INITIAL ANALYSIS OF THE ECONOMIC IMPACT
OF WATER POLLUTION CONTROL COSTS UPON
THE TEXTILE INDUSTRY
This study is one of a series commissioned by the Environmental
Protection Agency to provide an initial assessment of the economic
impact of water pollution control costs upon industry, and to provide
a framework for future industrial analysis.
For the purpose of this initial analysis, the water pollution
control requirements were assumed to be those developed in 1972 as
effluent limitation guidance by the EPA Office of Permit Programs.
Costs were developed by the EPA Economic Analysis Division on the
basis of treatment technologies assumed necessary to meet the
effluent limitation guidance.
Because of the limitations of time and information available,
these studies are not to be considered definitive. They were in-
tended to provide an indication of the kinds of impacts to be expected
and to highlight possible problem areas.
This document is a preliminary draft. It has not been formally
released by EPA and should not at this stage be construed to repre-
sent Agency policy. It is being circulated for comment on its techni-
cal accuracy and policy implications.
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FINAL REPORT
Analysis of the Economic Impact
of Water Pollution Control Costs
on the Textile Industry
ENVIRONMENTAL PROTECTION AGENCY
Washington, D. C.
This report is of a proprietary nature and intended solely
for the information of the client to whom it is addressed.
January 5, 1973
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BOOZ « ALLEN PUBLIC ADMINISTRATION SERVICES, Inc. 1025 Connecticut Avenue, N w
Washington D C. 20036
'202) 293-3600
January 5, 1973
Mr. Lyman Clark
Environmental Protection Agency
Waterside Mall
401 M Street, S. W.
Washington, D. C.
Dear Mr. Clark:
We are pleased to submit our final report on the Economic
Impact of the Cost of Meeting Federal Effluent Limitation
Guidance standards on the Textile Industry. Contained in this
volume are an Executive Summary, a detailed Final Report of
findings and conclusions and an Appendix which describes signi-
ficant Textile Industry characteristics and trends.
Very truly yours,
a subsidiary of BOOZ • ALLEN & HAMILTON Inc
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EXECUTIVE SUMMARY
This summary covers the contents of Chapter I-VI of the detailed
Final Report contained in this volume. Following the Final Report is
an Appendix which provides a general description of textile industry
characteristics and trends.
1. THERE ARE ABOUT 7, 100 TEXTILE PLANTS CURRENTLY
IN OPERATION WITH 10 PERCENT OF THESE PLANTS
CONSUMING APPROXIMATELY 97 PERCENT OF THE WATER
USED BY THE INDUSTRY
The textile industry is highly diffuse with about 7, 100 plants in
operation. Plants range from large highly integrated facilities to small
contract plants which process goods owned by others. Similarly, textile
firms range from large integrated and diversified producers such as
Burlington Industries to small, privately held single plant companies
with limited product and process capabilities.
In terms of plant type, wet process plants which number about
684 consume about 97 percent of the water used by the textile industry.
The specific wet processes are:
Scouring . Other wet finishing
Desizing . Bleaching
Dyeing . Bonding & laminating
Mercerizing
Water pollution abatement requirements and costs will be concentrated
among these plants.
2. IT IS ESTIMATED THAT 90 PERCENT OF WET PROCESS
PLANTS EITHER HAVE ACCESS TO MUNICIPAL WATER
TREATMENT OR PROVIDE SOME IN-HOUSE TREATMENT
Only 10 percent of the wet process plants currently in operation
provide no water treatment. Of the other plants, about one-half use
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municipal water treatment with the balance providing some degree of
in-house treatment. In general, plants having access to or using
municipal treatment should face the lowest incremental water pollu-
tion abatement costs with plants providing no treatment, and unable
to connect to municipal systems, facing the highest costs. Incremen-
tal costs for plants currently providing in-house treatment will depend
on the degree of upgrading required to meet ELG* standards. There
is currently no data available which would permit an identification of
which specific wet process plants face high or low cost pollution
abatement alternatives. The estimates presented above are based
on samplings conducted by the American Textile Manufacturers
Institute which did not identify specific plants.
3. BASED ON GENERAL INDUSTRY CHARACTERISTICS,
PLANTS WHICH ARE MOST AND LEAST VULNERABLE TO
ABATEMENT COSTS CAN BE DESCRIBED
Exhibit S-I, following this page, summarizes the characteristics
of wet process plants most and least likely to be adversely affected
by water pollution abatement costs. The advantages of large plants
owned by large producers are as follows:
Large producers are growing more rapidly and
are more profitable .than small producers. They
are most likely to possess modern plants with
water treatment facilities already in place.
Water treatment costs in large plants per unit
of output should be lower than in similar small
plants
Wet process plants which are part of a fully inte-
grated production complex should be better able
to maintain production in slack demand periods
than non-integrated plants
Multiple product plants have more flexibility to
handle demand (fashion) changes than single or
limited product plants
* Effluent Limitation Guidance (1972) prepared by the
Office of Permit Programs, EPA
11
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EXHIBIT S-l
Environmental Protection Agency
PLANT TYPES MOST AND LEAST
VULNERABLE TO POLLUTION
ABATEMENT COSTS
Ownership
Size of Firm
Size of Plant
Degree of Integration
Product Lines
Water Treatment and
Disposal
Least Vulnerable
Plant
Public
Large ($50 million
sales)
Large
Part of a Fully
Integrated
Complex
Multiple
Product Lines
Discharge to
Municipal
Sewers
Most Vulnerable
Plant
Private
Small (sales less
than $50 million)
Small
Non -integrated
Single Product
Capability
In-House Treat-
ment direct dis-
charge to
waterway
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Other things being equal, plants with access to
municipal treatment will face lower pollution
abatement costs than plants without such an
option. The historical structure of municipal
water use charges favors large water users.
As indicated above, the data needed to relate general charac-
teristics to specific plants, especially regarding water treatment
options are not currently available. Detailed data regarding plant
location, ownership, employment, and products has been provided
to EPA under separate cover.
4. TEXTILE MANUFACTURERS DO NOT HAVE THE OPTION
OF PASSING ON COST INCREASES IN THE FORM OF
PRICE INCREASES
Textile prices are controlled by relatively free market forces
related to supply and demand with no producer or group of producers
in a position to administer prices. Accordingly, textile producers
charge what the market will bear (excluding consideration of price
controls). Thus, price relief from pollution abatement costs must
come in the form of a strong textile market which itself will cause
prices to rise, assuming competition from low cost imports is
restrained.
5. POLLUTION ABATEMENT COSTS ARE A MINOR
COMPONENT OF THE COST/PRICE PROBLEM FACED
BY TEXTILE PRODUCERS
For a hypothetical textile producer, faced with the need to
install in-plant pollution abatement equipment, the price increase
required to pass on all costs could be as high as 1. 4 percent cumu-
lative over 1972 average prices.* Compared to potential price
increases required to pass on increased manufacturing costs and
to bring producer profit margins and return on equity levels up to
* Maximum price increases could be higher for specific products.
The 1.4 percent estimate represents an average across all
product lines.
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"satisfactory"* levels the problem of pollution abatement costs is
relatively minor. If it is assumed that textile manufacturing costs
will increase at a rate of 3 percent per year over the next five years,
including allowances for productivity gains relative cumulative price
increases required by the above producer would.be as follows:
(%) % of Total
Cumulative Price Increases
To cover manufacturing costs 20.0% 86.2%
To increase profitability 1.6% 6.9%
To cover pollution abatement
costs 1.6% 6.9%
Total 23.2% 100.0%
The key to achieving required price increases lies in market
behavior and the rate at which manufacturing costs actually increase
over the next five years, and it is apparent that pollution abatement
cost will be a relatively minor part of the cost/price problem to be
faced by the textile industry, even by those producers whose pollu-
tion abatement costs will be relatively high.
6. DURING 1971 SMALL PRODUCERS WERE, AS A GROUP,
MORE PROFITABLE THAN LARGE PRODUCERS BUT
THIS SITUATION IS UNLIKELY TO CONTINUE
Exhibit S-II, following this page, summarizes the comparative
financial performance of large (sales over $50 million) textile pro-
ducers and small (sales under $50 million) textile producers for the
period 1967-1971. During 1971 small producers outperformed large
producers both in terms of sales growth and profitability. This situa-
tion which runs counter to the 1967-1971 trend should be reversed in
the future for the following reasons:
Roughly 73 percent of industry capital spending
over the past five years has been accounted for
* Satisfactory return on equity is assumed to be 9. 2 percent, the
average of the best 5 years for the textile industry during the 1960's
111
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EXHIBIT S-II
Environmental Protection Agency
FINANCIAL PERFORMANCE OF
LARGE AND SMALL TEXTILE FIRMS
Year
1972
1971
1970
1969
1968
1967
Total*
Industry
18, 683**
22,938
21, 599
21, 780
20,841
18,672
($)
SALES
48
Major
Firms
(000)
N/A
9,872
9, 386
9,205
8, 430
7,436
Other
Firms
N/A
13,066
12,213
12, 575
12,411
11,236
($)
NET PROFIT
48
Total* Major Other
Industry Firms Firms
(000)
463 N/A N/A
558 249 309
413 245 168
621 302 319
654 315 339
540 268 272
CAPITAL EXPENDITURES
Year
1972
1971
1970
1969
1968
1967
Total
Industry
710
610
560
630
530
680
(000)
48 Major Other
Firms Firms
N/A N/A
445 165
437 123
519 111
398 132
381 299
NET
PROFIT
% OF SALES
Total*
Industry
2.5
2.4
1.9
2.9
3. 1
2.9
48
Major
Firms
(000)
N/A
2. 5
2. 6
3.3
3.7
3.6
Other
Firm
N/A
2.4
1.4
2.5
2.7
2.4
% of Total
by 48
Major Firms
N/A
73.0
78.0
82.4
75. 1
62. 5
* 48 Major Firms represent those with annual sales of $50 million
and over. On an industry wide basis, such firms account for
47% of total sales. Data from 48 major firms cover 43% of
total sales. Thus, the category Other Firms is representative
of the performance of small firms (sales of $50 million and under).
** Covers 3 quarters through September 30, 1972
Source: Federal Trade Commission, Chase Manhattan Bank Financial
Summary, Moody1 s Industrial Manual
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by large producers which account for less than
50 percent of industry sales. Accordingly, their
plant and equipment should be more modern than
that of small producers
Differential growth rates favor large producers;
the trend toward concentration of output should
continue
Large producers are better able to maintain per-
formance in the face of tight markets as is evi-
denced by relative 1970 performance. In periods
of demand growth, small producer performance
may increase sharply as occurred in 1971.
7. FUTURE PROFITABILITY WILL BE THE MAJOR FACTOR
CONTROLLING TEXTILE INDUSTRY CAPITAL ACCESS
As indicated by Exhibit S-II, industry profitability during 1971
and 1972 while higher than during 1970 remains low. Future prospects
for improved profitability are clouded. While overall demand is ex-
pected to improve as the overall state of the economy improves, the
questions of future import penetration, even with existing controls,
and manufacturing costs remain unanswered. Unless profitability
improves, however, most producers will find capital access restricted
to that which can be generated internally:
Raising additional equity in the open market is
out of the question at this time, in most cases
Large producers have spent heavily for capital
equipment which has yet to produce a significant
return. Thus, significant additional borrowing
must await some demonstration that additional
capital investment can produce real profits.
Small producers overall should have less total
borrowing capacity than large producers due to
risk as highlighted by industry trends. Thus,
while small producers are on average less highly
leveraged than large producers their access to
additional debt should be similarly limited.
IV
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8. INITIAL POLLUTION ABATEMENT COST ESTIMATES
WERE PROVIDED BY EPA WITH FINAL ESTIMATES
DEVELOPED JOINTLY BY EPA AND BOOZ, ALLEN
Exhibit S-III, following this page, contains the initial water
pollution abatement cost estimates supplied by EPA. The estimates
shown are based on Effluent Limitation Guidance standards developed
in 1972 by the EPA Office of Permit Programs. The estimates shown
presume that no water treatment is currently provided and that the
option of municipal treatment does not exist.
Specific plants which have municipal treatment options or
treatment facilities operating in-house should experience costs lower
than those shown. Data required to estimate cost differentials for
differing treatment options could not be obtained within the scope of
this study.
