual production of pesticide
ingredients at each plant and on the sales value of that output. The values
of the pesticide ingredients were based on the ranges of values obtained
from the technical 308 questionnaire. The mid-range of product value of the
unformulated pesticides was used in computing a ratio of annualized treat-
ment cost to value of sales. The total value of pesticide ingredients pro-
duced at each of the plants was estimated by multiplying the annual produc-
tion figures and the estimated value for each active ingredient and then
summing the results for all pesticide ingredients produced at the plant.
The total additional annualized treatment costs were divided by the total
estimated value of active pesticide ingredients at the manufacturer's level
to obtain the ratio of treatment costs to pesticide ingredient value. This
ratio was then used in an initial, screening step of impact severity because
more precise plant level financial data were not available.
Plants with treatment costs equal to or greater than four percent of
pesticide value were identified for further analysis and plants below the
4 percent level were screened out. The use of this screening criterion
does not mean that plants that fall below the level are unaffected by
treatment costs. Rather, the 4 percent criterion serves as a rough
indicator of those plants that may be severely impacted by treatment
costs. We have observed (as discussed in the Industry Profile) that
pre-tax profit margins range between 10 and 15 percent for pesticide
producers. Given that plants generally must make some positive return
greater than the return from immediately salvaging the plant, a loss of
four percent in the rate of return could push a plant over the edge of
profitability. Some sample calculations for the pulp and paper industry
2-11
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suggest that the return from salvage might be on the order of 2 to 3
percent.* Therefore, a plant with a 7 percent return would be pushed to
the shutdown point if treatment costs were 4 percent of sales. A plant
with a return of 7 to 10 percent would also be in a weakened financial
condition, if it had other capital needs as well. In addition, a range of
values for the cutoff ratio is considered.
For each treatment level, the total number of severely impacted plants
was identified and the aggregate value of production determined. The next
step was to review the available information for each plant where treat-
ment costs exceeded four percent of sales value for any of the treatment
levels. (The plant level data are considered confidential and therefore
not included in this report). Although plant level financial data were
not available, most of the information generally included plant location,
types of product lines, quantities and value of pesticides and other pro-
duct lines, period of pesticide production during the year, parent company
ownership and likely attitudes of firms about relocating production at
other company locations. This type of information developed by A. D.
Little, Inc.2 was used in conjunction with the treatment cost impact in
arriving at judgements about whether or not severely impacted plants (or
product lines) would be shut down.
Plant closures are estimated both for a baseline and for the incremental
impacts of the proposed effluent guidelines. Costs of compliance with hazar-
dous solid waste management rules under the Resource Conservation and Recovery
Act (RCRA) are included as part of the baseline, because these rules have
already been promulgated, but their compliance costs have not otherwise been
incorporated into the data base. Because impacts due to RCRA may be signifi-
cant, it is important to identify them before determining the incremental
impacts of the proposed effluent guidelines. Specifically, if a plant is
predicted to close due to RCRA costs alone, then it cannot be counted as part
of the incremental impact of the proposed effluent guidelines, even if those
compliance costs are also high.
Costs of compliance with RCRA requirements were estimated for each plant
based on various methods of disposing of process and treatment wastes.
Information was provided by the Technical Contractor about treatment methods
used at each plant. RCRA disposal methods were assigned to individual
plants using a set of rules (developed in discussion with the Technical
Contractor) that addressed on-site versus off-site disposal capabilities as
well as disposal methods such as incineration, deep well injection and
landfill. Total RCRA costs were calculated for each plant based on the
assignment of disposal methods.
A cutoff ratio of RCRA costs to plant product value of four percent was
used to identify baseline closure candidates. Other available information
about the plant or individual product lines was considered in assessing
whether or not closure due to RCRA costs was likely.
*See "Analyzing Economic Impacts in a Period of Inflation", EPA, Office
of Analysis and Evaluation, March 25, 1982, unpublished draft.
2-12
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In some cases, a plant will not close because of RCRA costs or BAT/
PSES costs alone, but may close due to their combined effect. These cases
are noted in Section 5. Again, these assessments represent best judgments
based on rather general information about each plant and the magnitude of
the additional costs.
Small Business Analysis
An analysis is conducted to determine whether small firms bear
disproportionate impacts under the proposed effluent guidelines. The method
used is to classify all firms in the data sample as either large or small
and then to compare the distribution of impacts on plants belonging to firms
in the two sets. The impacts include number of plants with compliance costs,
the distribution of the cost to sales ratio, and the number of closures.
The analysis is primarily concerned with small firms with limited resources
or those which would face barriers to entry due to regulation. In light of
these considerations, we have defined small businesses to be those having
less than $10 million in annual sales. 18 out of the 80 plants in the data
base, 23 percent of the total, fall under this definition of a small
business.
New Source Standards
Treatment costs were estimated by the Technical Contractor for new
plants, considering both direct and indirect dischargers.13'14 Types of
treatment subcategories were then postulated to handle different waste
streams that might be generated by new plants. Model plant sizes were
identified by the Technical Contractor for each subcategory. The treat-
ment costs are considered high because the estimates are for "end-of-pipe"
treatment whereas a new plant design would be likely to utilize in-plant
waste stream controls to reduce total plant costs. However, no data are
available to estimate the degree by which "end-of-pipe" treatment costs
may be overestimated when these costs are used for analyzing new sources.
The major groups of pesticides—i.e., fungicide, herbicide and
insecticide—that might be produced by a plant in each subcategory were
identified and price ranges for the pesticides were determined to estimate
ranges of product values for the model plants considered.12,13/14
As in the plant-level analysis, impacts are assessed primarily based
on the ratio of annualized treatment costs (annualized capital costs plus
O&M costs) to the plant's product value.
The likehood that new pesticide chemicals manufacturing plants will be
built by 1985 is assessed. This assessment is based on existing plant
capacities for producing the three major groups of pesticides and the
demands for those products by 1985 as projected by Arthur D. Little Inc.
and by Frost and Sullivan.15
2-13
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Section 3
Industry Profile
The pesticide industry is a two-tiered business encompassing at one
level, producers of. pesticide chemicals (active ingredients) and at the
second level, formulators who combine the active ingredients with sub-
stances such as diluents, emulsifiers and wetting agents so that the
pesticides can be applied by the ultimate users. Many of the firms making
the active chemical ingredients are also formulators, however, there are
also numerous independent formulators.
Pesticide active ingredients are primarily synthetic organic chemicals
that are covered in SIC 28694 (Pesticide and Other Organic Agricultural
Chemicals, Except Preparation) which is part of SIC 2869, (Industrial
Organic Chemicals N.E.C. (not elsewhwere classified)). The forraulators
and packagers of pesticide products are classfied in SIC 2879, (Pesticides
and Agricultural Chemical Producers, N.E.C.).
As of January 1979, there were 7,875 pesticide producers or formulating
plants according to the Establishment Registration System of the EPA. EPA
has determined that formulators operate essentially as a "zero discharge"
industry with only minor volumes of aqueous wastestreams. Furthermore, many
of the formulating plants may carry out no actual formulating or manufacturing
operations but are only involved in handling the formulated products.
According to the 1977 Census of Manufacturers, there were only 420
establishments whose primary business was classified in SIC 2879, the SIC
group that includes pesticide formulators and, according to EPA and
Technical Contractor data, there are only 117 plants in the U.S. that make
pesticide chemical active ingredients.
