United State*
Environmental Protection
Agency
Office of Water Regulations
and Standards
Washington, OC 20460
EPA 440/5-34-012
June 1984
Economic Impact Analysis of Noticed
Effluent Limitations and
Standards for the Pesticide
Chemicals Industry
QUANTITY
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ECONOMIC IMPACT ANALYSIS OF
EFFLUENT LIMITATIONS GUIDELINES AND STANDARDS
FOR THE PESTICIDE CHEMICALS INDUSTRY
Submitted to
Environmental Protection Agency
Office of Analysis and Evaluation
Office of Water Regulations and Standards
Washington, DC 20460
Submitted by:
Meta Systems Inc
10 Holworthy Street
Cambridge, MA 02138
June 1984
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This document is an economic impact assessment of the recently noticed efflu-
ent limitations guidelines and standards. The report is distributed to EPA
Regional Offices and state pollution control agencies and directed to the
staff responsible for writing industrial discharge permits. The report
includes detailed information on the costs and economic impacts of various
treatment technologies. It should be helpful to the permit writer in evalu-
ating the economic impacts on an industrial facility that must comply with BAT
limitations or water quality standards.
The report is also being distributed to EPA Regional Libraries, and copies are
available from Ifetional Technical Information Service (NTIS), 5282 Port Royal
Road, Springfield, VA 22161, (703) 487-4550.
If you have any questions about this report, or if you would like additional
information on the economic impact of the regulation, please contact the Econ-
omic Analysis Staff in the Office of Water Regulations and Standards at EPA
Headquarters:
401 M. Street, SW (WH-586)
Washington, DC 20460
(202) 382-5397
The staff economist for this report is Josette Bailey (202/382-5397).
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PREFACE
This document is a contractor's study prepared for the Office of Water
Regulations and Standards of the Environmental Protection Agency (EPA). The
purpose of the study is to analyze the economic impact which could result from
the application of effluent limitations guidelines and standards issued under
Sections 301, 304, 306 and 307 of the Clean Water Act to the Pesticide Chemi-
cals Point Source Category.
The study supplements the technical data (Section IV of the Pesticide
Chemicals Industry Administrative Record) supporting the notice of these regu-
lations. Section IV surveys existing and potential waste treatment control
methods and technologies within particular industrial source categories and
supports certain effluent limitations guidelines and standards based upon an
analysis of the feasibility of these standards in accordance with the require-
ments of the Clean Water Act. Presented in Section IV are the investment and
operating costs associated with various control and treatment technologies.
The attached document supplements this analysis by estimating the broader
economic effects which might result from the application of various control
methods and technologies. This study investigates the impact on product price
increases, employment and the continued viability of affected plants, and
foreign trade.
This study has been prepared with the supervision and review of the Office
of Water Regulations and Standards of EPA. This report was submitted in ful-
fillment of EPA Contract No. 68-01-6426 by Meta Systems Inc. This analysis
was completed in June 1984.
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TABLE OF CONTENTS
Chapter 1; Executive Summary
1.1 Introduction 1-1
1.2 Methodology 1-2
1.3 Industry Characteristics 1-6
1.4 Baseline Projections 1-8
1.5 Effluent Guideline Control Options and Costs 1-8
1.6 Economic Impact Analysis 1-9
1.7 Small Business Analysis 1-10
Chapter 2; Economic Assessment Methodology
2.1 Overview 2-1
2.2 Industry Characteristics 2-2
2.3 Industry Surveys 2-2
2.4 Baseline Estimates 2-5
2.5 Price Changes 2-11
2.6 Production, Profit and Employment Changes 2-13
2.7 Potential Plant and Product Line Closures 2-14
2.8 Small Business Analysis 2-20
2.9 New Sources 2-20
Chapter 3; Industry Characteristics
3.1 Overview 3-1
3.2 Plant Characteristics 3-4
3.3 Structure of the Pesticide Industry. . 3-16
3.4 Exports and imports 3-34
Chapter 4; Baseline Projections of Industry Conditions
4.1 Pesticide Manufacturing. 4-1
4.2 Pesticide Formulating and/or Packaging (PFP) 4-6
Chapter 5; Effluent Guideline Control Options and Costs^
5.1 Overview ..... 5-1
5.2 Control and Treatment Technology Costing 5-1
5.3 Compliance Cost Estimates 5-3
Chapter 6; Economic Impact Analysis
6.1 Price, Quantity and Profit Changes 6-1
6.2 Plant Closure Potential 6-2
6.3 Other Economic Impacts 6-6
6.4 New Source Impacts 6-8
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of Contents (continued)
Chapter 7; Small Business Analysis
7.1 Introduction 7-1
7.2 Definition of Small Business 7-1
7.3 Pesticide Manufacturers 7-2
7.4 Pesticide Ebrmulator/Packagers 7-4
Chapter 8; Limits of the Analysis
8.1 Pesticide Active Ingredient Manufactures 8-1
8.2 Metallo-Organic Pesticides 8-2
8.3 Pesticide Formulator/Packagers 8-3
References R-l
Appendix 2-A; 308 Survey of Pesticide Formulator/Packagers . . . 2-A-l
appendix 2-B; Estimation of j>rice Elasticities of Demand .... 2-B-l
Appendix 2-C; Estimating the Net Present Value ......... 2-C-l
appendix 3-A; Information on Zero Discharger
Formulating/Packaging Plants ........... ..... 3-A-l
appendix 3-B; Comparison of Profitability Ratios;
Pesticide Manufacturing Firms ......... . ...... 3-B-l
appendix 3-C; Comparison of Profitability Ratios
For Formulating/Packaging Firms ............... 3-C-l
appendix 3-D; Historical Data on Pesticide
Active Ingredients; Production Quantity and Value ...... 3-D-l
Appendix 3-E; Discussion of Major Markets
and Uses for Pesticides ................... 3-E-l
appendix 4-A; Estimating the Pesticide Manufacturing
1982 Baseline ........................ 4-A-l
^>pendix 4-B; Estimating the Formula tor/Packager
1982 Baseline ........................
appendix 6-A; Impacts If Indirect Discharge
Manufacturing Plants Require Biological
Treatment. ........ ................. 6-A-l
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List of Tables and Figures
1-1 Total Cost of Compliance and Industry Impacts 1-3
2-1 Ratios Used in Determining the Number of Plants in
the Entire PFP Industry 2-6
2-2 Relation of Quantity Sold in 1982 to Quantity
Produced in 1977 2-7
2-3 ITC Prices for Subgroups 2-9
3-1 Number of Pesticide Active Ingredients Manufacturers
by Employment Size 3-5
3-2 Geographic Location of Pesticide Active Ingredient
Manufacturing Plants by EPA Region 3-6
3-3 Total U.S. Pesticide Active Ingredients Production 3-7
3-4 Profile of Pesticide Chemicals Plants 3-9
3-5 Pesticide Production Capacity Utilization and Expansion . . . 3-11
3-6 Indirect Discharge Pesticide Formulator/Packagers 3-13
3-7 Geographic Location of Pesticide Formulating/Packaging Plants 3-14
3-8 Characteristics of Pesticide Formulating/Packaging (PFP)
Plants by Percent of Internally Manufactured Active
Ingredients. 3-17
3-9 Pesticide Formulator/Packagers Employment Summary for
Zero-Discharge Plants 3-18
3-10 Raw Materials and Key Chemical Intermediates Used in
Pesticide Manufacture 3-20
3-11 Concentration Ratios Based on Pesticide Active
Ingredient Sales 3-21
3-12 Comparison of Profitability Ratios: Pesticide Manufacturing 3-23
3-13 Estimated Composition of U.S. Pesticide Chemicals Production 3-28
Fig. 3-1 Annual Pesticide Production by Product Type 3-32
Fig. 3-2 Annual Pesticide Value by Product Type 3-33
3-14 U.S. Production and Trade in Herbicides 3-35
3-15 U.S. Production and Trade in Insecticides 3-36
3-16 U.S. Production and Trade in Fungicides 3-37
3-17 Annual Growth Rates for Volume and Value of U.S. Pesticides
Exports (1970-1980) 3-38
3-18 The World Pesticide Market, 1980, User's Level,
Percent of Market 3-40
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List of Tables and Figures (continued)
4-1 Baseline Production Quantity and Value of Pesticide
Active Ingredients 4-5
4-2 1982 Baseline for Indirect Discharge PPP Plants 4-7
4-3 1982 Baseline Value of Production and Employment Estimates
for all PPP Plants 4-9
4-4 Baseline Value of Production and Employment Estimates, 1982
and 1990 Pesticide Formulating Packaging 4-11
5-1 Tbtal Cost of Compliance 5-4
6-1 Price, Quantity and Profit Impacts for Pesticide
Manufacturers and Formulator/Packagers 6-3
6-2 Summary of Plant and Product Line Closures 6-4
7-1 Distribution of Treatment Cost impacts on Large and Small
Firms: Pesticide Active Ingredients Manufacturing . . . 7-3
7-2 Distribution of Treatment Cost Impacts on Large and Small
Firms: Pesticide Formulator/Packagers 7-5
2-B-l Estimated Coefficients for Pesticide Production (Total
and For Each Product Group) 2-B-2
2-C-l Ratios to be Used in Net Present Value Calculations Based
on Simple Average of Values for 1982, 1981 and 1980 . . 2-C-3
2-C-2 Ratio of Operating Income to Sales (Operating Margins) for
Pesticide Production and for
total Corporate Sales, 1980 2-C-4
2-C-3 Estimated Real Rate of Return 2-C-6
3-A-l Pesticide Formulator/Packagers Zero Dischargers:
SIC Code Summary 3-A-2
3-A-2 Pesticide Fbrmulator/Packagers Zero Dischargers 3-A-3
3-B-l Profitability Ratios for Thirty One Firms 3-B-2
3-B-2 Profitability Ratios for Three Industries (Percentage).... 3-B-3
3-C-l Financial Ratios for Pesticide Formulating and Packaging
Corporations 3-C-2
3-C-2 Profitability Ratios for Four Industries (Percentages).... 3-C-3
3-D-l U.S. Herbicide Production (1967-1983) 3-D-2
3-D-2 U.S. Insecticide Production (1967-1983) ..... 3-D-3
3-D-3 U.S. Fungicide Production (1967-1983) 3-D-4
4-B-l Estimates of Value of PFP Shipments by Various Sources. . . . 4-B-2
6-A-l Comparison of impacts: Pesticide Manufacturing
Subcategory 1 6-A-2
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1. EXECUTIVE SUMMARY
1.1 Introduction
This report presents and analyzes the economic effects on the pesticide
chemicals industry of effluent limitations guidelines and standards being con-
sidered in the Notice of Availability. The Notice announces the availability
for public review, of technical and economic data gathered and supportive
documentation developed subsequent to proposal of the regulation. These regu-
lations include limitations and standards based on:
o Best Practicable Control Technology Currently Available (BPT);
o Best Available Technology Economically Achievable (BAT);
o Pretreatment Standards for Existing Sources (PSES);
o New Source Performance Standards (NSPS); and
o Pretreatment Standards for New Sources (PSNS).
The regulations are being noticed under authority of Sections 301, 304,
306, and 307 of the Federal Water Pollution Control Act, as amended by the
dean Water Act of 1977 (Public Law 92-500). The primary factors examined by
this study to determine the effects of these regulations include:
o Total capital and annual costs of compliance with the regulations;
o Potential changes in price, production costs, and profit;
o Potential plant and product line closures;
o Potential-employment reductions;
o Balance of trade impacts;
o Impacts on new sources; and
o impacts on small businesses.
For the purposes of this analysis, the pesticide chemicals industry is
divided into three subcategories. The first is composed of plants that manu-
facture pesticide chemicals (active ingredients). This report analyzes 114
manufacturers of pesticide active ingredients, which comprise the majority of
production in the United States. Effluent limitations guidelines and
standards are being noticed for both direct and indirect discharge plants.
The second subcategory includes plants that manufacture raetallo-organic
pesticides. This report analyzes the economic effects of the effluent limi-
tations guidelines and standards for the one indirect discharge plant identi-
fied by the Agency as a manufacturer of metallo-organic pesticides.
The third subcategory is composed of pesticide formulating/packaging (PFP)
plants that combine the pesticide active ingredients with substances such as
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diluentSr emulsif lets,. and .wetting agents,to produce final products .and/or*, „„,
package them for distribution and sale. The plants included in the scope of
this regulation encompass only those that formulate and/or package agri-
cultural or household pest control products. (Herein referred to as PFP
plants.) A separate study was conducted for the soaps and detergents industry
which included sanitizers and disinfectants (SIC 2841) and these products are
not covered by the scope of this regulation. Since direct dischargers already
have been required to achieve zero discharge, the economic effects of the
effluent limitations guidelines and standards examined in this report will
apply only to indirect discharge PFP plants. The Agency estimates that there
are approximately 210 indirect discharge PFP plants. A sample of 56 PFP plants
are analyzed. Total compliance costs for PFP plants are based on an extra-
polation of data from the 56 indirect discharge PFP plants, and the economic
impacts for PFP plants are based on an extrapolation of data from the 49
indirect discharge PFP plants which submitted financial and production data.
A summary of the impacts for the three subcategories is shown on Table
1-1. The remainder of this chapter summarizes each of the following chapters
in order.
1.2 Methodology
1.2.1 Overview
The methodologies used to analyze the three subcategories of the pesticide
chemicals industry are basically the same. The major steps in the analysis
are:
o Estimate baseline (i.e., without additional treatment requirements)
prices and production levels.
o Estimate effects of treatment costs on prices, production costs, and
profitability.
o Estimate the likelihood of plant and product line closures based on a
comparison of the current liquidation value of the plant to the net
present value of the sum of earnings a plant could expect to earn if
it met the regulations. This is called the net present value test
(NPV) .
These steps are described in more detail in the following paragraphs.
Treatment cost estimates for specific plants are provided by the Effluent
Guidelines Division in EPA, based on their analyses of the waste streams at
each plant and treatment systems which would enable each plant to meet the
effluent limitations guidelines and standards. In addition, treatment cost
estimates include monitoring costs and the incremental costs to comply with
the Resource Conservation and Recovery Act (RCRA) requirements.
1-2
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Table 1-1
Ibtal Cost of Compliance and Industry Impacts
Pesticide
Manufacturers
Metallo-Organic
Pesticide Pesticide
Formulator/Packagers Manufacturers
Number of plants
Number of plants
with costs
Capital Cost of
Compliance ($1,000)**
Annual Cost of
Compliance ($1,000)**
% increase in Price
Total
Herbicides
Insecticides
Fungicides
% Increase in Production
Total
Herbicides
Insecticides
Fungicides
% Decrease in Profit
Total
Herbicides
Insecticides
Fungicides
Total
114 *
53 *
94,254
41,406
1.07
1.20
0.77
1.23
Cost
2.45
2.25
2.50
4.11
0.58
0.80
0.25
0.42
Direct
42
29
70,806
31,709
1.07
1.20
0.77
1.23
2.53
2.39
3.36
1.99
0.58
0.80
0.25
0.42
Indirect
37
26
23,448
9,697
1.07
1.20
0.77
1-23-.
2.30
1.72
1.09
8.94
0.58
0.80
0.25
0.42
Indirect
210
210
3,153
64,928
0.0
0.0
0.0
0.0
5.74
N.A.
N.A.
N.A.
11.43
N.A.
N.A.
N.A.
Zero Option 1 Option 2
720 1 1
0.0 1 1
0.0 47.0 0.0
0.0 129.8 535.0
0.0 0.0 0.0
0.0 0.0 0.0
0.0 0.0 0.0*
0.0 0.0 0.0
0.0 + +
0.0 + +
0.0 + +
0.0 + +
N.A. + +
N.A. + +
N.A. + +
N.A. + +
* Two plants with both direct and indirect wastewater flows are included in the count of
directs and indirects, but are counted only once in the total. In addition to the directs and
indirects, there are 37 plants included in the total count that are zero dischargers.
** Cost of compliance includes treatment, monitoring and RCRA costs.
Costs are in 1983 dollars.
N.A. = Not applicable to the scope of this regulation.
+ Not reported due to confidentiality.
1-3
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1.2.2 Industry Surveys
Much of the analysis is based on the responses to two 308 Surveys con-
ducted by EPA. In 1977, the Agency surveyed 117 pesticide active ingredient
manufacturing plants. Since then, three of the plants have discontinued manu-
facturing pesticide active ingredients—therefore, only 114 manufacturing
plants are included in this analysis. In 1983, EPA surveyed forrau-
lator/packager plants. The survey consisted of two steps. First, a telephone
survey was performed on a sample of plants drawn from the EPA Office of Pesti-
cide Programs (GPP) file. The purpose of the telephone survey was to identify
indirect discharge facilities that formulate and/or package agricultural
pesticides or household pest control products, as defined by this regulation.
A written questionnaire was sent to each plant identified by the telephone
survey as an indirect discharger within the scope of the regulation. Based on
the results of the telephone and written surveys, it is estimated that there
are approximately 930 PPP plants of which 210 are indirect dischargers. The
economic analysis for the PFP subcategory includes 49 indirect discharge PPP
plants for which sales data were available from their written 308 Survey
responses. The results are extrapolated to assess the effects on the esti-
mated 210 indirect discharge PFP plants to be covered by the regulation.
1«2»3 Baseline Estimates
A baseline description of industry conditions (i.e., without additional
treatment requirements) was developed separately for pesticide manufacturers
and for pesticide formulator/packagers. The pesticide manufacturers baseline
is derived from the production levels reported by individual manufacturing
plants in the 1977 308 Survey. Baseline production levels are estimated by
adjusting the 1977 levels of production to reflect production levels and pro-
duct mix in 1982. This adjustment was necessary because production levels of
many pesticides had decreased significantly between 1977 and 1982, while
prices had increased. Therefore, a baseline using 1977 production levels
would have overstated revenues for many plants in 1982. The quantity and
price data are provided by the International Trade Commission (ITC).i/ Pro-
duction quantity and value are also estimated separately for the three major
product groups: herbicides, insecticides and fungicides, at each plant. This
provides an adjusted total quantity of output for each of the 114 plants and
an adjusted value of production. The total quantity and value of production
for the manufacturing subcategory are equal to the sum of the quantities and
values at all the individual plants. These adjusted plant quantities and
revenues are used in the closure analysis.
The baseline, value of production (i.e., production in the absence of addi-
tional treatment requirements) for formulator/packagers is derived from
i U.S. International Trade Commission, Synthetic Organic Chemicals, 1977
and 1982, OSITC publications 920 and 1422.
1-4
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data provided primarily by the U.S. Bureau of the Census, for SIC Product
Group 2879i/ and the 308 Survey results for indirect discharge forau- -
lator/packager plants. The 308 Survey was used to estimate a baseline for the
indirect discharge PFP plants, while total PFP production was derived from the
Census data. The difference between industry totals and indirect discharge
estimates are attributed to the zero discharge plants. The PFP subcategory is
analyzed as one market and not evaluated on a product group basis because the
costs of compliance for this subcategory do not vary with the type of pesti-
cide handled and because more detailed plant-specific and pesticide-specific
financial data were available from the 1983 308 Survey making product group
analysis unnecessary.
1.2.4 Price, Production and Profit Changes
It is assumed that manufacturers of pesticide active ingredients (Sub-
category 1) will increase their prices in response to the regulations. The
percentage increase in price for pesticide manufacturers is assumed equal to
the average cost increase (i.e., the total annual cost of providing treatment
for all plants in each product group divided by the total sales for that pro-
duct group). This increase in prices will result in a decrease in demand, and
thus a decrease in production levels and in profits. The amount that produc-
tion levels decrease depends on the price change and the price elasticity of
demand. Price elasticities are estimated for each of the three product
groups: -0.67 for herbicides, -0.32 for insecticides, and -0.35 for fungi-
cides. It is assumed that the profit per pound of product is unchanged by the
regulation. Therefore, profits drop by the amount of decrease in production.
It is assumed that the one plant identified by the Agency as an indirect
discharge metallo-organic pesticide manufacturer will not be able to pass any
of its treatment costs on to its customers. There are a number of other
metallo-organic pesticide manufacturers who will not incur any costs as a
result of this regulation, since they are direct dischargers regulated under
BPT. Therefore, the no cost pass through assumption is reasonable. With no
price change, there is no change in production levels and the total cost of
compliance will come out of this plant's profits.
It is assumed that PFP plants will not increase their prices in response
to the regulations. Since there are relatively few indirect discharge formu-
lator/packager plants affected by these effluent limitations guidelines and
standards (210 out of 930), it is assumed that none of the costs can be passed
on to customers in the form of higher prices. With no price change, there is
no change in production levels. Thus, indirect discharge formulator/packaging
plants will experience a reduction in profits equal to the cost of this
regulation.
i/ U.S. Department of Commerce, 1981 Annual Survey of Manufactures, M81
(AS)-2.
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1.2.5 Potential Plant and Product Line Closures
For the pesticide active ingredient manufacturing subcategory, the closure
analysis begins with a screening of plants to identify potentially impacted
plants and product lines. The screening compares annual compliance cost to
sales (ACC/S) at each plant. For plants with an ACC/S of one percent or more,
a net present value analysis (NPV) is performed. The NPV analysis is a com-
parison of the current liquidation value to the potential discounted earnings
(including a final liquidation value) over a ten year period, with treatment
costs included. If the current liquidation value is less than the sum of the
discounted earnings, the Agency assumes that the company will invest in the
necessary treatment equipment and remain open. For plants which
are potential closure candidates according to the NPV test, additional factors
are considered to refine the assessment of closure. These factors include:
the pesticide products made, the financial strength of the parent company, and
the degree to which this operation is important to the rest of the parent
company's business.
This same three-step procedure is used to assess the potential for closure
of the one metallo-organic pesticide manufacturer analyzed. However, there
are two major differences between the analysis of plants in Subcategories 1
and 2. Pesticide active ingredient sales were not estimated on the basis of
1977 production levels for the one metallo-organic plant. Instead, sales were
derived from the company's public comment to the Agency. Second, two regula-
tory options were analyzed for Subcategory 2, instead of only one.
Since only a sample of PFP plants is analyzed, the screening ratio is not
applied and the NPV analysis is performed for each of the plants. Plant spe-
cific operating costs and revenues are available from the 1983 308 Survey.
Therefore, the net present value without treatment costs, as well as with
treatment costs, is calculated to determine the financial condition of each
plant in the absence of this regulation. A plant which fails the net present
value test without treatment costs is considered a baseline closure. Plants
which fail the NPV test with treatment costs, but do not fail the NPV test
without treatment, are considered potential closures due to the regulation.
1.3 Industry Characteristics
Pesticides are generally characterized by the type of pest controlled.
There are three major product groups which describe both active ingredients
and formulated/packaged products. These three product groups are:
o Herbicides, which control, prevent, or eliminate unwanted plants and
plant parts;
o Insecticides, which control or prevent insects; and
o Fungicides, which control or destroy fungus and bacteria.
1-6
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Herbicides are the most important product group in terms of quantity of
pesticide active ingredients produced. Of the three product groups, it has
experienced the most rapid growth over the past 15 years. This is the result
of: increased acreage; development of new products; and more wide-spread, as
opposed to infestation specific, use. The second most important group in
teems of production is insecticides, and the smallest group is fungicides.
There are 114 plants which manufacture pesticide active ingredients anal-
yzed by this report. Of the 114 plants, 40 are direct dischargers, 35 are
indirect dischargers and two plants have both direct and indirect wastewater
flows. Thirty-seven other plants are zero dischargers because they utilize
other means of discharge, such as deep well injection.
The 114 plants in the pesticide manufacturing subcategory are owned by 81
companies. These plants are located throughout the country with concentra-
tions in the Southeast, the upper Midwest, the far West, and New York/New
Jersey. Pesticides are generally manufactured in plants which also produce
other products such as organic chemicals, including Pharmaceuticals. With the
exception of certain high-volume products, such as the cotton insecticide
toxaphene, pesticides generally are not produced throughout the year.
It is difficult to obtain financial data on the pesticide operations of
specific companies, since pesticide operations are generally not a major
source of revenue for most of the companies and are not reported separately.
Manufacturers of pesticide active ingredients include pertroleum companies,
chemical companies, and pharmaceutical companies. The industry is relatively
concentrated, with the top four companies accounting for 46 percent of the
total industry value of pesticide production. Certain segments of the
industry exhibit greater levels of concentration.
Agriculture constitutes the major market for pesticides. Demand is some-
what inelastic due to the relatively low cost of pesticides and their import-
ance to farmers in maintaining crop production levels. The demand for pesti-
cides is influenced by a number of factors which include: national farm
policies and programs, crop acreage, pest conditions, weather, farm income,
interest rates, pesticide prices, foreign crop production and exchange rates,
and farming techniques.
The pre-tax profitability of specific pesticides varies from 10 percent to
over 40 percent of sales, depending on the demand for each product, the pro-
duct's effectiveness, whether the product is patented or not, and the avail-
ability of substitutes. The profitability of a specific product may shift as
demand changes, as patents expire, and substitutes become available.
Qitry into the pesticide active ingredient manufacturing sector of the
pesticide industry usually requires a significant capital investment. Devel-
opment of new products is also heavily dependent on research and development
expenditures, or the licensing of the rights to produce a pesticide.
1-7
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The United States, is. a net .exporter of,,peaticides. .On the basis of pesti-
cide active ingredientsr in 1980 the U.S. exported about 7.5 pounds for every
pound imported. In 1980, exports of herbicides were equivalent to 16 percent
of domestic production; for insecticides and fungicides, exports were 26 and
29 percent of U.S. production, respectively. Since 1980, imports have
increased, while exports declined. In 1982, the U.S. exported about four
pounds for every pound imported.
There are about 930 plants which formulate and/or package pesticides;
approximately 210 are indirect dischargers. The plants tend to be concen-
trated in the Southeast and upper Midwest regions. Based on the 308 Survey
about half of the indirect discharge PFP plants also manufacture some of the
active ingredients that they formulate and package. There has been a signi-
ficant trend over the past 10 years for manufacturers to integrate downstream
and to formulate and package their own active ingredients. Formulating and
packaging pesticides is less capital intensive than pesticide manufacturing.
1.4 Baseline Projections
Production of pesticide active ingredients by the 114 plants in 1982 is
estimated to be 1.17 billion pounds, with sales valued at $3.85 billion. This
production represents a capacity utilization rate of only 65 percent. Pro-
duction in 1990 is projected to be 1.28 billion pounds, with a value (in 1982
dollars) of $4.95 billion. This represents an annual growth rate for produc-
tion quantity of 1.7 percent and for unit value of 1.9 percent in real terms.
The value of PFP products by all plants in 1982 is estimated at $5.20 bil-
lion, of which indirect dischargers account for $2.81 billion (or 54 per-
cent) . The value of production for formulator/packager plants is estimated to
grow at the same rate as for manufacturers, resulting in a value in 1990 of
$6.69 billion for pesticide formulated/packaged products of which $3.63 bil-
lion will be produced by indirect dischargers.
1.5 Effluent Guideline Control Options and Costs
BPT, BAT, PSES, PSNS and NSPS effluent limitations guidelines and
standards are being analyzed for pesticide plants that manufacture active
ingredients (Subcategory 1). Only PSES, PSNS and NSPS effluent limitations
guidelines and standards are being analyzed for pesticide plants that manufac-
ture metallo-organic pesticide active ingredients (Subcategory 2) and plants
that formulate and/or package pesticides (Subcategory 3). BPT for Subcate-
gories 2 and 3 already requires zero discharge.