Because textile plant operating cost data to which the EPA cost
estimates could be applied were not available, pollution abatement
capital requirements and annual cost estimates were prepared on an
industry wide basis. The methodology used was developed jointly
by EPA and Booz, Allen. These estimates were based on several
significant assumptions which are detailed in the body of the report.
These assumptions basically relate to validity of base data and water
treatment scaling factors provided by EPA as well as patterns of
textile industry water usage.
Exhibit S-IV summarizes estimated total industry capital
investment required for water pollution abatement, assuming no
current treatment and no municipal treatment options. Annual
cost estimates were derived from the capital expenditures as
follows:
Operating and Maintenance Costs = 9 percent of
capital investment
Depreciation = 10 percent of capital investment
Capital Cost = 14.2 percent of capital investment
before taxes (Assumes 50 percent of investment
is borrowed at a 10 percent rate) and 50 percent
is financed internally at an after tax return required
of 9. 2 percent)
O & M cost and depreciation factors were supplied by EPA. Capital
cost factors were developed by Booz, Allen.
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For purposes of evaluating pricing implications and economic
impact, it assumed that the relationship of capital investment ($641
million - $1, 015 million) and annual cost ($220 million - $350
million) for pollution abatement to total textile industry sales and
profits would approximate the situation faced by a producer required
to install complete in-house treatment facilities. Thus, the relation-
ships assumed were used to approximate a high cost situation.
9. TEXTILE SHUTDOWNS ARE POSSIBLE BUT NOT
PRIMARILY DUE TO POLLUTION ABATEMENT COSTS
Pollution abatement costs are likely to be a relatively minor
component of the total cost problem to be faced by textile producers,
However, in combination with other cost/price factors, notably re-
lated to future textile demand and prices, pollution abatement costs,
at least for producers faced with high costs, could result in plant
shutdowns and production curtailment. If such occurs, however, it
cannot be said that pollution abatement cost was the determining
factor. All of the factors identified above, including pollution abate-
ment costs, will have been contributory.
What adverse profitability impacts do occur are most likely to
affect small firms as a group more severely than large firms, prin-
cipally because of the apparent existence in this industry sector of the
least efficient and oldest plant and equipment.
The impact of pollution abatement costs on industry profits
depends on future industry performance. If no improvement in
profits takes place, pollution abatement costs will aggravate an
already serious situation and could, along with other factors, cause
production curtailments and plant shutdowns for producers faced
with high pollution abatement costs. The prospects for profit im-
provement are mixed. Imports have been restrained, although
shifts in exporting countries may aggravate the problem in the
future. Demand is increasing and prices have firmed significantly
since 1970, however, profits have not improved significantly indi-
cating a continuing cost squeeze. Within this cloudy picture, it is
not possible to predict with any confidence how the textile industry
will perform over the next five years. However, it is apparent
that significant profit improvement depends on significant improve-
ment in several demand, price and cost factors.
VI
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The local impact of those plant shutdowns which do occur is
likely to be severe, principally because plant locations tend to bo
rural with little alternative employment opportunities for the displaced
labor force. Closures would cause negative balance of payments
impacts as imports would increase to full supply/demand gaps.
Because of the availability of imports, consumers should not be
significantly affected. Raw materials suppliers would suffer unless
export markets could be found. Those providing local support for
a closed plant in the form of general supplies or services would
likely be hard pressed to find alternate local markets.
10. THE MAJOR LIMITATIONS IN THIS REPORT RELATE TO
LIMITED POSSIBLE SPECIFICITY AND UNCERTAINTY
REGARDING TEXTILE INDUSTRY PROFITABILITY
Because of data limitations, it has been possible to evaluate the
economic impact of water pollution abatement costs on the textile
industry only in a general way. The vulnerability of specific plants
to closure and their basic cost relationship remain unknown.
The major uncertainty in this report, as has been previously
indicated, is over the prospects for future textile industry growth
and profitability. Indications are contradictory and a projection of
performance with any degree of certainty has not been possible.
* *
vn
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TABLE OF CONTENTS
Page
Numbers
LETTER OF TRANSMITTAL
EXECUTIVE SUMMARY
I. INDUSTRY SEGMENTS 1
II. PRICE EFFECTS 8
III. FINANCIAL PROFILES 14
IV. POLLUTION CONTROL REQUIREMENTS 19
V. ECONOMIC IMPACT 27
VI. LIMITS OF THE ANALYSIS 32
APPENDIX
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INDEX OF .EXHIBITS
Following
Page
I. NUMBER OF TEXTILE PLANTS BY WET
PROCESS AND RAW MATERIAL USED
II. FINANCIAL PERFORMANCE OF LARGE
AND SMALL TEXTILE FIRMS
III. PLANT TYPES MOST AND LEAST VULNERABLE
TO POLLUTION ABATEMENT COSTS
IV. PRICE INCREASE REQUIRED TO COVER WATER
POLLUTION ABATEMENT COSTS IF NO
TREATMENT IS CURRENTLY PROVIDED 10
V. TEXTILE INDUSTRY OPERATING SUMMARY
FOR 1971 14
VI. TEXTILE INDUSTRY CASH FLOWS 1971 15
VII. WATER TREATMENT INVESTMENT AND
OPERATING COST ESTIMATES 1 9
VIE. TYPES OF WASTE WATER TREATMENT
USED BY TEXTILE PLANTS 1 9
IX. TOTAL CAPITAL COSTS (1971 DOLLARS)
BY SIC CATEGORY FOR 93-95% BOD
REDUCTION FOR THE TEXTILE INDUSTRY 24
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I. INDUSTRY SEGMENTS
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I. INDUSTRY SEGMENTS
This chapter discusses the manner in which various textile
industry segments may be affected by water pollution abatement costs.
1. THE TEXTILE INDUSTRY IS HIGHLY FRACTIONATED
There are approximately 7, 100 plants currently in operation in
the domestic textile industry. Facilities range from highly integrated
manufacturing complexes processing basic raw materials such as raw
cotton into finished products such as bed sheets, to small non-integrated
contract plants which process goods owned by other producers. There
is also a wide distribution of textile firms by type. Producers range
from relatively large integrated and diversified producers such as
Burlington Industries to small single plant, single ownership produ-
cers with limited product and process capabilities.
2. APPROXIMATELY 10 PERCENT OF DOMESTIC TEXTILE
PLANTS CONSUME 97 PERCENT OF THE WATER USED
BY THE INDUSTRY
For purposes of this report, textile plants can be placed in two
categories:
Plants using wet processes
Plants using dry processes
Wet process plants, which are those sensitive to water pollution
abatement costs, are almost exclusively engaged in textile dying and
finishing which apply to virtually all textile products made. The
specific wet processes of interest are as follows:
Scouring
Desizing
Dyeing
Mercerizing
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Other wet finishing
Bleaching
Bonding and laminating
Dry process plants (spinning, weaving, knitting, etc. ) as a rule
use water only for sanitation and climate control. Water pollution
abatement problems in such installations are accordingly not severe.
Exhibit I, following this page, summarizes the numbers of wet
process plants by product and process. Note that categories are not
mutually exclusive in that a single plant may have multiple product/
process capabilities. Of the 7, 100 plants in the textile industry,
approximately 684 plants or 10 percent of the total use wet processes.
3. IT IS ESTIMATED THAT WATER USED BY 90 PERCENT
OF THE WET PROCESS PLANTS RECEIVES EITHER
PRIVATE OR MUNICIPAL TREATMENT
Recent surveys by the American Textile Manufacturers Insti-
tute indicate the following:
45 percent of wet process plants provide some
level of waste water treatment prior to discharge
An additional 45 percent of wet process plants
discharge waste water into municipal sewer
systems. The prevalence of pretreatment in
use is indeterminate
10 percent of all wet process plants release
waste water into water courses with no treatment
Date regarding the adequacy of existing in-house water treatment in
relation to ELG standards* are not available nor are data which can
be used even to identify which specific plants provide such treatment
Effluent Limitation Guidance (1972) prepared by the
Office of Permit Programs, EPA
-2-
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EXHIBIT I
Environmental Protection Agency
NUMBER OF TEXTILE PLANTS BY
WET PROCESS AND RAW MATERIAL USED*
Raw Material Used
Rayon/ Other
Wool Cotton Acetate Nylon Polyester Synthetics
Scouring/Desizing 101 62 60 92 78 2
Dyeing 433 865 760 970 729 38
Mercerizing 19 106 83 76 98
Other Wet Finishing 395 757 665 767 642 39
Bleaching 210 538 395 464 360 11
Printing 64 186 169 162 153 10
Bonding/Laminating 126 195 202 231 214 18
* One plant can use more than one process and raw material
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or discharge into municipal sewer systems. While data on specific
plants are not available, it is possible to draw some conclusions
regarding the types of plants which are potentially most vulnerable
to adverse economic impacts as a result of water pollution abatement
costs.
(1) Water Pollution Abatement Costs Should Be Highest
for Plants Requiring In-House Water Treatment
The potential incremental water pollution abatement
costs to be borne by plants discharging into municipal systems
may take two forms:
Costs to install and operate in-house pre-treatment
facilities
Increased municipal sewerage charges to cover
the costs of upgraded municipal treatment
facilities
It should be noted that ELG standards do not apply to municipal
treatment facilities, however, it is reasonable to assume some
increased cost to producers as-municipal standards are developed
and applied. While it is not possible to estimate incremental
pollution abatement costs to producers using municipal sewers,
it is safe to conclude that, in most cases, municipal water
treatment will be less costly than providing the full range of
treatment required on an in-house basis.
Where in-house water treatment is required, incremental
costs will depend on:
The level of in-house treatment currently provided
The adaptability of existing treatment facilities
to upgrading as opposed to complete tear down
and replacement
-3-
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Plants having no treatment facilities will, of course, experience
the largest incremental pollution abatement cost, while incre-
mental costs in plants having some treatment facilities may
vary over a fairly wide range depending on the factors identi-
fied above. In any case, wet process plants not discharging
into municipal sewer systems should, as a group, be most
heavily impacted by pollution abatement requirements from
a cost standpoint.
(2) Incremental Abatement Costs Per Unit of Output
Should Be Lower In Large Plants Than in Small Plants
In general, water usage in textile plants varies with
output. Economies of scale in water treatment for large
users should accordingly work to the advantage of larger
wet process plants. Municipal sewerage rates in many cases
are based on formulas which produce decreasing per gallon
charges as water use increases, again working in favor of
large water users.
(3) Non-Integrated, Limited Product Wet Process Plants
Are Most Vulnerable To Adverse Economic Impact
From Any Source
Overall textile demand is governed largely by the general
vigor of the economy while demand for specific products is
governed in many cases by fashion. Because of this, non-
integrated plants with limited product process capabilities or
markets are most vulnerable to adverse economic impacts:
Unit textile costs are volume sensitive which
means that in slack demand periods, producers
will tend to concentrate production in efficient,
integrated plants. The past two years has high-
lighted this fact as many of the larger textile
producers have spent considerable sums to inte-
grate and balance production facilities.
-4-
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Large diversified producers are best able to hedge
the risk of fashion changes because of their multiple
product line capabilities. Non-integrated processors
located within range of multiple product customers
may fare relatively well as fashion changes since
most wet processing plants can accommodate several
different textile types. In cases where non-integrated
producers are tied to non-diversified fashion vulner-
able customers, however, significant danger of
adverse fashion impacts exists.
As indicated above, trends toward production concentration and
product diversification among fewer firms highlights the econ-
omic vulnerability of small non-integrated independent process-
ors and plants.
(4) Small Firms Should Be More Vulnerable to Adverse
Economic Impacts Than Large Firms
Exhibit II following this page summarizes operating
results and capital expenditure patterns for large ($50 million
annual sales and over) and small (annual sales under $50 million)
textile producers for the period 1967-1971. The significant
conclusions to be drawn from the exhibit are as follows:
Small producers, in general, are less profitable
than large producers. With the exception of 1971,
profit margins of large producers were 32-86
percent greater than for small producers. In 1971
small producer profit margins approached those
for large producers as small producer sales in-
creased by 7 percent compared to a 5 percent in-
creast for large producers.