U.S. pesticide manufacturers produced 1.5 billion pounds of pesticide
active ingredient chemicals in 1980 valued at about $4.3 billion. These
ingredients were formulated with various inert materials and then distri-
buted to agricultural and other users. Table 3-1 gives historical produc-
tion, value, and pricing data on the domestic pesticide chemicals
manufacturing industry.
Structure of Demand
The most common categorization of pesticides is by type of pest
controlled: weeds, insects, fungal diseases, and the like. In the
agricultural sector (which constitutes the major market for pesticide
products) it is estimated that, for every $1 spent on pesticides, the
fanner obtains, on the average $5 in increased yields as a result of
lower crop losses.16 Three classes of products—herbicides, insecti-
cides, and fungicides—compose virtually all domestic pesticide produc-
tion, although small amounts of rodent and bird-control materials are
also produced. In simple terms, herbicides are used to eliminate weeds,
fungicides are used to protect plants from fungus, and insecticides are
used to kill insects.
-------
Table 3-1. Total U.S.. Pesticide Chemicals Production1
(1967-1978)
1 Production !
1 Million I
Year I Pounds 1
1967 1,050
1968 1,192
1969 1,104
1970 1,034
1971 1,136
1972 1,157
1973 1,289
1974 1,417
1975 1,603
1976 1,364
1977 1,388
1978 1,417
1979 1,429
1980 1,468
Average Annual Growth
1967-1974 4.4
1974-1980 0.6
1 1
Value2 !
Million $ I
Current 1
987
1,137
1,113
1,074
1,248
1,295
1,449
1,958
2,871
2,768
3,119
3,289
3,706
4,281
(%)
10.3
13.9
1
Constant4 I
987
1,120
1,039
961
1,116
1,127
1,206
1,336
1,382
1,277
1,304
1,322
1,336
1,380
4.4
0.5
1 Average Price^
$/lb
Current 1
0.94
0.95
1.01
1.04
1.10
1.12
1.12
1.38
1.79
2.03
2.25
2.32
2.59
2.92
5.6
13.3
1 1
Constant5
0.94
0.91
0.92
0.90
0.90
0.88
0.84
0.95
1.13
1.21
1.27
1.22
1.26
1.30
0.1
5.4
Herbicides, insecticides, and fungicides.
2
Value is the sum of the value columns in Tables 3-3, 3-4, and 3-5.
Average price is value/total production.
4
Constant dollars for pesticide values are calculated using pesticide
price indices shown in Table 2-2 (1967=100).
Constant dollars for pesticide average prices are calculated using a
GNP Deflator (1967=100).
Source: U.S. International Trade Commission, Arthur D. Little, Inc.,
and Meta Systems Inc calculations.
3-2
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Production of herbicides, insecticides, and fungicides has changed
considerably over the past two decades. Figure 3-1 demonstrates the
changes in production of these products. Herbicides have taken the lead
in production only since 1975. The sharp decline in herbicide production
in 1969 was due to a disruption in the supply of the intermediate chemi-
cals used in manufacturing herbicides. This disruption was caused by an
increase in demand for defoliants during the Vietnam War from which the
industry took several years to recover. Insecticide production has been
increasing since 1976 when it fell off by almost 100 million pounds.
Fungicide production has stayed about the same over the past ten years.
Herbicides constitute the newest and most important group of pesticides.
Table 3-2 shows that herbicides accounted for about 60 percent of the total
value of pesticide chemical production in 1977 and 49 percent of the total
quantity of pesticides produced. The relative contribution of each product
class to total production of pesticide is also shown in Table 3-2,
Historical data on production and dollar value of herbicides,
insecticides, and fungicides, are presented in Tables 3-3, 3-4, and 3-5,
respectively. The tables demonstrate that all of the pesticide groups
have experienced considerable growth since 1967.
Herbicide production has grown most dramatically, increasing from 409
million pounds in 1967 to 805 million pounds in 1980, which is an average
annual growth rate of 5.3 percent. The major agricultural markets for
herbicides are corn, soybeans, wheat, and cotton.1? Corn is particularly
important, accounting for about half the agricultural herbicide market.
The non-agricultural herbicides are used on lawns, parks, and golf courses,
and in the control of vegetation along right-of-way areas.
Insecticides kill by contact with, or ingestion by, the insect.
Insecticides can be aimed at a specific major pest, such as the boll
weevil, or at a broad spectrum of insects. The major agricultural markets
for insecticides are cotton, corn, peanuts, fruits and vegetables, with
cotton accounting for about one-third the 1976 agricultural applications.
Insecticides are also used by livestock farmers and in a variety of
non-agricultural applications.
The 496 million pounds of insecticides produced in 1967 represented 90
million pounds more than the herbicide volume for that year, but by 1980,
insecticide production of 506 million pounds was 300 million pounds less than
that of herbicides. Thus, insecticides may be considered a relatively mature
market; their 1967-1980 average annual growth rate of less than one percent
is significantly lower than that of herbicides.
Fungicides represent a relatively minor group of pesticides. In 1980,
production of 156 million pounds of fungicides represented only about 10
percent of total pesticide production and even less of pesticide value.
Furthermore, the fungicide market is stagnant, with the 1978 production
3-3
-------
Figure 3-1. Annual Pesticide Production by Product Type
900
800
700
SOO
900
400
300
200
100
SO 52 54 S3 S3 70 72
Source: Arthur D. Little
3-4
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Table 3-2. Estimated Composition of U.S. Pesticide
Chemicals Production in 1977
(1977 Dollars)
! Production
Class
Herbicides
Insecti-
cides
Fungicides
Totals
1 Million
1 libs.
674
570
143
1 *"™ 1
1
1 Percent
49
41
10
100
1 Valuel | Average Unit Value
1 Million
1 S
1,867
1,049
203
1 3,119
1 1
1 Percent 1
60
34
6
1 10° 1
$/lb
2.77
1.84
1.42
Represents the value of active ingredients produced.
Source: U.S. International Trade Commission, calculations by Meta Systems
Inc.
level 33 million pounds less than that of 1960. Most fungicides are
contact products and are used as a preventative measure. The plant is
coated with the fungicide which protects it from disease. A new type of
fungicide—and one that offers growth potential to the industry—is the
systemic fungicide. These products, unlike the contact group, can
actually reverse disease therapeutically.
The major agricultural markets for fungicides are fruits and
vegetables, particularly citrus fruits; peanut and cotton fanners are also
important users. Non-agricultural uses of fungicide are also significant,
with the applicaton of pentachlorophenol as a wood preservative for poles
and posts being the most important.
Structure of Supply
Producers of Pesticide Chemicals
There are difficulties in characterizing the suppliers of pesticides
because there are few companies for which pesticides are considered a
major source of revenue. There are no publicly-owned companies in which
pesticides are considered the prime source of revenue. In 1977, 81 com-
panies reported the manufacture of pesticide active ingredients to the
U.S. International Trade Commission (ITC). These producers included
petroleum companies (e.g., Shell), chemical companies (e.g., Dow and
DuPont), and pharmaceutical-based firms (e.g., Eli Lilly and Pfizer).