1-8
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For most of the direct discharge plants in Subcategory 1, the recommended
treatment is physical/chemical plus -bio-logical "treatment* j-H©weverr;«tetee*Ageney*&
determined that in some instances where plants did not have biological treat-
ment installed, it was less costly to install additional physical/chemical
treatment to meet the BAT effluent limitations guidelines and standards. For
indirect discharge plants in Subcategory 1, the Agency does not believe bio-
logical treatment will be necessary/ because the physical/chemical treatment
systems recommended and costed have design capacities that are large enough to
achieve the PSES limits. Two regulatory options are analyzed for raetallo-
organics pesticide manufacturers: 1) mercury treatment using zinc precipita-
tion, and 2) zero discharge. Indirect discharge PFP plants are required to
meet zero discharge under the regulation.
The total capital and annual costs of compliance are shown in Table 1-1.
For pesticide active ingredient manufacturing plants, the cost of compliance
is the sum of three components: 1) the cost of the wastewater treatment
system, 2} the monitoring costs, and 3) the incremental costs to comply with
the Resource Conservation and Recovery Act (RCRA) .
The cost estimates for the one metallo-organic plant come from two
sources. The mercury treatment costs were presented by the company in their
public comments. The zero discharge costs are estimated by the Effluent
Guidelines Division in EPA. For pesticide formulating/packaging plants, all
indirect discharge facilities incur costs.
1.6 Economic impact analysis
Among the 114 manufacturing plants, 22 have an Annual Compliance Cost to
Sales (ACC/S) ratio between 1.0 and 9.5 percent, three plants have a ratio
between 9.5 and 19.5 percent, and three have a ratio above 19.5 percent.
Price increases for manufacturers of pesticide active ingredients are
expected to average approximately one percent, with associated increases in
the cost of production of approximately 2.5 percent as shown in Table 1-1.
For the three product groups, the percentage changes in prices and cost of
production are: for herbicides, 1.2 percent increase in price and a 2.3 per-
cent increase in the cost of production; for insecticides, 0.8 percent
increase in price and 2.5 percent increase in the cost of production; and for
fungicides, 1.2 percent increase in price and a 4.1 percent increase in the
cost of production. The metallo-organic manufacturer is not expected to raise
prices in response to this regulation. The change in the cost of production
is not reported because the information is confidential. Formula tor/packagers
are not expected, to increase prices in response to these regulations. Average
profits will decline by approximately 11 percent for the indirect discharge
PFP plants.
As a result of the NPV analysis, three plants which manufacture pesticide
active ingredients (Subcategory 1) are expected to shut down their
1-9
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pesticide product .lines., FQjir plants which.formulate/package pesticides are
also expected to shut down their pesticide product lines.- Other products are
also produced at these seven plants and production of these products is
expected to continue. The one metallo-organic indirect discharger is not
expected to close as a result of this regulation.
If the three manufacturing plants discontinue their pesticide production,
this will result in the loss of 156 jobs. The four plants which formu-
late/package pesticides employ about four full-time PFP employees. The seven
plants with potential product line closures are located in seven different,
relatively large metropolitan areas and the job losses are not expected to
significantly impact the surrounding communities.
The small price increases which will result from the regulation are
expected to have little impact on overall foreign trade trends. Likewise, the
product line closures are not expected to alter the structure of this industry.
Since there are no incremental costs above BAT and PSES associated with
the new source performance standards (NSPS and PSNS), no additional impacts
are expected.
The impacts projected for the pesticide chemicals industry in future years
are less severe than for 1982. For pesticide active ingredient manufacturers
the total cost of compliance represents about 0.8 percent of the value of pro-
duction (in 1983 dollars) in 1990 compared to 1.1 percent in 1982. Therefore,
changes in price, cost of production, and profits will be less severe in 1990
than the 1982 estimates. For the indirect discharge formulating/packaging
plants, the profit reduction is estimated to be approximately 8.8 percent in
1990 compared to 11.4 percent in 1982.
1.7 Small Business Analysis
The small business analysis was conducted to determine whether the regula-
tions may place a disproportionate burden on small businesses. For purposes
of this analysis, companies that manufactured pesticide active ingredients are
considered small if their annual sales are less than $10 million. Companies
that formulate/package pesticides are considered small if corporate sales are
less than $5.5 million. In terms of the ACC/S ratio and the number of
closures, these regulations will have no small business impact on either
pesticide active ingredient manufacturers or formulator/packagers.
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2. ECONOMIC ASSESSMENT METHODOLOGY
2.1 Overview
This chapter describes the methodology, assumptions and data sources used
in the analysis of the effects of treatment costs on the pesticide chemicals
industry. The primary variables examined to determine the effects of the
treatment costs are: changes in prices, production costs, profit, and
employment; potential closures of plants and product lines; and shifts in
foreign trade. The analysis also determines whether small businesses may
bear a disproportionate share of the treatment costs to be incurred by the
industry. Finally, the effects of treatment costs on new sources and the
prospects for construction of new facilities or major modificatons to exist-
ing facilities are considered.
The economic impact assessments utilize wastewater treatment costs devel-
oped by the Effluent Guidelines Division in EPA. The waste streams of pesti-
cide plants were studied by the Effluent Guidelines Division, and treatment
systems (with associated costs) that enable each plant to meet the noticed
effluent guidelines were identified. These treatment costs include monitor-
ing costs and the incremental costs to comply with the Resource Gonservaton
and Recovery Act (RCRA). The development of the estimated treatment costs
for the pesticide chemicals industry, the assumptions made and the data used,
are described in Section IV, Subpart B of the Pesticide Chemicals Rulemaking
Record. The treatment costs are used along with the baseline estimates (an
estimate of conditions in the industry in the absence of the regulations) to
analyze the aggregate effect on the pesticide chemicals industry and on the
major markets in which pesticides are used. In addition, a plant-level anal-
ysis is conducted to assess the likelihood that plants, or product lines,
might close in response to the regulations. Pesticide manufacturing
plantsl/ are first screened to identify plants and/or product lines with
potentially large impacts, by comparing the annual compliance costs to sales
(ACC/S). Pesticide manufacturing plants with ACC/S ratios greater than the
threshold value of one percent are subjected to a net present value (NPV)
analysis to identify potential closure candidates. The NPV analysis is also
used to identify formulator/packager plants?/ which are potential closure
candidates.
In general, the study proceeded through the following steps:
i/This includes Subcategory 1: Pesticide Active Ingredient Manu-
facturers, and Subcategory 2: Manufacturers of Metallo-Organic Pesticides.
2/This includes Subcategory 3: Pesticide Formulator/Packagers.
-------
o Description ,iof industry cjtwcactecistios*,-^^^
o Estimation of price elasticities;
o Development of industry baseline conditions;
o Analysis of compliance cost estimates;
o Estimation of changes in price, production costs, and profit;
o Assessment of plant closure potential;
o Assessment of other impacts;
o New source analysis; and
o Small business analysis.
As described in Chapter 3, the pesticide chemicals industry is a two-
tiered industry. First the pesticide chemicals, or active ingredients, are
manufactured. Second these chemicals are formulated into usable forms and
packaged for sale and distribution. While many companies manufacture and
formulate/package active ingredients at the same location, a majority of the
plants do one or the other. The two tiers are analyzed separately, even
though there are interrelationships, because the effluent guidelines are
being developed by EPA separately for the two tiers. The first tier,
manufacturers, is broken into two subcategories: Pesticide Active Ingredient
Manufacturers and Metallo-Organic Pesticides Manufacturers. The joint impact
of the regulations on pesticide manufacturers and on formulator/packagers is
analyzed where relevant.
2.2 Industry Characteristics
The first step in the analysis is to describe the basic characteristics
of the pesticide chemicals industry. The characteristics are presented in
Chapter 3, and include:
o Description of the industry subcategories;
o Plant characteristics;
o Product characteristics;
o Company characteristics, including concentration ratios, vertical and
horizontal integration, and financial aspects;
o Description of markets; and
o Export and Imports.
Chapter 3 uses information obtained through the pesticide chemicals industry
308 Surveys described below, the U.S. Department of Commerce's Census of
Manufacturers, information from the U.S. Department of Agriculture, EPA,
industry studies like the Kline Guide, and company annual reports.
2.3 Industry Surveys
Much of the analysis is based on the results of two 308 Surveys conducted
by EPA. The 1978 survey addressed manufacturers of pesticide active
2-2
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ingredients and collected data for 1977. The 1983 survey addressed pesticide
formulator/packagers and collected data for 1982*- --'-
2.3.1 Manufacturers of Pesticide Active Ingredients
The survey of pesticide active ingredient manufacturing plants collected
data on production levels and wastewater characteristics. This survey
covered the 117 manufacturing plants within the scope of the proposed regula-
tions. Since then, three of these plants have discontinued manufacturing
pesticide active ingredients. Therefore, 114 manufacturing plants are anal-
yzed in this study and they are assumed to comprise most of the manufacturing
plants within the scope of this regulation. One of these 114 plants produces
both pesticide active ingredients in Subcategory 1 and pesticide metallo-
organic chemicals in Subcategory 2.
2.3.2 Pesticide Eormulator/Packagers (PFP)
The majority of the information obtained on pesticide formulator/packager
(PFP) plants is from a 308 Survey conducted by EPA in late 1983 and early
1984. Initially, EPA's Office of Pesticide Programs (OPP) identified 2,842
plants as formulators/packagers of pesticide products. After removing dupli-
cates, this number was reduced to 2,324 plants. However, this number
included plants that formulate/package substances not included within the
scope of this regulation, such as soaps and detergents, sanitizers and disin-
fectants. These products, which are part of SIC 2841, were covered by a
separate study. In addition, the OPP list did not indicate the discharge
status of any of these plants. Therefore a telephone survey was conducted
for a sample of these plants. The plants in the sample are representative of
all the plants on the list of 2,324, because they were selected from the list
on a random basis.
The telephone survey identified those plants that formulate/package agri-
cultural or household pest control products and that discharge wastewater (or
any other liquid) to a publicly owned treatment works (POTW) or to a pri-
vately owned treatment facility.I/ That is, the telephone survey iden-
tified indirect discharge PFP plants as defined by this regulation. If all
plants in the sample had responded to the telephone survey, then the number
of plants in the sample which are indirect discharge PFP plants, as defined
by this regulation, is n, where:
i/If the privately owned treatment facility is owned by the same firm as
the PFP plant, the PFP plant is excluded.
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n « S - x - x (1)
where: S- - number of plants in the sample
*1 « number of plants in the sample that are not PFP plants as
defined by the regulations
x2 = number of PFP plants in the sample that do not discharge to a
POTW or private facility owned by another company.
Plants counted in X2 are zero dischargers since all direct dischargers
have been regulated to become zero dischargers.
Based on the total number of plants on the list (2,324) and n (calculated
above) , the total number of indirect discharge PFP plants in the industry
(designated as NI) is calculated as follows:
NI = (--) (2,324) (2)
and the total number of PFP plants, regardless of discharge status (desig-
nated as N) , is equal to:
N = ( - — ) (2,324) (3)
Thus, the proportion of all PFP plants which are indirect dischargers or
discharge to a privately owned treatment facility is NI/N. A written ques-
tionnaire (described in Appendix 2 -A) was sent to those plants identified by
the telephone survey as indirect discharge PFP plants. In addition, written
questionnaires were sent to two other groups from the sample of plants: 1)
plants that would not answer the questions on the telephone, and 2) plants
that could not be contacted by telephone because either no one answered the
telephone or no telephone number was listed. The responses from those three
groups were handled separately. In each of the three groups, not all surveys
were returned. It was assumed that the non-respondents in each group were
like the respondents in that group. In other words, the distribution across
categories found in the responses was applied to the non-respondents to obtain
an estimate for the total sample.
In many cases, the written survey confirmed the results of the telephone
survey, however,' in some cases the plant responded that it was not a PFP plant
and/or not an indirect discharger. Therefore, the number of indirect dis-
charge PFP plants identified by the telephone survey was reduced, while addi-
tional plants were identified from the plants which did not respond to the
telephone survey.
2-4
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In addition, a follow-up telephone survey was conducted of a sample of the
plants identified as zero discharge PFP plants by the telephone survey. -~Thts
follow-up survey found that 7 percent of these plants were actually indirect
discharge' PFP plants.
The number of plants and ratios shown in Table 2-1 reflect all the
adjustments made to the telephone survey results as a consequence of the writ-
ten responses. These ratios have been rounded to simplify the calculations
and applied to the total of 2,324 plants.
2.4 Baseline Estimates
The baseline describes conditions in the pesticide chemicals industry in
the absence of any additional costs for wastewater treatment. The conditions
described are the value and volume of production, profit, plant capacity and
employment. The baseline for manufacturers of active ingredients is developed
separately from, but not independently of, the baseline for formulator/pack-
agers. A separate baseline for metallo-organics pesticide chemicals is not
estimated.
2.4.1 Manufacturers of Active Ingredients
The baseline for manufacturers of pesticide active ingredients is devel-
oped for the year 1982 and then projected to 1990. The baseline quantity of
production is estimated from the production quantities (in pounds) reported
for 1977 on the 308 Survey, adjusted to reflect changes in production levels
between 1977 and 1982. The U.S. International Trade Commission (ITC) pub-
lishes data annually on the total quantity of active ingredients produced and
the average unit value (dollars per pound) for all pesticides, based on
reports of manufacturers. The ITC data shows that overall production levels
of pesticide active ingredients have dropped significantly between 1977 and
1982.i/ in addition, production levels for different products have changed
at different rates. Therefore, the 1977 production level of each pesticide
reported in the 308 Survey is adjusted by applying the ratio of quantity sold
in 1982 to quantity produced in 1977 for the relevant product subgroup. (See
Table 2-2.) This yields an estimate of the quantity sold in 1982. The
adjusted production level is estimated for each pesticide at each plant.
These adjusted production levels are then summed to yield: total pesticide
active ingredient production at each plant, total pesticide active ingredient
production at all plants, and total production of each product group,
(herbicides, insecticides, and fungicides).
j/Synthetic Organic Chemicals, 1982 USITC Publication 1422, and 1977
DSITC Publication 920.
2-5
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Table 2-1.
Ratios Used in Determining the
Number of Plants in the Qitire PPP Industry*
Sample
•Ratal Industry
Number
Percent
of Total
I Number
Percent
of Total
Total Plants 1067
Plants which are in
foreign locations,
which are already 79
closed or are
duplicates.
Plants not PFP 564
(designated x^ in text)
PFP Plants 424
(designated N in text)
PFP Plants—Zero Dischargers
(designated X2 in text) 329
PFP Plants—
Indirect Dischargers 95
(designated NI in text)
100.0
7.4
52.9
39.7
30.8
8.9
2,324
172
1,222
930
720
210
100.0
7.4
52.6
40.0
31.0
9.0
NOTE; PFP refers to plants which formulate/package agricultural or household pest
control products, as defined by this regulation. Plants which produce sanitizers
and disinfectants were included in a separate study of the soaps and detergents
industry (SIC 2841).
* Based on the combined results of the telephone survey and the responses to the
written survey. Only 49 of the indirect discharge PFP plants responded to the
written 308 Survey. An additional 7 responded to the follow-up telephone survey
of zero discharge PFP plants. The analysis presented in this report is based on
the 56 plants.
** Total Industry numbers have been rounded to simplify the calculations.
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Table 2-2.
Halation of Quantity Sold in 1982 to Quantity Produced in 1977
1
Product |
Cyclic
Fungicides
Naphthenic Acid
All other
Herbicides
2 , 4-Dichlorophenoxy-
ocetic acid dimeth-
ylamine salt
2,4-Disoctyl ester
All other
Insecticides
Organophosphorus
All other
Acyclic
Ringicide
Dithiocarbanic
acid salts
All other
Herbicides
Insecticides
Org anophosphorus
Trichloronitro-
methane
All others
Total ITC Pesticide
Groupl/ 1
ITC Other Groups?/
Ch lor obenzene
0-Dichlorobenzene
P-Dichlorobenzene
Tr ichlorobenzene
EDB
Grand Total 1 1
Source: Synthetic Organic
Quantity
1982 1
511
85,889
15,389
3,130
483,415
68,039
109,322
21,189
2,443
160,903
57,432
3,834
135,255
,146,751
63,799
35,159
49,468
503,233
75,777
.874.187 1
(000 Ib.) 1
1977 |
1,276
109,348
21,281
6,392
522,472
113,498
219,629
29,650
3,003
124,063
90,547
5,803
105,873
1,387,519
325,518
47,371
65,094
526,121
244,238
1 2.595.861 1
Chemicals, 1977 and 1982, U.S.
Ratio of
1982/1977
0.4005
0.7855
0.7231
0.4897
0.9252
0.5995
0.4978
0.7146
0.8135
1.2969
0.6343
0.6607
1.2775
0.826
0.1960
0.7422
0.7160
0.9565
0.3103
0.722
International Trad>
Commission.
i/ Section XIII, Pesticides and Related Products.
•S/ Section III, Cyclic Intermediates; and Section XIV, Miscellaneous
Old-Use Chemicals and Chemical Products.
2-7
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Prices are estimated for each fiesbicidsewusing^the, 1982 average ^prices
(unit value) published by the International Trade Commission (ITC).i/
There are 19 subgroups to ITC's Pesticide and Related Products group for
which ITC-provides average prices. The subgroups are defined in terms of
herbicide, insecticide, fungicide, and chemical composition, (e.g., by cyclic
and acyclic groups and about 15 subgroups of these). In addition, prices on
the other subgroups are published by ITC. Table 2-3 illustrates the break-
down used by the ITC. For certain pesticides, the ITC released product-
specific price information for this study which is used instead of the pub-
lished averages.2/ The 1982 prices multiplied by the adjusted quantities
yield a reasonable baseline estimate of revenues at each plant, the total
value of pesticide production, and the values of herbicide, insecticide, and
fungicide production.
Profit, expressed as operating income after federal income taxes, is
estimated as a percent of the total value of production or revenues. The
percent is based on a 1982 analysis conducted by an investment firm of seven
major pesticide manufacturing companies^/.
Industry production capacity is derived from the adjusted production
quantity and from capacity utilization rates estimated by the U.S. Department
of Agriculture from a survey of producers conducted in October-December
1982.1/
Baseline conditions are projected to 1990 based on rates of growth anti-
cipated in a 1981 evaluation by the U.S. Department of Agriculture,I/
modified for the downturn in pesticide production that has occurred since
then. The 1981 evaluation incorporated the trends in supply and demand and
the changes in farming practices (e.g. no-till, integrated pest management)
that are likely to occur. The projected dollar value of production in 1990
is based on an industry analysis with projected values adjusted to 1982 con-
stant dollars.^/ Profits in 1990 are estimated using the same factors
applied in deriving the baseline. The capacity utilization rate is based on
the derived production level and the prospects for new pesticide active
ingredient manufacturing plants.
i/ Synthetic Organic Chemicals, 1982 USITC Publication 1422, and 1977
OSITC Publication 920.
2/ ITC has released these prices only when the company involved has
given written persmission for the release.
I/ Smith Barney, Harris Upham and Company, Chemicals, July 23, 1982.
.!/ U.S. Department of Agriculture, Inputs, Outlook and Situation,
Economic Research Service, IOS-1, June 1983.
Jl/ U.S. Department of Agriculture, Farm Pesticide Economic Evaluation,
1981, Economic and Statistic Service, Agricultural Economic Report 464.
!/ Frost and Sullivan, U.S. Pesticide Market. Report A907, May 1981.
2-8
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Table 2-3*
ITC Prices for Subgroups
1982
Unit Value
Pesticides and Related Products!/ ($/lb)
Cyclic
Ringicides
Naphthenic acid, copper salt .99
All other cyclic fungicides 3.04
Herbicides and Plant Growth Regulators
2-Chloro-4- (ethylamino)-6-(isopropylamino)-
5-triazine (Atrazine) 2.45
2,4,-Dichlorophenoxyacetic acid,
climelthylaraine salt 1.18
2,4-Dichlorophenoxyacetic acid,
iso-octyal ester 1.17
3*,4'-Dichloropropionanilide (Propanil)
All other cyclic herbicides 4.89
Insecticides and Bodenticides
Organophosphorus 4.39
All other cylic insecticides and rodenticides 5.02
Acyclic
Fungicides
Dithiocarbamic acid salts 1.53
All other acyclic fungicides 2.62
Herbicides and Plant Growth Regulators 4.22
Insecticides, Rodenticides, Soil Conditioners,
and Fumigants
Organophosphorus 3.32
Trichloronitromethane (Chloropicrin) 0.91
All other acyclic insecticides 1.66
Other Subgroups?/
Chlorobenzene 0.32
O-Dichlorobenzene 0.38
P-Dichlorobenzene 0.36
Tr ichlorobenzene 0.40
EDB 0.27
Source: 1982 OSITC publication 1422, Synthetic Organic Chemicals US
Production and Sales, 1982.
i/Section XIII, Table 1.
ySection III, Table 1 and Section XIV, Table 1.
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2.4.2 Basticide formulator/Packager3
Estimates of total industry baseline value of PFF production are avail-
able fronr several sources that are independent from this economic impact
assessment JL/2/3/ These sources were compared in order to select a
baseline value of production. This comparison is presented in Appendix 4-B
of Chapter 4. Since the 308 Survey provided production and financial data on
indirect discharge PPP plants only and zero discharge PPP plants tend to be
smaller than indirect discharge PFP plants (see Chapter 4), the baseline for
the total PFP industry was not estimated from the 308 Survey.
The value of PFP production accounted for by indirect dischargers is
estimated from 308 Survey data. Forty-eight plants submitted responses which
were sufficiently complete to allow estimation of the value of production,
employment, operating income and annual investment for the indirect dis-
charger segment of the PFP industry. The questionnaire also requested the
value of total plant production, and total plant employment. Employment,
reported in estimated hours, was converted to full time equivalent (FTE)
employees for the baseline using 1960 work hours per year per full time
employee.
As described above, it is estimated that there are 720 zero discharge PFP
plants are zero dischargers. It is assumed that these plants account for the
difference between the total value of production and the value of production
estimated for indirect dischargers. Employment at zero discharging plants is
estimated, based on the average value of production per employee (FTE) as
reported in the 308 Surveys and the total value of production estimated
above. In other words, the total value of production for all zero discharge
PFP plants is divided by the average value per employee for indirect dis-
charge plants, yielding the estimated total number of employees at zero dis-
charge plants.
Operating income and capital investment are estimated for indirect dis-
chargers from 308 Survey data. These baseline variables are not estimated
for the zero discharge segment of the industry, since these plants have
already been regulated. However, the relatively small size of zero discharge
plants suggest that the profit margins and scale of investment may be dif-
ferent from indirect discharge plants.
The baseline estimates for 1982 are projected to 1990. The total dollar
value of production is estimated by applying the same real rate of growth
derived for the pesticide active ingredient manufacturers in Chapter 4. The
relative share of total production value for zero discharge and indirect
discharge plants, is assumed to be the same as used for the 1982 baseline.
C.H. Kline & Company, The Kline Guide to the Chemicals Industry,
Fourth EHition, Industrial Marketing Guide, IMG13-80, 1980.
2/ U.S. Department of Commerce, Bureau of the Census, Annual Survey of
Manufacturers.
^/ U.S. Department of Commerce, 1983 Industrial Outlook.
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Bnployment in 1990 is projected using .the 198,2 .production value .pec,worker., ,
adjusted for real growth in prices, and total value of production estimated
for 1990. Operating income as a percent of production value is assumed con-
stant over the future years; the dollar amount is therefore derived directly
from the value of production.
2.5 Price Changes
Due to differences in the total number of plants, the proportion of
plants incurring treatment costs in each subcategory, and the structure of
the subcategories (e.g., patent protection), different assumptions about
price responses were made for pesticide manufacturers and for pesticide for-
mula tor/packagers. As described below, it is assumed that manufacturers of
pesticide active ingredients can pass on part of the treatment costs in the
form of higher prices, and that manufacturers of metallo-organic pesticide
chemicals and formulator/packagers absorb all of the costs and do not raise
prices.
2.5.1 Manufacturers of Pesticide Active Ingredients
The economic impact analysis of manufacturers in Subcategory 1 assumes
that the price increase for each product group (i.e., herbicides, insecti-
cides, and fungicides) equals the average annual cost increase due to treat-
ment requirements for all plants in the industry producing that product
group .I/ Note that this does not imply that all costs are passed through
in the form of higher prices, since the average includes those plants which
do not incur any additional costs. The assumption of an average cost pass
through is based on the fact that many of the products in this industry have
little or no competition, which allows the companies to pass on some of the
treatment costs. In addition, the smaller the proportion of industry pro-
duction affected by the treatment costs, the smaller the proportion of the
costs that can be passed on.
The price increase results in changes in demand and, in turn, changes in
quantity and dollar value of pesticide sales, profit, and capacity utiliza-
tion. Changes in the average prices of each product group (herbicides,
insecticides, and fungicides) are calculated by summing the annual treatment
costs for that product group for all plants, and dividing by the value of
production of that product group using: a) the quantity reported in the 308
Survey adjusted to reflect production levels in 1982, and b) the 1982 price.
This adjustment procedure was described above in section 2.4.1.
i/ Anual cost is the O&M cost for the treatment system plus an annual-
ized portion of the capital investment, based on equipment life, cost of
capital and tax rates.
2-11
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In order to estimate the effect of the price increase on production for
the pesticide active ingredient manufacturing subcategory, air overzAi •prl'ce
elasticity of demand was estimated for all pesticides in addition to price
elasticities of demand for each of three product groups. A price elasticity
of demand measures how much the demand for a product will decline if the
price increases by a given amount. It is defined as: the percentage change
in quantity divided by the percentage change in price. Elasticities were
estimated, using regression analysis, from historical data for the 1967-81
period. A description of the estimation procedure is presented in Appendix
2-B. The estimated price elasticities are:
o -0.67 for Herbicides;
o -0.32 for Insecticides;
o -0.35 for Fungicides; and
o -0.49 for all Pesticides.
In other words, if the price of herbicides goes up 10 percent, then the
quantity of herbicides demanded by the market will decline by 6.7 percent.
Likewise, a 10 percent increase in the prices of insecticides and fungicides
will result in a 3.2 percent and 3.5 percent decline in demand, respectively.
2.5.2 Manufacturers of Metallo-Organic Pesticides
This analysis includes only indirect discharge metallo-organic plants,
since direct discharge metallo-organic plants have already been required to
achieve zero discharge under BPT. Since plants categorized as Subcategory 2
manufacture metallo-organic pesticide chemicals, they are analyzed in a
manner similar to other pesticide manufacturing plants (Subcategory 1).
However, the Agency has presently identified only one plant that currently
discharges to a POTW. The Agency believes that only this one plant will
experience a cost increase due to this regulation. There are a number of
other metallo-organic pesticide manufactures who will not incur any addi-
tional costs as a result of this regulation because they do not discharge
process wastewater. Therefore, it is assumed that the plant will not be able
to pass any of its treatment costs on to its customers.
2.5.3 Formulator/Packagers
Formulated products are made in a vast array of concentrations and forms,
and they frequently compete only in regional or other sub-markets. Based on
the telephone and written surveys, there are relatively few indirect dis-
charging PFP plants within the scope of this regulation (approximately 210
out of an industry total of 930). Therefore, it is unlikely that they will
be able to pass on the treatment costs in terms of higher prices, since their
competitors will not incur similar costs. The more likely result is for the
treatment costs to be absorbed by the plants, thus reducing their profits.
2-12
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2.6 Production, Profit and Employment Changes _ ____
Profit and employment changes are both a function of changes in produc-
tion levels. As described above, production levels for manufacturers of
pesticide active ingredients are expected to decline in direct response to
the regulations, due to the resulting price increases. The percentage reduc-
tion in production depends on the percentage change in prices and the elasti-
cities. Production levels for the metallo-organics and the PFP subcategories
will not decline in direct response to the regulation, since there will be no
price increases.