Small producers are more vulnerable to decreases
in overall demand than are large producers. Dur-
ing 1970, a year in which industry sales decreased
by about 1 percent from the preceding year, total
sales by the major producers increased by approxi-
mately 2 percent while small producer sales de-
creased by about 3 percent. In the face of this
-5-
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EXHIBIT II
Environmental Protection Agency
FINANCIAL PERFORMANCE OF
LARGE AND SMALL TEXTILE FIRMS
Year
1972
1971
1970
1969
1968
1967
Total*
Industry
18,683**
22,938
21, 599
21, 780
20,841
18,672
($)
SALES
48
Major
Firms
(000)
N/A
9,872
9,386
9,205
8,430
7, 436
Other
Firms
N/A
13, 066
12,213
12, 575
12,411
11,236
($)
NET PROFIT
48
Total* Major Other
Industry Firms Firms
(000)
463 N/A N/A
558 249 309
413 245 168
621 302 319
654 315 339
540 268 272
CAPITAL EXPENDITURES
Year
1972
1971
1970
1969
1968
1967
Total
Industry
710
610
560
630
530
680
(000)
48 Major Other
Firms Firms
N/A N/A
445 165
437 123
519 111
398 132
381 299
NET PROFIT
% OF SALES
48
Total* Major Other
Industry Firms Firms
(000)
2.5
2.4
1.9
2.9
3. 1
2.9
N/A
2.5
2.6
3.3
3.7
3.6
% of Total
by 48
Major Firms
N/A
73.0
78.0
82.4
75. 1
62. 5
N/A
2.4
1.4
2.5
2.7
2.4
* 48 Major Firms represent those with annual sales of $50 million
and over. On an industry wide basis, such firms account for
47% of total sales. Data from 48 major firms cover 43% of
total sales. Thus, the category Other Firms is representative
of the performance of small firms (sales of $50 million and under).
** Covers 3 quarters through September 30, 1972
Source: Federal Trade Commission, Chase Manhattan Bank Financial
Summary, Moody1 s Industrial Manual
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volume loss, small producer profit margins de-
creased by 44 percent, more than double the
decrease suffered by large producers.
Industry growth has been concentrated among the
large producers. Between 1967 and 1972 large
producer sales increased by 33 percent while small
producer sales increased by only 16 percent.
The most modern plant and equipment and the best
water treatment facilities are probably concentrated
among the large producers. During the 1967-1972
period the large producers which accounts for less
than 50 percent of industry sales accounted for
approximately 73 percent of total industry capital
expenditures. Large producer capital spending
during this period was equal to approximately 5
percent of total sales while small producer expendi-
tures amounted to only about 1 percent of sales.
On the basis of differential growth, profitability and
modernization, it appears safe to conclude that, other things
such as access to municipal water treat being equal, small
textile producers with annual sales of less than $50 million
will be most vulnerable to adverse economic impacts of water
pollution abatement costs.
Exhibit III, following this page, summarizes the character-
istics of wet process plants most and least likely to be adversely
affected by water pollution abatement costs. As is described in
the foregoing sections, size, flexibility, and access to low cost
municipal water treatment are the determining factors relating
to vulnerability.
Due to the limitations of available data, it has not been
possible to identify specific plants or numbers of plants and
their relative vulnerability to pollution abatement costs. De-
tailed data on plant location, size, ownership, product lines,
and degree of integration has been provided to EPA under
separate cover. The additional data required to assess rela-
tive pollution abatement cost vulnerability, namely water
-6-
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EXHIBIT HI
Environmental Protection Agency
PLANT TYPES MOST AND LEAST
VULNERABLE TO POLLUTION
ABATEMENT COSTS
Ownership
Size of Firm
Size of Plant
Degree of Integration
Product Lines
Water Treatment and
Disposal
Least Vulnerable
Plant
Public
Large ($50 million
sales)
Large
Part of a Fully
Integrated
Complex
Multiple
Product Lines
Discharge to
Municipal
Sewers
Most Vulnerable
Plant
Private
Small (sales less
than $50 million)
Small
Non-integrated
Single Product
Capability
In-House Treat-
ment direct dis-
charge to
waterway
-------
treatment alternatives, is not available. To acquire
such data, a direct survey of wet process plants would
be required.
-7-
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II. PRICE EFFECTS
-------
II. PRICE EFFECTS
This chapter is addressed to the manner in which textile prices
are determined and the potential textile price changes which might
occur in the face of pollution abatement costs.
1. IN THE TEXTILE INDUSTRY, THE MARKET RATHER
THAN PRODUCERS CONTROLS PRICES
In terms of general economic theory, the textile industry
exhibits many of the characteristics of an industry faced by perfect
competition in that:
No single producer or small group of producers
control supply
Market entry is relatively easy
There are a large number of producers
Accordingly, market forces control prices which are volatile and
subject to significant swings as supply and demand fluctuate.
2. TEXTILE MAKERS ARE ATTEMPTING TO DEVELOP
CONSUMER BRAND PREFERENCES
The larger textile makers are attempting, through heavy
advertising, to develop consumer brand loyalty for apparel and other
textile products such as bedding and carpets; however, there is no
evidence that such efforts will have a significant impact on overall
market behavior in the near term.
In the long term, increasing industry concentration and inte-
gration coupled with aggressive marketing may cause demand to
become less elastic to price in some consumer products such as
sportswear and bedding.
-8-
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3. BECAUSE OF THE NATURE OF THE MARKET IT IS NOT
CLEAR THAT TEXTILE PRODUCERS WILL BE ABLE TO
PASS ON POLLUTION ABATEMENT COSTS TO CONSUMERS
As indicated in the appendix, slack demand in recent years,
coupled with import competition, have resulted in relatively low tex-
tile prices and profit margins. With resumed economic growth and
the establishment of voluntary import quotas, it may be expected that
textile prices will improve. Two cautionary notes must, however, be
observed:
Wage rates in this labor intensive industry are a
major cost determining factor and any rapid future
increase in average wages could offset price and
productivity gains.
Imports, while restricted, remain substantial.
There is some evidence that imports from countries
which are not parties to voluntary quotas are in-
creasing. If this trend accelerates, competitive
pressures could significantly limit price gains.
The Wholesale Price Index for textile rail! products actually decreased
from 1968 to 1971 from 104. 1 to 103. 6, reflecting softness in the gen-
eral economy and competition from imports. During 1972, however,
the index rose by 7. 3 percent (11 months average) reflecting both
economic recovery and control of imports. Profit margins, on the
other hand, have not improved significantly, reflecting cost increases
which have offset price gains. Assuming a continued period of econ-
omic expansion and import control for the next five years, it can be
expected that textile prices overall will continue to advance, though
not at a 7 percent rate. However, unless cost of production is tightly
controlled much of these price gains could be offset by cost increases.
-9-
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4. MAXIMUM CUMULATIVE TEXTILE PRICE INCREASES TO
COVER POLLUTION ABATEMENT COSTS SHOULD RANGE
FROM 0. 9 PERCENT TO 1. 4 PERCENT
For the textile industry, return on equity in 1971 was 6. 6 percent
compared to 9. 7 percent for all manufacturing. Return on invested
capital (equity and long term debt) during the same year was 4. 9
percent for textiles and 7. 1 percent for all manufacturing. The pro-
portion of debt in the textile industry capital structure is almost
identical to that for all manufacturing, equal to 25 percent of invested
capital. Textile industry profit margins during 1971 were equal to
2. 4 percent of sales, compared to 4. 1 percent for all manufacturing.
Over the past decade, textile industry profitability has tended
to lag behind that for all manufacturing. During the worst year of the
decade for all manufacturing industries, profit margins were 4. 1 per-
cent of sales and return on equity was 9. 7 percent. Average profit
margins and return on equity for the textile industry during the most
profitable five years of the decade were 3. 3 percent and 9.2 percent
respectively.
If a return on equity of 9. 2 percent were to be considered satis-
factory for the textile industry, an average increase of 1. 8 percent
would have been required during 1971, above prevailing 1971 prices
to achieve it. If such had occurred, net profits would have been
$770 million as opposed to $558 million with a profit margin equal
to 3. 0 percent of sales.
As indicated in Chapter V, if it is assumed that textile producers
currently provide no in-house water treatment and do not have the
option of municipal treatment, total capital investment required for
water pollution abatement would range from $641 million to $1,015
million. An approximation can be made of the price increases needed
to cover the pollution abatement costs of a hypothetical producer
currently providing no treatment who cannot use municipal sewers
under the following assumptions:
A "satisfactory" return on producer equity is 9. 2
percent per year
Pollution abatement capital expenditures will be
financed on a 50 percent debt, 50 percent equity
basis
-10-
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Pollution abatement capital expenditure require-
ments for the hypothetical producer will be pro-
portional to industry-wide requirements, assuming
total industry requirements of $641 million - $1, 105
million. The assumption of proportional costs im-
plicitly assumes a fully integrated producer as the
hypothetical company. Price increases for a non-
integrated wet process producer could be significant-
ly higher in terms of the base cost.
Producer profit margin (after tax) for 1971-1972
was 2. 5 percent of sales.
Capital expenditures and annual costs for pollution
abatement will be fully incurred at the end of five
years.
Exhibit IV, following this page, shows the price increases required
by a hypothetical textile producer to cover water pollution abatement
costs. The range of price increases shown at 0. 9 percent -1.4 per-
cent approximates maximum possible price increases as the computa-
tions are based on the worst cases (i. e., no treatment currently pro-
vided and no municipal sewerage options). For approximately 90 per-
cent of producers, required price increases should be somewhat lower
than the range shown above due to prior installation of water treatment
facilities and use of municipal water treatment facilities. On the basis
of currently available data, however, it is not possible to estimate
either the magnitude or distribution of such price increases.
If it is assumed that the 0. 9 percent -1.4 percent price in-
creases represent a cumulative increase over a 5-year period, then
average annual price increases required over the period would be
slightly less than 0. 18 percent - 0. 28 percent.
5. PRICE INCREASES RELATED TO POLLUTION ABATEMENT
SHOULD BE A MINOR FACTOR IN RELATION TO OTHER
TEXTILE INDUSTRY NEEDS
Textile producers will require price increases over the next
five years to cover increases in manufacturing costs and to bring
profitability and return on investment up to satisfactory levels. Since
the advent of wage and price controls and because of the volatility of
producers raw materials costs, it is not possible to forecast textile
manufacturing cost increases with any significant degree of accuracy.
-11-
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EXHIBIT IV
Environmental Protection Agency
PRICE INCREASE REQUIRED TO COVER *
WATER POLLUTION ABATEMENT COSTS
IF NO TREATMENT IS CURRENTLY PROVIDED
(Millions of $)
Sales
Net Profit
Industry
Totals
$24, 729
638
100.0
2. 6
Hypothetical
Producer
$
100.0
2.6
Long Term Debt
Shareholders Equity
Total Investment
2,979
8, 720
$11,699
25. 5
74.5
100.0
25. 5
74. 5
100.0
Range
Range
Pollution Abatement*
Capital Expenditures ($)
As a % of Sales
Annual Costs***
Operation & Maintenance
Depreciation
Interest
Return to Equity
Total
Percent Price Increased
Required
Low
$ 663 1,051
2. 7 ' 4. 3
$
220
0.9
350
1. 4
Low
2.7
N/A
0.9
0.9
60
66
33
61
95
105
53
97
0.2
0.3
0. 1
0.3
0.4
0.4
0.2
0.4
1.4
1.4
* Based on Textile Industry operating results for the four quarters
ending September 30, 1972
** Inflated by 3. 5% to reflect 1972 basis
*** Basis for Annual Costs:
Operation & Maintenance - 9% of capital investment
Depreciation 10% of capital investment
Interest 10% of . 5 x capital investment
Return to Equity - 9. 2% x . 5 (capital investment) x 2
(9. 2% return to equity requires 18. 4% before taxes)
-------
However, an example, based on several assumptions regarding cost
behavior, will serve to highlight the relative pricing magnitude of
pollution abatement and other cost factors. Significant assumptions
are as follows:
The total cost of manufacturing textiles will increase
at a rate of 3 percent per year after allowing for
wage and raw material costs and productivity.
Price increases will be required to increase return
on equity to 9. 2 percent.
