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office pf
pesticide
programs
march 7,1977
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FIFRA: IMPACT ON THE INDUSTRY
TABLE OF CONTENTS
INTRODUCTION p. 1
A. PART I
AVAILABILITY OF DATA FOR
USE AND DISCLOSURE p. 3
1. Background p. 4
a) Patent law considerations p. 4
b) Patterns of pesticide
development & marketing p. 5
c) Early regulatory practices
and assumptions p. 6
d) Development of the present
statutory provisions p. 8
2. Issues Requiring Resolution p. 9
a) What safety, efficacy, and environmental
chemistry data should be available for
use by competitors under FIFRA? p. 9
b) What safety and efficacy data should
be available for examination by
the gener al pub lie? p. 11
c) Should information concerning the
impurity content of technical-grade
pesticide chemicals be available for
use by prospective competitors and
disclosure to the public? p. 12
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B. PART II
DATA VALIDITY p. 15
1. Background p. 16
2. Pending Decision p. 18
3. Two Basic Options p. 18
4. Agency Position p. 20
5. Specific Treatment of
Classes of Applications p. 21
6. Potential Congressional Action p. 22
C. PART III
OTHER IMPACTS p. 23
1. New Product R&D p. 23
2. Integrated Pest Management p. 24
3. Application Technology p. 27
4. Child Protective Packaging p. 27
5. Users & Applications p. 28
D. APPENDIX
STUDIES p. 29
E. FOOTNOTES p. 32
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FIFEA: IMPACT ON THE INDUSTRY
INTRODUCTION
The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
regulates all pesticides marketed in the United States. Statutory
and regulatory requirements of the law naturally affect the industry
which manufactures and distributes pesticide products. Congress has
expressed interest in just how the administration of the FIFRA
is impacting the industry as a whole, and particularly the small
businessmen involved in the pesticide distribution chain. This
paper addresses this Congressional concern, and will discuss the
major impacts of the legislation since the 1972 amendments to date,
especially those affecting the competitive atmosphere in the
pesticide industry.
PROFILE OF THE INDUSTRY
Over 1.4 billion Ibs. of pesticide are produced each year;
encompassing some 1400 active ingredients. These 1400 active
ingredients are contained in approximately 2500 technical products,
which are in turn formulated in approximately 40,000 end-use
products.
About 400 registrants produce technical material in a given
year which is purchased and formulated into end-use products
by about 4200 registrants. Some manufacturers of technical material
also formulate their own end-use products. Some 90% of the active
pesticide producers depend upon the other 10% for supply
of the active ingredients.
The industry can be divided into two groups: those who gather
their own data, and those who rely on data developed by others.
Almost all data developers are large companies which can afford the
long-term testing required under the Act. The bulk of the long-term
data which form the basis for all these registrations is developed
by the approximately 30 companies which contribute to innovative
R&D in pesticides in the U.S. Most of these are large, multi-product
firms for which pesticides comprise less than 20%, and in some cases
less than 1%, of their total sales. Most formulators are small firms
which lack the resources necessary to perform the required tests.
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RELEVANT ISSUES
The registration regulations and guidelines impose costs through
testing requirements; this overall impact has been considered in the
preparation of the regulations implementing the registration, reregis-
tration, and classification regulations, and a cost impact estimate
of the proposed guidelines was published in the Federal Register
on August 22, 1975. This issue is discussed briefly in the Appendix.
However; the primary purpose of this paper is to address the two
major issues affecting the ability of firms to register products
and the amount of competition within the industry:
Availability of Data for Use and Disclosure — to what extent
can and should data developed in support of registration be shared
among registrants and available to the public (this issue centers
on Sections 3(c)(l)(D), 3(c)(2) and 10 of the Act).
Data Validity — what is the quality of the data on file with
the Agency, and can an applicant receive a registration for a
product identical or similar to one already on the market without a
validation of the entire data base.
These two issues are discussed at length in Parts I and II of
the following paper. Other impacts of the FIFRA include areas
where competition could be either stimulated or impaired by EPA
actions: research and development, integrated pest management,
application equipment and techniques, packaging, and application
(commercial vs. private applicators). These are discussed in
Part III. Results of some recent and on-going studies are summarized
in the Appendix.