2.6.1 Manufacturers of Pesticide Active Ingredients
The percentage changes in prices are multiplied by their elasticities to
obtain the percentage change in quantity produced. The production quantity
before the regulation multiplied by the percentage change in quantity yields
the total change in pounds of production resulting from the effluent guide-
line requirements. Thus for herbicides (H):
= Percentage
Total value of all herbicidesChange in Price
( dp)
. - . * Elasticity * Percentage Change in Quantity
H
and
( dp)
Sum of treatment costs for herbicides
* Elasticity * Quantity (Ib.) - Quantity (Ib.) Change as a
( P ) Result of the Regulation
And similarly for insecticides and fungicides.
The impact of treatment costs on value of production for the subcategory
as a whole (and for each product group) is the difference between the base-
line value of total production, and the new production quantity priced at
baseline unit value plus average unit treatment cost. Impact on profit is
derived from the absolute change in quantity produced multiplied by the unit
profit before treatment; the assumption of average cost pass through, but
without mark-up,-maintains the same unit profit.
Change in employment is determined from the plant and product line clos-
ure estimates discussed later in this Chapter. Pesticide manufacturing
employment for each plant is reported on the 1977 308 Survey, and those jobs
are assumed to be lost at plants where closure is predicted. Change in the
capacity utilization is calculated by the absolute change in production quan-
tity and the subcategory-wide plant capacity.
2-13
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2.6.2 Metallo-Organics ,. .
Since it is assumed that there ate no price increases due to this regula-
tion there is no decrease in production. The assumption of no cost pass
through means that all of the compliance costs come out of profits for this
plant.
2.6.3 Formulator/Packagers
Since there is no change in price for formulator/packagers there is no
change in production levels due to this regulation. Operating income (after
income taxes) is estimated for each plant on the basis of the statutory tax
rate, revenues, operating costs, and interest and depreciation for each plant
as reported in the 308 Survey. This operating income is a proxy for pro-
fits. By including annual treatment costs in the calculation, a change in
profits is estimated for the sample of plants. This is extrapolated for all
indirect dischargers in the manner described in the section on the 308 Survey
above.
2.7 Potential Plant and Product Line Closures
The Effluent Guidelines Division of EPA estimated costs of compliance for
each plant in the study. The costs include capital investment and operating
costs for wastewater treatment, plus monitoring and RCRA compliance costs.
The costs are expressed as an annual cost by converting the capital cost to
an annualized equivalent and adding it to the annual operating and mainten-
ance cost. Capital costs are converted to an annual equivalent by multiply-
ing by a capital recovery factor which measures the annual rate of return an
investment must achieve to cover the cost of the investment and maintain net
earningsr including depreciation and taxes. A capital recovery factor of
0.218 is used, based on a 10 year life for the treatment equipment, and a 13
percent annual cost of capital.
The central test used in the closure methodology is a comparison of the
current liquidation value of the plant to the net present value of the stream
of earnings the plant could expect to earn if it met the regulations. It is
assumed that if the current liquidation value is less than the sum of the
discounted stream of earnings (including a final liquidation), then the com-
pany will invest in the necessary treatment facilities and remain open. This
is referred to as the net present value (NPV) test.i/
i/ Income to be received in future years is worth less today than the
same income received today. Future income is discounted to take this into
account.
2-14
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The mathematical representation of the net peesent^value--test-is:-~ «
° ( JL. )y + (J_)Y ^ *
y-l
where: Uy = operating income in year y
Lo = current liquidation value
I
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or more, the net present value test^is. performed.-..Third, plants which appear
to be potential closures under the net present value test are analyzed in
further detail as to the relative profitability of their products, the
importance of pesticides to their company, and the financial strength of
their owners. Each of these steps, including the assumptions involved, are
discussed in detail in the following paragraphs.
Die cost-to-sales ratio and the net present value ratio are calculated
based on the estimated 1982 value of production at each plant, after treat-
ment costs are incurred. The value of production is equal to the new price
(based on average cost increase) multiplied by the new quantity (based on the
percentage price increase and the elasticity).
An annual compliance cost-to-sales ratio of one percent or greater is
used to identify plants with significant impacts. The screening ratio was
set at one percent based on two factors. First, the lowest operating
margin—expressed as the ratio of pre-tax operating income to sales—for
pesticide products is approximately 10 percent.Jt/2/ Second, it was assumed
that if the regulation resulted in a drop in profits of less than 10 percent,
the plant would remain open. Treatment costs equal to one percent of sales
is equivalent to a ten percent drop in profits if there were no cost pass
through. Since the analysis does assume that some of the treatment costs
will be passed on to the consumer, a cost to sales ratio of one percent
represents a drop in profits of less than ten percent. Therefore, this is a
conservative, yet reasonable and appropriate assumption.
In order to calculate the net present value ratio, estimates of the after
tax real operating income and the liquidation value of the facility are
required (as described in Section 2.7 above). Much of the information needed
for the NPV test is not available for individual plants which manufacture
active ingredients. Therefore, the values are estimated using representative
ratios for the industry combined with estimates of individual plant sales.
The calculation of these ratios is discussed in Appendix 2-C. They are based
on financial data from the pesticides operations of seven major pesticide
producers. Since they represent pesticide production, not total production
for these companies, they are considered representative of the industry and
appropriate to estimating operating income from pesticide production at spe-
cific plants.
Individual company and product operating margins vary, while the analysis
assumes an average value. Therefore, each plant which fails the net present
value test is examined to determine if the operating income estimate based on
the industry average is appropriate for the pesticides produced by that
plant. If the plant's operating income is higher than that estimated on the
basis of the industry averages, then it may not be a potential closure
candidate. Specific operating margins are not available for individual
pesticides. However, profitability is a function of several factors; two of
I/ Based on conversations with industry experts; Federal Trade Commis-
sion, Quarterly Financial Report, various issues.
2/ Smith Barney, Harris Upham, Chemicals, July 23, 1982.
2-16
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-------
which are considered important
is very likely to have a higher operating margin than a non-patented product,
particularly a commodity pesticide. The second factor is whether or not a
pesticide-is highly differentiated from other products. Even if a product is
patented, its operating margin will not be particularly high if there are
other products that can be substituted for it.
Three profitability categories are used to characterize pesticides; low,
medium, high. The categories of profitability—defined by operating
margin—are:!/
Low (10-20 percent of sales)
Medium (20-40 percent of sales)
High (40 percent of sales or more)
If a product is not patented, it is placed in the low profitability
group. If a product is patented and has few or no substitutes, then it is
placed in the high profitability group. If it is patented but does face com-
petition, it is assigned to the medium profit group.
If the potential closure candidate manufactures high-profit products,
then its pre-tax operating income would be recalculated based on value of
production and the profitability category for each product. If the ratio of
pretax operating income to sales is higher than average (.213), the net
present value ratio is recalculated for the plant, using the higher estimate
of operating income. The remaining plants, including any for which it was
not possible to estimate a profit rate, are considered as possible closure
candidates.
Finally, two additional factors are considered in analyzing plants that
remain as possible closures. One is the size and financial strength of the
parent company. A large, well-financed company is more able to raise the
capital necessary for treatment facilities and more able to carry a facility
with reduced profits for a few years if the long-term outlook for the pro-
ducts produced is favorable. The second factor is the degree to which the
plant is integrated into the overall operations of the parent company. If
the plant is a captive operation using the firm's raw materials and/or is the
supplier for other plants owned by the firm, the company is less likely to
close the plant. A plant which fails the net present value test but has a
ratio near the cut-off value of 7.5 percent is considered a border-line clos-
ure candidate. A border-line closure candidate with a financially strong
owner and/or that is highly integrated into the overall corporate structure
is not considered a closure candidate.
In some cases, a plant which is a potential closure candidate may close
the pesticide product line while continuing to operate the rest of the
!/ The ranges are established by Meta Systems Inc based on discussion
with industry experts.
2-17
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facility, this is more likely to occur if pesticide production is a small
part of the plant's total production. The specific information needed to
judge whether the plant will close or just the product line is not readily
available'. However, information on the number of days of pesticide produc-
tion and whether other products besides pesticides are produced at this site
are available. If pesticide production goes on for only a small part of the
year (e.g. less than one-third) and other products are produced, then the
predicted closure is assumed to effect the pesticide product line only while
the plant continues its other operations.
2.7.2. Metallo-Organics
The analysis proceeds through the same steps applied to other manufac-
turers of pesticide active ingredients, with two differences. First, 1982
sales are not estimated by revising the 1977 production levels and applying
1982 prices. Instead, metallo-organic pesticide chemical sales for this
plant is derived from the response of the company during the public comment
period following the proposal of regulations. Second, two regulatory options
are analyzed instead of only one. The ratio of annual compliance cost to
sales is calculated for each option. If this ratio exceeds one percent, then
the net present value analysis is performed for each option. This calcula-
tion employs the same industry wide ratios used for the pesticide active
ingredient manufacturing plants (Subcategory 1). If the plant appears to be
a potential closure candidate based on the NPV test, then additional factors:
such as the profitability of its products, the financial strength of the
parent company, and the importance of pesticide metallo-organic chemical
manufacturing to the parent company, are assessed.
2.7.3 Formulator/Packagers
In order to identify potential closure candidates, the same net present
value analysis described above is applied to all indirect discharge PFP
plants for which 1983 308 Survey data are available. Most of the data
required for the net present value analysis are available directly from the
308 Survey and industry ratios are not required for the indirect discharge
PFP subcategory. The analysis assumes that compliance costs incurred by
indirect discharge PFP plants are not passed on to consumers. This is a con-
servative, yet reasonable and appropriate assumption for the following
reasons. Since a relatively small number of plants will incur costs, they
will not be able to pass on these costs. The market has already adjusted to
the treatment costs incurred by direct dischargers under previous regulations
and these direct, discharge plants are not expected to increase their prices
in response to treatment costs incurred by indirect dischargers. Even if
some cost pass-through were assumed, it is not possible to estimate demand
elasticities because insufficient time series data are available for the wide
variety of formulated/packaged products. Therefore a change in production
levels could not be estimated.
2-18
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Since the 19«3 PFP 308 Survey included questions.^bout-revenues *and;- .* .&*-.
expenses, after-tax operating income (U) is directly estimated from the 308
Survey reponses. Pre-tax operating income is equal to: market value of
pesticide" products minus operating costs, interest and depreciation. The tax
rate is assumed to be the statutory rate of 0.46. Therefore:
U • (1 - .46)(pre-tax operating income)
•Hie 308 Survey did not ask for the value of current assets. Therefore,
current assets are assumed to be equal to 34.9 percent of sales. This ratio
was calculated from FINSTAli/ data for firms in SIC 2879, Pesticides and
Agricultural Chemicals. These data are considered representative of the
firms in this industry since they are in the same SIC group and the Dun and
Bradstreet data base contains a large proportion of the companies. The book
value of plant and equipment is taken directly from the 1983 308 Survey.
The Agency identified 56 indirect discharge PPP plants. Sales data were
not reported by eight plants and these plants were not included in the anal-
ysis. The forty-eight indirect discharge PPP plants which reported sales
were included in the NPV analysis. If any of the other values needed in the
NPV analysis were not reported by a plant, they were estimated by applying
ratios calculated from the other plants responding to the 308 Survey.
As in the case of manufacturing plants, information on the financial
health of the company and the degree to which formulating/packaging opera-
tions are integrated into the overall company operations is assessed, for
those plants considered .to be closure candidates based on the NPV analysis.
Company-level financial data have been collected about the owners of PFP
plants known to be indirect dischargers on the basis of the 308 Survey, since
this data is needed for the closure analysis. The degree to which formulat-
ing/packaging is integrated into the overall business is measured by compar-
ing the results of the PFP 308 Survey to that of the 308 Survey of pesticide
manufacturers. Additional sources of information about the plant, its non-
pesticide products, and its owner are: the SRI Directory of Chemicals Pro-
ducers, which lists all the products produced at specific chemical facil-
ities; corporate annual reports; and industry literature.Ji:/ The analysis
of financial conditions and integration is the same as that described earlier
for pesticide manufacturers.
For PFP plants, net present value is calculated twice; once with treat-
ment costs included and once without treatment costs. If the plant fails the
net present value test without inclusion of the treatment costs,
i/ FINSTAT DATA BASE, prepared by Social and Scientific Systems Inc. for
the Small Business Administration (derived from Dun and Bradstreet Financial
Profiles data base) and made available to EPA by the Small Business Adminis-
tration.
2/ 1979 Directory of Chemical Producers; United States, SRI
international, 1979.
2-19
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then it is assumed to be a baseline closure candidate regardless of this
regulation. If a plant does not fail the net present value -test without
treatment costs, but does fail with the costs included, then this potential
plant closure is considered attributable to the added costs of the regulation.
The results of the plant-specific analysis are extrapolated to the indi-
rect discharger industry segment on the basis of ratios derived for the PFP
plants in the sample. The number of plants likely to close is estimated and
characteristics of those closure candidates are assumed to be the same as the
closure candidates in the sample.
2.8 Small Business Analysis
An analysis is conducted to determine whether small firms bear dispro-
portionate impacts under the noticed effluent guidelines; (i.e.. Regulatory
Flexibility Analysis). The small firms of primary concern in this analysis
are those firms with limited resources and/or those that would face barriers
to entry due to the regulations. The relevant measure, as in the case of
pollution control guarantee assistance, is the financial ability of the firm
to raise the necessary capital and to handle the resulting carrying costs.
Therefore the criteria for small business is the sales of the parent firm.
Small pesticide active ingredient firms have annual sales of $10 million or
less and small pesticide formulator/fcackager firms have annual sales of $5.5
million or less. The impacts analyzed include the number of plants with com-
pliance costs, the distribution of the cost to sales ratios, and the number
of closures.
2.9 New Sources
The new source limitations, both NSPS and PSNS, are the same as the PSES
limitations. There are no incremental costs nor economic impacts attribut-
able to this regulation.. The impacts are assumed to be the same as those for
existing sources, and no barriers to entry are anticipated as a result of the
compliance costs.
2-20
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3. INDUSTRY CHARACTERISTICS
3.1 Overview
This chapter describes the characteristics of plants and companies in
the pesticides industry, and the determinants of demand and supply for the
industry. The primary characteristics include the number, size, and loca-
tion of plants and companies, degree of integration and industry concen-
tration, and financial performance. The primary determinants of demand
are the nature of the end-use markets, the nature of competitive products
and technology, and the magnitude of imports and exports. The industry
characteristics and market structure are pertinent to determining industry
behavior, when faced with additional pollution control requirements. This
information is used to estimate the expected baseline characteristics of
the industry during the 1980's, which are described in Chapter 4, and to
estimate the potential economic impacts of the effluent regulations, which
are described in Chapter 6.
3.1.1 Industry Coverage
The pesticide industry is two-tiered, encompassing at one level, the
manufacturers of pesticide chemicals (active ingredients), and at a second
level, the formulators/packagers who combine the active ingredients with
substances, such as diluents, inorganic carriers, stabilizers, emulsifiers
and aerosol propellants and package them in plastic, glass, paperboard or
metal containers for application in the field. Many of the firms making
the pesticide active chemical ingredients are also formulator/ packagers,
although there are also numerous independent formulator/packagers.
The two levels of pesticide production share a domestic market and
final product characteristics, but their manufacturing processes and
immediate products are different. Because of this, they are treated
separately in the discussions of plant characteristics and imports/
exports, but jointly in the discussion of the domestic market.
Pesticide active ingredients are primarily synthetic organic chemicals
that are covered in SIC 28694 (Pesticide and Other Organic Agricultural
Chemicals, Except Preparation) , which is part of SIC 2869, (Industrial
Organic Chemicals N.E.C.*). The formulators/packagers of pesticide
* Mot Elsewhere Classified.
-------
products are classified in SIC 2879, (Pesticides and Agricultural
Chemicals Producers, N.E.C.). In 1982, there were about 35,000 formulated
products registered under the Federal Insecticide, Fungicide and Rodenti-
cide ActJ/
Prior to 1970, the formulation of technical-grade pesticides was
carried out by a variety of independent firms and agricultural coopera-
tives. Formulating firms bought pesticides from the basic manufacturers
and formulated and packaged the products for sale. In the mid-197O's,
there was an overall domestic shortage of chemicals, and during this
period many of the pesticide active ingredient manufacturers integrated
forward to formulate/package their own chemicals captively. Although the
chemical shortage is now over, most of the pesticide active ingredient
manufacturers continue to formulate/package pesticide products. The
estimate in the Kline Guide is that 80 percent of the formulated pesticide
industry is controlled by technical-grade producers.2/
3.1.2 Product Characteristics
The most common categorization of pesticides is by the type of pest
they treat, such as weeds, insects, and fungal diseases. Three classes of
products—herbicides, insecticides, and fungicides—comprise the majority
of the domestic pesticide production. In simple terms, herbicides are
used to control, prevent, or eliminate weeds; insecticides are used to
control or eliminate insects; and fungicides are used to control or
destroy fungi and bacteria. In addition to these three major product
classes, there are others, including the following:
o fumigants: space fumigants are used as gases or vapors in
enclosed areas, soil fumigants are cultivated into the soil
to control nematodes, fungi, insects, weeds or combinations
of these pests;
o nematicides: chemicals used in soils or in water to control
worms such as pinworm, trichina, and Guinea worm;
o miticides: chemicals used primarily on fruits and vegetables
to control very small organisms which are similar to ticks;
o rodenticides: chemicals used to control rats and mice:
i/EPA, Office of Pesticide Programs, Economic Analysis Branch,
Pesticide Industry Sales and Usage, 1982 Market Estimate, December 1982.
H. Kline & Co., The Kline Guide to the Chemicals Industry, Fourth
Edition, Industrial Marketing Guide, IMG 13-80, 1980.
3-2
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o defoliants and ^esiccantsi_ -chemicals -that.eauae-pJbanta ;tQ-r;^.:,, , .
either drop their foliage or hasten the drying of plant
tissue, which aids in harvesting crops such as cotton and
potatoes; and
o plant growth regulators: chemicals primarily used for
tobacco production and for some fruit production.
In most data compilations that are prepared by public agencies, furai-
gants, rodenticides, and miticides are included under insecticides, while
plant growth regulators are included under herbicides.
3.1.2.1 Herbicides
Herbicides constitute the newest and most important group of pesti-
cides. Herbicides are used to prevent or control the growth of undesir-
able plants and are of two types—selective and non-selective. Selective
herbicides are designed to be effective against specific plants and there-
fore usually have a wide range of agricultural applications. Non-specific
types primarily are used in non-agricultural situations where removal of
all vegetation is desired.
Herbicides can also be classified according to their time of applica-
tion: pre-plant herbicides are applied before/during crop planting; pre-
emergence herbicides are used after crop planting but prior to plant
emergence; and post-emergence herbicides are applied after the crops have
emerged.
3.1.2.2 Insecticides
Insecticides kill by contact with, or ingestion by, the insect.
Insecticides can be used to eradicate a specific pest, such as the boll
weevil, or a broad spectrum of insects.
3.1.2.3 Ringicides
Fungicides represent a relatively minor group of pesticides. Fungi-
cides are used to control fungi and bacteria on living and non-living
plants and on other materials. There are two types of fungicides which
function differently in their methods of control. Eradicant fungicides
kill by contact/ and are applied following an infestation. Protectants
are applied prior to contamination and thus, are used preventively. The
majority of fungicide chemicals are protectants. A more recently
developed type of fungicide—and one that offers growth potential to the
industry—is the systemic fungicide. These products, unlike the contact
3-3
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fungicides, act therapeutically to reverse a disease. They are effective
at lower concentrations than other fungicides. In addition, they require
less frequent application and therefore remain effective throughout more
of the crop growth season.
3.2 Plant Characteristics
3.2.1 Manufacturers of Pesticide Active Ingredients
According to EPA data, there are 114* plants, owned by 81 companies in
the U.S. that manufacture pesticide chemicals active ingredients. In
1977, these 114 plants employed a total of about 70 thousand workers
(including those employees not involved in pesticide chemicals manu-
facturing). The distribution of pesticide active ingredient manufacturing
plants by number of employees is shown in Table 3-1.
The plants are dispersed throughout the country, with concentrations
in the eastern and southern states. Thirty-one states are represented,
with New Jersey and Texas having the greatest number of plants (12 and 10,
respectively). Plant locations by state are presented in Table 3-2.
According to a report by the International Trade Commission (ITC),
U.S. pesticide manufacturers produced 1.1 billion pounds of pesticide
active ingredient chemicals in 1982 valued at about $4.3 billion. I/
The ITC information provides a good profile of pesticide production
because data are collected from all pesticide manufacturers on an annual
basis. The ITC classifies the production information by three major
pesticide groups (herbicides, insecticides, and fungicides) covered by
this regulation.
Production had been running about 1.4 billion pounds annually from the
mid-1970's through 1982, however, inventory carryover from prior years was
large, and production declined in 1982. Table 3-3 shows historical data
on U.S. production and value of pesticide active ingredients.^/ The
pesticides manufactured by the 114 plants affected by this regulation
* Of the 117 plants identified by EPA in 1977, three plants no longer
manufacture pesticides.
i/U.S. International Trade Commission, Synthetic Organic Chemicals,
1982 and prior issues, Washington, DC.
J/Data presented in Table 3-3 are compilations for a group of
chemicals classified as "Pesticides and Related Products," by the ITC.
Synthetic Organic Chemicals, ITC, various issues.
3-4
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Table. J2s4.«MJIuniber of Pesticide, AcJtlvje. Ingredient.
Manufacturers by Employment Size
Plant Size 1
Number of I
Employees 1
1-24
25-49
50-99
100-199
200-299
300-399
400-499
500-999
over 1000
Total .
No. of |
Plants I
In Range 1
25
20
10
18
3
8
2
14
14
114 ,
1
Percent of 1
Total Plants ]
21.9
17.5
8.8
15.8
2.6
7.0
1.8
12.3
12.3
100.0 .
Plant Pesticide
Value in 1977
($ millions)
60.150
87.754
50.062
417.252
106.696
371.792 '
96.950
980.767
766.002
2,937.425
I Percent of
I Total Value
1 of Shipments
2.1
3.0
1.7
14.2
3.6
12.7
3.3
33.4
26.1
. 100.0
Sources U.S. EPA, 1977 308 Survey of Pesticide Active Ingredient
Manufacturers, and Meta Systems Inc calculations.
3-5
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liable 3-2. Geographic location of Pesticide Active Ingredient
Manufacturing Plants by EPA Region
Region/State I
Region I "Data!
Maine
Connecticut
Rhode Island
e
Region II Tbtal
New York
New Jersey
Region III Itotal
Pennsylvania
West Virginia
Maryland
Region IV Tbtal
Kentucky
Tennessee
North Carolina
South Carolina
Mississippi
Alabama
Georgia
Region V Tbtal
Minnesota
Illinois
Michigan
Indiana
Ohio
Region VI Tbtal
Texas
Louisiana
Region VII Tbtal
Iowa
Kansas
Missouri
Region VIII Tbtal
Colorado
Region IX Tbtal
California
Nevada
Ar i zona
Region X Tbtal
Washington
Oregon
Total .
Number of Plants 1 Percent of Total
5 4.4
3
1
1
15 13.2
3
12
8 7.0
1
6
1
27 23.7
2
8
2
2
2
7
4
16 14.0
1
5
6
2
2
16 14.0
10
6
8 7.0
1
2
5
2 1.8
2
15 13.2
8
1
6
2 1.8
1
1
114 . 100.0
Source: U.S. EPA, 1977 308 Survey of Pesticide Active Ingredient
Manufacturers and Meta Systems Inc calculations.
3-6
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Table 3-3.
Total U.S. Pesticide Active Ingredient Production*
Production
Million
Pounds
value
Million $
Current** Constant*
Average Unit Value***
$/lb.
Current Constant
Deflator*
1967
1968
1969
1970
1971
1972
1973
1975
1976
1977
1978
1979
1980
1981
1982
1983-H-
1,050
1,192
1,104
1,034
1,136
1,157
1,417
1,603
1,364
1,387
1,417
1,430
1,467
1,429
1,113
1,013
987
1,137
1,113
1,074
1,248
1,295
1,964
2,871
2,867
3,119
3,289
3,706
4,246
5,196
4,279
3,890
987
1,089
1,013
928
1,027
1,023
1,351
1,090
1,656
1,762
1,727
1,792
1,380
2,104
1,635
1,430
0.94
0.95
1.01
1.04
1.10
1.12
1.39
1.79
2.03
2.25
2.32
2.59
2.89
3.64
3.84
3.94
0.94
0.91
0.92
0.90
0.91
0.89
0.96
1.19
1.21
1.27
1.22
1.25
1.28
1.47
1.47
1.41
1.000
1.044
1.099
1.157
.215
.266
.454
.504
1.672
1.772
1.904
2.068
2.258
2.470
2.616
2.726
Average Annual Growth (%)
1967-1974 10.3
1974-1982 -3.0
4.6 ,
10.2
5.7
13.5
0.3
5.5
Source: U.S. International Trade Commission, Synthetic Organic Chemicals, 1982 and
prior issues, and Meta Systems Inc calculations.
* Herbicides, insecticides, and fungicides.
** Value is the sun of the value of herbicides, insecticides and fungicides tabulated in
Appendix 3-D.
*** Average unit value is total value divided by total production.
+ Constant 1967 dollars value is calculated using the GNP deflator (1976 - 1.00) from
D.S. Department of Commerce, Bureau of Economic Analysis.
-M- Estimate by Meta Systems Inc
3-7
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include chemicals in other ITC classifications as well (e.g.* cyclic
intermediates, miscellaneous end-use chemicals and chemical,products).
For purposes of describing the industry in this chapter, the ITC
statistics on pesticides and related products are used, for the impact
assessment, all pesticide chemicals produced by the 114 plants are
included regardless of their ITC classification. (More detailed
informaton on the major pesticide groups is presented later in this
chapter). The large carryovers are attributable to several factors,
including weather conditions during the 1982 planting season that affected
herbicide use and lower than usual insect infestations combined with more
selective insecticide applications based on scouting techniques to locate
infestations. Large carryovers again occurred going into 1983. Produc-
tion was further depressed in 1983 by the payment-in-kind (PIK) program
implemented by the U.S. Department of Agriculture. The PIK program
reduced crop acreage, particularly for corn (down by 22 million acres)
which is a major user of pesticides. As a result, 1983 pesticide produc-
tion was expected to decline to one billion pounds as shown in Table 3-3.
Pesticide active ingredients are generally manufactured in plants
which also produce other organic chemicals including Pharmaceuticals,
plastics, and resins. Approximately 85 percent of the plants produce no
more than four pesticides, while almost 50 percent produce only one.
Pesticides, with the exception of such high-volume products as the cotton
insecticide toxaphene, generally are not produced throughout the year. Of
the 114 plants identified by the EPA as producers of pesticide active
ingredients, 55 also formulate and package the pesticide products. Thus,
about one-half the pesticide active ingredient manufacturing plants are
vertically integrated operations. About three-quarters of the plants (87)
produce chemicals other than pesticides*
The plants in the industry also vary widely in size. Based on the 308
Survey the Agency conducted in 1977, pesticide production for a number of
plants was worth more than $75 million, and 12 of the 114 manufacturing
plants identified by EPA accounted for slightly more than 50 percent of
the total value of production. In contrast, almost half of the plants had
an annual market value for all pesticide chemicals of less than $5 million.
3.2.1.1 Plant Production by Pesticide Type
Table 3-4 identifies the different subgroups within the major pesti-
cide groups for the 114 plants which manufacture active ingredients.
Thus, herbicides can be subdivided into anilides, triazines, hydrazides,
benzoics, phenoxies, dinitrophenol/anilines, ureas, and miscellaneous.