Debt/equity ratios will remain constant
If the above assumptions are applied to the hypothetical producer,
total price increases required over a five year period, assuming
overall 3 percent annual inflation, would be as follows:
%of
Total
Price Increase % Increase
To cover manufacturing costs 20.0 86.2
To improve profitability 1.6 6.9
To cover pollution abatement costs 1.6 6.9
Total 23.2 100.0
As is apparent, even with the assumption of a moderate 3 percent
annual rate of increase in the cost of manufacturing textiles, the cost
of water pollution abatement represents a very minor component of
potentially required price increases.
6. THE KEY TO ACHIEVING REQUIRED PRICE AND PROFIT
INCREASES LIES IN MARKET AND COST BEHAVIOR
As indicated previously, the market, not producers, determines
achievable textile price increases. Of course the rate of manufactur-
ing cost increases over the next five years will also be a significant
determining factor in relation to the magnitude price increases
-12-
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required to cover costs and improve profitability. Factors governing
market behavior are basically growth in overall textile demand which
is governed by overall economic growth and control of imports. In
any case, pollution abatement costs are a very minor price factor
in relation to the overall rate of increase in textile manufacturing
costs.
-13-
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III. FINANCIAL PROFILES
-------
III. FINANCIAL PROFILES
This chapter discusses textile industry financial profiles.
1. DURING 1971 SMALL PRODUCERS WERE MORE
PROFITABLE THAN LARGE PRODUCERS
While profit margins on average are roughly equivalent, return
on investment for small producers was higher than for large producers,
as shown in Exhibit V, following this page. With respect to overall
profitability, 1971 represented a significant increase over 1970 for
small producers with profit margins increasing from 1. 9 percent of
sales to 2. 4 percent of sales as both volume of production and share of
total production increased. Large producer profitability in 1971 was
about the same as for 1970. Overall industry profit margins during
1972 have remained roughly the same as those for 1971 in the face of
an 11 percent sales increase (for three quarters 1972) and a price in-
crease of roughly 7 percent. This would indicate that the industry as
a whole continues to be caught in a cost squeeze.
The relatively strong performance of the small textile producers
(sales of under $50 million) during 1971 as compared to large producers
(sales over $50 million) appears to have reversed a trend. Large pro-
ducer profit margins have ranged from 44 percent to 86 percent greater
than small producer margins, with the exception of 1971 as indicated
on Exhibit II, following page 5. In addition, over the period 1967-1971,
large producer sales have increased by 33 percent while small producer
sales have increased by only 16 percent.
The debt burden borne by large producers is significantly higher
than that of small producers. Two reasons contribute to higher debt
ratios:
Roughly 73 percent of industry capital spending
over the past five years has been accounted for by
large producers which account for less than 50
percent of industry sales.
-14-
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On the basis of past performance and risk, large
producers as a group should be able to tolerate a
more highly levered financial position than small
producers.
The comparative cash flow during 1971 for large and small
producers is shown in Exhibit VI, following this page. The capital ex-
penditure rates and dividend' payout rates of large producers account
for the accumulation of relatively heavy debt burdens in comparison
with small producers
2. IN THE FUTURE. LARGE PRODUCERS IN GENERAL
SHOULD OUT PERFORM SMALL PRODUCERS
The relative performance of small and large textile producers
over the past five years indicates the following:
Differential growth rates favor large producers;
the trend toward concentration of output should
continue.
Large producers are better able to maintain per-
formance in the face-of tight markets as is evi-
denced by relative 1970 performance. In periods
of demand growth, small producer performance
may increase sharply as occurred in 1971.
On the basis of relative capital expenditure rates,
large producers should possess more modern and
efficient plant and equipment than small producers.
This differential should have a significant future
impact on relative performance.
3. THE VALUE OF A TEXTILE PLANT IN LIQUIDATION
SHOULD BE RELATIVELY LOW
If a textile plant is to be shut down and sold for its salvage
value, the value of its assets should be relatively low. The physical
-15-
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EXHIBIT VI
Environmental Protection Agency
TEXTILE INDUSTRY CASH FLOWS
1971
(in millions)
Total Industry
Capital
Size
750
500
250
100
50
0
Category
and over
- 749
- 499
- 249
- 99
- 49
Net
Profit
56
N/A
98
64
30
310
Depre-
ciation
121
N/A
100
40
27
376
Total
177
N/A
198
104
57
686
Divi-
dends
60
N/A
48
15
14
85
Expendi-
tures
150
N/A
139
111
48
162
Total
210
N.A
187
126
62
247
Net
Cash
(33)
N/A
11
(22)
(5)
439
558
664 1,222
222
610
832
390
-------
assets of the plant would be as follows:
Land
Buildings
Machinery and equipment
Land value will depend on location. If the location is desirable
for manufacturing, the land could bring a good price. If the location
is rural and not desirable for manufacturing, it may be difficult to
find a buyer. Buildings will be valued on the basis of their usability
for other purposes and age. If the buildings are old and/or not favor-
ably located, they may tend to reduce the value of the land by an amount
equal to net demolition cost. Machinery and equipment will be valued
in terms of age and process capability. The newer the machinery and
the more adaptable it is to processing textile products with strong
markets, the higher will be its value.
Raw materials, in process, and finished goods in inventory will
be valued in relation to the market price for them. Again the type of
goods in inventory in relation to overall demand and fashion will deter-
mine value.
Since it is the smaller, older and more obsolete factories that
are most likely to close due to pollution abatement costs, the value of
buildings and equipment will probably be minimal.
While the qualitative factors affecting the value of a plant in
liquidation can be identified, estimates of actual dollar value would
have to be made on a case by case basis.
4. FUTURE PROFITABILITY WILL BE THE MAJOR FACTOR
CONTROLLING TEXTILE INDUSTRY CAPITAL ACCESS
The textile industry must compete in capital markets with other
industries. As has been indicated previously, textile industry profit-
ability has been low in relation to all manufacturing which puts textile
makers at a relative disadvantage in seeking capital. In addition,
relatively heavy capital expenditures by large producers have yet to
pay off in terms of increased profits.
-16-
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(1) Most Equity Capital Must be Raised
Internally For The Foreseeable Future
Because of poor profit performance and uncertain demand,
especially as regards the future role of imports, many textile pro-
ducers are currently excluded from the stock market as a source of
financing. Thus, whatever equity is raised by these companies must
be raised through earnings retention.
(2) Access to Debt Will Depend on Expected
Future Performance
To gain access to additional long term debt, large textile
producers will have to maintain their dividends which to lenders
are an indicator of a producer's ability to cover principal and
interest payments. In addition, producers will have to produce
evidence that prospects for stable growth and profitability are
reasonably good. It is unlikely at the present time that lenders
would tolerate any significant increase in large producers' debt
levels in relation to equity.
Small producers face a slightly different debt access
problem. While stronger on the. average than large producers
in terms of balance sheet relationships (debt/equity), the per-
formance risk based on past experience is higher. In addition,
small producers as a group face a greater modernization
requirement. Thus a small producer who must borrow to install
pollution abatement equipment must convince potential lenders
that his plant or plants are capable of operating profitably. If
the plant is old and relatively inefficient, what may be required
is significant modernization in addition to pollution abatement
equipment installation. In such cases, small producers will be
hit with greater short term investment needs. In addition, they
will be "bucking" a trend toward concentration of output. As a
consequence, some small producers could be put in a position
where the capital to replace a marginal plant would not be
forthcoming from lenders.
-17-
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5. DETAILED TEXTILE INDUSTRY COST AND
PRICING DATA IS NOT AVAILABLE
One of the objectives of the study was to develop detailed manu-
facturing cost profitability and cash flow models for represen-
tative textile plants in terms of plant size, processes employed, and
products produced. The only source of data on which to base such
models is textile producers themselves. Contacts were made with a
relatively large number of producers. In each case producers were
unwilling to release such information because of the perceived possi-
bility of placing themselves at a competitive disadvantage. The degree
of competition in the textile industry has led to a situation where
plant production costs, product line wholesale prices, and profitability
are closely guarded. The synthesis of plant profiles using an engin-
eering approach proved not to be practical in view of the limited time
available for the study, the virtually non-existent data base, and the
wide variety of possible product/process combinations.
-18-
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IV.' POLLUTION CONTROL REQUIREMENTS
-------
IV. POLLUTION CONTROL REQUIREMENTS
This chapter discusses pollution control requirements and costs.
1. BASIC WATER POLLUTION ABATEMENT COST
ESTIMATES WERE DEVELOPED BY EPA
The water pollution abatement capital investment and annual cost
estimates prepared by EPA are shown in Exhibit VII, following this page.
These cost estimates which are applicable to "typical" wet plants treat-
ing wool, cotton, and synthetic fabrics were prepared on the basis
of Effluent Limitation Guidance (ELG) standards prepared in 1972 by the
EPA Office of Permit Programs. The estimates shown presume that no
water treatment is currently provided and that the option of municipal
treatment does not exist.
2. PLANTS WHICH PRETREAT EFFLUENTS MAY HAVE TO
UPGRADE THEIR FACILITIES TO MEET THE ELG STANDARDS
Of the 684 textile plants using wet processes, 192 currently pre-
treat their effluent water to some extent. The common types of pre-
treatment and the plants using one or more of these are shown in
Exhibit VIII, following Exhibit VII.
These plants may have to expand or upgrade their facilities to
meet the new standards. The extent to which each plant will have to
install new facilities or connect to public facilities cannot be deter-
mined until the pollution content for each plant effluent is quantified.
3. EPA ESTIMATES THAT A PLANT WITH NO FACILITIES IN PLACE
AND DISCHARGING 800, OOP GALLONS/DAY OR MORE WILL HAVE
TO SPEND A MINIMUM OF $325, OOP TO BUILD ADEQUATE WATER
TREATMENT FACILITIES
EPA estimates that a textile processing plant with no treatment
facilities discharging approximately 800, 000 gallons per day, will incur
-19-
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EXHIBIT VIII
Environmental Protection Agency
TYPES OF WASTE WATER TREATMENT
USED BY TEXTILE PLANTS
Treatment Type
Coagulation
Settling - Primary
Secondary
Trickling Filters
Activated Sludge
Digestion
Ponds or Lagoons
PH
Land Filtration
Chlorination
Actation
Plants Using
Treatment*
14
60
30
15
27
30
89
19
9
28
48
* Some plants utilize more than one form of treatment
Source: 1967 Census of Manufacturers
-------
an investment cost of anywhere from $325, 000 to $587, 000, depending
on the basic raw material processed. The investment cost for plants
discharging over 800, 000 gallons per day will be higher, but will not
increase in direct proportion to the volume of water processed. Addi-
tional investigation is necessary to determine the relationship, on a
unit basis, between cost and capacity of the waste treatment facilities.
Cost curves should be constructed to determine the investment cost
required for different textile effluent flow levels.
4. COSTS FOR PLANTS THAT ELECT TO USE EXISTING
MUNICIPAL SYSTEMS ARE NOT KNOWN BUT ARE LIKELY
TO BE LESS THAN THOSE INCURRED TO CONSTRUCT
TREATMENT FACILITIES
Costs for plants using municipal water treatment systems are
undetermined at this time. The costs are expected to include connec-
tion costs and use costs. The factors affecting the costs and decisions
are described below.
(1) Connection Costs to Tie In To Municipal
Facilities Are Difficult to Estimate
To discharge waste water into municipal systems, the
affected plants will incur connection costs. These costs will
vary depending on:
Distance to treatment plant or sewer line
Size of pipe required to transfer discharge volume
Construction labor costs in the area
A typical connecting line would be approximately 24 inches
in diameter and would cost anywhere from $10 to $20 per foot
exclusive of pumping stations.
(2) Plants Which Utilize Municipal Facilities Will Be
Assessed a Processing Cost Based on Their Pollution Load
Plants connecting to municipal sewer systems will have to
pay a fee for having their waste water treated. This cost, paid
by plants now connected to municipal systems, presently ranges
from $0. 03 to $0. 17 per thousand gallons. The cost varies
because of different assessment rates, procedures used, and size
and effectiveness of the municipal facilities
-20-
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(3) The Decision to Connect to Municipal Sewers or to
Build New or Expand Existing Treatment Facilities
Will be Based on Local Economics and Regulations
Each textile company can be expected to weigh the economic
impact of using municipal facilities or constructing its own. How-
ever, it is expected that the use of public facilities will be less
expensive than building and operating a private treatment plant.