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PART I
AVAILABILITY OF DATA FOR USE AND DISCLOSURE
Formulators of end-use products desire to purchase ingredients
at reasonable prices. So long as a patent covers an active
ingredient pesticide chemical, the developer controls the market
and the price. Once the patent expires, however, the formulator
could expect that other firms would begin to produce the chemical
and thus the resulting competition would lower prices. For
several years this was the pattern in the industry; competitors
obtained "me-too" registration for technical-grade chemicals*
after the patents expired.
The trade secrecy allegations recently raised by the data-
developer firms have drastically changed this situation. Although
a formulator-applicant who plans to use the technical-grade
chemical sold by the data-developer can still obtain registration,
a formulator who wishes to obtain technical-grade material from a
different source will be stymied because his technical-grade source
will be unable to furnish him access to the necessary data and
he will not be able to obtain a registration. Thus, an essential
question is whether the data developer firm should be able to
control the market after his patent has expired by denying access
to the data he submitted.
Equally controversial is the closely related issue of whether
this data should be available to interested members of the public
under FIFRA Section 3(c)(2) and the Freedom of Information Act.
How these issues are resolved will, to a large extent, determine
how the pesticide industry in this country is to be structured, how
much the public will be allowed to know about the possible risks of
pesticides, and perhaps how much research will be carried out on
new pesticides.
EPA's interest in a speedy resolution of the various sub-issues
that make up the use-of-data controversy stems from a desire to be able
to conduct the registration and reregistration programs in an efficient
manner, and to shift Agency resources now occupied with use-of-data
matters to more environmentally-oriented tasks.
* The basic chemicals sold for manufacturing use are often referred
to as technical-grade chemicals, and normally contain some amount
of impurities, ranging from less than 1% to, on occasion, 20% or
more. The impurities are present because of the high cost and
technical difficulty of producing commercial quantities of pure
active ingredient.
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This Agency believes that the issues should be resolved by
Congress. This discussion is intended to describe how the controversy
arose, and to indicate likely outcomes in terms of the amount of
competition (and the range of public disclosure) with or without
legislative changes.
BACKGROUND
The controversy has arisen because of the interaction between
the patent law, the patterns of development and marketing of pesticides
the various provisions of FIFRA bearing on use and disclosure of data,
and the changes in data requirements that have occurred.
Patent law considerations.
A patent may be issued to cover a newly-discovered chemical,
a newly-discovered use for a previously-known chemical, or a new
method for producing the chemical. New chemicals and new pesticidal
uses are the kinds of patents with which we are concerned here.
A patent provides that during the 17-year period commencing
with the issuance of the patent, no one other than the patent's owner
can "practice" the invention without the owner's permission. The
owner may license others to practice the invention..
After the 17-year period expires, the patent law provides no
further protection; any firm can practice the invention, without
needing the prior consent of the patent-holder. This does not
necessarily mean that the patent owner has no remaining advantages;
he may have acquired valuable "know-how" that he can still license,
and he may have acquired marketing advantages due to his long
association with the product. However, he can no longer prohibit
unconsented competition in the market.
Developers of new chemicals or new pesticidal uses normally
make prompt application for patents, to avoid the possibility of loss
of rights through publication or independent invention by another.
In the case of pesticide chemicals, the patent normally issues well
before the developer has established, through long-term testing, that
the chemical is safe and effective enough to be registered under FIFRA.
Thus, there may be only 12 or so years of patent protection remaining
when the initial FIFRA registration issues.
The great majority of the important agricultural pesticides
were patented between 1945 and 1965. (Many of the products were
developed as a result of military research begun during World War II.)
Patents on many of the major pesticides have thus already expired, and
more will expire in the next few years.
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Patterns of pesticide development and marketing.
Development of new pesticides is not easy. Discovery of a
chemical which is both effective against pests and adequately safe
for use occurs only infrequently. The research and development
costs are great, and must be absorbed by the sale of successful chemicals,
When a firm does develop a promising new chemical and obtains a
FIFRA registration, there is every reason for that firm to promote its
sale and use during the remaining period of patent protection. The
firm will in most cases aggressively seek to develop and have approved
new uses of the pesticide (on crops or pests not originally the subject
of registration). Extensive advertising of the product is common.