The major herbicides in the anilide group are alachlor, used extensively
on soybeans and corn, and propachlor which is used on sorghum. The most
important herbicide in the triazine group is atrazine, which dominates the
corn market. The phenoxies group includes 2,4-D, the use of which has
been restricted.
3-8
-------
Table 3-4. Profile of Pesticide Chemicals Plants
Pesticides Manufactured Number of Plants
Herbicides only
Anilides-cyclic 3
Triazines-cyclic 2
Hydra2ides-cyclic 3
Benzoics-cyclic 3
Phenoxies-cyclic 4
Dinitrophenols and anilines-cyclic 1
Ureas-cyclic 1
Miscellaneous herbicides _7
SUBTOTAL 24
*Herbicides and other pesticides 23
TOTAL PLANTS PRODUCING HERBICIDES 47
Insecticides only
Aldrin-toxaphene-cyclic 3
Organophosphorus-cyclic 3
Carbamates-cyclic 2
Chloro-organic-cyclic 2
Nematicides-cyclic • 1
Itodenticides-cyclic 2
Attractants and repellants-cyclic 2
Synergists-cyclic 2
Organophosphorus-cyclic 4
Miscellaneous insecticides 18
SUBTOTAL 39
*Insecticides and other pesticides 27
TOTAL PLANTS PRODUCING INSECTICIDES 66
Rangicides only
Polychloro-aromatics-cyclic 4
Chloroalkyl amides 1
Miscellaneous fungicides _ 7
SUBTOTAL 12
*Fungicides and other pesticides 30
Total plants producing fungicides 42
Total Number of Plants 114
Source: U.S. EPA, 1977 308 Survey of Pesticide Active Ingredient Manu-
facturers and Meta Systems Inc calculations.
* Includes in the total count of 114 plants are 39 which produce
pesticides in more than one of the three major subcategories and are
counted (more than once) in each appropriate subcategory.
3-9
-------
Plants producing only insecticides ace subdivided into aldrin-
toxaphene, cyclic otganophosphorus, acycXic organophosphorus, carbamates,
chloroorganics, nematoeides, rodenticides, attractants/ repellants,
synetgists, and miscellaneous. Acyclic organophosphorus is the most
important group, and the insecticides in this group have a wide range of
applications, particularly to corn and livestock. The cyclic organo-
phosphorus group includes methyl parathion, which is used on wheat and
corn. Insecticides in the aldrin-toxaphene group are used on cotton,
soybeans and livestock. The fungicides are subdivided into polychlo-
roaromatics, chloroalkyl amides, and miscellaneous.
Forty-seven of the 114 plants produce herbicides. Of these, 24 plants
produce herbicides exclusively and their average production value is twice
that of plants that make only insecticides, and nine times that of plants
that make only fungicides. Of the 66 plants producing insecticides, 39
make only insecticides and of the 42 fungicide producers, 12 manufacture
fungicides exclusively. In all, there are 39 mixed-product plants and
these tend to be larger than the single product plants; for example, their
average production value is almost twice that of plants that make only
herbicides.
3.2.1.2 Plant Capacity
Capacity utilization in 1983 for production of pesticide active
ingredients was estimated to be 60 percent, significantly lower than prior
years as seen in Table 3-5.i/ The average capacity utilization for the
five-year period 1978 to 1982 was 75 percent. The recent low utilization
rates are attributable to the large carryovers from previous years. The
carryover from 1982 amounted to 49 percent of the 1982 production of
herbicides, 42 percent of the insecticide production and 46 percent of the
fungicide production. The carryover into 1982 averaged about 30 percent
of the 1981 production. The average carryover considered "healthy* by
manufacturers is 15 to 20 percent.
Pesticide producers planned to increase overall capacity by only 0.4
percent in 1983. For herbicides, the planned increase is 0.5 percent and
0.25 percent for insecticides.^/ This compares to annual increases of
two to four percent for herbicides, and zero to seven percent for insecti-
cides during the five-year period 1978-1982.
3.2.2 Metallo-Orqanic Pesticide Manufacturers
Subcategory 2 includes plants which manufacture metallo-organic
pesticide compounds. The most common metallo-organic compounds contain
1/U.S. Department of Agriculture, Inputs—Outlook and-Situation,
Economic Research Service, IOS-1, June 1983.
2/Ibid.
3-10
------- An error occurred while trying to OCR this image.
-------
arsenic or mercury. Metallo-organic compounds are the smallest in both
volume and value-of^pesiicidfiL.sjales., They are used primarily as fungi-
cides and herbicides, although compounds which act as miticides are also
produced.- The particular products affected by this regulation are concen-
trated in the fungicide product group and may be used for non-agricultural
uses such as paint additives. Based on the public comments the Agency
received, domestic production of these products has declined while the
imports of these products has increased over the past few years.
3,2.3 Pesticide Ebrroulator/Packagers (PFP)
There are an estimated 930 pesticide formulator/packager plants as
defined by this regulation, of which approximately 210 are indirect dis-
chargers. Data, in response to a written 1983 308 Survey, was provided by
48 indirect discharge PFP plants. Since this sample of plants was
selected randomly, the survey responses are representative of the
industry.* Most of the following discussion is based on these replies.
3.2.3.1 Indirect Dischargers
In 1982, the 210 indirect discharge PFP plants had a value of PFP
production of $2.81 billion and employment of 4,300 as shown in Table 3-6.
The value of PFP production was 22 percent of the total value of plant
production. For most of the plants, employment in PFP operations is
small; 73 percent of the plants employ less than 20 people.** These
plants only account for 15 percent of total formulator/packager production
value. In contrast, 18 percent of the plants employ 21-100
formulator/packager employees, but these larger plants represent 73
percent of the production value.
The locations of the 48 indirect discharge PFP plants were identi-
fiable. These were found in twenty states and territories of the United
States. The regions with the heaviest concentrations of plants are the
Nbrth Central (Region V), South Atlantic (Region IV) , and Southwest
(Ragion IX, specifically California), with 22.9, 20.8 and 16.7 percent,
respectively, of the nation's plants. A more detailed breakdown of plant
locations is presented in Table 3-7.
* See Section 2.3.2 of Chapter 2 for discussion of~th~e sampling and
other procedures used to derive these estimates.
** The 1983 308 Survey provided employment data expressed as the number
of employment hours in PFP operations. The hours were converted to full
time equivalent employment (FTE) for this analysis, based on 1960
production hours per year, per full time worker.
3-12
-------
Table 3-6. Indirect Discharge Pesticide
Rsrmulator/Packagers (PFP) -T
In Sample I Industry Total
Number of Companies 46 NA
Number of Establishments 48 210
Value of PFP Production
in 1982 ($000) 630,000i/ 2,813,000
Total Plant Value of
Production in 1982 ($000) 2,577,000 2/ 12,885,000
Ratio of Value of PPP Production
to Total Plant Production (percent) * 21.8
Number of PFP Employees** 922 2/ 4,300
Ratio of Value of PPP Production
to PFP Employment ($) * . 654,000
Source: U.S. EPA, 1983 308 Survey for the Pesticide Pormulator/Packager
Subcategory and Meta Systems Inc calculations.
i/Estimate based on 47 plants that reported value of PPP production on
1983 308 Survey.
2/Estimate based on 42 plants that reported value of total plant
production on 1983 308 Survey.
.I/Estimate based on 45 plants that reported number of PFP employees on
1983 308 Survey.
* Not calculated for the sample, ratios based on total industry
estimates.
** Employment expressed as full time equivalent employees (FTE).
3-13
-------
Table 3-7. Geographic Location of Pesticide
Jbrmulator/Packager (PFP) Plants
location
Region I Total
Maine
Massachusetts
Connecticut
Region II Total
New York
New Jersey
Puerto Rico
Region III Total
Pennsylvania
West Virginia
Virginia
Delaware
Maryland
Washington, DC
Region IV Total
Kentucky
Tennessee
North Carolina
South Carolina
Mississippi
Alabama
Georgia
Florida
Region V Octal
Minnesota
Wisconsin
Illinois
Michigan
Indiana
Ohio
1 Telephone I I
1 & Written 1 Percent of I
1 Survey 1 All Plants 1
10 2.7
1
7
2
32 8.5
18
13
1
25 6.6
12
1
4
1
6
1
63 16.8
2
6
9
2
9
3
10
22
72 19.1
12
11
21
11
1
1 16 1 1
1
Written 1 Percent of
Survey 1 all Plants
T~ 2.1
0
1
0
7 14.6
2
4
1
2 4.2
0
0
1
1
0
0
10 20.8
0
3
0
1
0
0
4
2
11 22.9
2
2
2
2
0
3 1
3-14
-------
Table 3-7. (continued)
Geographic Location JB& Pesticide -•»
Ebrmulator/Packager (PFP) Plants
Location
Region VI Total
Texas
Oklahoma
Ar kansas
Louisiana
Region VII Total
Nebraska
Iowa
Kansas
Missouri
Region VIII Total
Montana
South Dakota
Wyoming
Colorado
North Dakota
Region IX Total
California
Arizona
Region X Ibtal
Washington
Oregon
Idaho
Totals
1 Telephone 1 1
I & Written 1 Percent of 1
1 Survey 1 All Plants I
44 11.7
27
3
2
12
42 11.2
7
1.8
3
14
7 1.9
1
2
1
2
1
62 16.5
59
3
19 5.1
9
9
1
1 3?6 I 10° 1
1
Written 1 Percent of
Survey 1 all Plants
4 8.3
4
0
0
0
4 8.3
0
1
0
3
0 0
0
_ o
0
0
8 16.7
8
0
1 2.1
1
0
0
48 ( 100
Source: U.S. EPA, 1983 308 Survey for the Pesticide Pbrmulator/Packager
Subcategory and Meta Systems Inc calculations.
3-15
-------
Most formulator /packager plants (57.8 percent) manufacture at least
some of their own active-ingredients as. .shown, in Table 3-8. In general,
plants that manufacture high percentages of their active ingredients -tend
to be plants with a large number of PFP employees.
3.2.3.2 Zero-Discharging Pesticide formulating/Packaging Plants
There are about 720 zero discharge PFP plants. Since BPT has required
all direct discharge PFP plants to meet a zero discharge limit, all PFP
plants are either indirect or zero discharge. While zero discharge plants
are not included in the impact assessment because they already meet the
regulation, some of their major characteristics are summarized here.
Information on 103 of these plants was obtained from state industrial
guides, and is presented in this section. In terms of total employment,
zero discharge plants vary greatly in size as shown in Table 3-9; specific
pesticide related employment data are not available. Total plant employ-
ment ranges from one employee to between 500 and 999 employees. While the
average size is 49, the median is only 26. This indicates that plants
tend to be concentrated at the lower end of the scale.
Zero discharge plants identified their activities in terms of one or
more SIC codes. Plants reporting more than one SIC code have an employ-
ment range of from one to 150 employees. The range for plants with
multiple SIC codes is from two to 750 employees. However, based on the
median size of plants, the multiple SIC code plants are only slightly
larger. (The average size of multiple SIC plants is so much higher due to
a few very large plants.) For additional information on the zero
discharge plants, see Appendix 3-A.
Most of the zero discharge plants are relatively old; with 1945 the
average year of establishment. Mditional statistics on plant age are
included in Appendix 3-A.
3.3 Structure of the Pesticide Industry
3.3.1 Company Characteristics of Pesticide Active Ingredient
Manufacturers
There are no publicly-owned companies for which the manufacture of
pesticides is the prime source of revenue. However, in 1982, 77 companies
reported the manufacture of pesticide active ingredients to the U.S.
International Trade Commission. These producers included petroleum
companies (e.g., Shell), chemical companies (e.g., Dow and DuPont), and
pharmaceutical-based firms (e.g., Eli Lilly and Pfizer).
3-16
-------
Table 3-8. Characteristics of Pesticide Formulating/Packaging
Plants (PFP) Plants by Percent of Internally Manufactured
Active Ingredients
Percent of Active
Ingredients Manu-
factured Internally
0
0.1 - 9.9
10 - 24.9
25 - 49.9
50 - 74.9
75 - 99.9
100
Unknown
Number
of Plants
19
10
4
6
2
3
1
3
Average Number of
Percent Formulating/Packaging
of Plants Qnplbyees*
39.6
20.8
8.3
12.5
4.2
6.2
2.1
6.2
13.4
3.4
58.5
39.8
6.0
36.5
148.0
Source: U.S. EPA, 1983 308 Survey for the Pesticide Formulator/Packager
Subeategory and Meta Systems Inc calculations.
* Employment expressed as full time equivalent employees.
3-17
-------
Table 3-9. Pesticide Fommlator/Packagers
Employment Summary foe Zero Discharge Plants*
1 Plants Repotting I Plants Reporting
All Plants I Single SIC I Multiple SIC
Employment Levels
Reported: **
Minimum
Maximum
Average
Median
1
750
49
26
1
150
32
20
2
750
82
30
Standard
Deviation 90 32 159
Number of
Plants Reporting 97 68 24
Source: Industrial Guides for 31 states (listed in the References
Chapter) .
* Based on a sample of plants which identified themselves as zero
dischargers on the telephone survey, and information in State Industrial
Guide.
** Employment is total count reported, not full time equivalent
employment. When a range was reported, the mid-point of the range was
used. 34 plants gave employment ranges, 63 gave discrete values.
3-18
-------
The production of active ingredient chemicals used in pesticides is
the first and most complex phase of the pesticides industry. Pesticide
production involves synthesizing technical-grade chemicals from raw
materials/ and requires substantial capital and technical background to
conduct research and to construct and operate process facilities. There
are twenty major classes of raw materials and chemical intermediates used
in the manufacture of pesticides, and in recent years about 2.5 billion
pounds of these raw materials, valued at over $1.6 billion, have been
consumed annually by the pesticide industry. Table 3-10 lists the major
chemical groups and raw materials that are used in manufacturing pesti-
cides. It also shows the proportional contribution that each group makes
to the total estimated value of pesticide production.~
Information from the 1977 308 Survey indicates concentration ratios as
follows: the top four companies account for 46 percent of 1977 total
value of active ingredient production and the top eight firms account for
67 percent, as shown in Table 3-11. Another source has estimated that in
1980, the top four firms had 44 percent of the market and the top eight
had 82 percent.I/ Major product groups within the pesticide industry
exhibit varying degrees of concentration; for example, in 1976 the top
four producers of insecticides used on corn accounted for 81 percent of
the market while the top four soybean insecticide producers had 77 percent
of the market..2/
Vertical integration among firms that produce pesticide active ingre-
dients is common. Most active ingredient producers formulate pesticide
products captively. A 1*980 assessment reported in the Kline Guide to the
Chemicals Industry indicates approximately 80 percent_of_the formulated
pesticide industry is controlled by pesticide active ingredients
manufacturers.
3.3.1.1 Profitability
As mentioned earlier, most of the U.S. pesticide production is carried
on by diversified companies and their sales of pesticides are a minor
source of the firm's revenue. Therefore, financial data specifically on
pesticide production from different sources vary. While investment
analysts regard pesticide production as a very profitable business, profit
margins suggested by an analysis of income statements are lower than those
quoted by these analysts. For example, one investment firm estimates that
the average pre-tax profit margin on sales exceeds 20 percent.I/
1/Prost and Sullivan, U.S. Pesticide Market, May 1981.
.2-/U.S. Department of Agriculture, The Farm Pesticide Industry,
Agricultural Economic Report, No. 461, September 1980.
1/Loeb, Rhodes & Co., Herbicide Suicide, December 1975, cited in
Seehusen, M.H., The Economic Health of the Pesticide Industry, January
1978.
3-19
-------
Table 3-10. Raw Materials and Key Chemical
Intermediates Used in Pesticide Manufacture
Product Group
Percent of total
Estimated Value of Production
Phenol and derivatives
Aniline derivatives
Cyanide derivatives
Carboxylic acid derivatives
Higher alkyl amines
Phosphorous pentasulfide
Benzene and related compounds
Phosgene
Chlorine
Phosphorous trichloride
Mercaptans
Monomethylamine
Aldehydes
Carbon disulfide
L-Pinene
Cyclodienes
25.3
12.4
12.3
11.3
8.5
5.5
4.9
4.2
3.7
3.2
3.0
1.2
1.1
0.4
0.4
Total
100.0%
Source: Frost and Sullivan, U.S. Pesticides Market,
Report A907, May 1981.
3-20
-------
Table 3-11. Concentration Ratios Based on
Pesticide Active Ingredient Sales
Number of
Corporations
tfcunber of Plants
Owned by
These Corporations
Corporations
1977 Plant
Concentration Pesticide Sales
Ratio (in %) (Million $)
Top 4
Top 8
Top 16
Total
10
22
41
114
46.16
67.15
87.03
100.0
1,355
1,970
2,560
2,940
Source: U.S. EPA, 1977 308 Survey for the Pesticide Active Ingredient
Manufacturers Subcategory and Meta Systems Inc calculations.
3-21
-------
However, a detailed examination of the annual reports and 10-K statements
of pesticide producers reveal that line-of-business, pre-tax profit
margins in 1978 typically range between 10 and 15 percent. CSee
Appendix -3-B.) This range is consistent with the Federal Trade
Commission's statement that chemical industry pre-tax profit margins in
1978 averaged 10.6 percent (versus 8.0 percent for all manufacturing).!/
There are many individual pesticide products, however/ on which profit
margins exceed 40 percent. These are the proprietary (patented) products
without competitive substitutes, thus allowing the patent holder to price
the product considerably higher than cost.
The profitability of the pesticide industry can also be assessed by
examining the profitability ratios for the corporations which have sub-
sidiaries that are involved in pesticide manufacturing. Six profitability
ratios for 31 corporations which manufacture pesticides were analyzed.
Table 3-12 presents average ratios for the 31 corporations, calculated on
the basis of total firm profits—not just pesticide profits..?/ Firms
are grouped on the basis of asset size: companies with assets less than
$1 billion; $1 billion to $10 billion, and assets greater than $10
billion. (There are eight firms in the smallest asset group, 16 firms in
the middle group and 7 firms in the largest group.) Also, measures of
profitability for pesticide manufacturers are compared to two other manu-
facturing sectors: chemicals and allied products, and the all manu-
facturing industry averages.^/
Based on three year averages (1980-1982), the after-tax profit margin,
return on equity and on assets are highest for the largest firm group
(assets over $10 billion) and lowest for the smallest firm group (assets
less than $1.0 billion). See Table 3-12. Profit margins range from 2.3
to 6.2 percent, return on equity from 6.5 to 14.2 percent, and return on
assets from 3.3 to 13.9 percent. Two of the six firms in the smallest
group had negative profits in one or more years between 1980 and 1982. If
these two firms are excluded, the profitability ratios are similar for the
three groups; for example, profit margins range from 5.2 to 6.2 percent;
returns on equity and assets range from 13.0 to 14.2 percent and from 6.9
to 13.9 percent, respectively. (If these ratios are compared on the basis
of pre-tax conditions, the ratios increase by a factor of 1.5 to 2.0 which
is shown in Appendix 3-B.)
i/Federal Trade Commission, Quarterly Financial Report, various
issues, Washington, DC.
I/Profitability ratios based on data obtained from Corporate
COMPUSTAT, as of February 23, 1984, Standard & Poor's Compustat Service,
Inc. See Appendix 3-B for individual company ratios.
I/Quarterly Financial Report, op. cit.
3-22
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If the ratios for the pesticide manufacturing industry are compared for
each year between 1980-1982 (rather th*n?st*he.:±hre!e year-average)-,-the. ratios
are highest for 1980 and lowest for 1982. The decline results from the
general downturn in the manufacturing sector of the economy over that period
and these ratios are expected to improve with improvement in the overall
economy.
Compared to other manufacturing sectors (shown in Table 3-12), the average
after-tax profit margin for pesticides manufacturing is lower than that for
producers of chemicals and allied products (5.1 percent versus 6.8 percent),
but higher than all manufacturing industry average (5.1 percent versus 4.5
percent). However, the average return on equity for pesticide active
ingredient manufacturing (11.6 percent) is lower than either chemicals and
allied products (14.4 percent) or all manufacturing (12.6 percent).
3.3.1.2 Research and Development
Research and Development (R&D) plays a major role in the continued success
of chemical producers. Because of the time and cost required to develop new
pesticides, R&D activities are concentrated in about 30 companies. I/
Analysis of information obtained from a survey by the National Agricultural
Chemicals Association (NACA) in 1981 reveals several major characteristics of
the industry's R&D activities. 2/
o Expenditures for R&D in 1981 represented 8.3 percent of
sales, which is higher than the average for all of U.S.
industry. R&D effort appears to be maintaining the same rela-
tionship to sales (about 8 percent) as in the late 1960's,
although it has been as high as 9.7 percent and as low as 6.5
percent between 1970 and 1981.
o Considering three categories of firm size, different levels
of R&D are sustained. Companies with sales of less than $15
million averaged 22.9 percent of sales for their R&D;
companies in the $15 to $100 million sales category averaged
12.4 percent; and companies over $100 million averaged 7.2
percent of sales.
o Each year, about 15 to 20 new pesticide chemicals are
registered under the Federal Insecticide, Fungicide and
Rodenticide Act (PIPRA). There was a temporary drop in new
pesticide registration to three and eight in 1977 and 1978,
i/Frost and Sullivan, U.S. Pesticides Market, Report A907, May 1981.
.2/Aspelin, A., Economic Aspects of Current Pesticide Regulatory Programs
and Outlook for the Future, U.S. Environmental Protection Agency, Office of
Pesticide Programs, Washington, DC, February 1983.
3-24
-------
respectively, due to the litigation over the 1978 Amendments to
FIFRA. "However, the average number of new chemicals rregist-ered- ~
ea.cn year was 17 between 1970 and 1975, and 16 between 1979 and
1982.
On average, the time from discovery of a new chemical until its
registration under FIPRA is six to eight years. Develop- ment
costs for each new chemical can range from $15 to $30 million (in
terms of 1980 dollars). About 20 to 25 percent of the total cost
is for registration-related R&D expendi- tures.
In the opinion of some industry observers, R&D costs in the pesticide
industry are expected to increase. I/ 2/ Tne n^eiy consequence of such
an increase will be further concentration of the industry with only large
firms able to afford the high R&D costs. High R&D coats and the
uncertainty inherent in the commercialization of a new pesticide are major
barriers to new firms seeking to enter the industry. The successful
companies in the future are likely to be those with existing technical
bases (e.g., pharmaceutical companies) and/or those with long-term posi-
tions in the industry.
3.3.1.3 Barriers to Entry
There are several obstacles to overcome before a potential entrant to
the pesticide chemicals industry can expect to be profitable. If a firm
is already a producer of organic chemicals, then the additional equipment
and plant construction, and associated capital outlay, would be relatively
small. However, the cost for an entirely new chemical plant could pose a
significant barrier to entry.
A second potential barrier in this industry is obtaining access to a
patented, profitable chemical. Manufacturing rights are generally
acquired in one of two ways. A firm can develop a new pesticide chemical
"in-fcouse" and patent it. This is the approach commonly used by large,
existing pesticide producers. Developing a new chemical takes several
years and is sufficiently expensive so as to be prohibitive for most
potential industry entrants. The second route is to buy the rights to an
existing patent. The capital required for such a purchase and the
infrequent availability of these patents can prohibit patent acquisition.
These two barriers make it difficult for new, small companies to enter the
industry.
i/Goring C., "The Costs of Commercializing Pesticides," in Pesticide
Management and Insecticide Resistance, Rarcourt Brace Jovanovich, NY,
pp. 1-33, 1977.
2/Arthur D. Little, Inc., Evaluation of the Possible Impact of
Pesticide Legislation on Research and Development Activities of Pesticide
Manufacturers, Report to Office of Pesticide Programs, EPA, 1975.
3-25
-------
3.3.2 Companies that Formulate/Package Pesticide Products
Forty-six companies own the 48 formulator/packager plants in the sample
of plants" discussed earlier. It is estimated that the total 210 indirect
discharge PFP plants are owned by a total of 201 firms.
Concentration ratios for the top four, eight and 20 firms are about 45,
65, and 80 percent, respectively. i7 The estimates are based on 1977
Census information for establishments with primary SIC group 2879, rather
than the 308 Survey because the Survey information is limited to indirect
dischargers rather than the total industry.
Vertical integration in the PFP industry is high. As noted earlier, a
major share of PFP production is carried out by firms that manufacture pesti-
cide active ingredients. Analysis of interplant transfers indicate that
pesticide formulator/packager production retained by manufacturers had
increased from 5.8 percent to 1958, to 11.3 percent in 1972, and to 13.6
percent in 1977. I/
3.3.2.1 Profitability
A study by the USDA found that during the 1966-76 period, prices at the
manufacturer level increased at nearly twice the rate as prices at the retail
level. J-L/ Thus, the manufacturers' share of the farmer's pesticide dollar
increased from 45 percent to 66 percent during this period. The study attri-
buted this shift to: (!•} manufacturers performing more of the formulating,
packaging, and distribution of the pesticides themselves, (2) use of more
highly concentrated pesticides which thereby reduced formulating, packaging,
and distribution costs, and (3) a reduction in margins in the more competi-
tive distributor sector in an attempt to retain customers' patronage for
fertilizer and other farm supplies.
Pesticide active ingredients account for a large share of the price of
formulated/packaged products. In 1977, 27.0 percent of material costs for
SIC 2879 were attributable to synthetic organic pesticides and related
synthetic organic agricultural chemicals (SIC 286941), 10.7 percent was
attributed to containers, 9.1 percent to solvents, 6.9 percent to inorganic
chemicals (SIC 281900), 1.3 percent to inorganic carriers, 0.8 percent to
surfactants, and 0.1 percent to aerosol propellants. The remaining 44.2
i/U.S. Department of Commerce, Bureau of the Census, 1977 Census of
Manufactures.
^/Federal Trade Commission, Office of Policy Planning, Competition in
Farm Inputs; An Examination of Four Industries, February 1981.
J/Cited in Competition in Farm Inputs; An Examination of Four
Industries, op. cit.
3-26
-------
percent of expenditures went to all other materials and components, parts,
and supplies, I/ ,. ,
Hochberg, a chemical consulting firm in Chester, NJ, predicts a growth
in the demand for chemicals used to formulate agricultural pesticides of
16 percent by 1987, to $245 million. 2/ Reasons cited for this growth
are end of the PIK program, general economic recovery, and technological
improvements in pesticide delivery systems and toxicants. Surfactants
will represent 45 percent of this total market, solvents will account for
22 percent, and carriers/diluents will represent 19 percent. The
remaining 14 percent would be comprised of deactivators, thickeners, pre-
servatives/ antifreezes, antifoams, alcohols, and oils.
Only limited insights can be gained by examining profitability ratios
for companies that are involved in PPP operations. The 1983 308 Survey
provided information on 59 PPP plants. The 59 plants represent only 6.3
percent of the estimated 930 total PFP plants. An examination of the
affiliations of the 59 plants reveals there are 56 different owners.
Profitability ratios for six of these firms were available from the
COMPUSTAT data base. 2/ The sample is too small to subdivide by firm
size. All six firms are relatively large compared to the many small firms
that own PFP plants. The smallest of the six firms has assets of $400
million; all the other firms have assets over $1 billion. Also five of
the six firms—including DuPont and American Cyanamid—are represented in
the 31 plant sample of pesticide manufacturers that was analyzed earlier.-
While the six firms do not constitute a representative sample of PFP
plants, their profitability ratios are informative about large firms which
formulate/package pesticides.
The same profitability ratios defined for manufacturers are compiled
from the COMPUSTAT data base and are presented in Appendix 3-C. Based on
three-year (1980-1982) averages, all six profitability ratios are higher
than the 31 plant averages for manufacturers (shown in Table 3-13) by 0.5
to 5.0 percentage points. For example, average after-tax return on equity
for the six PFP firms is 13.3 percent compared to the average of 11.6
percent for the 31 manufacturing firms, a difference of 1.7 percentage
points.