Some cities or regional water treatment areas may require
textile plants to connect to existing or proposed treatment plants.
One of the companies interviewed indicated that it had been re-
quired to tie in to a proposed treatment plant rather than construct
its own. However, capital and operating cost savings were ex-
pected not only for the textile company but for other companies
in the area.
(4) Textile Plants Now Tied to Municipal Systems May Not
Require Additional Investments Although Use Charges
May Increase
The ELG standards, as presently defined, do not call for
control on the contents of the waste water discharged to municipal
sewer systems. As a result, textile plants now using municipal
sewer systems will not have to invest money to clean their dis-
charges. However, it appears certain that similar guidelines
will be imposed on municipal facilities and that a surcharge,
based on effluent constituents may well be imposed on these tex-
tile plants. The definition of this surcharge is beyond the scope
of this study.
Also, municipalities may request textile companies to
pretreat the waste water to some extent. This could range from
regulating the release of waste water to avoid shock situations,
to the removal of particular types of waste that cannot be readily
treated or would decrease the efficiency of the municipal facility.
The investment by textile companies for pretreatment facilities
cannot be quantified at this time.
-21-
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5. DATA LIMITATIONS MADE EPA POLLUTION ABATEMENT
COST ESTIMATES INADEQUATE FOR ANALYSIS AS
ORIGINALLY PRESENTED
Because textile plant specific operating cost, profitability and
cash flow data to which the EPA cost estimates could be applied were
not available, a more generalized approach to estimating and express-
ing pollution abatement capital investment requirements and operating
costs was used. This methodology was developed jointly by Booz, Allen
and EPA personnel.
6. POLLUTION ABATEMENT CAPITAL INVESTMENT
REQUIREMENTS AND ANNUAL COSTS WERE ESTIMATED
ON AN INDUSTRY-WIDE BASIS
To establish compatability with available textile industry finan-
cial data, pollution abatement capital investment requirements and
annual costs were estimated on an industry-wide basis.
(1) Estimates Were Based On Several Significant General
Assumptions
In preparing estimates, the following general assumptions
were made:
EPA data used in the analysis were assumed to be
valid. These data were not separately evaluated
by Booz, Allen.
For purposes of the analysis, it was assumed that
there exists a direct correlation between water
consumption levels, BOD, and BOD reduction re-
quirements. The effect on treatment requirements
and cost of specific types of contaminants and water
flow and effluents per unit of cloth or type of cloth
processed has not been considered.
-22-
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Water consumption levels by type of plant (SIC code)
were derived from the 1963 Census of Manufacturers.
Total industry water usage is based on 1968 data.
In developing estimates, it was assumed that the
pattern of water usage by type of plant had remained
constant through 1968.
It was assumed that primary and secondary treat-
ment would be required to meet ELG standards.
(2) Several Potential Costs Were Not Included
In The Analysis
The following potential costs were not included in the
analysis:
In-plant costs such as surveys, piping and roads
have not been considered.
Land costs have not been considered. Interviews
with industry sources indicate a median potential
land cost of $1, 250 per acre with a potential range
of land requirements from 20 to 125 acres depend-
ing on local needs. '
(3) A Formula For Relating Plant Water Flow to Pollution
Abatement Capital Expenditures Was Provided By EPA
Base water flow and investment data to which the formula
was applied were as follows:
Water Flow % BOD Capital
(gal /day) Reduction Investment
Primary Treatment 660,000 30 $ 100,000
Secondary
Treatment 800,000 93 1,000,000
-23-
-------
Capital investment requirements for primary and secondary
treatment are assumed to be additive. That is, to achieve a
93 percent BOD reduction using secondary treatment, primary
treatment is first required. The formula used to compute
capital investment requirements for primary or secondary
treatment installations in plants groupings having varying water
usage rates is:
C1 = C2 (F1/F2) '6F3
where:
C = Total capital investment required
C9 = Capital investment for hypothetical
installation
- $100, 000 for primary treatment
- $1 million for secondary treatment
F = Average daily water flow for plant groups
for which estimate is to be made
F = Daily water flow for hypothetical installation
4
- 660, 000 gallons per day for primary
treatment
- 800, 000 gallons per day for secondary
treatment
F = Total daily water flow for all plants in
plant group for which estimate is to be
made
The exponent (. 6) is an engineering efficiency factor supplied
by EPA.
Data required to define F and F were derived from the water
1 O
flow data contained in the 1963 and 1967 Census of Manufacturers.
Exhibit IX, following this page, contains the capital investment
requirements derived using the above formula. The range of
estimates in each category reflects the manner in which water
flow data are summarized in the Census of Manufacturers
which categorizes plants in terms of a range of daily water
-24-
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usage rates (e.g., 500,000 GPD - 1 million GPD).
Thus, the low and the high end of the range are dependent on
the value of F used in the computation.
(4) Pollution Abatement Annual Cost Estimates Were
Derived From Capital Expenditure Estimates On
The Basis Of Factors Provided EPA With Some
Adjustment By Booz, Allen
The following factors were provided by EPA for deriving
pollution abatement annual costs from capital investment
estimates:
Operating and maintenance costs * 9 percent of
capital investment
Depreciation = 10 percent of capital investment
Capital cost =12 percent of capital investment
The factors for estimating operating and maintenance costs and
depreciation were used for analysis as provided. Capital cost
used for analysis was derived as follows:
It was assumed that 50 percent of the required
capital would be borrowed at an interest rate
of 10 percent before taxes
The balance of the required capital was assumed
to be drawn from internal sources. The cost of
such capital was assumed to be 18.4 percent
before taxes (9. 2 percent after taxes) as ex-
plained in Chapter II.
All costs as originally computed were expressed in terms of
1968 dollars. An inflation factor of 35 percent provided by
EPA was used to make adjustments to 1971 levels.
-25-
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The specific application of pollution abatement costs and their im-
pact on prices and profitability are covered in Chapter II, Price Effects
and Chapter V, Economic Impact, which follows.
-26-
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V. ECONOMIC IMPACT
-------
V. ECONOMIC IMPACT
This chapter discusses the potential economic impact of water
pollution abatement costs on the textile industry.
1. THE POTENTIAL IMPACT OF WATER POLLUTION
ABATEMENT COSTS ON TEXTILE INDUSTRY PROFITS
DEPENDS ON FUTURE INDUSTRY PERFORMANCE AND
PRODUCER WATER TREATMENT OPTIONS
As indicated in Chapter II, a fully integrated producer required
to install in-house water treatment equipment with no option for muni-
cipal treatment would have to achieve a cumulative price increase of
approximately 0. 9 percent to 1. 4 percent (1972 basis) accross all
products to cover incremental operating and capital costs required in
the wet processes. If the market behaved in such a manner that tex-
tile prices remained relatively stable at 1972 levels, and no other cost
increases were incurred, the profit margin (% of sales) for the hypo-
thetical producers shown on Exhibit IV, following page 10, would be
reduced from 2. 6 percent (after tax) to 2. 1 percent to 2. 3 percent of
sales, a reduction of 11 percent to 19 percent. Return on total invest-
ment (long term debt and equity) would be reduced from 5. 5 percent
to the range of 4. 0 percent to 4. 5 percent. Of course the impact on
profitability would be less severe for those producers who are highly
profitable and significantly more severe for those producers who are
less profitable than the hypothetical producer.
Since the water pollution abatement costs for producers with
municipal treatment options or in-place treatment equipment are not
known, it is impossible to specify cost impact. However, it is reason-
ably safe to conclude that for these producers, who account for about
90 percent or more of wet process plants, the costs of water pollu-
tion abatement will be less and consequently the impact of those costs
will be less than that cited above.
Pollution abatement costs aside, the future profitability of the
textile industry is uncertain. Current profit and return on investment
-27-
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levels are considered ion satisfactory, Recovery of profits and invest-
ment returns to satisfactory levels can occur over the next five years if:
Real economic growth continues at a high rate without
a significant slowdown and the textile market becomes
stronger as a result
Imports are controlled
Production costs, especially wage rates, are held
in line
As was pointed out in Chapter III, pollution abatement costs are
likely to be a relatively minor component of the total cost problem to
be faced by textile producers. However, in combination with other
cost/price factors, notably related to future textile demand and prices,
pollution abatement costs, at least for producers faced with high costs,
could result in plant shutdowns and production curtailment. If such
occurs, however, it cannot be said that pollution abatement cost was
the determining factor. All of the factors identified above, including
pollution abatement costs, will have been contributory.
What adverse profitability impacts do occur are most likely to
affect small firms as a group rather than large firms, principally
because it is the small companies that own many of the least efficient
and oldest plant and equipment.
In summary, the impact of pollution abatement costs on industry
profits depends on future industry performance. If no improvement in
profits takes place, pollution abatement costs will aggravate an already
serious situation and could, along with other factors, cause production
curtailments and plant shutdowns for producers faced with high pollu-
tion abatement costs. The prospects for profit improvement are mixed.
Imports have been restrained, although shifts in exporting countries
may aggravate the problem in the future. Demand is increasing and
prices have firmed significantly since 1970, however, profits have not
improved significantly indicating a continuing cost squeeze. Within
this cloudy picture, it is not possible to predict with any confidence
how the textile industry will perform over the next five years. How-
ever, it is apparent that significant profit improvement depends on
substantial improvement in several demand, price and cost factors.
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2. THE FACTORS AFFECTING CAPITAL AVAILABILITY
ARE BASICALLY THE SAME AS THOSE AFFECTING
PROFITABILITY
Producers using municipal treatnrent or having municipal treatment
options will likely be required to make relatively modest water pollu-
tion abatement capital outlays. Capital outlays for producers with
currently operating in-house water treatment facilities will depend on
the upgrading required to meet ELG standards and cannot be estimated
at this time.
As a group, large producers are currently in a position of net
annual borrowing to finance basic capital expenditures as indicated
on Exhibit V, following page 14. It is probable that unless profit
improvement is shown that such producers will find themselves
unable to raise significant additional debt. Funds could be generated
internally and could be used to finance the installation of abatement
equipment only at the expense of expenditures for basic plant and
equipment which could in turn jeopardize future profit performance.
The unknown factors in the equation are, of course, what the capital
requirements for pollution abatement for these producers will be, and
what future profit performance will be. Capital requirements may be
somewhat lower than for small producers as large producers are most
likely to have water treatment equipment on stream. If industry growth
and profits show steady improvement, it is likely that financing could
be obtained in the debt market. If not, financing must be internal
with the adequacy of such funds depending on the capital requirements
of individual producers.
Small producers appear to be faced with a somewhat different
problem. While the cash flows shown on Exhibit V, following page 14
would indicate a relatively large cash availability, it also indicates
a relatively low rate of capital spending. This brings up the question
of the magnitude of plant replacement required in the future to main-
tain or increase profits and the economic justification of installation
of pollution abatement equipment in old plants. These questions can-
not be answered within the scope of tnls study. It appears, however,
that the degree of basic capital spending needed during the next five
years to modernize plant and equipment and the accelerated replace-
ment of plant and equipment required by pollution abatement costs
could significantly impact capital needs for some small producers.
Of course this problem would be obviated for those small producers
who currently use or will be able to use municipal treatment. The
capacity of small producers to raise additional debt, as with large
producers, is largely conditional upon improved profit performance.
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3. FUTURE TEXTILE INDUSTRY PRODUCTION LEVELS DEPEND
PRIMARILY ON FACTORS OTHER THAN POLLUTION ABATEMENT
As indicated above, pollution abatement costs should not have
a major affect on basic textile industry growth. Such growth de-
pends on other factors previously discussed. However, if industry
growth and profitability do not improve, the possibility exists that
pollution abatement costs in some cases could motivate accelerated
production curtailments and plant shutdowns. However, this would
be merely accelerating events which are bound to occur in any indus-
try which is not sufficiently profitable to attract capital. The expected
degree of impact in terms of number of plants to be shut down cannot
be evaluated in light of available data and the uncertainties regarding
future industry performance.
The net effect of plant shutdowns should be to bring capacity into
line with demand with fewer producers operating more profitably
assuming that ease of entry into the industry does not result in cronic
excess capacity with a high producer turnover.