3-5
-------
Table 3-3. U.S. Herbicide Production (1967-1980)
1
1
Year 1
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
Average Annual
1967-1974
1974-1980 ,
Production
Million
Pounds
409
469
393
404
429
451
496
604
788
656
674
664
658
805
Growth (%)
5.7
4.9
1
1 Value2
1 Million $
617
718
662
663
781
812
843
1,214
1,781
1,692
1,867
1,843
2,020
2,695
10.1
14.2
1 Average Pricel
I
I $/lb
1.51
1.53
1.68
1.64
1.82
1.80
1.70
2.02
2.26
2.58
2.77
2.78
3.07
3.35
4.2
. 8.8
Average price is the quantity weighted average price of cyclic and
acrylic herbicide merchant shipments in current dollars.
2
Value is derived as weighted average price x production volume.
Sources: U.S. Tarriff Commission (to 1973), U.S. International Trade
Commission (1974-1977), and Arthur D. Little, Inc., calculations.
3-6
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Table 3-4. U.S. Insecticide Production (1967-1980;
Production
Year
Million
Pounds
Value2
Million $
Average Price^-
$/lb
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
496
569
571
490
558
564
639
650
659
566
570
606
617
506
Average Annual Growth (%)
1967-1974 3.9
1974-1980 -4.0
304
347
383
340
385
344
492
605
916
911
1,049
1,232
1,407
1,279
10.3
13.3
0.
0.
0.61
0.61
.67
.69
0.69
0.61
0.77
0.93
.39
,61
.84
.03
.28
1.
1.
1.
2.
2.
2.56
6.2
18.4
Average price is the quantity weighted average price of cyclic and
acrylic insecticide merchant shipments in current dollars.
Value is derived as weighted average price x production volume.
Sources: U.S. Tarriff Commission and Arthur D. Little, Inc., estimates.
3-7
-------
Table 3-5. U.S. Fungicide Production (1967-1980)
1
1
Year 1
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
Average Annual
1967-1974
1974-1980
Production
Million
Pounds
144
154
141
140
149
143
154
163
155
142
143
147
155
156
Growth (%)
1.8
-0.7
1 1
1 Value2 I
1 Million $ 1
66
72
68
71
82
93
114
139
174
165
203
214
279
307
11.2
14.1
Average Price^
$/lb
0.46
0.47
0.48
0.51
0.55
0.65
0.74
0.85
1.12
1.16
1.42
1.46
1.80
1.97
9.2
15.0
Average price is the quantity weighted average price of cyclic and
acrylic fungicides merchant shipments.
2
Value is calculated as weighted average price x production volume.
Sources: U.S. Tarriff Commission and Arthur D. Little, Inc., estimates.
3-8
-------
The production of basic chemicals is the first and most complex phase
of the pesticides industry. It involves the synthesizing of technical-
grade chemicals from raw materials. There are twenty major classes of raw
materials and chemical intermediates used in the manufacture of pesticides,
and in recent years about 2.5 billion pounds of these raw materials, valued
at over $1.6 billion, are consumed annually by the pesticide industry.
Table 3-6 lists the major chemical groups and raw materials that are used
in manufacturing pesticides. It also shows the proportional contribution
that each group makes to the total estimated value of pesticide production.
Pesticides are generally manufactured in plants which also produce other
organic chemicals, including Pharmaceuticals, plastics, and resins.
Approximately 95 percent of the plants produce no more than four pesticides,
while almost 50 percent produce only one. The pesticides, with the excep-
tion of such high-volume products as the cotton insecticide, toxaphene, are
not generally produced throughout the year. The plants in the industry also
vary widely in size. The outputs of a number of plants are worth more than
$75 million, and 12 of the 117 manufacturing plants account for slightly
more than 50 percent of the total value of the outputs. In contrast, almost
half of the plants have an annual market value for all pesticide chemicals
of less than $5 million.
Table 3-7 lists production, value, and market share data for the top 18
pesticide producers. The top four companies account for about half of the
industry's market share by value and the top eight firms account for 82
percent of the market share. Different segments of the pesticide industry,
however, exhibit varying degrees of concentration; for example, the top
four producers of corn insecticides account for 81 percent of the market
share and the top four soybean insecticide producers have 77 percent of the
market. Thus, within the various pesticide segments there are high levels
of industrial concentration.
Profile of Pesticide Chemicals Plants
The EPA identified 117 separate plants (belonging to 81 companies)
that produced pesticide chemicals in 1977. All 117 plants produce pesti-
cide active ingredients, and 55 of the 117 also formulate and package the
pesticide products. Thus about half the manufacturing plants are verti-
cally integrated operations. While all the 117 plants produce pesticide
chemicals, this is not necessarily their sole line of business, nor is it
necessarily a business that they carry on continually. About three-
quarters of the plants (87) produce various chemicals other than
pesticides.
Table 3-8 shows a classification of the 117 manufacturing plants by
major type of pesticides produced: herbicides, insecticides, fungicides,
and mixed pesticide products. In classifying the plants, for purposes of
the impact analysis, the fact that almost three-quarters of them also
3-9
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Table 3-6. Raw Materials and Key Chemical
Intermediates Used in Pesticide Manufacture
Product Group
Percent of Total
Estimated Value
of Production
Phenol and derivatives
Aniline derivatives
Cyanide derivatives
Carboxylic acid derivatives
Higher alkyl amines
Phosphorous pentasulfide
Benzene and related compounds
Phosgene
Chlorine
Phosphorous trichloride
Mercaptans
Bromine
Monomethylamine
Aldehydes
Carbon disulfide
L-Pinene
Cyclodienes
Total
25.3
12.4
12.3
11.3
8.5
5.5
4.9
4.2
3.7
3.2
3.0
2.6
1.2
1.1
0.4
0.4
100.0%
Source: U.S. Pesticides Market; Report IA907, Frost & Sullivan, Inc.,
New York, New York, May 1981.
3-10
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Table 3-7. Pesticide Market by Producer, 1980
(1980 Dollars)
1
1
Company 1
Monsanto
Ciba-Geigy
Stauffer
Eli Lilly
DuPont
Cyanamid
Union Carbide
Shell
FMC
Mo bay
BASF-Wyandotte
Diamond-Shamrock
Rohm & Haas
Uniroyal
Velsicol
1C I
01 in
Standard Oil
(Calif)
Total .2,
1
Value |
($MM) i
522-580
354-358
330
285-300
220
220
150-160
132-155
135-140
125-135
75-100
75
41-46
36
18
10-20
10-15
5
773-2,913,
Production
(MM Ibs. ) 1
169-173
142-147
105-117
72-82
75-99
82
57-73
40-55
55
40-45
20-25
25-30
13-15
11
9-10
—
5
2-3
1
1 % Market
1 Share by
! Value
20
13
12
10
8
8
6
5
5
5
3
3
1
1
—
—
—
—
100
1
1 % Cummulative
1 Market Share
20
33
45
55
63
71
77
82
87
92
95
98
99
100
—
—
—
—
1
Source: U.S. Pesticides Market; Frost & Sullivan
3-11
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Table 3-8
Profile of Pesticide Plants — Subcategorization
Subcategory Number of Plants
Herbicides
An Hides-cyclic 3
Triazines-cyclic 2
Hydrazides-cyclic 3
Benzoics-cyclic 3
Phenoxies-cyclic 4
Dinitrophenols and anilines-cyclic 1
Ureas-cyclic 1
Miscellaneous ' 7_
Total 24
Insecticides
Aldrin-toxaphene-cyclic 3
Organophosphorus-cyclic 3
Carbamates-cyclic 2
Chloro-organic-cyclic 3
Nematocides-cyclic 1
Rodenticides-cyclic 2
Attractants and repellants-cyclic 2
Synergists-cyclic 2
Organophosphorus-acyclic 4
Miscellaneous 19
Total 41
Fungicides
Polychloro-aromatics-cyclic 4
Chloroalkyl amides 1
Miscellaneous 8
Total 13
Mixed* Total 39
Total 117
*Production of pesticides is in more than one subcategory.