Compared to other industry sectors, the six firms with PFP plants show
lower profitability ratios for after-tax profit margin and return on
equity than the chemicals and allied products sector, but higher ratios
than the average for all manufacturing. The specific ratios for the PFP-
owning firms are shown in Appendix 3-C together with the averages for the
other manufacturing sectors.
i/D.S. Department of Commerce, Bureau of the Census, 1977 Census of
Ma nufacturers. -
^/Chemical Week, October 5, 1983, p. 17.
^/Corporate COMPUSTAT, op. cit.
3-27
------- An error occurred while trying to OCR this image.
-------
3.3.3 The Market for Pesticides
The end use markets for pesticide active ingredients and formulated
pesticide products are the same, excluding the effects of international
trade. The specific information discussed here is based on active ingre-
dients, unless stated otherwise, but we assume market trends are the same for
both tiers of the industry since one provides the inputs to the other.
The agricultural sector constitutes the major market for pesticide
products. In 1982 the agricultural share of total U.S. domestic use of all
pesticides used was 70.3 percent, i/ Agricultural use accounted for 79
percent of total domestic use of herbicides (based on weight of active
ingredients) and 76 and 39 percent, for insecticides and fungicides,
respectively. Considering all three pesticide product groups, agricultural
use has grown steadily since the mid-1960's, and in terms of pounds used, has
more than doubled from 1964 to 1982. The number of acres of major field
crops treated with pesticides at least once has increased 180 percent. Based
on weight of active ingredients, farm use of insecticides has declined
relative to other domestic uses as more effective chemicals such as synthetic
pyrethroids have been introduced into the agricultural sector. 2/
There is evidence that the market is not yet saturated and this implies
future growth possibilities. It is estimated that 12 percent of U.S. crop
production, valued at over $12 billion, is lost to weeds each year. Rirther,
it is estimated that for every dollar spent on pesticides, the farmer
currently obtains, on the average, three dollars in increased yields as a
result of lower crop losses. I/' 4/
Use of pesticides is not confined to the agricultural sector. Industrial
and commercial pest control constitute an important market sector as do
pesticide products sold for use in the home and garden. In 1982, the
industrial/commercial/government use of pesticides was 16 percent of
herbicides, 12 percent of insecticides, and 52 percent of
1/EPA, Office of Pesticide Programs, Economic Analysis Branch
Pesticide Industry Sales and Usage, 1982 Market, Estimates, December
1982.
.2/Eichers, T. R., personal communication. U.S. Department of
Agriculture, August 1983.
1/Senechel, D.M., personal communication, Agribusiness Associates,
Inc., Wellesley Hills, HA.
.i/A value of four dollars return for every dollar spent on pesticides
was estimated for 1978 by D. Pimental et al., Benefies~arfd~Cb'gt~s~of~ '
Pesticides Use in U.S. Food Production, Bioscience, December 1978.
3-29
-------
fungicides/ based on volume of active ingredients. Home and garden use
accounted, for. five .percent of herbicides,.,..12 percent of insecticides, and
two percent of fungicides. I/
3.3.3.1 Factors Influencing Demand
The demand for pesticides has been characterized as somewhat inelastic
due to their importance for increased crop production and the general lack
of pesticide substitutes. 2/ Nevertheless, demand is influenced by a
number of variables including crop acreages, past conditions, weather,
farm income, interest rates, dollar exchange rates, pesticide prices,
foreign crop production, and farming techniques. The effect of prices on
demand is considered to be less important than some of these other factors.
The FTC study noted that in cases where pesticide costs are a small por-
tion of input expenditures, farmers view pesticides as necessary insurance
for a large crop yield. ^/ Even if their pesticide cost doubled or
tripled, these costs would easily be recovered by an increase of only one
to two percent in the crop yield.
During the decade ending in 1981, pesticide prices increased much less
than other agricultural inputs, i/ Nominal prices for pesticides
increased 78 percent compared to 137 percent for labor, 186 percent for
fertilizer, 207 percent for machinery and 391 percent for interest rates.
During this period, quantities of pesticides used almost doubled while
fuel and fertilizer use increased by one-third and machinery sales were
unchanged. These changes in use patterns are due, in part, to the rela-
tive price changes among these farm inputs. Farmers can opt to reduce
machinery use and fuel consumption in favor of applying more pesticides.
Such reductions can be achieved by less intensive tillage practices—such
as minimum tillage and no-till—which have been gaining acceptance since
the mid-1970's. Reduced tillage leaves the soil surface undisturbed in
contrast to the conventional practice of plowing under the crop residues.
Thus, less machinery and fuel is used. However, pesticide use tends to
increase, because undisturbed crop residues promote weed growth and
provide attractive habitats for some insects. In 1982, pesticides were
expected to account for two to 16 percent of total farm production costs
depending on the crop; e.g., 2.3 percent of the cost for wheat, 11.3
percent for soybeans and cotton, 15.7 percent of peanuts, averaging 3
percent for all pesticide expenditures. I/
i/EPA, Office of Pesticide Programs, Economic Analysis Branch,
Pesticide Industry Sales and Usage, 1982 Market, Estimates, December
1982.
^/Federal Trade Commission, Competition in Farm Outputs; An Examina-
tion of Farm Industries, February, 1981.
!/op_. cit. Federal Trade Commission, February 1981.
1/Eichers, T.R., and W.S. Serletis, Farm Pesticide Supply-Demand
Trends, 1982, U.S. Department of Agriculture, Economic Research Service,
Agriculture Economic Report, 485, April 1982.
I/ op. cit. EPA, Office of Pesticide Programs, Dec. 1982.
3-30
-------
The demand for pesticides is also directly related to crop acreages,
pest conditions, and the weather. For example, .demand for,.her,bicides wil
increase with increasing acres in production, severe cold or drought will
usually decrease the need for and use of insecticides, while fungicide
demand depends on disease levels which, in turn, are influenced by
humidity and temperature.
Total annual production of pesticide active ingredients, which
increased rapidly in the sixties and early seventies, had leveled off to
about 1.4 billion pounds in the last several years through 1981. In addi-
tion, the production mix of herbicides, insecticides and fungicides
changed considerably over the past two decades as shown in Figure 3-1.
Herbicides have taken the lead in production quantity only since 1975.
However, the value of herbicide production had exceeded that of insecti-
cides even prior to 1975 as shown in Figure 3-2; for example, between 1967
and 1975 the value of herbicide production ranged from 1.7 to 2.4 times as
great as the value of insecticide production.
3.3.3.2 Market Maturity
Between 1977 and 1981, pesticide production grew less than four
percent overall while the value of production had increased by 20 percent
in real terms, with herbicides showing the greatest gain. However, the
six year period ending in 1982 shows a production decline of almost 20
percent and only a seven percent increase in value due to the 1982 produc-
tion downturn. Table 3-13 shows the relative contribution of each major
pesticide group to total production quantity and value in recent years.
(Appendix 3-D presents historical data since 1967 on production quantity
and value for the three pesticide groups.) In general, the U.S. pesticide
market appears to have reached maturity and the highest growth rate some
analysts expect to see is about one percent. I/ This maturity is
related to a number of factors, including the increasing use of integrated
pest management (IPM). IM is practiced mostly on large grain crops and
cotton, and consists of scouting and monitoring pest populations to opti-
mize the time of pesticide applications. The timing of planting and har-
vesting is also part of the IPM strategy. Another factor is the use of
more complex pesticides, such as synthetic pyrethroids, which are applied
less frequently and at lower rates than traditional insecticides. The
highest growth will occur in herbicides because of the increasing use of
less intensive tillage practices which tend to increase the likelihood of
weeds, as discussed earlier. Some of the primary use characteristics of
each of these three major pesticide classes are discussed in Appendix 3-E.
i/Eichers, T.R., Farm Pesticides Economic Valuation, 1981, DSDA, Eco-
nomic and Statistics Service, Agricultural Economic Report, 464. Frost
and Sullivan, U.S. Pesticide Market, Report A907, May-1981.
3-31
-------
Figure 3-1. Annual Pesticide Production by Product Type
-------
Figure 3-2. Annual Pesticide Value by Product Type
10,000 p
5000
3000
1000
CO
or
- Herbicides
IjSOO
O
Q
£300
CO
§200
100
50
30
20-
10
^ //
0 1/ ../ u
Insecticides
.^^ O^
x-^x
_ Fungicides
Note: Solid line =
current dollars
Broken line =
constant dollars
I ~~\
67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82
YEAR
Source: U.S. International Trade Commission, Synthetic Organic Chemicals,
1982 and prior issues, U.S. Government Printing Office, Washington, DC.
Also, Arthur D. Little Inc., unpublished information furnished by EPA.
3-33
-------
3.4 Exports and Imports
The export-import analysis is based on pesticide active ingredients, but
the trends are, in general, applicable to formulated products as well.
The U.S. is a net exporter of pesticides. In 1980, exports exceeded imports
by 270 million pounds on the basis of pesticide active ingredients.
In 1982, the net balance declined to 190 million pounds. Tables 3-14, 3-15,
and 3-16 present data on U.S. exports and imports of the three major product
groups from 1966 to 1982. Exports and imports are described in terms of
pounds and percent of U.S. production quantities.
In 1982, the U.S. exported 111 million pounds of herbicides active
ingredients, or about 18 percent of U.S. production. For insecticides and
fungicides, the 1982 export quantities were 92 million pounds and 44 million
pounds, respectively. For insecticides, the 1982 exports represent 28
percent of U.S. production and for fungicides, 40 percent of U.S. production.
Exports in 1983 are expected to show an increase over 1982. Exports for
herbicides are estimated to be 125 million pounds, for insecticides about 95
million pounds and for fungicides 38 pounds. .!/ The estimates are based on
a survey of major producers by the U.S. Department of Agriculture in
mid-1983. 2/ The major producers expected exports of herbicides to be 21
percent of the U.S. production, for insecticides and fungicides, the exports
were estimated at 29 percent and 40 percent, respectively. (The percentage
estimates refer to depressed production levels for pesticide manufacturers in
1983 due to large inventory carryovers, the Department of Agriculture's
acreage set aside program (PIK) and general economic conditions.)
Table 3-17 displays the average annual growth rates over the 1970-1980
decade for both the quantity and value of pesticides exports. The quantity
of herbicide exports showed the highest quantity rate of growth (12.7
percent). The value of exports of herbicides and fungicides showed growth
rates exceeding 22 percent compared to 14.5 percent for insecticides.
Import quantities have been much less than exports. In 1980, herbicide
imports were 31 million pounds, insecticides 6.7 million pounds and
fungicides 2.9 million pounds. However, in 1982, imports of the two major
pesticide product groups—herbicides and insecticides—were about 1.5 times
the 1980 quantities, while imports of fungicide active ingredients showed a
ten percent decline. (See Tables 3-14, 3-15 and 3-16.)
The 40 million pounds of pesticide active ingredients imported in 1980
originated in a relatively few number of nations with an established
1/Meta Systems Inc estimates.
1/U.S. Department of Agriculture, Inputs—Outlook and Situation,
Economic Research Service, IOS-1, June 1983 and IOS-2 October 1983.
3-34
-------
Table 3-14. U.S. Production and Trade in Herbicides i/
1
1 Production
Yearl (Million Lbs. )
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1
Sources:
Chemicals,
Washington,
324
409
469
393
404
429
451
496
604
788
656
674
664
658
805
839
623
593
1
1 Exports
1 (Million Lbs
22.5
32.4
37.0
34.7
39.0
42.3
44.0
70.0
95.2
100.4
99.0
105.5
117.1
131.8
129.3
111.6
111.4
125.0
1
1 Exports as a
1 Percent of U.
. ) 1 Production
6.9
8.0
8.1
8.9
9.7
9,9
9.8
16.3
17.6
13.5
15.9
16.0
17.6
20.1
16.1
13.3
17.9
21.0
1
U.S. International Trade Commission
1981 and
DC. U.
prior issues
S. Department
1 — 2y 1 Imports
S.| Imports -J \ Percent
as a
of U.S.
1 (Million Lbs. ) 1 Production
- NA
_ NA
NA
"2.9
4.8
'7.9
NA
NA
11.5
20.2
24.2
20.1
29.0
32.6
31.0
37.4
45.7
NA
1 1
, Synthetic Organic
NA
NA
NA
0.7
1.2
1.8
NA
NA
1.9
2.6
3.7
3.0
4.4
5.0
3.9
4.5
7.3
NA
, U.S. Government Printing Office,
of Agriculture,
The Pesticide Review,
Agricultural Stabilization and Conservation Services, Washington, DC, Annual
issues from 1976-1981. Unpublished information from Lee Fowler, Pesticide
specialist, USDA.
i/Imports and exports are converted to an active ingredient basis by
halving values. J
^/Estimated by Meta Systems Inc from total imports reported by country of
origin; and proportionate share of herbicides, insecticides, and fungicides
as reported for selected chemicals in U.S. Department of Agriculture, The
Pesticide Review, Agricultural Stabilization and Conservation Services,
Washington, DC, Annual issues from 1976-1981 and unpublished information
from Lee Bowler, Pesticide Specialist, USDA.
NA = Not available.
3-35
-------
Table 3-16. U.S. Production and Trade in Fungicides
Production
Year 1 (Million Lbs,
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1
137
144
154
141
140
149
143
154
163
155
142
143
147
155
156
143
111
95
1
1 Bcports |
. ) I (Million Lbs. )
21.2
19.2
18.8
18.1
20.6
21.5
21.0
29.2
30.0
23.9
25.2
27.1
39.8
38.3
45.2
39.7
44.1
38.0
1
1 Exports as a
1 Percent of O.S.
I Production
15.5
13.3
12.2
12.8
14.7
14.4
14.7
19.0
18.4
15.4
17.7
18.9
27.1
24.7
29.0
27.8
39.7
40.0
1
1 3/ '
I Imports =f |
1 (Million Lbs.) 1
NA
NA
NA
0.3
1.2
2.0
HA
NA
1.6
4.0
4.4
3.2
1.5
1.0
2.5
2.5
2.4
NA
1 1
Imports as a
Percent of O.S.
Production
NA
NA
NA
0.2
0.9
1.3
NA
NA
1.0
2.6
3.1
2.2
1.0
0.6
1.6
1.7
2.2
NA
Source: D.S. International Trade Commission, Synthetic Organic Chemicals, 1981 and
prior issues, O.S. Government Printing Office, Washington, DC. U.S. Department of
Agriculture, The Pesticide Beview. Agricultural Stabilization and Conservation Services,
Washington, DC, Annual issues from 1976-1981. Unpublished information from Lee Fowler,
Pesticide Specialist, DSDA.
i/Imports and exports are converted to an active ingredient basis by
halving values.
I/Estimated by Meta Systems Inc by country of origin, and proportionate share of
herbicides, insecticides, and fungicides as reported for selected chemicals in U.S.
Department of Agriculture, The Pesticide Review, Agricultural Stabilization and
Conservation Services, Washington, DC, Annual issues from 1976-1981 and unpublished
information from Lee Fowler, Pesticide Specialist, OSDA.
NA • Not available.
3-37
-------
>e
•D--CT
Solid line =
current dollars
Broken line =
constant dollars
78 79 80 81 82
YEAR
nthetic Organic Chemicals,
Office, Washington, DC.
tion furnished by EPA.
jjtive ingredients, but
coducts as well.
ports exceeded imports
__ ingredients.
3. Tables 3-14, 3-15,
ie three major product
Bribed in terms of
>rbicides active
For insecticides and
pounds and 44 million
rts represent 28
»nt of U.S. production.
7er 1982. Exports for
insecticides about 95
stimates are based on
Agriculture in
lerbicides to be 21
angicides, the exports
2ly. (Hie percentage
bicide manufacturers in
~~of Agriculture's
Dnditions. )
3 over the 1970-1980
-------
chemical technology. Switzerland accounted for 36 percent of imports by
weight, West Germany 27 percent, the United Kingdom ten percent, and Japan
four percent. (Based on value of the imported pesticides, West Germany •-*•-•--•
accounted for 36 percent while Switzerland, Japan and the United Kingdom
accounted for 19, 16 and 11 percent, respectively.)
In 1980, the U.S. accounted for the greatest dollar share (44 percent) of
the world herbicide market, 23 percent of the world insecticide market and 10
percent of the world fungicide market. Western Europe accounted for the
greatest share of the fungicide market (39 percent), and the rest of the
world (other than Japan, the Far East and Western Europe) was the largest
market for insecticides, as noted in Table 3-18.
There are a number of growing world markets from which U.S. pesticide
industries should be able to profit. The largest are Brazil, The People's
Republic of China, Mexico, and Japan. J/ Corn and soybean herbicides offer
the greates opportunities for continued growth in world herbicide
markets. The developing countries are likely to continue increasing their
use of pesticides by five or six percent per year as many of the countries
strive to obtain a better balance between fertilizer and pesticide use. One
industry observer predicts that exports will provide greater growth than
domestic markets during the next decade, averaging an increase of 2.7 percent
per year. 2/
i/Farm Chemicals, April 1981.
2/Predicasts, as quoted in Chemical Week, May 7, 1980.
3-39
-------
Table 3-17. Annual Growth Rates for Volume and
Value of U.S. Pesticide Exports (1970-1980)
Product Group
Herbicides
Insecticides
Fungicides
Volume (Percent)
12.7
1.2
8.1
Value* (Percent)
22.9
14.5
23.8
All Pesticides** 5.1 18.7
Source: U.S. Department of Agriculture, The Pesticide Review, Agri-
cultural Stabilization and Conservation Services, Washington, DC, Annual
issues from 1975-1979.
* Based on current dollars.
** Includes other pesticides such as miticides.
3-38
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4. BASELINE PROJECTIONS OF INDUSTRY CONDITIONS
This chapter provides estimates of current and future conditions in the
pesticide chemicals industry in the absence of additional effluent limita-
tions guidelines and standards, i.e. baseline conditions. Baseline estimates
are made for pesticide active ingredient manufacturers and for pesticide
forraulator/packagers (PPP).
4.1 Pesticide Manufacturing
The baseline conditions for manufacturers of pesticide active ingredients
is derived from 1977 308 Survey data for each plant, updated to 1982 levels
as explained in Chapter 2. In addition to describing current baseline condi-
tions, industry trends are projected to 1990, so that the severity of treat-
ment cost impacts after 1982 can be assessed in Chapter 6.
The variables selected to describe industry conditions are: quantity and
dollar value of pesticides sold (total for the subcategory and separately for
each of the major product groups, i.e. herbicides, insecticides, and fungi-
cides) , profit, production capacity and capacity utilization rate.
4.1.1 Current Baseline
The 1982 baseline quantity of pesticide active ingredients sold by the
114 manufacturing plants is 1.17 billion pounds of which herbicides account
for 521 million pounds, insecticides for 423 million pounds, and fungicides
for 224 million pounds. The value of pesticide active ingredients sold by
the manufacturers is $3.85 billion of which herbicides account for $2.14
billion, insecticides for $1.2 billion and fungicides for $0.5 billion.
Though referred to as the 1982 baseline, the estimated values of baseline
variables are not identical to the actual performance of the 114 manufactur-
ing plants in the industry in 1982 because 1982 production quantities were
not known for individual plants and therefore, were derived from 1977 data.
The baseline describes the recent performance of the plants included in the
analysis, assuming that changes between 1977-82 in pesticide manufacturing
output at each plant and in price are the same as the changes for pesticide
chemical groups reported by the U.S. International Trade Commission (ITC).i/
i/ U.S. International Trade Commission USITC publication number 1422,
Synthetic Organic Chemicals, 1982, and USITC publication number 920,
Synthetic Organic Chemicals, 1977.
-------
Table 3-18. The World Pesticide Market, 1980,
User's Level, Percent of-Market* «,*r.r
Western Japan & Rest of
U.S. Europe Par East World
Herbicides 44% 24% 11% 21%
Insecticides 23% 13% 26% 38%
Fungicides 10% 39% 24% 27%
Source: Farm Chemicals, September 1981 and Meta Systems Inc calculations,
* Based on Millions of U.S. 1980 Dollars.
3-40
-------
The growth rates for production quantities are based on a 1981 USDA eval-
uation which concluded that U.S. production of•all pesticides would show an
average annual growth rate of only.slightly over one percent between 1978 and
1990.1/ For herbicides, production was projected to increase at a rate of
1.8 percent, insecticides at 0.4 percent and fungicides at 1.1 percent. The
higher growth rate for herbicides is attributed to increasing use of reduced
tillage practices by farmers. Reduced tillage is advantageous to farmers
since it reduces the amount of top-soil lost to erosion, and reduces the
amount of fuel used by farmers. Instead of tilling, the trend will be to
apply herbicides on a routine basis to control vegetation before planting and
in the early phase of crop growth. In contrast, insecticides will be used
with greater selectivity than in the past to minimize use of chemicals toxic
to animal life, or which may come in contact with food supplies, or may enter
the environment.
In the 1981 study, the USDA examined demand as well as supply, and con-
cluded that domestic use for agricultural and non-agricultural purposes would
increase at an average annual rate of 0.3 and 0.8 percent, respectively, over
the 1978-1990 period. Growing use of integrated pest management programs,
more government restrictions, and market saturation in the U.S. were cited as
the reasons for the relatively low growth rate. In other areas of the world,
particularly the developing nations, agricultural use was expected to
increase at a faster rate than in the U.S. because current use of pesticides
is less intense and pressures are greater to increase food production. Thus,
exports by the U.S. were projected to grow at a faster rate than domestic use.
The depressed conditions in pesticide manufacturing since that study—
particularly in 1983—make 1983 an inappropriate year on which to base
long-run projections. As discussed in the industry profile, U.S. production
of pesticide active ingredients as reported by the ITC was about 1.4 billion
pounds annually between 1977 and 1981. Production declined to approximately
1.1 billion pounds in 1982 (about 78 percent of the 1981 level) and declined
again in 1983. The production declines are due to large inventory carry
overs into 1983 which, in turn, are attributable to several factors: the
economic downturn, the payment-in-kind (PIK) program implemented by the U.S.
Department of Agriculture in 1983, and to insect infestations that were lower
than usual. Under the PIK program, the Commodity Credit Corporation entered
into contracts with farmers who agreed to divert acreage from crop production
in 1983 to approved conservation uses. The eligible crops were wheat, corn,
sorghum, upland cotton, and rice. The farmers were compensated in the form
of quantities of these commodities which had accumulated over the years in
the nation's inventory. The USDA does not intend to make PIK a long-term
program, although it will be extended another year for the wheat crop. The
effect of PIK on- the 1983 crop year has been to take about 48 million acres
out of production of which corn acreage is 22 million, wheat acreage is 18
i/ T.R. Eichers, Farm Pesticide Economic Evaluation, 1981, USDA, Economic
and Statistic Service, Agricultural Economic Report, 464.
4-3
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The plant-by-plant production quantities for 1977 have been adjusted to
1982 rather than 1983 because industry output in 1983 was unusually low. As
discussed later in this chapter, 1983 is considered to be atypical of
industry conditions, and this is not an appropriate basis from which to pro-
ject future levels of production. Pesticide prices are adjusted to 1982
based on ITC data. Prices for 1983 are not yet available from the ITC. How-
ever they are essentially the same as 1982 based on a comparison of pesticide
producer price indexes for those two years. (These indexes are discussed in
Appendix 4-A. The adjustment for changes in production quantity and price
between 1977-82 have been discussed in Chapter 2).
Profits for manufacturers of pesticide active ingredients are estimated
to be $555 million in 1982 dollars. Profits are expressed as after-tax oper-
ating income and are derived from pesticide sales as explained in Chapter 2
and Appendix 4-A.
Total industry capacity is approximately 1.8 billion pounds; herbicide
and insecticide production capacities are each about 0.7 billion pounds and
fungicides about 0.4 billion pounds. These estimates are based on capacity
utilization rates reported by the U.S. Department of Agriculture (USDA) for
1982 (summarized in Chapter 3) and the estimated baseline quantities of
pesticides sold by the 114 plants. The capacity utilization rates in 1982
were 65 percent overall? 71 percent utilization of herbicide production capa-
city, 60 percent utilization for insecticides and 55 percent for fungicides.
4.1.2 Projected Baseline
Production of pesticide active ingredients is projected to increase at an
average annual rate of 1.17 percent, reaching 1.28 billion pounds in 1990
valued at $4.95 billion (in constant 1982 dollars). Production quantities
for the three major groups are: 600 million pounds for herbicides, 435 mil-
lion pounds for insecticides and 245 million pounds for fungicides. Applying
the same profit margins and tax rates used for the current baseline, profits
in 1990 are estimated at $715 million.
Based on comments by USDA experts, we have concluded that 1983 was an
aberrant year for purposes of estimating long-term trends (discussed below),
and that 1982 production is a more reasonable year on which to base projec-
tions of production levels in 1990.1/ According to predictions made in
mid-1983 by USDA, 1983 production was expected to be down about nine percent
from 1982.2/ Long-term growth rates eatimated by the USDA in 1981 on the
basis of their on-going analysis of pesticide use and production levels were
applied to the current baseline production quantities to project the 1990
quantities.
*/ Eichers, T.R., and Salathe, L., personal communications, USDA, March
and February 1984.
-2/ U.S. Department of Agriculture, Inputs-Outlook and Situation, Economic
Research Service, IOS-1, June 1983.
4-2
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Table 4-1
Baseline Production Quantity and Value
of Pesticide Active Ingredients*
All pesticides
Quantity (mill. Ibs.)
Total Value (mill. $)
Herbicides
Quantity (mill. Ibs.)
Average Unit Value ($/lb.)
Insecticides
Quantity (mill. Ibs.)
Average Unit Value ($/lb.)
Fungicides
Quantity (mill. Ibs.)
Average Unit Value ($/lb.)
1982
1168
$3850
521
$4.095
423
$2.873
224
$2.239
1990
1280
$4950
600
$4.760
435
$3.340
245
$2.603
Dollar values are in constant 1982 dollars.
Source: Meta System Inc. calculations.
4-5
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million, cotton acreage is 4 million, sorghum acreage is 3.5 million and rice
acreage is one million.!/ These conditions whleh^depressed., pesticide pro-
duction in 1983 are not expected to persist.
More robust growth rates than assumed above for the baseline projection
might be argued, based on crop acreage increases expected in 1984 and the
general economic upturn that has occurred in recent months. However, the
large inventory carry overs of pesticides into 1984 anticipated by the USDA
tempers such optimism at this time.27 If higher growth rates had been used
for the projection, then the estimated impacts of treatment costs would be
reduced. Thus the projected baseline provides a conservative basis upon
which to assess the future impacts of treatment costs.
An analysis in 1981 by Frost and Sullivan supported the conclusion of
relatively low average rates of growth over the 1980-1985 period and antici-
pated a production growth rate of 1.4 percent for the total industry.^/
Total dollar value of production was projected to increase at a rate of about
8.4 percent in current dollars, equivalent to an average increase of 6.9
percent in dollar per pound (unit value) of pesticide active ingredients.
Assuming an average rate of inflation of five percent over the 1980-85
period, the average annual real rate of increase in unit value would average
1.9 percent.
To estimate the dollar value of production in 1990, the unit values in
the current baseline for the three product groups are increased using the 1.9
percent real annual rate of growth derived above. The value of production
equals the projected quantity of production times the unit value, expressed
in constant 1982 dollars. Table 4-1 summarizes the 1982 and 1990 baseline
estimates of value and quantity of production.