4. IN THE EVENT OF PLANT SHUTDOWNS, LOCAL
EMPLOYMENT IMPACTS COULD BE SEVERE
Textile plants in many cases are located in rural areas and are
often the dominant local employer. If_a plant in such a situation were
to shut down, local unemployment could be severe on both a direct
and indirect basis. Since the textile plant would be a major factor in
bringing income into the local area, secondary unemployment could
possibly equal or exceed that produced directly creating a situation
similar to those observed in coal mining towns toward the end of a
prolonged strike.
In addition, most textile workers are unskilled and consequently
possess limited job mobility. This factor could serve to make re-
placement of lost jobs more difficult than with a more skilled, more
job mobile labor force.
Plant shutdowns in more populous areas with a more diversified
economic base should produce relatively less long term unemploy-
ment, both direct and secondary.
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5. POLLUTION ABATEMENT COSTS WILL HAVE LITTLE
BALANCE OF PAYMENTS IMPACT. ALTHOUGH TEXTILE
IMPORTS ARE A SERIOUS INDUSTRY PROBLEM
Foreign textile producers, especially those in the Far East and
lesser developed countries, currently enjoy a significant production
cost advantage over domestic producers due primarily to low wage
rates. Were imports not restricted, it is probable that such pro-
ducers could sell all of the textiles which they could produce to U. S.
customers. Pollution abatement costs would have no impact because
the only significant constraint operating without pollution abatement
costs would be foreign producer capacity not price. It is unlikely that
in the foreseeable future that domestic textiles can become price
competitive with imports. This situation provides the justification used
for import restraints (quotas) and the fundamental economics are not
altered by pollution abatement costs.
6. TEXTILE CONSUMERS SHOULD NOT BE SIGNIFICANTLY
AFFECTED
It can be expected that only potential domestic textile production
curtailments will be made up almost immediately by imports. If
domestic producers were to regain reasonable profit levels, assuming
imports were restrained, consumer demand will have to increase to
a point where textile price increases are possible.
7. PLANT CLOSURES COULD IMPACT SUPPLIERS
Any industry production curtailments could impact suppliers of
raw materials and supplies and services. Raw material suppliers
would be impacted to the degree that overseas markets for their
products would be unavailable. Such availability being a function of
world wide product capacity and demand balances. Those providing
supplies and services would be required to find substitute markets.
In several areas this would probably prove most difficult.
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VI. LIMITS OF THE ANALYSIS
-------
VI. LIMITS OF THE ANALYSIS
This chapter is addressed to limitations and uncertainties in
analysis contained in this report.
1. THE MAJOR LIMITATIONS IN THE STUDY RELATE TO
LIMITED POSSIBLE SPECIFICITY AND UNCERTAINTY
REGARDING TEXTILE INDUSTRY PROFITABILITY
Because of data limitations, it has been possible to evaluate the
economic impact of water pollution abatement costs in the textile indus-
try only in a general way. The vulnerability of specific plants to
closure and their basic cost relationship remain unknown.
The major uncertainty in this report, as has been previously
indicated, is over the prospects for future textile industry growth
and profitability. Indications are contradictory and a projection of
performance with any degree of certainty has not been possible.
2. THE VALIDITY OF POLLUTION ABATEMENT COST
ESTIMATES IS UNCERTAIN
As indicated in Chapter IV, the methodology for developing
pollution abatement cost estimates used during the study excluded any
empirical examination of the basic assumptions used. While the
methodology is logical, because no empirical confirmation was ob-
tained, the validity of the estimates must remain open to question.
Summaries of industry profit performance by size of firm
are subject to error as they are based on data from several sources.
However, such error as exists should not be sufficient to impact
significantly any conclusions related to the estimates.
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3. MAJOR UNANSWERED QUESTIONS RELATE TO SPECIFIC
PRODUCER CHARACTERISTICS AND PROBLEMS
'me major unanswered questions in the study which require
further analysis are as follows:
Are pollution abatement costs accurate as estimated?
What are incremental costs likely to be
For municipal treatment?
To upgrade existing facilities?
What plants do or do not have municipal treatment
options ?
What plants do or do not presently operate in house
treatment facilities? For which plants will costs be
high or low?
What plants are so old as to require replacement
rather than simply a cleanup ?
Which plants are profitable/not profitable?
What will future government policy be regarding
imports?
What will future policy be regarding wage and price
control?
Can it be that producers in rural areas may expect
significant local government assistance in meeting
abatement costs in a manner similar to that used in
many southern states to promote industrial develop-
ment?
Finally, the most critical question of all: Will the textile indus-
try be able to attain and sustain future growth at reasonable profit
levels?
*
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A PPENDIX
TEXTILE INDUSTRY DESCRIPTION
-------
LISTING OF
APPENDIX EXHIBITS
A-l TOTAL FIBER CONSUMPTION BY END USE
A-II TOTAL END-USE CONSUMPTION OF FIBERS
A-III HOME FURNISHINGS MARKET--FIBER
CONSUMPTION BY TYPE
A-IV OTHER CONSUMER-TYPE PRODUCTS--
FIBER CONSUMPTION BY TYPE
A-V TEXTILE PRODUCTION INDEXES
A-VI WHOLESALE PRICE INDEX FOR COTTON, WOOL
AND MAN-MADE FIBER TEXTILE PRODUCTS
A-VH SCHEMATIC DIAGRAM OF THE TEXTILE PRODUCTS
DISTRIBUTION SYSTEM
A-VIII PROCESS FLOW--PRODUCTION OF COTTON TEXTILE
GOODS
A-IX PROCESS FLOW--PRODUCTION OF WOOL TEXTILE
GOODS
A-X PRODUCTION OF SYNTHETIC FIBER TEXTILE GOODS
A-XI 1972 PRELIMINARY COTTON PRODUCTION BY LARGE
PRODUCER STATES
-------
LISTING OF
APPENDIX EXHIBITS
(Continued)
A-XII AREAS WHERE COTTON IS GROWN
A-XIII UNITED STATES COTTON PRODUCTION
A-XIV WOOL PRODUCTION FOR SELECTED YEARS BY STATE
A-XV WOOL CONSUMPTION AND SOURCE
A-XVI U. S. MAN-MADE FIBER PRODUCTION
A-XVII END-USE CONSUMPTION OF WOOL
A-XVIII END-USE CONSUMPTION OF COTTON
A-XIX END-USE CONSUMPTION OF MAN-MADE FIBERS
A-XX PLANT LOCATION SUMMARY OF THE TEN MAJOR
STATES
A-XXI PLANT LOCATIONS--STATES WITH LESS THAN 100
PLANTS PER STATE
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APPENDIX (1)
TEXTILE INDUSTRY DESCRIPTION
1. FOUR BASIC PRODUCTS ARE PRODUCED BY THE TEXTILE
INDUSTRY
The four basic textile product classifications are:
Woven products
Knitted goods
Tufted goods
Miscellaneous products
The basic textile products are subsequently converted into consumer
goods by the finished-product manufacturers. Typical examples of finished
products produced from textile products are shown below:
Textile Products Finished Goods
Woven cloth Trousers
Shirts
Pillowcases
Knitted cloth Hosiery
Men's shirts
Men's underwear
Tufted goods Carpets
Bedspreads
Miscellaneous goods Sewing thread
Pelt goods
Ribbons
2. TEXTILE PRODUCTS REACH FIVE MAJOR MARKETS
Textile mill products reach five major end-use markets:
Apparel
Home furnishings
Industrial fabrics
Other consumer products
Exports
-------
APPENDIX (2)
The apparel market has been the largest consumer but its share has
decreased steadily from 41. 7 percent in 1960 to 34. 5 percent in 1971. This
decline in market share is due to increased consumption by other end uses,
since the poundage consumed by the apparel market increased by 1 billion
pounds from 1960 to 1971. Exhibit A-I, following this page, illustrates
textile product consumption by end-use market.
(1) Home Furnishings Is the Fastest Growing Market for Textile
Products
» —•—•
Home furnishings has been one of the fastest growing end-use
markets for textile products over the last ten years, and is expected
to show continued growth over the next few years. Home furnishings
consumed 30 percent of all fibers in 1970 compared with 25. 3 percent
in 1960, and expanded fiber usage by approximately 1. 3 billion pounds
during this same period of time. Exhibits A-II and A-III, following
Exhibit A-I, illustrate this upward trend in consumption. Estimates
for 1971 show the home furnishings market growing at an even faster
rate, consuming 33. 1 percent of all fibers. The continuing growth of
this market is attributable to the:
Sharp rise in residential construction, increasing the de-
mand for home furnishing products, such as carpets, rugs
and upholstery fabric.
Increased family income.
Increased mobile home production.
Increased use of carpeting in commercial establishments,
office buildings, restaurants, etc.
(2) The Industrial Market and Other Consumer-Type Product
Markets Are Expected to Grow
The industrial market comprised an estimated 16. 7 percent of
the total market for textile products in 1971. Although there has been
a slight decline in the proportion of textile products consumed by this
end-use market since 1960, there has been about a 50-percent increase
in the volume of fibers used—from 1, 210 million pounds in 1960 to an
estimated 1,820 million pounds in 1971 (see Exhibit A-I). The largest
segments of the industrial market are the tire industry, which consumed
523 million pounds of fiber in 1970, and the reinforced plastics industry,
which consumed 268 million pounds of fiber in 1970.
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EXHIBIT A-II
Environmental Protection Agency
TOTAL END-USE CONSUMPTION OF FIBERS
(Percentages)
YEAR
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
FIBER* CONSUMPTION BY END USE MARKET
APPAREL
36.9%
36.0%
37.8%
38 . 7%
38.6%
40.0%
41.2%
42.0%
42.2%
42.5%
41.7%
FURNISHINGS
30.4%
30.5%
29.8%
28.9%
28.6%
29.0%
28.2%
27.3%
26 . 1%
25 . 1%
25.3%
INDUSTRIAL
USES
16.7%
18.4%
18.3%
18 . 1%
18.6%
17.3%
16.8%
16.6%
17.4%
17.6%
18.3%
OTHER CONSUMER
TYPE PRODUCTS
13.5%
12.4%
11.9%
11.7%
11.5%
11.1%
10.9%
11.1%
11.0%
11.1%
10.9%
EXPORTS
2.5%
2.7%,
2.2%
2.6%
2.7%
2.6%
2.9%
3.0%
3.3%
3.7%
3.9%
TOTAL
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
*Includes cotton, wool, and manmade fibers.
Source: Textile Organon
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A PPENDIX (3)
Improvements in the quality of the synthetic fibers produced
(i. e. , strength, uniformity, dyeability, etc. ) are expected to broaden
the present market, especially for fabrics used by the transportation
industry, such as automobile and aircraft upholstery and carpets.
Also, non-woven fabrics are expected to increase with markets such
as air-pollution filters, disposable surgical gowns and fireproof cloth.
The use of fireproof cloth should increase rapidly as new regulations
are established. Other consumer product markets include:
Handiwork yarns and threads
Textiles for
Toys
Medical and surgical products
Sanitary products
Apparel linings
Umbrellas
Sports equipment
The above market(s) consumed 13. 2 percent of the textile products
in 1971, as shown in Exhibit A-l. Fiber consumption by this end-use
market has been trending upward since 1960, increasing not only in
proportion of total fiber consumed but also in volume. There was ap-
proximately a 100-percent increase in volume from 721 million pounds
in 1960 to 1, 305 million pounds in 1970, as shown in Exhibit A-IV, fol-
lowing this page. Although estimates for 1971 indicate this market
leveled off from its 1970 peak, it is anticipated that the market will
expand in the next few years. Home sewing is expected to continue to
grow, as well as the renewed interest in textile handicrafts such as
knitting, crewel and crocheting. Increases in the use of textiles for
toys, medical and surgical products is also expected to continue.
(3) Exports Will Continue to Account for a Small Proportion of Total
Fiber Consumption
The export market comprised the smallest end-use market for
textile mill products, accounting for an estimated 2. 6 percent of fiber
consumption in 1971. The export market has declined in overall pro-
portion of fibers consumed since 1960 when it accounted for 3. 9 percent
as shown in Exhibit A-I. Exports are not expected to grow substantially
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APPENDIX (4)
due to increased foreign textile production and stiff price competition in
the foreign market.