A technical-grade pesticide chemical normally cannot be applied
directly for pest control; it must be dissolved, diluted, or otherwise
formulated into a product which is safe to the applicator, effective
in pest control, and adapted to desired methods of application.
The pesticide's developer may choose to formulate the chemical into
end-use products himself; he may decide not to engage in formulation,
instead reaping his profit from sale of the technical-grade pesticide
to firms specializing in formulating end-use products; or he may
choose to do both. Likewise, the patent-owner may choose to license
other firms to manufacture and sell the technical-grade chemical.
Each of these decisions will be made on the basis of profit maximization.
However, each technical-grade product which is to be sold in
commerce (by the developer or his patent licensee), and each formulated
product, must be separately registered under FIFEA. Each person who
seeks registration must demonstrate that the product he will offer for
sale is safe and effective. Unless formulators and license-seekers
can obtain FIFRA registration for such products, neither patent
licensing nor sale of technical-grade product will be feasible.
Thus, the patent owner has a powerful incentive to encourage these other
firms to use whatever data is necessary for the registration of their
products.
Once the patent expires, however, everything changes. There are
many firms which might find it economically attractive to commence
production of a technical-grade product on which the patent has lapsed,
and to sell it in competition with the original developer. Because
these firms often do not maintain research operations, or have other
cost advantages over the firms who do, they could in many cases under-
sell the original developer. And all things being equal, the formulators
would prefer to purchase the lower-priced technical-grade chemical.
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These potential competitors cannot enter the market until they
can obtain FIFRA registration for their proposed products. And there
is absolutely no incentive for the developer to consent to the use of
his data for supporting these competitive registrations—instead,
the incentives point in the opposite direction. Indeed, after patent
expiration the chemical's developer may desire to curtail whatever
competition already exists in the technical-grade market (from those
firms which were the subject of patent licenses granted earlier).
On the other hand, the developer has no reason to attempt to curtail
the number of registrations of formulated (end-use) products, for each
formulator represents an existing or potential customer. The developer
merely desires to have control over the supply of the technical-grade
chemical.
It is perfectly understandable that a developer firm would
desire to lengthen the period of exclusive control of production of
the chemical beyond the 17 years the patent law allows. This may be
especially true when it is remembered that a portion of the 17-year
period may have been lost to pre-registration testing.
One can equally easily understand the lack of enthusiasm over
this kind of behavior on the part of the developer1s potential
competitors, those who desire to enter the technical-grade market.
From their standpoint, the developer has obtained his due reward under
the patent law; now he wants to start all over in reliance on a different
kind of protection, that which can be obtained by denying access to the
test data required for FIFRA registration. If a prospective competitor
can be required to perform duplicate tests as a condition of market
entry, in most cases the potential profits will not justify the expense
of this duplicative testing and the developer will retain control
over production and price levels.
Early regulatory practices and assumptions.
Some of today's problems concerning use of data can be traced to
the practices and attitudes developed by both industry and Government
during the period prior to the 1972 amendments.
The system of registering each product individually developed
under the 1947 FIFRA, at a time when most of the Important agricultural
pesticides were still protected by patents owned by the major producing
firms. For the reasons noted earlier, these firms were anxious to
maximize production and use of their patented technical-grade chemicals,
and many registrations were issued for formulated end-use products
containing these chemicals. It became routine practice for developer
firms to allow formulator applicants to rely on the data already on
file concerning the composition of the technical-grade chemical.
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(This composition data was not publicly disclosed by USDA, which
treated it as trade secret.) USDA officials also routinely
considered the other data (that pertaining to safety and efficacy) in
support of formulator applications, without authorization of the
technical-grade chemical's developer. This is understandable in the
context of the times, because it normally would have been safe to
assume that the data developer was anxious to have the formulated
product registered, and to have the formulator as a customer. Moreover,
during the early years of administering the 1947 FIFRA, the testing
requirements were not nearly as stringent as they became starting in
the mid-19601s. Thus, the data barrier would not have been formidable,
even if the data developer objected to other firms' use of existing
data.