The production levels predicted for the next several years can be accom-
modated by the existing capacity. Assuming no major plant shutdowns occur
due to factors such as plant obsolescence, the 1990 production levels repre-
sent a capacity utilization rate of 71 percent for the total industry; 86
percent for herbicides, 62 percent for insecticides and 61 percent for fungi-
cides. Also pesticide active ingredients are manufactured on a "campaign"
basis in many of the existing plants; that is, production is by batch opera-
tions carried out over a period of several weeks or a few months and the
output satisfies annual production targets. Thus existing plants have poten-
tial for greater output by extending the batch operation periods rather than
investing in new facilities.
i/ 0«> Overboe, U.S. Department of Agriculture, personal communication,
August 1983.
2/ U.S. Department of Agriculture, Inputs-Outlook and Situation, Economic
Research Service, 10S-2, October 1983. - —-
I/ Prost and Sullivan, U.S. Pesticide Market, Report A907, May 1981.
4-4
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Table 4-2
1982 Baseline for Indirect Discharge PFP Plants
Number of plants 210
Value of Production
-PFP production (mill. $) $ 2,813
-Total plant (mill. 3) $12,885
-PPP as percent of total
plant (%) 21.8%
Employment
-PPP eraployment-FTE* 4,300
-Total Plant-PTE* 28,266
-PFP as percent of total
plant employment 15.2%
Operating Income From PFP**
-Percent of PFP production
value 14.2%
-Millions of Dollars $399
Averages***
-Value of PFP production
per plant (mill. 3) $13.4
-Value of PFP production
per employee (mill. $)* $0.654
-PFP employment per plant* 20.5
* FTE = Full time equivalent employees; i.e. one full time worker = I960
hours per year.
** Operating income after federal income taxes.
*** Value of production and employment are for PFP operations only, not
total plant.
Source: Meta Systems Inc. calculations from 308 Survey.
4-7
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4.2 Pesticide formulating and/or Packaging (PFP)
The scope of this regulation includes plants that formulate and/or pack-
age agricultural and household pest control products and the notation, PFP,
(Pesticide Formulator/Packager) refers to those plants.
The 308 Survey requested information for the year 1982 and therefore PFP
baseline conditions are described for that year. The baseline also is pro-
jected to 1990. The variables used to describe conditions in the PFP
industry are value of production, profit (expressed as after-tax operating
income),°employment, and average annual capital investment.
4.2.1 Current Baseline
The PFP industry is comprised of approximately 930 plants. The total
value of production in 1982 for formulated and packaged pesticide products is
estimated to be $5.20 billion. The estimate is based on information pub-
lished in the 1983 O.S« Industrial Outlook, the Annual Survey of
Manufacturers, the Kline Guide, and OSDA information. Appendix 4-B presents
the information provided by these sources.
The value of PFP production accounted for by indirect discharge plants is
estimated using the EPA 308 Survey responses. The remainder of the total PFP
industry value is assigned to zero dischargers.
4.2.1.1 Indirect Discharging PFP Plants
The estimated value of PFP 1982 baseline production by 210 indirect dis-
chargers is $2.81 billion; employment is 4,300. (See Table 4-2). The base-
line for the 210 plants is derived by extrapolating estimates for the 48
indirect discharge PFP plants that supplied this information in response to
the EPA 308 Survey. The 210 plants represent 22.6 percent of the total
number of PFP plants (930) and account for 54.0 percent of the total $5.20
billion PFP industry value. For most of the indirect discharge plants, PFP
operations are not the primary production activity; value of PFP production
represents 21.8 percent of the total plant production value for the 210
plants.
Similarly, employment in PFP operations does not account for the major
portion of total employment at these indirect discharge PFP plants. Total
plant employment for indirect dischargers is about 28", 3W with employment for
PFP of 4,300, or about 15.2 percent.
As a measure of profit, after-tax operating income is estimated to be
14.2 percent of the total value of PFP production at indirect discharge PFP
plants. In absolute terms, the profit was $399 million in 1982.
4-6
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Table 4-3
1982 Baseline Value of Production and Employment Estimates
For All PPP Plants
1
1
1
1
Indirect Dischargers: I
(per plant Average) 1
Zero Dischargers: 1
(per plant Average) I
Total PPP: 1
1
Number
of
Plants
210
720
930
1
1 Value of PPP
1 Production
1 mill.$
$2,813
, ($13.4)
$2,387
j ($8.3)
$5,200
1
1 I
I PFP 1
1 Employment 1
I PTE 1
4,300
, (20.5) ,
3,650 *
1 (5-1} 1
7,950
1 1
PPP
Operating
Income
mill.$
$399
($1.9)
**
**
**
PTE » Full time equivalent employees; one full-time worker = 1960 hours per
year.
* Estimate based on value per employee for indirect dischargers of $0.654
million per PTE.
** Not estimated.
Source: Meta System Inc. estimates.
4-9
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In addition to value of PFP production and PPP employment, Table 4-2
shows average estimates. For the average indirect discharge PFP plant> value
of pesticide products is $13.4 million and average PFP employment is 20; the
average PFP value per employee is $654/000. One reason for this high value
per employee is that the cost of the inputs, particularly the active ingre-
dients, is high. This value per employee should not be confused with value-
added per employee, which would be much lower. Value-added per employee
measures how much the value has increased between the inputs and the outputs
of the facility. Value per employee simply measures the value of the output.
The average annual capital investment for PFP operations over the last
few years has been $87 thousand for each of the 210 plants, as determined
from the 308 Survey data.
4.2.1.2 Other PFP Plants
There are an estimated 720 zero discharge plants out of the total 930
plants estimated for the PFP industry. The average plant size in this seg-
ment of the industry is small relative to indirect discharge plants. For
example, estimated employment for zero dischargers is 49 per plant, based on
a sample of 97 plants described in the industry profile compared to an aver-
age total plant employment of 135* per indirect discharge plant, based on the
results of the 308 Survey. Since PFP employment is not known for zero dis-
chargers, it is estimated on the basis of the unit value per employee (FTE)
derived for indirect discharging plants ($0.654 million per employee).
Assuming this same unit value for zero dischargers, the total PFP employment
for zero discharge plants is about 3,650. A summary of the PFP industry
showing all groups of dischargers is shown in Table 4-3.
4.2.2 Projected Baseline
The pesticide active ingredient manufacturers and the pesticide formu-
lator/packagers are projected to grow at the same average rate because the
formulating/packaging operations are the downstream activities which follow
pesticide manufacturing. Earlier in this chapter, the value of pesticide
active ingredient production was projected to grow at a real rate of 3.2
percent annually between 1982 and 1990; this rate accounts for growth in
quantity produced and growth in real prices. Applying this rate to the $5.20
billion estimated as the value of PFP production in 1982, the projected value
of PFP production is about $6.70 billion in 1990 (expressed in constant 1982
dollars), of which indirect dischargers account for $3.63 billion.
* For the indirect discharge PFP plants, hours worked have been converted
to full time equivalent (FTE) employment based on 1960 hours per year per
full time employee.
4-8
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Table 4-4
Baseline Value of Production and Bnployment Estimates, 1982 and 1990
Pesticide Formulating/Packaging
1982
1990
Value of PPP Production (mill. $)
Total PFP Industry
Indirect Dischargers
Employment in PFP Production - FTE*
Total PFP Industry
Indirect Dischargers
Operating Income (mill. $)**
Indirect Dischargers
$5200
$2813
7950
4300
$399
$6690
$3634
9113
4929
$520
* Dollar values are in constant 1982 dollars.
** FTE = Full time equivalent employees; (i.e. one full time worker
hours per year).
*** Operating income after federal income taxes.
Source: Meta Systems Inc estimates.
1960
4-11
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Table 4-4 shows the baseline estimates for 1982 and 1990 for indirect
dischargers and the total PFP industry. Bnployment in 19-90 is -estimated--by^.
dividing the 1990 dollar value of production by the 1990 dollar value per
employee.* Operating income is estimated for 1990 by applying the 1982 rela-
tionship between dollar value of production and profit.
* Value of production per employee in 1990 is derived from the 1982 value
per employee adjusted for real price increase of 1.9 percent per year between
1982 and 1990.
4-10
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5. EFFLUENT GUIDELINE CONTROL OPTIONS AND COSTS
5.1 Overview
The alternative water treatment control systems, costs, and effluent
limitations for the Pesticide Chemicals Industry Point Source Category are
enumerated in Section IV of the Pesticide Chemicals Industry Administrative
Record. Section IV also identifies various characteristics of the industry,
including manufacturing processes; products manufactured; volume of output;
raw waste characteristics; supply, volume, and discharge destination of water
used in the production processes; sources of wastewaters; and the
constituents of wastewaters. Using these data, pollutant parameters
requiring effluent limitations guidelines and standards of performance are
selected by EPA.
Section IV also identifies and assesses the range of control and
treatment technologies for the industry. This involved an evaluation of both
in-plant and end-of-pipe technologies. This information is then evaluated
for existing surface water industrial dischargers to determine the effluent
limitations required for the Best Practicable Control Technology Currently
Available (BPT), and the Best Available Technology Economically Achievable
(BAT). Existing dischargers to Publicly-Owned Treatment Works (POTWs) are
required to comply with Pretreatment Standards for Existing Sources (PSES).
New direct and indirect dischargers are required to comply with New Source
Performance Standards (NSPS) and Pretreatment Standards for New Sources
(PSNS), respectively. Identified technologies are analyzed to calculate cost
and performance above treatment-in-place. Cost data are expressed in terms
of capital investment and annual!zed costs. Annualized costs are calculated
using a capital recovery factor (CRF) of 0.218 and an O&M cost adjusted for
the number of days of operation per year.
5.2 Control and Treatment Technology Costing
For most of the direct discharge plants in Subeategory 1, the recommended
treatment is physical/chemical plus biological treatment. However, the
Agency determined that in some instances where plants did not have biological
treatment installed, it was less costly and just as effective to install only
physical/chemical treatment to meet the BAT effluent limitations guidelines
and standards.
For indirect discharge manufacturing plants, Subcategory 1, EPA does not
believe biological treatment will be necessary to meet the same effluent
limitations that have been established for direct dischargers (i.e., BAT),
because the physical/chemical treatment systems costed have design capacities
-------
that are larger than the minimum necessary to meet the BAT limitations.
However the impacts, should biological .treatmenfr'-b^syaecessary^for^J
dischargers/ were analyzed. These results are summarized in Appendix 6-A.
Different combinations of treatment technologies are required for
different plants. The major treatment technologies included are:
o Physical/Chemical Processes
- steam stripping
- metal separation
- chemical oxidation
o Biological Processes
- biological oxidation
EPA identified a treatment train for each pesticide active ingredient
manufacturing plant. The costs presented in this report are based on
physical/chemical treatment with biological treatment for most direct
discharge plants/ and additional physical/chemical treatment technologies
only for the remaining direct discharge plants and for indirect dischargers.
The costs also include monitoring and RCRA compliance costs for both direct
and indirect dischargers.
Two regulatory options were analyzed for Subeategory 2, metallo-organic
pesticide manufacturers. They are:
o Option 1: Mercury Treatment, using Zinc Precipitation
o Option 2: Zero Discharge/ using Contract Hauling
The treatment cost estimates for Option I/ both capital and annual/ were
provided by the plant in their comments to the Agency on the proposed
regulation. Treatment cost estimates for Option 2 were provided by the
Effluent Guidelines Division in EPA.
For indirect discharge formulator/packager plants/ in Subcategory 3/ the
recommended treatment technologies are:
o Zero Discharge
- contract hauling
- spray evaporation
Different combinations of the zero discharge treatment technologies are
required for different formulator/packager plants. RCRA compliance costs are
included/ but there are no monitoring costs for zero discharge.
Costs for direct discharge pesticide active ingredient manufacturing
plants were based on the treatment technologies necessary to treat the
discharge of 34 priority pollutants and 101 nonconventional pollutants.
These pollutants were assigned effluent limitations guidelines and standards
5-2
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based on long-term averages for the industry. Costs for indirect discharge
manufacturing plants were based on the treatment technologies necessary to
treat the. discharge of 28 priority pollutants and 101 nonconventional
pollutants for which effluent limitations guidelines and standards are equal
to BAT. For the remaining six priority pollutants, no limits were set for
PSES. Costs for formulator/packager plants are based on a zero discharge
limit assigned to all pollutants.
5.3 Compliance Cost Estimates
5.3.1 Critical assumptions
The assumptions made to estimate compliance costs are outlined in Section
IV of the Pesticide Chemicals Industry Mministrative Record. Some of the
critical assumptions are summarized below:
o All costs are expressed in second-quarter 1983 dollars.
o Plant compliance costs are based on the amount of effluent flow and
on process chemistry determinations of the pollutants and their
amounts in the effluent.
o Capital costs were annualized based on a capital recovery factor of
.218, and on O&M'costs adjusted for total operating days.
5.3.2 Compliance Costs for Existing Sources
Table 5-1 presents the total capital compliance and total annual
compliance cost estimates for existing sources in the pesticide chemicals
industry. Total compliance costs (in 1983 dollars) for the 53 manufacturing
plants in Subcategory 1 that incur treatment costs are $94.3 million for
capital investment and $41.4 million for annual costs. Total costs for the
one metallo-organic manufacturing plant are: $47 thousand for capital
investment and $129.8 thousand for annual costs under Option 1, and no
capital costs and $535 thousand for annual costs under Option 2. Total costs
for the 210 formulator/packager plants are 3.2 million for capital investment
and $64.9 million for annual costs. Annual cost estimates include
depreciation and interest payments.
5-3
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Table 5-1
Total Cost of Compliance
I Number of plants I I
I incurring costs I Capital costs** 1 Annual costs**
($ OOP) ($ OOP)
Manufacturers
Total 53 * 94,254 41,4P6
Direct 29 7P,8P6 31,7P9
Indirect 26 23,448 9,697
Metallo-Organics
Option 1: Total* 1 47 129.8
Option 2: Total* 1 P 535.P
Formulator/Packaqer
Total* 21P ++ 3,153 64,928
** In 2nd quarter 1983 dollars.
* 53 of 114 manufacturing plants incur treatment costs and/or RCRA costs
and/or monitoring costs. Two plants are both direct and indirect discharging
plants. Therefore, the sum of the number of plant does not equal the total.
However, separate costs are assigned to the direct and indirect flows.
Therefore, the sum of the costs does equal the total costs.
++ Based on extrapolation from a sample of 56 plants.
+ Includes only indirect discharge facilities.
5-4
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6. ECONOMIC IMPACT ANALYSIS
This chapter provides estimates of the economic impacts associated with
the costs of the effluent treatment technologies described in Chapter 5. The
analysis is based upon an examination of the estimated compliance costs and
other economic/ technical, and financial characteristics using the methodol-
ogy described in Chapter 2. The economic variables examined include:
changes in prices, quantities produced, employment, foreign trade, and plant
closures.
The pesticide chemicals industry is divided into two sectors or tiers:
plants that manufacture the pesticide active ingredients including metallo-
organic chemicals, (Subcategories 1 and 2) and plants that formulate and/or
package the pesticide products (Subcategory 3). The analysis of active
ingredient manufacturing plants in Subcategory 1 is based on a survey of 114
plants, which includes most of the manufacturing plants in the United
States. The analysis of metallo-organic chemical manufacturers (Subcategory
2) is based on a single indirect discharge plant. The analysis of pesticide
formulator/packager plants is based on a survey sample of 49 indirect dis-
charging plants.* Since these plants are a random sample of the indirect
discharge formulator/packager plants, they are representative of all the
estimated 210 plants to which the regulation applies. See Chapter 2 for an
explanation of the sampling procedures and the extrapolation to the entire
industry.
6.1 Price, Quantity and Profit Changes
For the pesticide active ingredient manufacturing plants in Subcategory
1, price increases due to treatment costs, and the associated decreases in
production, are small. It is assumed that manufacturers will pass on the
average treatment cost per unit of output in the form of a price increase.
This is probably a conservative estimate in that many pesticides are pro-
tected by patents and/or manufactured by only one company, and these plants
may be able to raise their prices to cover all of their treatment costs. The
average price increase for all pesticides is 1.07 percent and the increases
for the three product groups are: 0.77 percent for insecticides, 1.20 percent
for herbicides, and 1.23 percent for fungicides. The decrease in quantity of
all pesticides produced is assumed to be 0.52 percent and the decreases for
the three product groups are: 0.25 percent for insecticides,
* While 56 plants were identified as indirect discharge PFP plants and
for which compliance costs were estimated, only 49 of these plants submitted
data to be included in the economic impact analysis presented in this chapter.
-------
0.42 percent for fungicides, and 0.80 percent for herbicides..!/ Profit
reduction for all pesticides is,expected .to be 0^8-percent>:wiJtdK..O.-25,-per-*
cent for insecticides, 0.42 percent for fungicides, and 0.80 percent for
herbicides (See Table 6-1).
Since there are a number of metallo-organic pesticide chemical manufac-
turing plants that will not incur compliance costs under this regulation
because they do not discharge process wastewater, it is assumed that this one
plant will not be able to increase its prices..?/ Thus, it is assumed that
there will be no change in the quantity produced by this plant and all of the
costs come out of its profits. Since only one plant is analyzed, the profit
decrease is not reported.
There are many more formulator/packager plants in this industry than
there are pesticide active ingredient manufacturing plants. However, of the
total number of plants that formulate/package agricultural and/or household
pesticides (about 930 plants), only 23 percent are indirect dischargers.
Because there are relatively few indirect dischargers, it is assumed that
these plants will also absorb their treatment costs and will not increase
prices. Since there is no price increase, there is no change in quantity
produced. All treatment will come out of profits and the profit reduction
for indirect dischargers will be about 11.4 percent for all pesticides.
6.2 Plant Closure Potential
Three plants which manufacture pesticide active ingredients are likely to
close their product lines in response to this regulation. In each case, the
plant also produces non-pesticide chemicals and this production will continue.
Based on the Annual Compliance Cost to Sales (ACC/S) ratios, 28 plants in
Subcategory 1, manufacturers of active ingredients, are identified as incur-
ring potentially large impacts, ACC/S of one percent or greater. (See Table
6-2.) For these plants, the potential for closure was assessed by applying
the net present value test (NPV) to them. This involved comparing the
returns the owner would expect to receive if the plant closed (i.e. the cur-
rent liquidation value) with the returns the owner would expect to receive if
the plant remained in operation and the additional treatment were provided
(i.e. the net present value of earnings—with treatment costs—over the next
ten years plus liquidation value at the end of the ten years). If the cur-
rent liquidation value is less than the net present value of earnings, then
it is assumed that the treatment will be provided and the plant will continue
to operate. Of the 28 plants with ACC/S ratios of one or greater, four
i/The size of the percentage decrease in production depends on both the
percentage increase in price and the price elasticity of demand for the
product group. (Chapter 2 discusses this derivation in detail.)
2/Based on work done as part of the promulgation of BPT regulations,
including: Economics Analysis of Effluent Limitations Guidelines for the
Pesticide Chemicals Manufacturing Point Source Category, EPA-230/2-78-065f,
February 1978.
6-2
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Table 6-1.
Price, Quantity and Profit Impacts —--;,
for Pesticide Manufacturers and Bbrmulator/Packagers
j Change Due to Treatment Costs (percent) j_
Subcategory 1 Price Increase 1 Quantity Decrease* 1 Profit Decrease I
Manufacturers of active Ingredients
Herbicides 1.20% 0.80% 0.80%
Insecticides 0.77% 0.25% 0.25%
Fungicides 1.23% 0.42% 0.42%
All Pesticides 1.07% 0.52% 0.58%
Metallo-Organics Manufacturers
All Pesticides 0 0 +
Bormulator/Packager s**
All Pesticides( 0 ( 0 ( 11.43% j
* Quantity decrease is a function of the percentage change in price and the
price elacticities which are developed in Chapter 2.
+ Not reported due to confidentiality restrictions.
** Indirect dischargers only.
Source: Meta Systems Inc estimates.
6-3
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liable 6-2. Summary of Plant and Product Line Closures
I Active Ingredients I Manufacturers of (Formulator/Packagers
I Manufacturers* (Metallo-Organics I Indirect Dischargers
I I II Total
I Total Industry (Option 1 (Option 21 Sample** (Industry
Number of Plants
114
Number of Plants Incurring
Treatment Costs 53
Number of Plants with
Cost-to-Sales Ratios
of 1 Percent or more 28
49
49
NA
210
210
NA
Net Present
Value Test
Likely Closure:
Plants
Product Lines
0
3
0
0
0
0
0
1
0
4
* The sample equals Che total industry for manufacturers.
** Impact analysis is done on 49 plants.
6-4
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manufacturing plants fail the net present value test, and thus could possibly
discontinue their-pesticide production.!/ -. ,, . .„
Three" of the four manufacturing plants which fail the net present value
test are likely to close their pesticide product lines, while .continuing the
rest of their operations. Each of these three plants has a negative esti-
mated after-tax operating income, based on industry-wide average tax rates
and ratios of operating costs to sales, and the plant specific treatment cost
estimate. One of these three plants produces pesticide active ingredients
for a relatively few days out of the year and its production levels are
small. It has a very high cost to sales ratio and a large, negative net
present value ratio, therefore this plant is likely to close its pesticide
operations. The main pesticide product of the second plant is not patented.
However, the product is widely used and this plant is the only domestic pro-
ducer. The parent company is large, diversified, financially strong and has
experienced strong growth over the last few years. Even with these positive
indicators, the impacts are sufficiently large so that the plant is expected
to close its pesticide production while continuing the rest of its opera-
tions. The third plant has the smallest impacts of the three, as measured
in terms of the net present value ratio and its cost to sales ratio. How-
ever, its products are not patented and they are threatened by strong foreign
competition. While the company is large, diversified and financially strong,
the plant is expected to close production of pesticides but continue the
production of other chemicals.
The fourth possible closure candidate, is both a manufacturer of active
ingredients and a formulator/fcackager of pesticide products. Since a large
majority of the active ingredients it formulates and packages are produced on
site, the plant could not close its manufacturing operations while continuing
its PFP operations. Therefore, it is appropriate to consider the impact of
the regulation on the manufacturing and formulating/packaging operations
jointly. Considering its manufacturing activities alone, it would fail the
net present value test. However, considering manufacturing and formulat-
ing/packaging production and treatment costs jointly, the plant is not a
closure candidate. The manufacturing component of the plant accounts for 90
percent of the total plant's treatment cost and 16 percent of the value of
production whereas the formulating/packaging component accounts for 10 per-
cent of the cost but 84 percent of the value. Therefore, this plant is not
considered a closure candidate under the combined impact of these regulations.
Based on the results presented in Table 6-2, the one metallo-organic
(Subcategory 2) plant will not close under either Option 1 or Option 2.
While the cost to sales ratio exceeds one percent for both options, the net
present value ratios are large enough to indicate that the plant will stay
open under either option.
I/One plant is not included in this part of the analysis because it did
not provide production data, and it was not possible to estimate its revenues
nor perform this comparison.
6-5
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For indirect discharge formulator/packager plants, only one out of the 49
plants analyzed is a possible closure candidate* Therefore extrapolating
from the sample to the total industry, it is estimated that four oat of the.
total 210" PFP plants are__likely to close their product lines. Treatment
costs were estimated for an additional seven indirect discharge PFP plants.
Since these plants did not submit production and financial data, they could
not be analyzed vis-a-vis their likelihood of closure. Therefore, the extra-
polation to the industry assumes that the likelihood that any one of these
seven will close is equal to the likelihood that any one of the 49 analyzed
will close. The closure assessment is based on applying the net present
value test twice (i.e. with and without treatment cost), and a consideration
of the products made and the strength of the company. If the plant fails the
net present value test without including treatment cost, the plant is con-
sidered a baseline closure, i.e. a closure not attributable to additional
wastewater treatment requirements. Whether a plant actually closes depends
on a number of factors relevant to the plant and the parent company. If the
plant does not fail the NPV test without treatment costs but does fail when
treatment costs are included, it is considered a possible closure candidate.
Based on this dual application of the net present value test, one plant was
judged a possible closure candidate due to the regulation. For this plant,
pesticide formulator/packager operations are a small part of total plant
operations but treatment costs have a large impact on the net present value
comparison. Therefore, this plant is likely to close the product line while
maintaining its other operations. Bctending this conclusion to all PFP indi-
rect discharge plants, four closures are estimated and all are assumed to be
product line closures.
6.3 Other Economic Impacts
The effects of the-,effluent regulations will have on employment, the
community, foreign trade, and industry structure are addressed in the follow-
ing sections.
6.3.1 Employment and Community Impacts
The three pesticide active ingredient manufacturing product line closures
identified above employ 156 people. The plants are located in three dif-
ferent, large metropolitan areas, and in each case their employees account
for a very small proportion of the total labor force in the area. Therefore,
the impact on local employment will not be significant.
The one formulator/packager product line closure identified employs less
than one full-time person. The plant is located in a large metropolitan area
and, therefore, the closure will have no impact on the local employment. The
same is assumed for the other closures expected on the basis of extrapolating
the sample impacts to all the indirect discharger PFP plants. A total of
four PFP jobs will be lost and they will have no impact of local employment.
6-6
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6.3.2 foreign Trade Impacts
As discussed in Chapter 3, the export market for manufacturers of pesti-
cide active ingredients is important to the pesticide industry. Although the
industry is facing increasing competition in foreign markets due to the
growth of pesticide production in foreign countries and the technological
advances being made in countries such as Japan, this regulation will not have
a balance of trade impact since the price increases are small. Domestic
firms which are expanding overseas do so to take advantage of lower wage
costs and to be nearer their foreign markets.
No foreign trade impacts are expected for formulated/packaged products
because this regulation will have no impact-on prices and a very small effect
on industry closures.
6.3.3 Industry Structure Effects
The potential pesticide active ingredient manufacturing product line
closures represent a small fraction of the total industry capacity. In addi-
tion, these plants are owned by large companies, and the regulation will not
result in a reduction in the proportion of production coming from small
firms. Therefore, no change in market structure is anticipated as a result
of this regulation.
The formulator/packager product line closures are a very small fraction
of the total industry capacity. There will be no change in market structure
as a result of this regulation.
6.3.4 Future Impacts
Based on the industry growth projections in Chapter 4, the future impacts
will be less severe than the impacts estimated for 1982. For pesticide manu-
facturers, total annual cost of compliance is $41.4 million which is about
1.06 percent of the total value of production in 1982. In 1990, the total
annual cost of compliance represents only about 0.8 percent of production
value. Therefore, price changes, production quantity impacts and profit
impacts will be less severe than the 1982 estimates.
For pesticide formulator/packagers, the total annual cost of compliance
is $64.9 million, which is about 2.3 percent of the total value of PFP pro-
duction by the indirect discharge plants in 1982. By 1990, the treatment
costs represent 1.8 percent of production value. Decrease in profit in 1990
will be 8.8 percent, compared to 11.4 percent estimated for 1982.
6-7
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6.4 New Source Impacts
The new source standards (NSPS and PSNS) are equal to BAT and PSES-- - -
standards'. Since there are no incremental costs, no separate economic anal-
ysis was performed. The impacts are assumed to be equal to those presented
above and are not large enough to constitute an additional barrier to entry.
6-8
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7. SMALL BUSINESS ANALYSIS
7.1 Introduction
The Regulatory Flexibility Act of 1980 (Public Law 96-354) amends the
Administrative Procedures Act and requires Federal regulatory agencies, such
as EPA, to consider small business entities throughout the regulatory
process. If a substantial number of small firms will be significantly
impacted, the act requires the evaluation of alternative regulatory
approaches to mitigate or eliminate the small business economic impacts.
This chapter addresses these objectives by identifying the impacts on small
businesses likely to result from the regulation. The primary variables
considered are those which are also analyzed in the general impact analysis:
the cost to sales screening ratio, the number of plants with treatment costs,
plant closures, and employment.