3. ECONOMIC TRENDS IN THE TEXTILE INDUSTRY
The textile industry is emerging from a period of intense competition
and declining profit margins. Demand has improved and is expected to con-
tinue growing as business conditions continue to improve.
(1) Textile Mill Product Sales Are Trending Upward
Textile mill product sales are beginning to trend upward again
after a slight decline in 1970. Sales in 1971 were up 6 percent over
1970, and this trend is expected to continue through 1972. Second
quarter 1972 sales are up $570, 000, or 10.4 percent over second
quarter 1971 sales. Trends in textile mill product sales since 1964
are shown below:
Textile Mill Product Sales
($Millions)
1972
1971
1970
1969
1968
1967
1966
1965
1964
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
6,050
5,616
5,694
5,446
5,480
5,348
21,968
21,598
21,780
20,841
18,672
19,513
18,028
16,249
(2) The Textile Production Index Was Up for 1971
The overall production index for textiles gained a little over 2
points in 1971 over a recent low of 106. 3 in 1970, as shown on Ex-
hibit A-V, following this page. Industry segments show a mixed
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EXHIBIT A-V
Environmental Protection Agency
TEXTILE PRODUCTION INDICES
PRODUCT GROUPINGS
Textile Mill Products
Woven Cloth
Knitted Goods
Tufted Goods
Yarn & Miscellaneous
Textiles
PRODUCTS
Cotton Fabrics
Manmade Fabrics
Wool Fabrics
Knit Goods
Hosiery
Knit Garments
Carpeting
L967V '
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1968
108.8
94.1
127.3
107.2
116.8
123.1
113.7
1969
113.2
90.0
137.0
91.1
132.0
156.1
119.8
1970
106.3
87.4
125.6
72.5
130.5
164.1
113.6
1971
108.5
90.7
118.9
47.5
134.4
156.4
123.3
100.0
118.2 134.5 129.3 148.0
107.3 108.4 96.6 103.1
Source: Federal Reserve Board
(1) 1967 Base Year
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APPENDIX (5)
performance during 1971, with the cotton production index up and the
man-made fiber index down when compared to 1970. Accounting for
this shift in production is the renewed popularity of fabrics made out
of cotton (denim) and the increased production of women's apparel.
The wool index continued to decline, reflecting the trend toward lighter-
weight fabrics and reduced demand for men's suits and coats.
Production of knit goods and garments was up in 1971, showing
the continuing trend toward knits for apparel. The value of knit cloth
almost doubled in value between 1967 ($1, 212 million) and 1971 ($2, 020
million). The carpet production index increased approximately 20
points in 1971--from 129. 3 in 1970 to 148. 0 in 1971. The increase in
carpet production is primarily a result of the increase in the home fur-
nishings market for textile products resulting from a record start of
two million houses in 1971.
(3) Wholesale Prices of Textiles Have Remained Relatively Stable
from 1960 to 1971
According to the Wholesale Price Index, the price of textiles has
remained relatively stable from 1960 to 1971. During this time period,
there was a 1.8 point increase in wholesale prices, with no dramatic
price fluctuation for any one year. This compares to an 18. 7-point
change in wholesale prices for all industry commodities during the
same period.
Wholesale Price Index
(1967 = 100)
Textiles All Industries
1971 103.6 114.0
1970 103.2 110.0
1969 104.6 106.0
1968 104.1 102.5
1967 100.0 100.0
1966 100.2 98.5
1965 102.6 96.4
1960 105.0 95.3
Source: U. S. Department of Labor
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APPENDIX (6)
Wholesale prices of major textile mill product groupings, such
as cotton products, wool products and man-made fiber products, have
shown substantial fluctuations on a yearly basis. These price fluctu-
ations are primarily due to fluctuations in raw material costs, shifts
in demand, imports and changes in technology. Fluctuations between
cotton products and man-made fiber textile products for the years 1963
through the first half of 1972 are shown in Exhibit A-VI, following this
page.
Changes in textile prices generally either move ahead of or lag be-
hind downturns or upturns in the general economy. Textile price down-
turns generally lead general economic downturns; and when the economy
is on the upturn, textile prices are late in recovering. In general, in
the textile industry it takes approximately one year for a price move-
ment to be felt.
(4) U.S. Government Influence on the Textile Market Is Insignificant
Military demand accounts for the major purchases by the Govern-
ment. In 1970 Government purchases amounted to 0.49 percent of total
purchases. In 1971 they totaled 0. 12 percent. This change reflects the
direct relationship of Government purchases and military activity.
(5) There Are No Readily Available Substitutes for Textile Products
There are at present no readily available non-textile products
which can be substituted for existing textile products. In the long range,
however, paper and plastic products have the biggest potential for re-
placement. White competition from non-textile products for textile
markets is minimal, the competition between textile raw materials is
intense. Synthetic fibers have replaced natural fibers to a large extent,
and new textile products, such as felt and stitchbonded fabrics, are now
being evaluated as replacements for many traditional textiles.
4. TEXTILE PRODUCT DISTRIBUTION SYSTEM
The manufacture and distribution of textile goods begins with the trans-
fer of raw materials from the farm or fiber-manufacturing plant to the manu-
facturer of textile products.
Cotton is harvested and taken to gin mills, where cotton seeds and lint
are separated from the raw fiber. The cotton fiber is then baled and forwarded
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EXHIBIT A-VI
Environmental Protection Agency
WHOLESALE PRICE INDEX FOR COTTON, WOOL
AND MAN-MADE FIBER TEXTILE PRODUCTS
1967 1968 1969 1970 1971
Cotton Products 100.0 104.5 104.5 105.6 110.6
Wool Products 100.0 100.4 101.3 99.4 93.5
Manmade - Fiber Textile Products 100.0 104.9 106.6 102.1 100.8
Source: U.S. Department of Labor
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APPENDIX (7)
to yarn manufacturers. There are several steps involved in the movement
of cotton from the farm to the textile plant. They are the:
Harvesting
Ginning and baling
Warehousing
Marketing and selling
Transporting
Most of the American cotton crop is ready for market during the first
half of the crop year. To protect the cotton and to prevent its destruction by
fire and other hazards, the cotton is stored in warehouses. These stocks are
held in the warehouses until needed by the textile mills.
Wool is harvested and packed in bags for shipment. It is then sold to
middlemen who sort the wool into uniform lots and bag or bale it. The wool
is then stored in warehouses until purchased by the manufacturers. Manu-
facturers buy the wool as needed, and will either remove the grease and dirt
(scouring) from the wool themselves or have it done by a scouring mill.
Man-made fibers are bought directly from the fiber manufacturer.
Fibers can be bought in continuous-filament form or as staple (short fiber
lengths). Continuous filaments are delivered wound in bobbins or on beams,
while staple is delivered in bales.
Cotton, wool and man-made staple is converted into yarn and woven,
knitted or tufted as desired. Man-made continuous-filament yarns do not
have to be converted into yarn prior to weaving or knitting. However, in
many cases it is processed (texturized) prior to weaving or knitting, to im-
part to the yarn specific desired characteristics (i. e. , elasticity, bulk, etc. ).
Once the product is made it is then finished to market requirements.
The product can be finished in a variety of ways (dyeing, waterproofing,
flameproofing, etc. ) to meet market requirements.
One or several manufacturing plants can be involved in the process of
making textile products. Some plants can perform all of the functions re-
quired, while other specialize in certain functions. The same breakdown
takes place within multiplant companies.
Once the textile product is made, it is sold to finished-goods manu-
facturers, wholesalers or retailers. Finished-goods manufacturers will
purchase textile products and convert them into consumer products. The
consumer products are then sold to wholesalers or retailers for subsequent
sale to consumers. Textile products not requiring conversion to consumer
goods are sold by the textile manufacturers to the wholesalers or retailers
for resale to consumers.
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APPENDIX (8)
The distribution system of the textile product until it reaches the con-
sumer is detailed in schematic form in Exhibit A-VII, following this page.
5. THE TEXTILE INDUSTRY USES DIFFERENT PRODUCTION
PROCESSES DEPENDING ON THE RAW MATERIAL USED
Each of the three raw materials (cotton, wool and synthetics) used by
the textile industry requires different processes in order to produce a finished
product. While many of the steps performed in each process are similar,
unique steps in each process are required because of the characteristics of
each fiber. The steps required to process each fiber are described below.
(1) Cotton Processing Consists of Three Basic Steps: Spinning,
Weaving or Knitting, and Finishing
Spinning is a mechanical process requiring no wetting agents
which is composed of several subprocesses. These processes remove
foreign material from the cotton fiber and turn the fibers into yarn by
straightening, aligning and twisting the fibers. The yarn is then wound
on spools for transfer to other operations or for sale to textile weavers
or knitters.
The yarn is woven or knitted into cloth. The weaving operation
starts by sizing (or slashing) the yarn. This is done to strengthen the
yarn to permit it to resist subsequent chafing and abrasion. A starch
solution is generally used to size the yarn.
Sized yarn is woven or knitted into cloth. The goods produced
are known as greige goods.
Greige goods must be finished to customer specifications. The
first step in finishing cotton greige goods consists of removing the
starch (desizing) applied to the cloth prior to weaving. Once desized,
cotton cloth can be finished to meet the desires of the market by either
bleaching, mercerizing, dyeing, printing or any other special-purpose
finish.
Exhibit A-VIII, following Exhibit A-VII, details the operations
performed in the production of cotton textile goods.
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APPENDIX (10)
6. SEVERAL RAW MATERIALS ARE USED IN THE TEXTILE INDUSTRY
Several types of raw materials are used to make the many textile prod-
ucts used today. The basic raw materials used are:
Cotton fibers
Wool fibers
Synthetic fibers
The following sections describe the sources and production volume of
each type of raw material.
(1) Cotton
Cotton is grown across the southern belt of the United States.
The leading producer state is Texas, where 27.2 percent of all the
cotton produced in 1972 in the United States was harvested. Exhibit
A-XI, following this page, shows the total cotton production for 1972,
while Exhibit A-XII, following Exhibit A-XI, shows the areas where
cotton is grown.
The total poundage of cotton grown averaged 5. 9 billion pounds
from 1960 to 1972, and fluctuated between 3. 5 billion in 1967 and 7. 3
billion in 1963. The total production in 1972 is expected to be 6.4 bil-
lion pounds. Exhibit A-XIII, following Exhibit A-XII, shows the pro-
duction of cotton over the last 12 years.
Of the 6,404 million pounds of cotton to be harvested in 1972, ap-
proximately 3, 840 million pounds will be consumed by domestic textile
mills. Of the balance, 1,440 million pounds will be exported and the
rest will be stored (1, 124 million pounds). Of the cotton exported, ap-
proximately 41 percent will be exported under special government pro-
grams.
The price of cotton varies according to the expected size of the
crops and estimated consumption. Over the last three years the price
of cotton has ranged between 28 and 39 cents a pound.
(2) Wool
Wool is produced in significant amounts in 25 states. Approxi-
mately 159 million pounds of wool were produced in 1971, with the same
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EXHIBIT A-XI
Environmental Protection Agency
1972 PRELIMINARY COTTON PRODUCTION
BY LARGE PRODUCER STATES
STATE
Texas
Mississippi
Arkansas
California
Louisiana
Alabama
Tennessee
Arizona
Missouri
Georgia
South Carolina
Oklahoma
New Mexico
North Carolina
BALES
(OOO's)
3,631
2,200
1, 600
1, 460
850
675
600
597
491
400
280
254
158
125
1972 PRODUCTION
POUNDS
(OOO's)
1,742,880
1,056,000
768,000
700,800
408,000
324,000
288,000
286,560
235,680
192,000
134,400
121,920
75,840
60,000
%
27.2
16.5
12.0
10.9
6.4
5.1
4.5
4.4
3.7
3.0
2.1
1.9
1.2
0.9
Other States
22
10,560
0.2
Total U.S.
13,343
6,404,640
100.0
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EXHIBIT A-XII
Environmental Protection Agency
AREAS WHERE COTTON IS GROWN
i \
Cotton is grown in 19 states and is a major crop in some 14 states where
it averages a third of all crop marketings. Cotton, furthermore, is big busi-
ness for the nation as a whole. It forms the basis of a $24 billion industry
in terms of investment. Cotton and cottonseed marketings add up to about
$2.5 billion per year. More than nine million Americans depend more or less
directly on cotton as their source of income.