3-12
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manufacture non-pesticide products is not considered. Thus/ subcategor-
ization and the associated discussion relate exclusively to the pesticide
operations of the plants. Twenty-four plants mainly produce herbicides,
and their average production value is twice that of insecticide producers
and nine times that of fungicide producers.
Forty-one plants are classified as insecticide producers/ 13 as
fungicide producers/ and the remaining 39 plants manufacture more than one
type of product. The mixed-product plants tend to be larger than the
single-product plants; their average production value is almost twice that
of the herbicide producers.
The first three groupings can be further subdivided by the types of
chemicals produced. Thus herbicides can be subdivided into anilides,
triazines, hydrazides, benzoics/ phenoxies/ dinitrophenols/anilines,
ureas, and miscellaneous. The major herbicides in the anilide group are
alachlor and propachol. The former is used extensively on soybeans and
corn, the latter on sorghum. The most important herbicide in the
triazines group is atrazine, which dominates the corn market. The phen-
oxies group includes 2, 4-D, the use of which has come under environmental
restriction.
Insecticides are subdivided into aldrin-toxaphene, cyclic organophosphorus,
acyclic organophosphorus, carbamates, chloro-organics, nematocides,
rodenticides, attractants/repellants, synergists, and miscellaneous.
Acyclic organophosphorus is the most important group, and the insecticides
in this group have a wide range of applications, particularly in corn and
livestock. The cyclic organophosphorus group includes methyl parathion,
which is used on wheat and corn. Insecticides in the aldrin-toxaphene
group are used in cotton, soybeans, and livestock. The fungicides are
subdivided into polychloro-aromatics, chloroalkyl amides, and miscellaneous.
Capacity Utilization. The pesticides manufacturing industry overall
operated at a capacity utilization rate of 80 percent in 1979. Thus,
while 1,429 million pounds of pesticide chemicals were produced in 1979,
capacity was available to produce about 1,800 million pounds. The compo-
nents of the industry (fungicides/ insecticides, herbicides) varied with
respect to utilization of available capacity and Table 3-9 lists production
capacity and capacity utilization in 1979.
Formulators
It is difficult to describe pesticide formulators because there are a
large number of small operators for which statistical information is not
available. As mentioned earlier, while almost 8,000 plants were counted
as formulators in 1979, in fact, many of these are distributors of
formulated products.
3-13
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Table 3-9
Pesticide Production and Capacity Utilization in 1979
Type of |
Pesticide 1
Fungicides
Herbicides
Insecticides
All pesticides
Production
(million Ibs.
155
657
617
1,429
I Capacity
1 (million Ibs. )
184
888
726
1,786
1 Capacity I
1 Utilization I
.84
.74
.85
.80
Source: U.S. Pesticide Market, Frost & Sullivan (capacity values
calculated by Meta Systems Inc.
Technical grade pesticide chemicals are rarely used in the pure form
manufactured by the chemical firms but are mixed with inert materials in
the formulation stage. Mixing serves the dual purpose of stabilizing the
chemicals and preparing them in a form that will be useful to end users.
The form into which the chemicals are formulated depends upon such factors
as the type of pest being controlled, the environment, the desired method
of application and the properties of the technical grade chemical. Pesti-
cides are produced as dry or liquid concentrates and are then generally
formulated to meet application requirements. Dry concentrates include
dusts, granules, and wettable powders. Liquid concentrates consist of
solutions and stable suspensions.
New systems are being developed for the application of pesticides, the
most current being micro-encapsulation, or controlled release. This pro-
cess is still unproven on a large scale and is quite expensive, but its
developers (Health-Chem and Penwalt) claim it has superior field life and
efficiency.
Prior to 1970, the formulation of technical-grade pesticides was carried
out by a variety of independent firms and agricultural cooperatives. Formu-
lating firms bought pesticides from the basic manufacturers and formulated
and packaged the products for sale. In the mid-1970's there was an overall
domestic shortage of chemicals and during this period many of the technical-
grade pesticide producers integrated forward and formulated their own
chemicals captively. Although the chemical shortage is now over, most of
the chemical manufacturers have chosen to stay in the formulating business.
The current estimate in the Kline Guide is that 80 percent of the formulated
pesticide industry is controlled by technical-grade producers.
3-14
-------
Profitability
As mentioned earlier, most of the U.S. pesticide production is carried
on by diversified companies and their sales of pesticides are a minor
source of the firms' revenue. Therefore, the availability of reliable
financial data on pesticide production is extremely limited. Investment
analysts regard pesticide production as a very profitable business with
profit margins much higher than is suggested by an analysis of income
statements. For example, one investment house (Loeb Rhodes and Company)
estimates that the average net margin in sales (after taxes and all
charges) exceeds 20 percent. However, a detailed examination of the
annual reports and 10-K statements of pesticide producers revealed that
line-of-business, pre-tax profit margins in 1978 typically range between
10 and 15 percent. This finding is consistent with the Federal Trade
Commission's statement that chemical industry pre-tax profit margins in
1978 averaged 10.6 percent (versus 8.0 percent for all manufacturing).18
There are many individual pesticide products on which profit margins
exceed 40 percent. These are the proprietary (patented) products for
which the absence of competition allows the patent-holder to price the
product considerably higher than cost. The life of a patent is 17 years
and pesticide manufacturers aggressively seek to develop new pesticides to
maintain their pool of patented products. The National Agricultural
Chemical Association reported that pesticide research and development
expenditures in 1978 accounted for 8 percent of sales revenue. Neverthe-
less, in 1978, only 3 new pesticides were registered versus 28
registrations in 1966.19
The slowdown in the rate of new pesticide introduction is attributable,
in part, to governmental regulation, which has increased both the time and
cost required to commercialize a new pesticide. The regulation of pesti-
cides dates back to 1910, but it was only in 1947 that the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA), as administered by
the USDA, required pesticides to be federally registered. The Federal
Environmental Pesticide Control Act (FEPCA) of 1972 and the Federal
Pesticide Act of 1978, as administered by the EPA, define the current
requirements for federal registration.
Research and Development
Research and development plays a major role in the continued success
of chemical producers. Because of the cost and time required to develop
new pesticides, R&D activities are concentrated in about 30 companies.
These are, generally, large, multi-product companies which can afford
risky ventures. Thus, to the extent that pesticide operations are very
profitable, examples of such profitability are likely to be found among
the large companies.