7.2 Definition of Small Business
Two approaches were considered to define small pesticide chemicals
industry operations: (1) The Small Business Administration (SBA) definition
and (2) a firm's net income and sales.
The Small Business Act, Section 3, defines a small business in the
following statement:
"....a small business concern shall be deemed to be one which is
independently owned and operated and which is not dominant in its
field of regulation. In addition to the foregoing criteria the
Administration (of the SBA), in making a detailed definition, may
use these criteria, among others: number of employees and dollar
volume of business."!/
The Small Business Administration definition of "small business" for the
Pesticide Chemicals Industry is a business (including its affiliates)
that employs less than five hundred people.
An alternative definition of a small business is based on income and
sales. For the purpose of pollution control guarantee assistance, the
definition of a small business is addressed in Section 121.3.16 of the
Federal Code under Public Law 94-305, which in turn, refers to Section
121.3.11. This section defines small business and includes some of the
I/ 536 85 Congress 2££ Session.
-------
following stipulations: the firm is independently owned and operated, is not
dominant in its field of operatioj^/.does^jiqt-have-a,net^fOtrth.in,excess .of .46,
million, and does not have an average post-tax net income in excess of $2
million for the preceding two years. Assuming a pre-tax profit margin on
sales of 20 percent,!/ and a corporate income tax rate of 48 percent,
together with the SBA criterion of $2 million net income total for two years,
the two-year annual sales would equal $20 million. Thus, if a firm is to be
considered a small business, annual sales must be no larger than $10 million.
7.3 Pesticide Manufacturers
For purposes of this analysis, a small business is defined as a firm with
annual sales of $10 million or less. By this definition, about 18 percent
(13 out of 73) of the firms which manufacture pesticide active ingredients
are designated as small business entities. Annual company sales in 1982 were
obtained from COMPUSTAT, where possible..?/ If not available, annual sales
for past years were used.^/ In a few cases, company sales were not
available and plant sales were used instead. This results in overestimating
the number of small firms.
Table 7-1 presents the average ratio of plant treatment cost to plant
sales for small firms and large firms, as well as the number of plants which
have cost to sales ratios greater than one percent. Fifteen percent (two out
of the 13) of the plants defined as small firms above incur treatment costs.
Of the 100 plants defined as large firms, about 37 percent incur treatment
costs.
An analysis of the average cost to sales ratios for large and small
business indicates that the small firm group has a lower ratio than the large
group, 4.9 percent as compared to 20.6 percent. However, as noted in Table
7-1, the cost to sales ratio for large firms includes one extremely large
ratio. If this plant is excluded, then the average for small businesses (4.9
percent) is higher than that for large firms (3.8 percent). Fifty percent of
the plants (2 out of 4) in the small firm group have a cost to sales ratio
greater than one percent. Fifty-three percent of the plants in the large
firm group incur cost to sales ratios greater than one percent.
Three of these pesticide manufacturing plants are likely to be product
line closures. None of them are in the small business group. Therefore, we
conclude that there are no small business impacts as a result of this
regulation.
1/Herbicide Suicide, December 1975, Loeb, Rhodes and Company, cited in
The Economic Health of the Pesticide Industry, Seehusien, M.H., January 1978,
?/Corporate COMPOSTAT, as of February 23, 1984, Standard & Poor's
Compustat Service, Inc.
3/These were collected from corporate annual reports for the analysis of
proposed regulations: "Economic Impact Analysis of Proposed Effluent
Limitations Guidelines, New Source Performance Standards and Pretreatment
Standards for the Pesticides Industry Point Source Category," November 1982.
7-2
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Table 7-1.
Distribution of -,Treatanente-jGoat-rBnpaefcs
Large and Small Firms: Pesticide Active Ingredient Manufacturing*
Number of plants with
cost to sales ratios
greater than 1 percent
Average cost/sales (percent)
Small Firms
2
4.9
Large Firms
Ibtal number of firms
Total number of plants
Total number of plants
with costs
13
13
4
60
100
49
26
20.6 **
Source: 1977 308 Survey; Corporate Oompustat, as of February 23, 1984,
Standard & Poor's Compustat Service, Inc.; and Meta Systems
calculations.
* Excludes one plant which has a treatment cost, but sales data
are not available.
** This includes one plant with a cost to sales ratio of over 800
percent. If this plant is excluded, the average cost to sales ratio
would drop to 3.8 percent.
7-3
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7.4 Pesticide Formulatqr/Packagers (PFP)
For the PFP subcategory, a small business is defined as a firm with
annual sales of $5.5 million or less. The criterion of $10 million, used
above, was not considered compatible with the intent of the Small Business
Act. The analysis is primarily concerned with small firms with limited
resources or those which would face barriers to entry due to regulation.
Since the PFP sector requires lower capital investment as well as lower R&D
expenditures than the pesticide manufacturing sector, it is easier to enter
and a lower sales criterion is appropriate. About 60 percent of the firms
involved in PFP operations would be considered small businesses if the $10
million annual sales criterion had been used.
The $5.5 million definition was selected after rank ordering the firms by
sales from lowest to highest. The $5.5 million sales criterion divides the
sample into two groups with approximately 55.3 percent of the firms
considered small. Sales data were not available for some firms. In such
cases, the plant sales were used in place of corporate sales. This tends to
overstate the number of small firms. Using this approach, 48 indirect
discharge PFP plants were analyzed.
Table 7-2 presents the average ratio of plant treatment costs to plant
sales for small and large firms, as well as the number of plants which have
cost to sales ratios greater than one percent. These numbers are based on
the results of the analysis of 48 indirect dischargers, which are
representative of all indirect discharge PFP plants. The plants in the small
firm group incur an average plant treatment cost to sales ratio of 20.09
percent, which is considerably higher than the 3.81 percent incurred by
plants owned by large firms. However, as noted in Table 7-2, the cost to
sales ratio for small firms includes one extremely large ratio. If this
plant is excluded, then the average for small firms drops to 4.1 percent.
Ten of the 26 plants (38 percent) in the small firm group incur cost to sales
ratios greater than one percent compared to five out of 21 plants (24
percent) in the large firm group.
One of the pesticide formulating/packaging plants in the sample is a
possible product-line closure candidate. This plant belongs to a small
business. By extrapolating from the sample to the 210 PFP indirect discharge
plants, there are four expected product line closures. However, they
represent a small part of the industry and thus we conclude that there is no
small business impact.
7-4
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Table 7-2.
Distribution of Treatment Cost Impacts on"5" ~
Large and Small Firms: Pesticide Formulators/Packagers
Total number of firms
Total number of plants
Small Firms
26
26
1 Large Firms
21
22
Number of plants with cost to sales
ratios greater than 1 percent
Average cost/sales (percent)
10
20.09*
5
3.81
Source: 1983 308 Survey; Corporate Compustat, as of February 23, 1984,
Standard & Poor's Compustat Services, Inc.; and Meta Systems Inc
Calculations.
*This includes one plant with a cost to sales ratio of over 400 percent.
If this plant were excluded, the average cost to sales ratio would drop to
4.12 percent.
7-5
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8. LIMITS OP THE ANALYSIS
This section discusses the limitations of the economic impact analysis.
It focuses on the methodological assumptions and on the restrictions placed
on the analysis by data limitations. Limitations which pertain to the
plant-specific compliance cost estimates used in this analysis are outlined
in Section IV of the Pesticide Chemicals Industry Administrative Record.
Limitations for the pesticide active ingredient manufacturers, for the
metallo-organic subcategory, and for formulator/packagers are discussed
separately.
8.1 Pesticide Active Ingredient Manufacturers
The major variables used in the economic impact analysis are compliance
cost and sales estimates for each plant. The compliance cost estimates are
provided by the Effluent Guidelines Division of EPA. The sales estimates are
made by the Agency on the basis of production levels reported by the plants
in 1977, adjusted to reflect changes in production levels and product mix
between 1977 and 1982, and 1982 prices. It was necessary to adjust the
production levels because total production in the industry has declined
during the 1977-1982 period, while the production of certain products has
increased. Using the 1977 production levels would provide an incorrect
estimate, and in many cases an over-estimate, of sales for individual
plants. Every attempt was made by the Agency to accurately estimate sales,
since operating income and liquidation values are estimated for each plant on
the basis of its sales and industry-wide ratios. This approach was necessary
because the 1977 308 Survey did not request information on operating income,
assets, or liquidation values from pesticide active ingredient
manufacturers. The industry-wide ratios used are:
o After-tax Operating Income * 0.144 Sales
o Liquidation Value * 0.70 (Current Assets) + (.46)(Book Value)
=0.51 Sales
o Peal Cost of Capital * 7.5 percent
We feel that these are accurate estimates since they are based on the
pesticide operations of seven firms that make up a large proportion of
pesticide active ingredient production. The estimation procedures are
discussed in more detail in the following paragraphs and in Appendix 2-C.
It was necessary to estimate plant sales for 1982 in order to make valid
comparisons with- the current compliance costs. The sales estimates start
with the 1977 production levels reported by the 114 plants. These production
-------
levels were adjusted to reflect industry changes in production quantity and
the mix of pesticide products-between s&tfRyh&xuL^9-8^c th&f-O..S...3iniiernatioral5'3
Trade Commission (ITC) reports total production levels and prices for groups
of pesticides each year. Production levels in 1982 and 1977 for the
appropriate groups were used to adjust the plant level outputs of specific
pesticides. For some insecticides, the adjustments derived from the ITC
groups include changes in non-pesticide uses of the chemicals as well.
Production at any individual plant may not have followed the industry trends
observed in the pesticide groups as reported by ITC. However, we feel that
these adjustments are appropriate and necessary since these adjusted
production levels are closer to actual 1982 production levels than are the
1977 levels.
Sales for each plant is estimated by multiplying the adjusted production
levels by the 1982 prices as reported for the groups of pesticides by ITC.
Companies were requested by EPA to grant ITC permission to release the
product-specific pesticide active ingredient prices. These product-specific
prices were used in all cases when they were available. However, permission
was not granted to release prices for most of the pesticide active
ingredients. When product-specific prices were not available, the average
price for the product subgroup, as published by ITC, was used. Since there
are 19 subgroups, there is sufficient disaggregation in the ITC data that
these average prices are reasonable estimates of the product-specific price.
The 1977 308 Survey did not ask for profits and/or operating costs.
Therefore, profits are estimated using an industry average of operating
income to sales. Since the average is obtained from information on the
pesticide operations of seven major firms it is considered representative of
the industry. However, profit margins will vary among individual plants for
such reasons as: different geographical regions, applicable crops, and types
of pesticides. Therefore, individual plant profit levels may be higher or
lower than the seven firm average. In order to partially compensate for
this, the cost-to-sales ratio used as the screening measure assumes a low
profit margin, not the average margin. Thus, plants with low profit margins
are not incorrectly eliminated from the closure analysis.
8.2 Metallo-Organics Pesticides
The impact assessment is based on data for the single indirect discharge
plant known to the Agency, and it is not possible to make an extrapolation to
all plants in this subcategory. The sales estimate used in the analysis is
based on the firm's public comments to the Agency and thus did not involve
any use of average prices nor adjustments in production quantities.
Therefore, it is very accurate. The operating income and liquidation values
used in the net present value calculation were estimated by applying the same
ratios used in the pesticide active ingredient manufacturer's analysis to the
estimate of sales for this plant. It is assumed that these ratios are
appropriate, since both Subcategory 1 and Subcategory 2 involve the
manufacture of pesticide chemicals. Data is not available for a separate
estimate of these ratios for metallo-organic pesticide manufacturing.
8-2
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8.3 Pesticide Ebrmulator/Packagers
Since the sample of plants analyzed was selected randomly, it is assumed
to be representative of all indirect discharge PFP plants. It was not
necessary to estimate industry-wide operating income to sales and liquidation
value to sales ratios, since the 1983 308 Survey provided the information
required to estimate the amounts directly. This information also made it
possible to evaluate the financial condition of the plants in the absence of
any additional regulations by estimating the NPV without treatment costs.
lacking enough information to estimate price responses and the price
elasticity of demand for individual PFP products, the conservative assumption
was made that all treatment costs come out of profits. This is an appropriate
assumption, since a large majority of the PFP plants are already at zero
discharge and will not incur additional costs due to this regulation. As a
result, indirect discharge PFP plants will not be able to raise their prices.
In addition, any bias due to this assumption will be in the form of an
overestimate of the impact on profits and closures.
As with operating income and liquidation value, the value of production in
1982 was determined directly from the 1983 308 Survey. There was no need to
estimate the dollar value of pesticide output on the basis of production
quantity and unit price (as was the case for the pesticide active ingredient
manufacturing plants), making for a more accurate value.
8-3
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REFERENCES
1. 1980-81 Alabama Directory of Mining and Manufacturing, Alabama
Development Office, 1980.
2. Arthur D. Little, Inc. Evaluation of the Possible Impact of Pesticide
legislation on Research and Development Activities of Pesticide
Manufacturers. Report to Office of Pesticide Programs, U.S.
Environmental Protection Agency, 1975.
3. Aspelin, A. Economic Aspects of Current Pesticide Regulatory Programs
and Outlook for the Future. U.S. Environmental Protection Agency,
Office of Pesticide Programs, Washington DC, February 1983.
4. C.H. Kline & Co. The Kline Guide to the Chemicals Industry. Fourth
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6. Carlson, G.A. "Long-Run Productivity of Insecticides." American
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Continue" pp. 30-41, January 4, 1984.
•
8. 1984 Classified Directory of Wisconsin Manufacturers 1980-81,
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9. Directory of Florida Industries 1983-84, The Florida Chamber of
Commerce, Inc., 1983.
10. Directory of Kansas Manufacturers and Products 1983-84, Kansas
Department of Economic Development, 1983.
11. 1982 Directory of Louisiana Manufacturers, Louisiana Department of
Commerce, 1982.
12. The Directory of Maryland Manufacturers 1981-82, Department of
Economic and Community Development, 1981.
13. Directory of Montana Manufacturers 1980-81, Governor's Office of
Commerce and Small Business Development.
14. Directory of Nebraska Manufacturers and Products 1982-83, Nebraska
Department of Economic Development.
-------
REFERENCES (continued)
15. Directory of New England Manufacturers 1983-84, the New England
Council, George D. Hall Company, Massachusetts, 1983.
16. 1983-84 Directory of North Carolina Manufacturing Firms, North
Carolina Department of Commerce, 1982.
17. Directory of Oregon Manufacturers 1982-83, State of Oregon
Economic Development Department.
18. Dun and Bradstreet, Inc. Million Dollar Directory. 1981.
19. Eichers, T.R. Evaluation of Pesticide Supplies and Demand for
1979. U.S. Department of Agriculture, Economic, Statistics and
Cooperative Service, Agricultural Economics Report No. 422, April
1979.
20. Eichers, T.R. Farm Pesticide Economic Valuation, 1981. U.S.
Department of Agriculture, Economic and Statistics Service,
Agricultural Economic Report, 464.
21. Eichers, T.R. The Farm Pesticide Industry. U.S. Department of
Agriculture, Economics, Statistics and Cooperatives Service,
Agricultural Economic Report 461, September 1980.
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Pesticides in 1976. U.S. Department of Agriculture, Economics,
Statistics, and Cooperative Service, Agricultural Economic Report
418, December 1978.
23. Eichers, T.R., and W.S. Serletis. Farm Pesticide Supply-Demand
Trends, 1982. U.S. Department of Agriculture, Economic Research
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24. Environmental Science and Engineering, Inc. Revised Contractor
Report for Best Available Technology, Pretreatment Technology, New
Source Performance Technology and Best Correlational Pollution
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79-238-001, November 1980.
25. Environmental Science and Engineering Memorandum "Additional NSPS
Product Information, Pesticide BAT Reviews," January 19, 1981.
26. Environmental Science and Engineering Memorandum, "Revised New
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27. Farm Chemicals, "A Look at World Pesticide Markets" September 1981.
R-2
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REFERENCES (continued)^
28. Farm Chemicals, "Presstime News Report" April 1983.
29. Federal Trade Commission. Competition in Farm Outputs; An
Examination of Farm Industries. February, 1981.
30. Federal Trade Commission. Quarterly Financial Report.
Washington, DC, 3rd Q 1983.
31. Frost and Sullivan. U.S. Pesticides Market. Report A907, May
1981.
32. Georgia Manufacturing Directory 1982-83, Georgia Department of
Industry and Trade, 1982.
33. Harris, 1983 Indiana Marketers Industrial Directory, Harris
Publishing Company, Ohio, 1982.
34. Harris, 1983 Ohio Marketers Industrial Directory, Harris
Publishing Company, Ohio, 1982.
35. Illinois Manufacturers Directory 1983, Manufacturers News Inc.,
Illinois, 1983.
36. Iowa Works 1983-84, Directory of Iowa Manufacturers, Iowa
Development Commission, 1933.
37. 1983 Kentucky Directory of Manufacturers, Kentucky Department of
Economic Development.
38. McRae's Industrial Directory New Jersey, 1984, McRae's Blue Book
Inc., New York, 1983.
39. McRae's New York State Industrial Directory, 1983, McRae's Blue
Book Inc., New York, 1982.
40. McRae's Pennsylvania State Industrial Directory 1982, McRae's Blue
Book, Inc., New York, 1982.
41. Meta Systems Inc, Memorandum to the Organic Chemicals file,
October 22, 1981.
42. Meta Systems Inc, Memorandum to EPA, "Effect of RCRA Costs on
Pesticide Plant Closures," dated October 11, 1981.
43. Meta Systems Inc, Memorandum to EPA, "Pesticide Plant and Product
Line Closures," dated January 29, 1982.
R-3
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REFERENCES (continued)
44. Michigan Manufacturers Directory 1983, Pick Publications,
Michigan, 1983.
45. Mississippi Manufacturers* Directory 1982, Mississippi Research
and Development Center, 1982.
46. Missouri Directory 1983, Mining, Manufacturers, Industrial
Services, Industrial Supplies, Informative Data Company, 1983.
47. Oklahoma Directory of Manufacturers & Products 1983, Oklahoma
Economic Development Department, 1982.
48. Pimentel, D., et al. "Benefits and Costs of Pesticide Use in U.S.
Food Production." Bioscience, pp. 772-783, December 1978.
49. Predicasts, as quoted in "Pesticides: $6 Billion by
1990."Chemical Week, p. 45, May 7, 1980.
50. South Carolina 1983 Industrial Directory, South Carolina State
Development Board, 1983.
51. Standard & Poor, Compustat, Standard and Poors' Compustat
Services, Inc., data on six companies.
52. Storck, W.J. "Pesticides Head for Recovery." Chemical and
Engineering News, 62 (1984): 35-57.
53. Tennessee Directory of Manufacturers 1982, Tennessee Department of
Economic and Community Development.
54. U.S. Department of Agriculture. Agricultural Outlook. March 1982.
55. U.S. Department of Agriculture. Agricultural Outlook. March 1983.
56. U.S. Department of Agriculture. Inputs—Outlook and Situation.
Economic Research Service, IOS-1, June 1983.
57. U.S. Department of Agriculture. Inputs—Outlook and Situation.
Economic Research Service, IOS-2, October 1983.
58. U.S. Department of Agriculture, Crop Reporting Board, SRS, June
1981.
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REFERENCES (continued)
59. U.S. Department of Agriculture. The Pesticide Review. Agricultural
Stabilization and Conservation Services, Washington, DC, Annual
issues from 1976-1979.
60. U.S. Department of Commerce, Bureau of the Census. 1977 Census of
Manufactures. Washington, DC, 1980.
61. U.S. Department of Commerce. 1981 Annual Survey of Manufactures.
Bureau of the Census, M81(AS) May, 1983.
62. U.S. Department of Commerce. 1983 Industrial Outlook. Bureau of
Industrial Economics, January, 1983.
63. U.S. Department of Commerce. 1982 U.S. Industrial Outlook. Bureau
of Industrial Economics, January 1982.
64. Environmental Protection Agency, Office of Pesticide Programs,
Economic Analysis Branch. Pesticide Industry Sales and Usage, 1982
Market Estimates. December 1982.
65. U.S. International Trade Commission. Synthetic Organic Chemicals,
United States Production and Sales, 1982. USITC Publication 1422
and prior issues, U.S. Government Printing Office, Washington, DC.
66. Washington Manufacturers Register, 1982-83, Times Mirror Press,
California, 1982.
67. Wyoming 1982 Directory of Manufacturers a_nd Mining, Wyoming
Department of Economic Planning and Development, 1981.
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Appendix 2-A. 308 -Survey~of -
Pesticide Ebrmulator/Packagers
As described in Chapter 2, a sample of indirect discharging PFP plants
were identified by a telephone survey conducted by EPA. A written
questionnaire was sent to these plants, and to plants which refused to answer
questions on the telephone and to plants which could not be contacted by
telephone.
Information obtained from the completed written questionnaires includes?
plant characteristics such as: number of plant personnel/ formulating/
packaging production value, wastewater characteristics/ and wastewater
treatment/control technology currently in place. The methodology used to
develop the baseline and impact estimates is based primarily on specific data
obtained from the survey such as the following plant characteristics:
o Number of PFP plants with and without production of active
ingredients at the plant;
o Annual PFP production value and total plant production value;
o Employment in production of PFP products;
o Employment in production of other products;
o Employment in nonproduction work; and
o Fraction of plant operating days during which PFP production
occurred;
o Percent of active ingredients used that are manufactured on site.
The quantitative information is tabulated so that averages and high-low
ranges of the different variables can be determined from the responses.
I/ 1983 308 Survey for the Formulating/Packaging Subcategory of the
Pesticide Chemicals Industry/ OMB No. 2040-0041.
-------
Appendix 2-B. Estimation of Price
Elasticities ofL-Demand >--">•
For purposes of estimating price elasticities, production is a function
of the number of agricultural acres planted, the real price of pesticides,
and the pesticide production in the previous year, all expressed in terms of
natural logarithms. In addition, the industrial production index was added
to see if production is sensitive to the overall business cycle.
The basic equation form used is:
In PRODj. = a + b In PRODt^ + c In ACREt
+d In RPRICEt + f (iXt)
where:
PRODf., PROD^i * production of pesticide active ingredients
in year t and t-1.
ACREt = Acreage of principal crops planted in year t
- Real unit price for pesticide active
ingredients in year t
= Industrial production index in year t
The estimated coefficients are shown in Table 2-B-l. Business cycles
were statistically significant only in the case of herbicides. Since the
regressions are estimated in terms of logs, the coefficients can be
interpreted as elasticities, with the coefficient on the Real Price term
equal to the price elasticity of demand. The overall price elasticity of
pesticides was -0.49. In other words, a ten percent increase in real prices
would result in a 4.9 percent decrease in the amount demanded. The price
elasticity for herbicides (at -0.67) is much larger than that for the other
two product groups (insecticides at -0.32 and fungicides at -0.35). During
the 1970's, herbicides have experienced a large increase in application rates
and the proportion of acres treated, and the coefficient on acres in the
herbicide equation reflects this. One of the reasons that the amount of
variation explained by the fungicide equation is so low (R2 = .35) is that
a very large proportion of fungicides are used for non-agricultural
purposes. Attempts to develop a variable which would indicate the demand for
these other uses-, in the way that acreage indicates the demand for farm
useage, were unsuccessful. However, the coefficient on the real price term
is statistically significant and therefore is considered a reasonable
estimate of the price elasticity. There is no ready explanation for why
business cycles are important for herbicides and not for the other two
product groups. Not only was the coefficient of the industrial production
index very insignificant in the case of insecticides and fungicides and the
R2 unchanged when it was included, but the other coefficients were quite
-------
Table 2-B-l. Estimated Coefficients for Pesticide Production
(Ibtal and for ]& ch" Product Group h -i^-srr;•••••
T-Statistics shown in parentheses. In logrithmic form with Koych Lag.
I Independent Variables
Ln of
Production of
Intercept I Ln Acres
I I LN |
I (Production I Industrial
I LN I Previous I Production
I Real Price I Year I Index
Herbicides*
R2 = .98
Insecticides* *
(-1.32)
Fungicides*
R2 » .35
Total Pesticides*
R2 = .89 !
-12.93
(-3.51)*
-3.49
(2.90)
-1.46
(-0.47)
-6.42
(-2.26) ,
3.19
(4.02)
1.53
(-2.51)
1.04
(2.02)
1.88
(3.02) j
-0.67
(-2.49)
-0.32
(0.57)
-0.35
(-2.07)
-0.49
1 (-2.37)
0.299
(1.88)
0.1425
0.05
(0.18)
9.427
I (1.84) (
-0.00651
(-3.24)
R2 - .68
-0.00254
(-1.17)
* Estimated for 1967-81.
** Estimated for 1967-79.
Data Sources:
Acres-various U.S. Department of Agriculture publications.
Real Price-Average price for each product group and total
pesticides calculated from U.S. International Trade
Commission, Synthetic Chemicals/ various years, and converted
to real prices by use of: GNP Deflator, U.S. Department of
Commerce, Bureau of Economic Analysis.
Production—U.S. International Trade Commission, Synthetic
Chemicals, various issues.
Industrial Production Index—U.S. Board of Governors of the
Federal Reserve System, Federal Reserve Bulletin, various
issues.
-------
stable (i.e., they were unchanged when it was included). For these reasons,
the industrial production index was not included for „ insecticides ..and...,«...
fungicides.
The equation for insecticides was estimated for a shorter time series
than the other equations. Insecticide production in 1980 and 1981 dropped
significantly due to unusually large carry-overs. These were in part the
result of unusually low insect infestations during those years. It is
assumed that the price elasticity of demand will continue at its historical
levels and that these drops in production were a short-term correction.
There has been a decrease in the amount of insecticides produced due to the
substitution of synthetic pyrethroids for more conventional pesticide
ingredients. The synthetic pyrethroids are very powerful (and expensive) so
that lower dosages offset the higher costs, thus reducing the weight of
production. However, in terms of total insecticide production, these impacts
have not been large.
2-B-3
-------
Appendix 2-C. Estimating the Net
Present Value (NBV)
Manufacturers
As described in Chapter 2, the net present value test compares the
estimated rate of return on its liquidation value that a plant would earn if
it complied with the regulation, to the real cost of capital for this
industry. In order to perform the NPV test, the values for several factors
are needed for each plant. In most cases, these values are not known on the
plant level and so must be estimated. A valid estimate of the value of
pesticide production before treatment is available for each plant. This
value (called sales in the following sections) is calculated on the basis
of: 1977 production, as reported in the 308 Survey, adjusted to 1982 levels,
and 1982 prices, as discussed in the chapter. I/ The average rate of price
increase under the regulation is calculated for each of the three product
groups by dividing the total annual treatment cost for the product group by
the total sales of the product group. The price increase for each product is
estimated by applying the relevant percentage price increase to the product's
price. Using the elasticity relevant to each product group (herbicide,
insecticide, fungicide), a new quantity sold is estimated. This new price
and new quantity yield a post-treatment value of sales which is used in the
analysis of impacts. A plant's sales equals the sum of the sales of its
products. The other values needed for the calculation are estimated by
applying ratios, calculated from annual report data for a group of pesticide
producing firms, to the "plant sales. The specific ratios and the sources of
the data are listed as follows.
Sample of Firms Used to Estimate Ratios. The ratios are calculated for a
sample of seven pesticide producing companies. These companies were used
because estimates of pesticide sales and pesticide operating incomes, as
distinguished from total sales and income, were available for each. (The
firms are identified in Table 2-C-l). The values are calculated from 1980
data, which is a fairly representative year. In other words, profits and
sales in 1980 were fairly typical of the last five years—neither the low
point nor the high point of the period. These seven firms make up a large
percentage of total pesticide sales. Their sales were 89 percent of the
total sales for the 13 largest producers and 77 percent of the total sales of
34 producers.