Source: Cotton from Field to Fabric, National Cotton Council of America.
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EXHIBIT A-XIII
Environmental Protection Agency
UNITED STATES COTTON PRODUCTION
PRODUCTION
YEAR
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
BALES
(OOO'S)
14,237
14,283
14,827
15,294
15, 144
14, 951
9,555
7, 443
10,925
9, 990
10, 192
10, 473
13, 343
POUNDS
(OOO's)
6,833,760
6,855,840
7,116,960
7,341,120
7,269,120
7,176,480
4,586,400
3,572,640
5,244,000
4,795,200
4,892,160
5,027,040
6,404,640
Source: "Cotton Situation" USDA
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APPENDIX (11)
output expected in 1972. Exhibit A-XIV, following this page, shows
the wool production for selected years by producing state.
The production of wool in the United States is insufficient to
satisfy the demand of American domestic textile manufacturers. As a
result, raw wool is imported to supply the needed material. Approxi-
mately 126 million pounds of raw wool were imported in 1971 to meet
consumption of 191. 5 million pounds. Exhibit A-XV, following Exhibit
A-XIV, shows the consumption of wool by United States mills and the
pounds of wool imported. Wool is imported from basically four coun-
tries: Australia, New Zealand, South Africa and Argentina.
The price of wool (grease basis) has ranged between $0. 168 and
$0.419 per pound over the last four years. In comparison, scoured,
clean wool sells for between $0. 55 and $1. 10 per pound, depending on
the type and quality of the wool. Foreign scoured wool can be purchased
from $0. 61 to $1. 17 per pound, depending on the type and the country of
origin.
(A detailed analysis of the cotton and raw wool production, consumption,
and sales prices can be found in "Cotton Situation" and "Wool Situation, " pub-
lished four times a year by the Research Service of the U. S. Department of
Agriculture. )
(3) Synthetic Fibers
Synthetic fibers were first produced commercially in the United
States in 1910. The first synthetic fiber produced was rayon. This was
followed by nylon in 1939, and many others since then. Nineteen generic
names have been assigned by the Federal Trade Commission to cover
the types of man-made fibers. These generic names are:
Rayon . Glass . Polyester
. Acetate . Lastrile* . Rubber
Triacetate . Metallic . Saran
Acrylic . Modacrylic . Spandex
Anidex . Nylon . Vinal*
. Aylon* . Nytril* . Vinyon
. Olefin
Approximately 5 billion pounds of man-made fibers are produced
annually in the United States, with production steadily increasing. Ny-
lon is the fiber produced in the largest quantity, and it represents 27.4
Not currently produced in the United States.
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EXHIBIT A-XIV
Environmental Protection Agency
WOOL PRODUCTION FOR SELECTED YEARS
BY STATE
State
1955
1960
1965
1970
1971
1972
7,000 J.OOO 1,000 1,000 1,000 1,000
pounds pounds pounds pounds pounds pounds
Texas 47,285 51,980 41,109 30,784 30,397 29,765
Wyoming 19,320 22,839 18,945 16,756 16,185 15,842
Colorado 11,869 14,808 11,001 10,817 12,081 10,564
California 18,927 19,419 14,741 11,665 11,580 10,363
South Dakota 9,718 14,941 12,032 9,509 9,585 9,702
Utah 12,610 11,950 9,595 9,922 9,167 9,127
Montana 15,553 17,041 12,462 9,468 9,016 8,871
Idaho 10,384 11,304 7,856 6,845 6,911 6,754
New Mexico 11,304 10,368 8,669 6,833 6,858 6,458
Ohio 8,996 8,501 6,366 5,318 5,015 5,107
Iowa 8,292 10,776 8,293 5,349 5,160 4,649
Oregon 6,723 7,596 5,053 4,430 4,312 4,264
Arizona 3,006 3,204 4,068 3,559 3,772 3,666
Minnesota 5,954 6,575 5,013 3,643 3,468 3,158
North Dakota 4,508 5,625 4,079 2,878 2,873 2,680
Kansas 3,571 4,841 3,525 2,606 2,715 2,634
Nebraska 3,016 4,970 3,452 2,736 2,610 2,500
Illinois 4,546 4,787 3,678 2,296 2,010 1,983
Missouri 5,152 5,393 2,924 1,895 1,820 1,799
Michigan 2,864 3,068 2,422 1,803 1,708 1,619
Nevada 4,080 2,786 2,075 1,828 1,751 1,580
Indiana 3,462 3,360 2,330 1,794 1,628 1,477
Pennsylvania 1,732 1,679 1,322 1,110 1,051 1,007
Virginia 1,699 1,670 1,284 1,104 1,023 961
West Virginia 1,472 1,403 1,067 885 798 783
Other States 15,241 14,393 8,102 5,893 5,590 5,200
United States 241,284 265,277 201,463 161,726 159,084 152,513
Crop Reporting Board, SRS.
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EXHIBIT A-XV
Environmental Protection Agency
WOOL CONSUMPTION AND SOURCES
MILL
U.S.
YEAR
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
CONSUMPTION
(OOO's LBS)
429, 100
411, 743
356, 669
387,026
370, 174
312, 510
329,697
312, 793
240,261
191, 461
PRODUCTION
(OOO's LBS)
159,860
134,585
144,322
115,446
93,012
125,234
80,381
123,606
87,127
64,886
IMPORTED
(OOO's LBS)
269,240
277, 158
212,347
271, 580
277, 162
187,276
249, 316
189, 187
153, 134
126, 575
Source: "Wool Situation" USDA
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APPENDIX (12)
percent of total production for 1970. Exhibit A-XVI, following this page,
shows the production of man-made fibers for 1960, 1969 and 1970 by
fiber type.
There are 192 plants producing man-made fibers in 1972. These
plants are located mainly in the southeastern United States and employ
almost 113, 000 workers. A detailed breakdown of the use of raw ma-
terials by end use is shown in Exhibits A-XVII, A-XVIII and A-XIX,
following Exhibit A-XVI.
7. MOST TEXTILE MANUFACTURING IS CONCENTRATED IN TEN
STATES
This section discusses textile plant location and employment patterns
by state. Attention is focused on plants with 20 or more workers.
(1) There are 7, 100 Textile Mills in the United States
Of these 7, 100 plants, 4, 369 (61. 5 percent) employ 20 or more
workers.* A listing of these mills and their location by state has been
made available to EPA.
Textile World conducted a survey at 4, 144 of the plants with 20
or more workers (94. 9 percent of these plants). About 80 percent
(3, 364) of these plants were located in ten states. Exhibit A-XX,
following Exhibit A-XIX, summarizes the geographic location of the
4, 144 plants. The distribution of the remaining 780 plants not located
in the ten states identified in Exhibit A-XX are presented in Exhibit A-XXI,
following Exhibit A-XX. Eight of the states (including the District of
Columbia) have no textile mills at all. Twenty-seven states with 50
plants or less, account for 59 percent of the total number of plants
shown. Four states with 51 to 99 plants each, account for 41 percent
of the total number of plants shown.
(2) Over 50 Percent of the Workers Employed in U. S. Textile Plants
Are Concentrated in Three Southern States
Of a total employment of 1. 05 million, 543, 000 workers, or 52
percent of the total, are located in three southern states, as shown be-
low.
U.S. Department of Commerce, 1963 Census of Manufacturers.
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EXHIBIT A-XVI
Environmental Protection Agency
U.S. MAN-MADE FIBER PRODUCTION
(In Thousands of Pounds)
FIBER
1970
1969
1960
Cellulosic Fibers:
Rayon
Acetate
875,000 1,078,000 740,300
498,200 498,200 280,200
Non-Cellulosic Fibers:
Nylon
Acrylic
Olefin
Polyester
Other
TOTALS
1,357,700 1,411,200 411,600
491,900 533,000 135,700
255,200 265,700 13,700
1,480,400 1, 318, OOP 116, 200
4,958,400 5,104,100 1,705,700
Source: "Man-made Fiber Fact Book, " Man-made Fiber Producers
Association, Inc.
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EXHIBIT A-XVII
Environmental Protection Agency
END-USE CONSUMPTION OF WOOL
Year
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
Apparel
62.3%
64. 9%
67. 2%
68. 1%
66. 2%
66. 8%
64. 3%
62.6%
64. 3%
65. 3%
63.2%
Home
Furnishings
25.4%
24. 8%
22. 7%
23. 3%
26.4%
25. 6%
28.0%
29. 5%
27. 8%
27. 6%
30.0%
Industrial
Uses
2.3%
2.1%
2.0%
2.0%
1.7%
1.7%
1.7%
1.7%
1.8%
1.8%
1.7%
Other Consumer
Type Products
9.7%
8.0%
7.9%
6.4%
5.5%
5.7%
5.8%
5.5%
5.6%
4.8%
4.6%
Exports
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.7%
0.5%
0.5%
0.5%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: Textile Organon
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EXHIBIT A-XVIII
Environmental Protection Agency
END-USE CONSUMPTION OF COTTON
YEAR
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
Apparel
39. 6%
39. 1%
40. 0%
40. 6%
42. 6%
43.8%
45. 2%
45. 0%
45. 0%
44. 3%
44. 3%
Home
Furnishings
31.2%
30.9%
30. 7%
29. 6%
28.4%
28.8%
27. 5%
26.9%
26. 2%
25.8%
26. 1%
Industrial
Uses
13. 3%
13. 7%
14. 2%
15. 1%
14. 6%
14. 0%
13. 2%
13. 7%
14. 0%
14. 7%
14. 8%
Other Consumer
Type Products
12.5%
12.3%
12.2%
11. 7%
11.5%
10. 7%
10.6%
10.8%
10.8%
10.7%
10.4%
Exports
3.4%
4.0%
2.9%
3.0%
2. 9%
2.7%
3.5%
3.6%
4.0%
4.5%
4.4%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: Textile Organon
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EXHIBIT A-XIX
Environmental Protection Agency
END-USE CONSUMPTION OF MAN-MADE FIBERS
Year
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
Apparel
33. 5%
31.4%
33. 5%
33. 7 /'o
30.4%
31. 1%
31.6%
33.4%
32. 4%
32.9%
30.1%
Home
Furnishings
30.3%
30.7%
29. 8%
28. 8%
29.2%
29.8%
29.3%
27.5%
25. 5%
23.1%
22. 1%
Industrial
Uses
19. 9%
23. 2%
23. 0%
22. 8%
25. 2%
23. 9%
24. 3%
23.9% '
27. 0%
27. 6%
30. 5%
Other Consumer
Type Products
14. 4%
12.8%
11. 9%
12. 3%
12.4%
12.3%
12.2 %
12. 6%
12.4%
13.3%
13.6%
Exports
1.9%
1.9%
1.8%
2.4%
2.8%
2.9%
2.6%
2.6%
2.7%
3.1%
3.7%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Source: Textile Organon
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EXHIBIT A-XX
Environmental Protection Agency
PLANT LOCATION SUMMARY
OF THE TEN MAJOR STATES
EPA
REGION
I
II
III
IV
Sub-Total
All Others
Total Identified
STATE
Massachusetts
Rhode Island
New York
New Jersey
Pennsylvania
North Carolina
Tennessee
South Carolina
Georgia
Alabama
in Textile World
NUMBER
OF PLANTS %
248 6.0
177 4.3
414 10.0
249 6.0
449 10.8
947 22.8
111 2.7
335 8.1
318 7.7
116 2.8
Survey
REGIONAL
TOTAL %
425 10.3
663 16.0
449 10 .8
1827 44.1
3364 81.2
780 18.8
4144 100.0
-------
APPENDIX (13)
Textile Mill Employee Concentration
EPA Number of Percent
Region State Employees of Total
IV North Carolina 278, 700
IV South Carolina 148, 000
IV Georgia 116,400
Subtotals 543, 100
All Others 507, 530
Totals 1,050,630 100.0
Source: American Textile Manufacturers Institute, Inc. and
Textile World survey.
After Region IV, Region III leads in number of employees with
Pennsylvania accounting for 7 percent of all employees. Other states
having significant textile employment include New York (6 percent),
Virginia (4 percent) and Alabama (4 percent).
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