3-15
-------
The amount of money invested annually on pesticide R&D increased from
$61 million in 1967 to $290 million in 1978 (in current dollars) ,15
This is due in part to the increased complexity of pesticide chemicals and
new prohibitions on broad spectrum pesticides, but testing and regulatory
requirements also play a major role in added R&D expenditures. The 1978
Amendments to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA)
are estimated by Frost and Sullivan to add 33 percent to the cost of regis-
tering a new pesticide and over 50 percent to the costs of re-registration.15
On the average, the entire process of developing and testing a new
pesticide takes six to eight years and costs about $15 million. In 1978 only
three new pesticides were registered, compared to 1966, when 28 new pesti-
cides were introduced, with an average development time of four years and a
cost of $2 million. R&D costs in the pesticide industry are expected to
increase.20/21 The likely consequence of such an increase will be further
concentration of the industry with only the largest firms either willing or
able to afford the high R&D costs. High R&D costs and the uncertainty
inherent in the commercialization of a new pesticide pose major barriers to
new firms seeking to enter the industry. The successful companies in the
future are likely to be those with existing technical bases (e.g.,
pharmaceutical companies) and/or those with long-term positions in the
industry.
Imports and Exports
The U.S. is a net exporter of pesticides and in 1977 exports exceeded
imports by 263 million pounds. Tables 3-10 through 3-12 present data on
production, exports and imports of pesticide products for 1966 to 1977.
As shown in Table 3-10, in 1977, the United States exported 109.4 million
pounds of herbicides which amounted to 16 percent of domestic production.
The 1977 export figures represent an increase of 87 million pounds since
1966. Imports of herbicides equalled 15.9 million pounds or 2.3 percent
of total domestic production.
Insecticide exports (Table 3-11) were 146.3 million pounds or 25.7
percent of total production, in 1977, and imports represented .12 percent
of domestic production. Exports of herbicides (Table 3-12) for the same
year were 27.1 million pounds and accounted for 19 percent of domestic
production, while imports were 2.5 million pounds or 1.7 percent of total
production.
Table 3-13 presents annual growth rates for both volume and value of
exports for the three major pesticide classes. From 1969 to 1977 the
volume of herbicide exports grew by 15 percent annually while the value of
those exports grew 22 percent a year. The volume of insecticides exported
grew 1.7 percent per year and the dollar value of those exports grew in
value by 15 percent a year. Fungicide exports grew 5 percent a year and
the value of fungicide exports grew 20 percent ayear between 1969 and 1977.
3-16
-------
Table 3-10. U.S. Production and Trade in Herbicides
Year I
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1
Production
(MM Ib)
324
409
469
393
404
429
451
496
604
788
656
674
1
1 Exports |
1 (MM Ib) 1
22.5
32.4
37.0
34.8
39.0
42.3
—
80.6
106.1
106.7
104.2
109.4
1 1
Exports as a
Percent of
Production
6.9
8.0
8.1
8.9
9.7
9.9
—
16.3
17.6
13.5
15.9
16.0
1 1 Imports as a
1 Imports 1 Percent of
1 (MM Ib) | Production
1.1
2.7
3.0
2.3
2.4
5.7
4.4
7.6
9.2
12.2
13.1
15.9
1 1
0.3
0.7
0.6
0.6
0.6
1.0
1.3
1.5
1.5
1.6
2.0
2.3
Sources:
Production is from International Trade Commission, Synthetic Organic
Chemicals (Washington, D.C., U.S. Government Printing Office) various
issues.
Imports and exports are converted to an active ingredient basis by
halving the values as reported in U.S. Department of Agriculture, The
Pesticide Review (Washington, D.C., U.S. Department of Agriculture,
Agricultural Stabilization and Conservation Service).
3-17
-------
Table 3-11. U.S. Production and Trade in Insecticides
Year 1
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1
Production
(MM Ib)
552
496
569
571
490
558
564
639
650
659
566
570
1
1 Exports 1
1 (MM Ib) 1
131.0
140.2
161.3
128.1
118.2
118.8
—
208.7
212.2
178.5
148.2
146.3
1 1
Exports as a
Percent of
Production
23.7
28.3
28.3
22.4
24.1
21.3
—
32.7
32.7
27.1
26.2
25.7
1 1 Imports as a
1 Imports | Percent of
1 (MM Ib) I Production
0.3
0.2
0.09
0.4
0.3
0.4
2.3
1.7
0.9
0.7
0.7
0.7
1 1
.05
.04
.02
.07
.06
.07
.40
.30
.14
.01
.12
.12
Sources:
Production is from International Trade Commission, Synthetic Organic
Chemicals (Washington, D.C., U.S. Government Printing Office) various
issues.
Imports and exports are converted to an active ingredient basis by
halving the values as reported in U.S. Department of Agriculture, The
Pesticide Review (Washington, D.C., U.S. Department of Agriculture,
Agricultural Stabilization and Conservation Service).
3-18
-------
Table 3-12. U.S. Production and Trade in Fungicides
Year 1
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1
Production
(MM Ib)
137
144
154
141
140
149
143
154
163
155
142
143
1
I Exports !
I (MM Ib) |
21.2
19.2
18.8
18.1
20.6
21.5
21.0
29.2
30.0
23.9
25.2
27.1
1 !
Exports as a I
Percent of 1
Production I
15.5
13.3
12.2
12.8
14.7
14.4
14.7
19.0
18.4
15.4
17.7
18.9
1
1 Imports as a
Imports | Percent of
(MM Ib) | Production
0.1
0.2
0.3
0.2
0.6
1.4
2.7
2.0
1.2
2.4
2.3
2.5
1
0.1
0.1
0.2
0.1
0.4
0.9
1.9
1.3
0.7
1.5
1.6
1.7
Sources:
Production is from International Trade Commission, Synthetic Organic
Chemicals (Washington, D.C., U.S. Government Printing Office) various
issues.
Imports and exports are converted to an active ingredient basis by
halving the values as reported in U.S. Department of Agriculture, The
Pesticide Review (Washington, D.C., U.S. Department of Agriculture,
Agricultural Stabilization and Conservation Service).
3-19
-------
Table 3-13. Annual Growth Rates for Volume and
Value of Pesticide Exports (1969-1977)
Product Class I Production (%) I Value * (%)
Herbicides
Insecticide
Fungicide
15
1.7
5 1
22
15
20
* in current dollars.
Source: U.S. Pesticides Market, Frost & Sullivan.
Of the 49 million pounds of pesticides imported by the United States
in 1977, West Germany was the originator of 31 percent, the United Kingdom
of 29 percent and Japan of 10 percent.
Industry Outlook
Market forecasts for pesticide sales are complicated by the industry's
dependence on such different variables as weather, farm income, predicted
insect infestations, previous years' pesticide inventory, and changing
health and environmental regulations. Regardless of the uncertainties in
predicting changes in the production and value of pesticides, however, the
use of pesticides can be expected to grow. In the United States alone,
the application of pesticides has increased at an average rate of 3.4 per-
cent a year or about 40 percent over the past decade. It is reasonable to
expect a general trend of modest growth to continue over the next five
years.
Production of pesticides was 1.4 billion pounds in 1980 and is
expected to grow about 1.4 percent annually until 1985 when production is
anticipated to reach 1.5 billion pounds according to one source (Frost and
SullivanlS). The dollar value of this production is projected to in-
crease by 8.4 percent a year from $4.3 billion in 1980 to $6,4 billion in
1985, expressed in current dollars. According to another source,22 the
average annual rate of growth in value of pesticide production, expressed
in constant dollars, is projected at 5.0 percent between 1980 and 1985.