Operating Income, After-taxes (U). After-tax operating income after
treatment is defined as operating income before federal income tax, minus
annual treatment costs and federal income taxes. The pre-tax operating
income is reported as such on annual reports, and is usually equal to: sales
I/ Prices are from two sources: 1) ITC average prices for groups of
pesticides as found in Synthetic Organic Chemicals, USITC Publication 1422,
1982, and 2) pesticide-specific prices from the ITC, if permission for
release by the company.
-------
minus cost of sales and operating expenses (which includes depreciation and
interest).. JPor the,jsampl* jofe.-sftyen,, firms, the^jcatios 0£.opjeratijag, margin,.,„.._-_
(i.e., operating income before taxes to sales) for pesticide production range
from 0.112 to 0.396. The simple average is 0.213 (the sales-weighted average
is 0.247). See Table 2-C-l. It is assumed that the ratio of before-tax
operating income to sales for the pesticide production averages 21.3
percent. (The weighted average is larger since the very profitable firms
were also the largest; if the weighted average were used instead of the 21.3
percent, it would yield higher, more optimistic, estimates of operating
income and net present value).
The tax rate is calculated from company annual reports data as:
t _ Income Taxes (or Reserve for Taxes)
Operating Income
For the sample of seven companies, the effective tax rate is 0.323. There-
fore, after-tax operating income for each plant is equal to:
(0.213) Plant Sales (1-0.323) - (0.144) Plant Sales
This estimate overstates the after-tax operating income slightly because
depreciation is included at book value not at replacement value. However,
the correction necessary to use replacement value is possible only at the
corporate level since depreciation for pesticide production (either book
value or replacement value) is not known. The firm-level operating margins
for these seven companies is much lower than the operating margins for their
pesticide production as shown in Table 2-C-2. Thus, the after-tax operating
income based on operating margins for pesticide operations without correction
for inflation is closer to the true value than the corporate margins would be
even though they could be corrected.
Real Cost of Capital (r). It can be shown that the cost of capital is
equivalent to the rate of return on assets. Since the net present value test
requires the real rate of return, it can be calculated from corporate annual
report data as:
Real Earnings
Assets Adjusted For Replacement Value
In other words, the real cost of capital is estimated by comparing the
after-tax operating income, corrected for inflation, plus interest (i.e. real
earnings) to current net replacement costs of assets. The correction for
inflation involves adjusting the historical values of depreciation, plant,
property and equipment, and inventories for current dollars. Since this
information is not available on a business segment basis, the real cost of
capital is estimated using company data. Based on 1980 and 1982 figures for
six of the seven companies used to calculate profit rates, the real rate of
return is 7.5 percent as shown in Table 2-C-3. The value of each plant's
assets is needed in order to calculate plant liquidation value as explained
below.
2-C-2
-------
Table 2-C-l
Ratios to be used in Net Present Value
Calculations Based on Simple Average of
Values for 1982, 1981 and 1980.
Company Name
I OI/S
T/OI
CA/S
BV/S
Anerican Cyanamid
Dow
DuPont
Monsanto
Rohm & Haas
Stauffer
Dhion Carbide
Average
.169
.148
.250
.396
.112
.281
.136
.213
.360
.272 *
.512
.325
.322
.258
.210
.323
.423
.389
.349
.372
.398
.492
.386
.400
.374
.559
.440
.485
.289
.684
.597
.490
01 = Operating income/ before federal income tax
S - Sales
T = Taxes
CA = Current assets
BV = Book value of plant and equipment
Notes: Ratio OI/S is for pesticide operations of each firm for only one year
(1980) from industry study by Smith Barney/ Harris Upham & Co.,
Chemicals, July 23, 1982. All other ratios calculated as 3-year
average (except as noted) by Meta Systems Inc from company annual
reports.
* Based on 1980 and 1981 only.
2-C-3
-------
Table 2-C-2.
Ratio of Operating Income to Sales (Operating Margins)
for Pesticide Production and for Total Corporate Sales, 1980
Company
Me r lean Cyanamid
Dow
DuPont
Monsanto
Rohm & Haas
Stauffer
Union Carbide
1 Pesticide
1 Operating
1 Margin
.169
.148
.250
.396
.112
.281
1 .136
I Corporate
1 Operating
I Margin
.093
.114
.102
.031
.100
.150
. .129
Source: Smith Barney, Harris Upham & Co., Chemicals, July 23, 1982.
2-C-4
-------
Liquidation Value (LQ). It is assumed that the plant and equipment
have no-scrap valae except as-a, tax wcdte-off. ^Tnis is appropriate since.-.
much of the pesticide active ingredient manufacturing takes place at plant«
which produce other chemicals as well. Even if the production were
discontinued, it would not be possible to sell just the pesticide
manufacturing capacity. Therefore, the liquidation value is calculated as:
L0 =» 0.70 (Current Assets) + (t1) (Book Value of Fixed Assets)
where t' is the statutory tax rate (0.46). The statutory rate is appropriate
because of the assumption that the company will be writing off the value
against taxes. This equation assumes that a majority but not all (i.e. 70
percent) of the value of current assets can be recovered.
Current assets. Current assets include: cash and equivalents, accounts
and notes receivable, and inventory. Since this current asset information is
not available for individual business segments within a firm, the ratio of
current assets to sales is calculated from company-level data. An average
value of this ratio is then applied to each plant's sales to obtain an
estimate of that plant's current assets. For the sample of seven firms, the
ratio of current assets to sales averages 0.400. The value of inventories
was not adjusted for replacement value since this information is not
available for assets. Any underestimate of the current asset value resulting
from this is expected to be small because inventories are not held for long
periods of time.
Non-Current Assets. As with value of current assets, this information is
only available on a company basis. Non-current assets are plant and
equipment at book value. A ratio of non-current assets to sales is
calculated for the sample of seven firms and for three years, and then
averaged. The average ratio of 0.490 is applied to individual plant sales to
obtain an estimate of the plant's non-current assets.
Planning Horizon (Y)
The net present value will be discounted over a period of 10 years. This
approximates the useful life of the treatment equipment.
2-C-5
-------
Table 2-C-3.
Estimated Real Hate of Return
Company
Stauffer
DuPont
Aner lean Cyan am id
Union Carbide
Bohm & Haas
Dow
Monsanto
Simple Average
Simple Average for four
companies with data for
1980-1982
1
1 1980
7.6%
7.6
8.2
10.3
NA
NA
NA
8.4%
1
1 1
1 1982 |
7.3%
6.3
7.2
5.8
9.4
5.5
NA
6.9%
1 1
Simple
Average
7.4%
7.0
7.7
8.1
9.4
5.5
NA
7.5%
7.5%
Source: Meta Systems Inc calculations and company annual reports for 1980
and 1982.
2-C-6
-------
Appendix 3-A
Information on Zero Discharger formulating/Packaging Plants
As described in Chapter 3, data was collected from state industrial
guides for a sample of plants determined to be zero discharge PFP plants by
the telephone survey. The state industrial guides used are listed in the
reference section of this report. Table 3-A-l summarizes the data on SIC
codes reported by the zero dischargers in the state industrial guides. Since
some plants report more than one, the total number of times the codes are
reported is greater than the number of plants reporting SIC codes.
Ninety-eight plants reported a total of 139 SIC codes, 72 plants reported a
single SIC and 26 plants reported multiple SIC codes. Over thirty-seven
percent of the codes reported were SIC 2879—Pesticide Ebrmulators and
Packagers. This was followed by:
SIC 2842—plants which manufacture specialty cleaning, polishing
or sanitation preparations (10 percent).
SIC 2899—plants which manufacture or prepare miscellaneous
chemicals, i.e., chemicals other than pesticides; soaps; other
cleaning agents; paints and allied products; industrial organic
and inorganic chemicals; plastics, and medicinal chemicals (6
percent).
SIC 2851—plants that manufacture or package paints, varnishes,
lacquers, enamels, and allied products (6 percent).
SIC 2873—plants which formulate nitrogenous fertilizers (5
percent).
As expected, a majority of the SIC codes reported fall in the larger group
of SIC 28—Chemicals and Allied Products. Out of the 139 SIC codes reported,
86 percent (120) fall in SIC 28. The distributions for single versus multiple
SIC plants look similar. Of those reporting a single SIC, 47 percent (34
plants) report SIC 2879. Therefore it can be concluded that for a large
proportion of formulator/packagers, this is neither their most important nor
their sole product.
The year the plant was established was reported by 46 plants (see Table
3-A-2). For the most part, these are plants which have been established i:or
some time. While the year established ranged from 1880 to 1977, the average
(1945) was close to the median (1948). Unfortunately, no information is
available on whether or not expansion or modernization have taken place
recently.
-------
Table 3-A-l
Pesticide Foemulator/Packagers Zero Dischargers:
SIC Code Summary
Number of Times Reported
SIC Code
2879
2842
2899
2851
2873
2869
2841
2048
2819
2874 .
2875
2834
2861
2992
2870
3499
3523
2491, 2812
3079, 3221
3991
2047, 3292
3423, 3996
2891, 2649
2833, 2821
Total
52
14
9
9
7
5
4
4
3
3
3
3
2
2
2
2
2
1 Each
1 Each
By Single
SIC Code
Plants *
34
6
5
6
3
.
1
2
-
„
2
2
-
1
2
2
1
1 Each
-
By Multiple
SIC Code
Plants **
18
8
4
3
4
5
3
2
3
3
1
1
2
1
—
«
1
-
1 Each
Sources Various state industrial guides.
Section for a complete list.
* 72 plants reported a single SIC.
** 26 plants reported multiple SIC.
See the end of the Reference
3-A-2
-------
Table 3-A-2
Pesticide Formulator/Packagers
Zero Dischargers
Year Established
Minimum 1880
Maximum 1977
Average 1945
Median 1948
Standard Deviation 21
Number of Respondents 46
3-A-3
-------
Appendix 3-B
Comparison of Profitability Ratios;
Pesticide Manufacturing Firms
Table 3-B-l shows the six profitability ratios for 32 pesticide
manufacturing firms for 1980, 1981 and 1982. Table 3-B-2 compares
pesticides manufacturing profitability with two other industry
sectors: Chemical and Allied Products, and All Manufacturing.
-------
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-------
Appendix 3-C
Comparison of Profitability Ratios
for Formulator/Packaging Firms
liable 3-C-l lists the six profitability ratios for the three
years 1980, 1981 and 1982. The data are shown for six firms. Table
3-C-2 compares four sectors of the manufacturing industry.
-------
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Appendix 3-D
Historical Data on Pesticide
Active Ingredients; Production
Quantity and Value
The tables show quantity and dollar value of
production for herbicides, insecticides and
fungicides.
-------
Table 3-D-l
U.S. Herbicide Production (1967-1981) I/
1
1
Production
2/
1 Production Value -'
\ (Million 3)
1 Average
1 i
Unit Value ^/
($/lb)
Year I (Million Ibs.) I Current I Constant
4/
-^
Current
Constant
«/
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983*
409
469
393
404
429
451
496
604
788
656
674
664
658
805
839
623
592
617
718
662
663
781
812
843
1,220
1,781
1,692
1,867
1,843
2,020
2,672
3,373
2,695
2,540
617
688
602
573
643
641
630
839
1,184
1,012
1,054
968
977
1,183
1,366
1,030
932
1.51
1.53
1.68
1.64
1.82
1.80
1.70
2.02
2.26
2.58
2.77
2.78
3.07
3.32
4.02
4.33
4.29
1.51
1.47
1.53
1.42
1.50
1.42
1.27
1.39
1.50
1.54
1.56
1.46
1.48
1.47
1.63
1.65
1.57
Average Annual
1967-1974
1974-1982
1
Growth (%)
5.7
0.39
10.
10.
I
2
4
4.
2.
1
5
6
4.
10.
1
2
0
1
-1.
2.
1
2
I/ Source: U.S. International Trade Commission, Synthetic Organic
Chemicals, 1981 and prior issues; and, Arthur D. Little Inc., unpublished
information furnished by EPA.
2/ Production value is derived as the average unit value multiplied by
production quantity.
2/ Average unit value is production value divided by production.
!/ Constant 1967 dollar value is calculated using the GNP deflator
(1967 = 1.00) from U.S. Department of Commerce, Bureau of Economic
Analysis.
* Estimate for 1983 by Meta Systems Inc.
3-D-2
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Table 3-D-2
U.S. Insecticide Production (1967-1980)I/
Production
Production Value
I Average Unit Value
3/
Year
(Million Ibs.)
I (Million $) I
I Current I Constant —' I Current
Constant
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983*
496
569
571
490
558
564
639
650
659
566
570
606
617
506
448
379
326
304
347
383
340
385
344
492
605
916
911
1,049
1,232
1,407
1,265
1,465
1,282
1,092
304
332
329
294
317
272
368
416
609
545
593
647
680
560
593
490
401
0.61
0.61
0.67
0.69
0.69
0.61
0.77
0.93
1.39
1.61
1.84
2.03
2.28
2.50
3.27
3.38
3.35
.61
.58
.61
.60
.57
.48
.58
.64
.92
.96
1.04
1.07
1.10
1.11
1.32
1.29
1.23
Average annual Growth (%)
1967-1974 3.9 10.3
1974-1982 -6.5 9.8
4.6
2.1
6.2
17.5
0.69
9.2
I
i/ Source: U.S. International Trade Commission, Synthetic Organic
Chemicals, 1981 and prior issues; and, Arthur D. Little Inc., unpublished
information furnished by EPA.
£/ Production value is derived as the average unit value multiplied by
production quantity.
2/ Average unit value is production value divided by production.
.!/ Constant 1967 dollar value is calculated using the GNP deflator
(1967 * 1.00) from U.S. Department of Commerce, Bureau of Economic
Analysis.
* Estimate for 1983 by Meta Systems Inc.
3-D-3
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Table 3-D-3
U.S. Fungicide-Production: (1567^-1980)i/^
1
Production
I Production Value
I Average Unit Value
=*
I I (Million 3)
Year I (Million Ibs.) I Current I Constant
\
\ Current I Constant
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983*
144
154
141
140
149
143
154
163
155
142
143
147
155
156
143
111
95
66
72
68
71
82
93
114
139
174
165
203
214
279
309
358
302
257
66
69
62
61
68
74
85
96
116
99
115
112
135
137
145
115
94
0.46
0.47
0.48
0.51
0.55
0.65
0.74
0.85
1.12
1.16
1.42
1.46
1.80
1.98
2.50
2.72
2.70
.46
.45
.44
.44
.45
.51
.55
.59
.75
.69
.80
.76
.87
.88
1.01
1.04
0.99
Average Annual
1967-1974
1974-1982
1
Growth (%)
1.8
-4.7
11
10
1
.2
.2
1
5.
2.
5
3
1
9
15
.2
.6
1
3
7
.6
.3
i/ Source: U.S. International Trade Commission, Synthetic Organic
Chemicals/ 1981 and prior issues; and, Arthur D. Little Inc., unpublished
information furnished by EPA.
2/ Production value is derived as the average unit value multiplied by
production quantity.
I/ Average unit value is production value divided by production.
4/ Constant 1967 dollar value is calculated using the GNP deflator
(1967 » 1.00) from U.S. Department of Commerce, Bureau of Economic
Analysis.
* Estimate for 1983 by Meta Systems Inc.
3-D-4
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Appendix 3-E
Discussion of Major Markets and Uses for Pesticides
Approximately 85 percent of all herbicides for farm use (by weight of
active ingredients) are used on four major crops: corn (53 percent); soy-
beans (21 percent); wheat (6 percent); and cotton (5 percent).i/ Con-
stituting more than one-half of the agricultural herbicides market, corn also
constitutes the single largest market for all pesticides in the U.S. The
future demand for corn herbicides depends more on changes in corn acreage in
production, than on significant changes in percentage of acres treated. This
is because, as of 1976, more than 90 percent of all corn acreage in
production was treated with herbicides. There is also a large
proportion—about 90 percent—of soybean acreage currently treated with
herbicides.
More than 95 percent of the herbicides produced are manufactured from
synthetic organic chemicals. The herbicides most commonly applied are
atrazine to corn, alachlor and trifluralin to soybeans, 2,4-D to wheat, and
trifluralin and fluormeturon to cotton. The majority of pesticides marketed
today are used to control pre-emergent weeds. However, due to changes in
farming practices, use of post-emergent herbicides is increasing and it is
estimated that markets for these chemicals will quadruple by 1985. The non-
agricultural uses of herbicides include controlling unwanted plants on lawns,
parks, and golf courses, and eradicating vegetation along right-of-way
areas.
In 1982, herbicides accounted for 63 percent of total value and 56
percent of total quantity of all pesticides active ingredients produced, as
shown in Table 3-14. Since 1967, herbicide production has grown from 409
million pounds to 623 million pounds in 1982, which is an average annual
growth rate of 0.39 percent. During this period, the sharp decline in 1969
was attributed to disruption in the supply of the intermediate chemicals used
in manufacturing herbicides. This disruption was caused by an increase in
demand for defoliants during the Vietnam War which diverted the intermediate
chemicals toward that end, and from which the industry took several years to
recover. The sharp decline in 1982 is attributed to the downturn in the
nation's economy, the large inventories carried over from prior years and the
I/ Eichers, T.R., and W.S. Serletis, Farm Pesticide Supply-Demand Trends,
1982, U.S. Department of Agriculture, Economic Research Science, Agriculture
Economic Report, 485, April 1982. ~
-------
payment-in-kind (PIK) program implemented by the U.S. Department of
Agriculture (discussed in Chapter 4),. The increase in herbicide growth
through 1981 can be attributed to the percentage increase in both planted
acres of corn and soybeans, and the percentage of treated acres. Treated
acreage of corn grew from 69 percent in 1972 to 93 percent in 1980 while the
proportion of treated soybean acreage grew from an average of 71 percent to
92 percent.!/ The amount of herbicide applied, per acre, has also changed
over the past two decades and is a second factor in the increasing growth rcite
of herbicide production. For example, in 1964 an average of 0.80 Ibs of
herbicides were applied per acre of major field crops while in 1976 and 1982
the proportion increased to 1.96 and 1.91 Ibs/acre, respectively..?./ These
higher use rates are attributable in part to increased use of multiple
treatments and herbicide mixtures. More recently, over the 1977-1982 period,
average unit value has increased by 5.8 percent while production quantity
declined by 7.6 percent.
Until recently, application of insecticides was limited to fruits,
vegetables, tobacco, cotton, and a few other specialized crops. In the past
decade, however, a large percentage of corn and other field crops have also
been treated with insecticides. For example, between 1972 and 1980, the
proportion of all U.S. corn acreage treated has increased from 25 to 43
percent, and soybean acreage from 1 to 11 percent. In 1976, major field crops
accounted for approximately 80 percent of the insecticide materials used on
all crops and nearly 90 percent of the farm land treated with insect-
icides. 3/ in 1976, the major agricultural uses, based on per pound of
active ingredient, were cotton (40%); corn (20%); soybeans (5%); wheat (4.4%);
and alfalfa/other hay (4,4%).
Insecticides are also used by livestock growers, particularly on beef
cattle. These chemicals are applied in dilute sprays and at very low doses.
Livestock insecticides constitute a very small percentage (2%) of the total
insecticides market.
Insecticides accounted for 34 percent of U.S. pesticides production
quantity and 30 percent of the value in 1982, down from 41 percent of the
production quantity and 34 percent of the value in 1977 as shown in
Table 3-19. In 1967, the 496 million pounds of insecticides produced
represented 87 million pounds more than the herbicide volume for that year
I/ U.S. Department of Agriculture Inputs—Outlook and Situation, Economic
Research Service, IOS-1, June 1983.
2/ Includes corn, soybeans, cotton, wheat, sorghum, rice, other small
grains, tobacco, peanuts, alfalfa, hay and forage, and pasture and range land,
excluding California.
3/ Eichers, T.R., P.A Andrilenas, T.W. Anderson, Farmers' Use of
Pesticides in 1976, U.S. Department of Agriculture, Economics, Statistics,, and
Cooperative Service, Agricultural Economic Report 418, December 1978.
3-E-2
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but, by 1982, insecticide production of 379 million pounds was 144 million
pounds less Uian that of herbicides^: Thus* insecticides..may«=be considered,^
more mature market; production quantity in 1982 was two thirds of the 1967
output. "Sharp declines can be noted in the past decade: in 1976, 1980, 1981
and 1982 as shown in Table 3-21. Before the 1980 decline, the average annual
growth rate between 1967 and 1979 was 1.8 percent, considerably lower than
that for herbicides.
There are a number of reasons for the declines in insecticide production
on a quantity basis. One major factor is the shift in types of insecticide
chemicals used. There are three major types of insecticides used by
farmers? carbonates, organophosphates, and organochlorines. The patterns of
use of these three groups have changed because of environmental regulations
and restrictions,* residue buildup, and reductions in efficiency due to pest
resistance. These changes have led to corresponding changes in application
rates. For example, in 1971, an average of 2.6 pounds of insecticides were
applied to every treated acre while in 1976 this average declined to 2.0
pounds per acre. More recently, an even greater-shift has occurred due to
the introduction of a new class of chemicals, the synthetic pyrethroids. A
major advantage of the pyrethroids is their effectiveness in controlling
specific insect pests with a minimum of harm to beneficial insects. In
addition, these chemicals are effective at much lower concentrations (some
require only one-tenth the amount of chemical active ingredient per acre of
other insecticides)« The synthetic pyrethroids are used primarily on
cotton. In the early 1970's, cotton accounted for about 50 percent of total
insecticide use, but in 1980 the cotton share of the market had dropped to 40
percent, as production capacity for synthetic pyrethroids caught up with
demand.
A second major reason for the decline in insecticide production has been
the growing use of Integrated Pest Management (IPM) , and alternative con-
trols. Decrease in insecticide use is also a function of changes in the
proportion of acres treated and changes in acres in production. In 1976,
about 66 million acres were treated with insecticides, while by 1982
treatment declined to 54.2 million acres.
While the quantity of insecticide production has dropped since the
mid-1970's, the unit value has increased. In 1982, unit value in real terms
exceeded the value in 1974 by 102 percent. In comparison, the 1981 unit
value of herbicides exceeded the 1974 value by only 19 percent.
Unlike herbicides and insecticides, fungicides are not used extensively
on major field crops. As of 1976, major field crops accounted for less than
* For example, application of aldrin and dieldrin, the widely used
organochlorine corn insecticide was suspended in 1974, as was the use of
chlordane and heptachlor in 1976. The widely used organochloric cotton
insecticide DDT, was also prohibited from being applied in the Uhited States.
3-E-3
-------
19 percent of total fungicide farm use.!/ The major field crop markets for
fungicides are peanuts, (84 percent of major crops fungicide, use), followed.
by wheat (11 percent), soybeans (2 percent), and tobacco (2 percent).
Approximately 81 percent of all fungicides for farm use are applied to fruits
(particularly citrus), potatoes, sugar beet, and other vegetable crops.
Non-agricultural uses of fungicides constitute an important segment of
the market. The industry which uses the greatest amount of fungicides is
wood and lumber (for treating poles and posts). Other significant users
include the paint, plastics, optical and photographic, leather, petroleum,
pharmaceutical, and cosmetic industries.
The 1982 production of 111 million pounds represented only about 10 per-
cent of total pesticide production and seven percent of total pesticide
value. In 1982 fungicide production was about 33 million pounds less than in
1967 (see Table 3-22). The number of fungicide-treated acres increased 27
percent from 1964 to 1976, but decreased 35% between 1976 and 1982.J/
Relatively constant acreages for fruits and vegetables and major reliance on
routine spray schedules assure a fairly stable demand.
I/ Eichers, T.R., P.A Andrilenas, T.W. Anderson, Farmers' Use of
Pesticides in 1976, U.S. Department of Agriculture, Economics, Statistics,.
and Cooperative Service, Agricultural Economic Report 418, December 1978.
2/ U.S. Department of Agriculture Inputs—Outlook and Situation, Economic
Research Service, IOS-1, June 1983.
3-E-4
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Appendix 4-A
Estimating the Pesticide Manufacturing 1982 Baseline
Bureau of Labor Statistics were used to compare 1982 and 1983 prices of
pesticide active ingredients!/. The producer price index for code number
06-53 (i.e. "Other Agricultural Chemicals—i.e. herbicides, insecticides,
fungicides, and other pesticides) is the relevant index for this analysis.
For 1982 the index is 463.3 and for 1983 the index is 458.8. Thus 1983
prices are 99 percent of 1982 prices at the producers level; therefore 1983
prices are considered the same as 1982 prices for this analysis.
The profit estimate (i.e. after-tax operating income) is based on pre-tax
operating income equal to 21.3 percent of sales value and an effective
corporate income tax rate of 32.2 percent. These factors, developed in
Chapter 2, represent averages for seven major pesticide producers analyzed in
that section.
I/ Bureau of Labor Statistics, personal communication, March 1984.
-------
Appendix 4-B
Estimating the formulator/Packager 1982 Baseline
Estimates of total industry value of PFP production are available from
several sources independent of this report: The Annual Survey of
Manufacturers provides estimates for SIC product group 2879 up to 1981, the
1983 Industrial Outlook, presents estimates for selected years through 1982,
the Kline Guide shows the value of shipments of formulated pesticides through
1980 (based primarily on the government publications cited above), and the
USDA Pesticide Review. The Kline Guide notes that their estimates, based on
government sources, probably underestimate the 1980 value by 20 percent
because sales of some agricultural cooperatives and pesticide formulators are
not included. The various estimates or value of PPP product shipments are
summarized in Table 4-B-l.
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Table 6-A-l Comparison of Impacts; Manufacturing Subcategory 1
Pesticide
Treatment Coats Without Treatment Costa With
Biological Treatment Biological Treatment for
for Indirect Dischargers Indirect Dischargers
Total Direct Indirect Total Direct Indirect
Number of plants 114 * 42 37 114 * 42 37
Number of plants
with costs 53 * 29 26 53 * 29 ~ _^"26
number of Indirect
Dischargers with
Biological Treatment NA NA HA HA NA J 32
Capital Cost of
Compliance (£1,000) 94,254 70,806 23,448 110,133 70,806 39,327
Annual Cost of
Compliance ($1,000) 41,406 31,709 9,697 47,964 31,709 16,255
% Increase in Price
Total 1.07 1.07 1.07 1.24 1.2T~ 1.24
Herbicides 1=20 1.20 1.20 1.33 1.33 1.33
Insecticides 0.77 0.77 0.77 0.82 0.82 0.82
Fungicides 1.23 1.23 1.23 1.82 1.82 1.82
% Increase in Production Cost
Total 2.45 2.53 2.30 2.85 2.53" 3.79
Herbicides 2.25 2.39 1-.72 2.47 2.39 2.78
Insecticides 2.50 3.36 1.09 2.77 3.35 1.80
Fungicides 4.11 1.99 8.94 5.94 1.99 14.33
% Decrease in Profit
Total 0.58 0.58 0.58 0.66 0.6T 0.66
Herbicides 0.80 0.80 0.80 0.89 0.89 0.89
Insecticides 0.25 0.25 0.25 0.26 0.26 0.26
Fungicides 0.42 0.42 0.42 0.64 0.64 0.64
Number of Plants with
Cost to Sales Ratio
Greater than It 28+ 14 15 31 * 15 18
Number of Plants which
Fail Met Present _ I
Value Test 42242 _~ ~2_
Number of Potential Closures
Plants 0 0 0 0 0 0"~
Product Lines 3 2 1 3 21
* Two plants with both direct and indirect wastewater flows are included in
the count of directs and indirects, but are counted only once in the total. In
addition to the directs and indirects, there are 37 plants included in the total
count that are zero dischargers.
** Cost of compliance includes treatment, monitoring and RCRA costs. Costs
are in 1983 dollars.
+ One plant has both direct and indirect wastewater flows.
6-A-2
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