But as time went on, two things changed: long-term testing
requirements were imposed, and the patents began to expire. By
the early 1970's, firms which had held the patents could see that
their control over production would soon expire. These firms
suddenly became very concerned about the use of their test data
and composition statements by EPA in support of other firms'
registrations.
EPA (like USDA before it) had continued to process registration
applications on the assumption that it was proper to rely on any
test data in its files. (The 1947 FIFRA, after all, made no mention
of this practice, speaking only of the confidentiality of the formulas.)
In fact, under the 1947 FIFRA, products were routinely registered
without any scrutiny of the underlying data, if there already existed
a product registered for the same use patterns. Other prevalent
assumptions at the time were also involved. One was that the potential
hazard from a pesticide was associated only with the active ingredient
of a product, not with the accompanying impurities. This led to the
idea that if one firm's technical-grade product containing a particular
active ingredient was safe, so was another firm's technical-grade product
containing the same active ingredient.
Application of these various assumptions ultimately led to the
registration of various technical-grade products made by firms other
than the original developer, both those holding patent licenses and
those which entered the market after the patent had expired. Many
of these "me-too" registrations of technical-erade products now exist;
the registrants have never performed their own tests on these products.
All these products will be subject to fresh examination at reregis-
tration.
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Development of the present statutory provisions.
In 1971-1972, during the debate over the amendments to FIFRA
then under consideration by Congress, the National Agricultural
Chemicals Association (NACA) urged adoption of a provision that
would have required the data developer's consent before test data
could be used to support the registration of a pesticide product.
NACA argued that the then-current EPA practice of allowing applicants
to rely on data developed by the original registrant was causing
pesticide firms to abandon their research and development programs.
NACA argued that this trend would be accelerated by the public
disclosure provisions of the amendments (which ultimately were enacted
without change asS3(c)(2) ). NACA did not oppose the disclosure
requirements, but argued strongly for the "exclusive use of data"
approach. The bill which passed the House in late 1971 contained
an "exclusive use" provision, and the same approach was initially
favored by the Senate Committee on Agriculture and Forestry.
However, the Senate Committee on Commerce strongly opposed it,
arguing that "exclusive use" would grant the original data developer
a practical monopoly for a period extending well beyond the 17-year
patent term. The two Senate committees arrived at a compromise that
became law as §3(c)(l)(D). It provided that test data was to be
available for use by all applicants (mandatory licensing) , but required
those applicants who had not obtained the data developer's consent to
offer to pay the developer reasonable compensation.
In 1975, §3(c)(l)(D) was amended to provide that the limitations
it placed on the Administrator's consideration of data did not apply
to data received by EPA (or its predecessors) before 1970.
The 1972 amendments made both the public disclosure provision,
§3(c)(2), and the mandatory licensing provision,§3(c)(1)(D), subject
to one crucial exception: EPA could neither disclose to the public,
nor consider in support of another firm's application, data which
"contains or relates to trade secrets or commercial or financial
information obtained from a person and privileged or confidential."
It is the meaning of this "trade secrecy" exception, and the
interaction of it with §3(c) (1) (D) and §3(c)(2), which has served to
frame the present controversy. Congress did not define what kinds of
data were to be treated as "trade secrets."
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The 1972 FIFRA amendments also put an end to the practice of
issuing registrations based on "existing use patterns." FIFRA
§3(c)(2) requires that EPA state publicly what data supports each
registration action. The compensation provisions of §3(c)(l)(D)
likewise assume that EPA will know just which items of data were
relied on.
The large pesticide producers (the firms which generated most
of the test data in EPA files) have argued, first to EPA and now
in court, that the term "trade secrets," as used in FIFRA, encom-
passes any and all test data which the firms have not voluntarily
disclosed to the public and which has competitive value. Most of
the data has not been publicly disclosed. And the data does have
one kind of competitive value: as long as it is considered "trade
secret," other firms wishing to compete with the data developer will
be practically excluded from the market because of their inability
to obtain registration or reregistration. However, in EPA1s opinion,
it was this very element of value which was intended to be covered by
the reasonable compensation plan of §3(c) (1) (D) .