The three major product classes that make up the pesticide industry
are expected to grow at different rates during the 1980-1985 period, with
herbicides growing at the highest rate (in terms of both volume and value)
and insecticides growing at the lowest annual rate. Table 3-14 shows the
projected annual growth rates for the pesticide market by product class.
3-20
-------
The structure of the pesticides industry is not expected to change
markedly in the next five years. Increasing research and development
costs and rising raw materials prices can be expected to result in the
exclusion of small companies from competition/ but the top ten companies
are likely to maintain their market shares relative to one another.
Table 3-14. Pesticide Market by Major Class—
Yearly Rate of Growth (1980-1985)
Product Class I Production (%) I Value* (%)
Herbicides
Insecticide
Fung icide
Total Industry
1.9
0.9
1.4
1.4 ,
8.6
7.8
8.4
8.4
* In current dollars.
Source: U.S. Pesticide Market, Frost & Sullivan.
3-21
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Section 4
Recommended Treatment Technologies and
Associated Costs
The 1972 Federal Water Pollution Control Act (FWPCA) amendments (Public
Law 92-0500) were primarily directed at the control of industrial and muni-
cipal wastewater discharges. The legislation and subsequent amendments
(Clean Water Act of 1977, Public Law 95-217) require that EPA revise and
promulgate effluent limitations and standards for all point sources of
pollution. Under FWPCA amendments, EPA must develop technology-based
effluent limitations for conventional pollutants (Section 301). Under
another part of the legislation (Section 307) , EPA must develop effluent
standards for individual toxic chemicals and pretreatment standards for
indirect industrial discharges to publicly owned treatment works. These
permissible levels of pollutant discharge correspond to Best Practicable
Control Technology Currently Available (BPT) and Best Available Technology
Economically Achievable (BAT) and Pretreatment Standards for Existing
Sources (PSES).
The law set specific timetables for achievement of discharge levels
corresponding to these levels of treatment (July 1977 for BPT and July
1983 for BAT). These timetables were subsequently revised via the 1977
amendments and distinctions were made among pollutants. The original BPT
and BAT regulations were modified by a new regulatory concept, Best
Conventional Pollutant Control Technology (BCT) and the universe of
pollutants was subdivided into conventional, nonconventional and toxics.
The law has also provided for toxic effluent standards for new sources
and/or dischargers to municipal wastewater treatment facilities. These
discharge categories are addressed by NSPS (New Source Performance
Standards), and PSNS (Pretreatment Standards for New Sources).
The manufacture of pesticide chemicals involves the production of
several hundred organic chemical compounds. These compounds are sometimes
produced at facilities where manufacturing pesticide chemicals is the main,
or the only business; in other facilities, pesticides represent only a
small portion of the facility's production. Under the proposed effluent
guidelines for the pesticide chemicals manufacturing industry, the EPA is
considering new effluent limitations guidelines for existing plants—both
for direct discharge to surface waters and for pretreatment (by indirect
dischargers) prior to discharge to publicly owned treatment works (POTW).
These new effluent limitations include not only the pesticides previously
regulated by the EPA under BPCTCA* (primarily to meet certain pollution
control parameters such as BOD, COD, or suspended solids), but also prio-
rity pollutants and certain pesticides, such as atrazine, which were
excluded from the BPCTCA regulations.
* Best Practicable Control Technology Currently Available; also
referred to as BPT.
-------
Cost Methodology
The cost estimates were developed by the Technical Contractor on a
subcategory, rather than plant-by plant, basis. They show the range of
costs potentially incurred by model plants of various flows and differing
pesticide treatability. They were derived in the following manner:
1. Costs were generated for each treatment unit based on September
1979 dollars and corresponding to a Marshall and Swift Index value
of 630. The total construction costs for each unit were prepared
from manufacturers' estimates which were compared to actual plant
data when available. The total construction costs include the
treatment unit cost, land, electrical, piping, instrumentation,
site preparation, engineering, and contingency fees. Annual and
energy costs were calculated in accordance with the assumptions
specified. Cost curves were prepared for dollars versus volume
treated, and each of the components included in the individual
treatment units was specified.
2. The total cost for each subcategory was derived by summing the
costs for individual treatment units that are specified for each
level of control. Treatment costs for each subcategory are based
on flow rates of 0.01 MGD, 0.1 MGD, and 1 MGD which were repre-
sentative of actual flows in the industry; flows below 0.01 MGD
were provided with alternative costs for evaporation or contract
hauling as is practiced in the industry. Treatment costs for zero
dischargers, metallo-organic pesticide manufacturers and pesticide
formulator/packagers, Subcategories 11, 12, and 13, respectively,
are based on representative flow rates of 50 gpd, 500 gpd, and
5,000 gpd.
3. For pesticide manufacturers, a high and low cost for each treatment
unit was introduced to reflect differences in degree of treatability
or differences in recoveries obtainable. For example, in each case
where pesticide removal was recommended, the costs for activated
carbon, resin adsorption, and hydrolysis were compared. The
effectiveness of these technologies has been demonstrated within the
design ranges provided; however, each individual pesticide plant
must determine by laboratory and/or pilot scale treatability studies
the exact design criteria to meet effluent objectives. In general,
this comparison resulted in the selection of carbon adsorption at
750 minutes detention time for the high cost, and hydrolysis at 400
minutes detention time for the low cost for each subcategory. In
this cost comparison, 12-hour equalization, neutralization, dual
media filtration, and pumping stations were assumed to be part of
both activated carbon and resin adsorption systems.
4-2
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High and low cost were also provided where steam stripping was the
designated technology to account for the fact that stripped
organics may either be returned to the process (in which case a
recovery has been calculated) or that they become a wastestream
which is normally disposed by incineration.
High and low costs have been provided for the incineration unit to
reflect the fact that the size of the unit and especially the
annual costs are quite different depending on whether a chlori-
nated hydrocarbon or aqueous oily waste is being disposed. A
reduction of fuel consumption based on the fuel value of
hydrocarbon wastestreams has been considered.
A high and low cost has been provided for evaporation ponds,
corresponding to solar evaporation and spray evaporation alter-
natives which are determined by site-specific climatic conditions.
The high and low costs for annual and energy may appear reversed.
This simply means that the annual cost for a high capital system
may be less than the annual cost for a low capital system.
4. The flows upon which unit treatment costs are based have been
split into three groups based on wastewater segregation. Waste-
streams not compatible with biological treatment (i.e., distil-
lation tower bottoms, stripper overhead streams, reactor vent
streams, etc.) are most effectively disposed of by incineration.
Based on the operating range of incinerators in the industry it
has been assumed that 1 percent of the total flow from the plant
requires incineration. This corresponds to a range of 100 to
10,000 gallons per day.
Based on the actual operating practices in the industry, steam
stripping, chemical oxidation, and metal separation have been
costed at flows equal to one-third the total volume disposed by
the plant for total flow rates of 0.1 MGD and 1 MGD. Flow rates
of 0.01 MGD have been costed at full flow. Pesticide removal
(hydrolysis, activated carbon, or resin adsorption) and biological
treatment (equalization, neutralization, nutrient addition,
aeration basin, etc.) have been costed based on the total flow.
5. Estimates of capital cost annual cost and energy were provided for
each subcategory and each level of technology. The capital costs
for Level 1 technology, excluding corporation or contract hauling,
are a minimum of $290,000 and a maximum of $4,690,000 at a flow
rate of 0.1 MGD for pesticide manufacturers (Subcategories 1
through 12); Level 3 technology is shown to cost a minimum of
$854,000 and a maximum of $5,250,000. There are four subcate-
gories (6, 11, 12, and 13) for which the flows were in the range
of less than 10,000 gallons per day for which it may be more
cost-effective to dispose of wastes by contract hauling or
evaporation, than to construct a wastewater treatment plant.
4-3
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The costs presented in this section for each plant are estimates by
the Technical Contractor of the capital, annual, and energy expenses which
could potentially be incurred to meet proposed effluent levels. The costs
are based on the assumption that existing plants already have installed
pesticide removal and/or biological oxidation systems where BPT regula-
tions require them. These estimates are therefore the incremental costs
above and beyond BPT.
Treatment Options
Existing Sources
A total of 267 manufactured pesticides were studied by the Technical
Contractor. To meet the anticipated new EPA guidelines, the Technical
Contractor considered a set of treatment technologies that could be
applied singly, or in combination, to achieve the required reduction of
pollutants, 12 these are:
Treatment Technologies
Steam stripping
Filtration
Chemical Oxidation
Activated carbon
Biological treatment
Metals separation
Resin adsorption
Hydrolysis
These technologies can be classified into four major groups: physical-
chemical treatment, biological treatment, multimedia filtration, and
carbon filtration. From the various treatment technologies listed, one or
more were selected for each plant (based on wastewater characteristics and
treatment currently in place) and this selection defined a limited number
of treatment options. To achieve different levels of effluent treatment,
the treatment options for each plant are combined to define several
treatment levels. For the indirect dischargers, the treatment levels are
designated as follows:
1: physical/chemical treatment (equals PSES Option 1 in
Development Document; this is the selected option)
2: Level 1 plus biological treatment (equals PSES
Options 1 and 2)
For direct dischargers, the designated treatment levels are:
4-4
-------
Level 1: physical/chemical and biological treatment (equals BAT
Option 2 in Development Document; this is the selected
option)
Level 2: Level 1 plus multimedia filtraton (equals BAT Options 2
and 3)
Level 3: Level 2 plus carbon filtration (equals BAT Options 2,
3, and 4)
Capital investment and annual costs were estimated for the two pretreatment
treatment levels and three direct discharge treatment levels. The options
and costs were developed in incremental terms: for indirect dischargers,
the second pretreatment level includes the first; and for direct dischargers,
each subsequent treatment level includes the technologies of the preceding
treatment level. The treatment levels for indirect and direct dischargers
are combined to define "economic" options whose impacts are to be analyzed.
The options are defined as follows:
Direct Indirect
Economic Discharger Discharger
Option Leve1 Level
111
221
331
412
522
632
Of the 117 plants that manufacture pesticide active ingredients in the
U.S., the Technical Contractor has identified 51 plants that might require
additional treatment to meet new treatment standards. (Existing and addi-
tional treatment technologies required for a sample of 38 plants are
described in Table 4-1.)
New Sources
The Technical Contractor has also specified treatment levels for
direct discharger and indirect discharger new sources (NSPS and PSNS,
respectively) for each of 13 subcategories. Pesticides were assigned to
subcategories based on several considerations, including raw materials
used in manufacturing, wastewater characteristics and treatability, and
disposal and manufacturing processes. Wastewater treatment trains that
meet new source standards were synthesized for each subcategory. The
treatment level for NSPS corresponds to Level 1 for direct dischargers
and the treatment level for PSNS corresponds to Level 1 for indirect
dischargers.
4-5
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Table 4-1
Present Wastewater Treatment and Estimated Treatment Required for
Compliance with Effluent Limitations
Plant Code
No.
Wastewater Treatment
Already in Place
Estimated Additional
Treatment Required
1
2
9
10
11
12
13
Gravity Separation
Stripping, Equalization, Activated
Carbon Neutralization
Resin Adsorption, Neutralization,
Equalization, Activated Carbon
Neutralization, Equalization, Trick-
ling Filters, Gravity Separation,
Evaporation Pond
Equalization, Aerated Lagoon, Gravity
Separation, Neutralization
Gravity Separation
Gravity Separation, Vacuum Filtration,
Resin Adsorption, Neutralization
Equalization, Neutralization
Ocean
Equalization, Not Available
Skimming, Gravity Separation, Strip-
ping, Chemical Oxidation, Equalization,
Activated Sludge
Equalization, Neutralization, Activated
Sludge, Coagulation, Vacuum Filtration,
Aerated Lagoon
Gravity Separation, Skimming, Hydro-
lysis, Neutralization, Equalization,
Aerated Lagoon
Stripping
Stripping
Stripping, Biological
Treatment, Activated
Carbon, Multimedia
Filtration
Multimedia Filtration,
Activated Carbon,
Stripping
Multimedia Filtration,
Activated Carbon
Stripping, Metal
Separation, Multimedia
Filtration, Activated
Carbon
Stripping
Multimedia Filtration,
Activated Carbon,
Stripping
Stripping
Stripping
Multimedia Filtration,
Activated Carbon
Multimedia Filtration,
Activated Carbon
Activated Carbon
4-6
-------
Table 4-1
Present Wastewater Treatment and Estimated Treatment Required for
Compliance with Effluent Limitations
(continued)
Plant Code
No.
Wastewater Treatment
Already in Place
Estimated Additional
Treatment Required
14
15
16
17
18
19
20
21
22
23
24
25
26
Gravity Separation, Aerated Lagoon,
Equalization, Stripping, Neutraliza-
tion
Neutralization, Equalization, Aerated
Lagoon, Gravity Separation
Equalization, Gravity Separation,
Multimedia Filtration, Activated Carbon,
Neutralization
Neutralization, Equalization, Activated
Sludge, Coagulation, Flocculation,
Aerated Lagoon, Gravity Separation,
Neutralization
Gravity Separation, Neutralization
Chemical Oxidation, Aerated Lagoon,
Trickling Filters, Neutralization
Chemical Oxidation
API-type Separator, Equalization,
Aerated Lagoon, Gravity Separation/
API-type Separator
Skimming, Neutralization
Gravity Separation
Equalization, Neutralization Gravity
Separation, Aerated Lagoon
Neutralization, Equalization
Multimedia Filtration,
Activated Carbon,
Stripping
Multimedia Filtration,
Activated Carbon
Activated Carbon,
Steam Stripping,
Multimedia Filtration
Activated Carbon,
Multimedia Filtration
Stripping
Multimedia Filtration,
Activated Carbon,
Stripping
Multimedia Filtration,
Activated Carbon
Stripping
Chemical Oxidation,
Stripping
Stripping
Activated Carbon
Chemical Oxidation/
Stripping/Activated
Carbon, Multimedia
Filtration
Stripping, Activated
Carbon
4-7
-------
Table 4-1
Present Wastewater Treatment and Estimated Treatment Required for
Compliance with Effluent Limitations
(continued)
Plant Code
No.
Wastewater Treatment
Already in Place
Estimated Additional
Treatment Required
27
28
29
30
Neutralization
Equalization, Gravity Separation,
Skimming, Flocculation, Coagulation,
Equalization, Skimming, Gravity Separa-
tion, Neutralization, Multimedia
Filtration, Activated Carbon
Not Available
Activated Carbon,
Stripping
Activated Carbon
Hydrolysis
Stripping, Activated
Carbon
31
Neutralization
32
33
34
35
36
Neutralization, Equalization, Activated
Sludge, Gravity Separation
Equalization, Not Available
Gravity Separation, Equalization,
Aerated Lagoon Coagulation, Floccula-
tion
Stripping, Resin Adsorption, Neutral-
ization
Not Available
Activated Carbon,
Stripping, Multimedia
Filtration, Metal
Separation
Activated Carbon
Stripping, Multimedia
Filtration, Activated
Carbon
Multimedia Filtration,
Activated Carbon,
Stripping
Stripping, Resin
Adsorption
Stripping
4-8
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It should be noted that impacts of NSPS are actually incremental to
all requirements for existing sources. That is, even if specific NSPS and
PSNS regulations are not promulgated, new source direct dischargers are
still subject to BPT and BAT requirements and indirect dischargers to
relevant POTW pretreatment requirements.
Treatment Cost Estimates
Existing Sources
Incremental Costs. The capital costs and annual operating costs for
the additional treatment required at each of the 51 plants are shown in
Table 4-2. The table shows the incremental costs of each treatment level
above the costs of the previous treatment level; for indirect dischargers,
the incremental capital costs of compliance sum to $12.6 and $33.8 million
for Levels 1 and 2, respectively, and for direct dischargers, the sums are
$24.1, $3.2, and $12.4 million for Levels 1, 2 and 3, respectively. The
incremental annual O&M costs for indirect dischargers sum to $6.0 and $5.9
million for Levels 1 and 2, respectively, and for direct dischargers, the
sums are $15.2, $0.2 and $13.4 million for Levels 1, 2 and 3, respectively.
The incremental capital and O&M costs for each plant are listed in Table 4-2
in addition to the totals for the industry under each option.
Annualized treatment costs can be computed from capital and annual
costs shown in Table 4-2 by the method explained earlier in tne report.
The incremental annualized treatment costs sum to $8.6 and $14.5 million
for Indirect Levels 1 and 2, and $20.4, $0.9, $16.1 million per year for
Direct Levels 1, 2 and 3.
Cumulative Costs for Existing Plants for Each Treatment Level. For
the economic impact analysis, treatment levels 2 and 3 include the treat-
ment requirements and costs of the lower treatment levels. For example,
Direct Level 2 includes treatment requirements and costs for Direct Level
1. Table 4-3 presents the total cumulative costs (in 1979 dollars) of
compliance for each treatment level. Table 4-4 presents the same
information in 1982 dollars.
Formulator/Packagers. The Technical Contractor provided unit treatment
costs for the Formulator/Packagers subcategory (13) and due to differences
in the way data were aggregated, this subcategory is handled separately from
Subcategories 1 through 12. The costs were developed on a model plant basis,
as shown in Table 4-5. These costs apply only to indirect dischargers
because Formulator/Packager direct dischargers are already regulated to zero
discharge under BPT. The costs are specified for contract hauling of hazar-
dous wastes and for solar evaporation. The annualized costs were calculated
4-9
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4-11
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Table 4-3. Total Cumulative Costs of Compliance for
Indirect and Direct Treatment Levels and Economic Options
(millions of 1979 dollars)
Capital 1 Annual I Annualized
Costs I O&M Cost I Cost
Indirect Discharger
Subcategories 1-12
Level 1
Level 2
Formulator /Packagers*
Level 1
Level 2
Total
Level 1
Level 2
I
Direct Discharger
Level 1
Level 2 *
Level 3
Economic Option
Subcategories 1-12
1
2
3
4
5
6
Formulator/Packagers
1-6
12.6
46.4
37.4
37.4
50.0
1 83'8 1
24.1
28.7
i "-1 1
36.7
41.3
53.7
70.5
75.1
37.5
i 37'4 1
5.9
11.8
2.6
2.6
8.5
14.4
i 1
15.2
16.1
1 29'5 1
21.1
22.0
35.4
27.0
27.9
41.3
1 2'6 1
3.6
21.9
10.8
10.8
19.4
32.7
20.4
22.4
38.5
29.0
31.0
47.1
42.3
44.3
60.4
10.8
*Capital costs for Formulator/Packagers subcategory are exclusive of
land costs.
4-12
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Table 4-4. Total Cumulative Costs of Compliance for
Indirect and Direct Treatment Levels and Economic Options
(millions of 1982 dollars)
Indirect Discharger
Subcategories 1-12
Level 1
Level 2
Foraulator /Packagers
Level 1
Level 2
Total
Level 1
Level 2
Direct Discharger
Level 1
Level 2
Level 3
Economic Option
Subcategories 1-12
1
2
3
4
5
6
Formulator/Packagers
1-6
1 Capiral
1 Costs
15.8
58.0
46.8
46.8
62.5
. 104.8
30.1
35.9
, 51.4
1 i
45.9
51.7
67.2
88.1
93.9
109.5
1 46-8
1 Annual
1 O&M Cost
7.4
14.8
3.2
3.2
10.6
, 18.0
19.0
20.1
. 36.9
26.4
27.5
44.3
33.8
34.9
51.7
1 3'2
I Annualized
1 Cost
10.8
27.5
13.5
13.5
24.3
. 40.9
25.5
28.0
, 48.2
36.3
38.7
58.9
53.0
55.4
75.6
! 13.5
4-13
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by multiplying the plant portion of the capital costs by the capital
recovery factor (see Appendix B) and adding the result to the annual O&M
costs.
For all model plant sizes, contract hauling of hazardous wastes is the
most expensive treatment option and solar evaporation at 5 inches per year
(net evaporation) is the most expensive evaporation technology.
Total costs of compliance for indirect dischargers in the industry are
estimated using model plant costs provided by the Technical Contractor and
information about the number of plants with treatment costs. The Technical
Contractor estimated treatment costs for three plant sizes: large, 5,000
gal/day; medium, 500 gal/day; and small, 50 gal/day. Total costs are
estimated using the following formula:
Total Cost = I COST, x SHR. x NUM.
i =1
where
COST^ = representative average treatment cost of plant with flow
size i
= fraction of plants of size i with treatment costs
•
= number of plants of size i in industry.
Treatment costs were estimated by the Technical Contractor for each size
model plant for several technologies and specifications; these are shown
in Table 4-5. Not all technologies are suitable for plants of all sizes.
In general, plants with flow rates of less than 1,000 gal/day will find it
more economical to use contract hauling, while larger plants would
probably use evaporation unless there were severe space limitations. As a
conservative assumption, plants using contract hauling are assumed to
incur costs for hazardous wastes, while plants using evaporation are
assumed to use 5 in/year solar evaporation.
Based on the model plant sizes, this implies that large plants will
use solar evaporation with average plant costs of $760,000 and annualized
costs of 211,800, while small plants will use contract hauling with
annualized costs of $4,460. Since the average flow rate of medium-sized
plants is 500 gal/day, it is assumed that half of them use evaporation and
half use contract hauling, yielding average plant costs of $52,000 and
annualized costs of £39,160. These are summarized below.
4-14