The data developers' primary concern appears to be control over
the domestic technical-grade market. However, they have opposed not
only use of data by other firms, but also disclosure of the data to
the public. The sole argument against public disclosure of test
data, insofar as EPA is aware, is the possible usefulness of such
data to firms seeking to register products in other countries.
(Toxicity data is apt to be most useful in foreign registrations.
Data on efficacy and environmental chemistry may be of little use,
because of the different weather and soil conditions, pest strains,
crop varieties, and application methods prevalent in other countries.)
Thus, the value of this data for purposes of preserving market shares
in foreign countries must be balanced against the right of this
country's citizens to critically examine the toxicity data and other
information concerning pesticides used here. The Toxic Substances Control
Act, it should be noted, -T**n±res i^vat health and Safety data ou Earhated
products must be publicly disclosed.
ISSUES REQUIRING RESOLUTION
1* What aafety. efficacy, and environmental chemistry data
should be available for use by competitors under FIFRA?'
The kinds of hazard-related data that must be submitted or cited bv
an applicant for reregistration or new registration include short-term
acute toxicity studies; 90-day subacute toxicity studies and often
long-term (normally 2-year) feeding studies designed to shot whether
advert d^ffW™* *» the product producS cancer or otner
adverse health effects. Such studies are performed using rats mice
or other test animals, m some cases, depLding on the proposed use'
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10
patterns, studies must be done of the effect of the pesticide on fish
and wildlife, and on the "environmental chemistry" of the product (its
behavior in soil, degradation time, etc.). Efficacy studies, showing
that the pesticide is useful against pests but not unduly harmful to
desirable life forms, must be furnished. Finally, in the case of
products for use on agricultural commodities, or to which livestock
or poultry will be exposed, studies must be performed dealing with
such things as how the chemical is metabolized (chemically changed)
by food plants or feed animals, studies of pesticide residues which
result from the product's use, and studies showing the waiting periods
which must be employed after use of the pesticide to avoid unacceptably
high pesticide residues in food plants, meat, poultry, milk, or eggs.
EPA has taken the position that it was Congress' intent to
make this information subject to the mandatory licensing procedure
of §3(c) (1) (D), and that Congress did not therefore intend that data
of these types should be regarded as trade secrets. I/* However, most
of the major pesticide firms have commenced litigation alleging that
this data is trade secret. If these firms are successful, and the
test data is held to be immune from the mandatory licensing provisions,
true competition in the technical-grade pesticide market in the future
will be greatly diminished. The expense and delay incident to duplica-
tive testing may effectively preclude market entry; only those firms which
"own" the data, or are able to come to terms with the data owners and
obtain permission to rely on the data, will be able to either enter or
stay in the market.
If Congress desires not to promptly encourage competition,
it need do nothing; the present law will continue in effect, and the
cases will wend their way through the courts. During the year or more
that the litigation will require, EPA will be able to register only
those products which have the blessing of data developers. EPA anti-
cipates that it will prevail in the litigation, but this result cannot
be guaranteed.
On the other hand, if Congress desires to resolve the matter
promptly in favor of increased competition in the production and
sale of technical-grade pesticides on which the patents have expired,
it should amend FIFRA §3(c) (1) (D) by deleting the prohibition on
the Administrator's consideration of trade secret data. This will
facilitate competitive registrations, whether or not the data may
be publicly disclosed. 2/
* Footnotes are found at the end of the paper.
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2. What safety and efficacy data should be available for
examination by the general public?
This Agency firmly believes that Congress, in enacting
FIFBA §3(c)(2) in 1972, intended to make it possible for interested
.members of the public to examine the actual data which is submitted
in support of the safety and efficacy of registered pesticides, and
therefore to encourage public understanding and criticism of Agency
decision-making as well as to increase the knowledge of risks and
benefits of pesticide use.
Public disclosure to supporting test data is fully consistent
with the licensing-and-compensation scheme of ,§3(c)(1)(D). Disclosure
of data does not in any way diminish the right of a data developer
to be paid reasonable compensation for the use of the data by another.
In fact, by allowing a prospective user of the data to examine it,
disclosure of the data would facilitate data-sharing and would make
more likely the negotiation of acceptable compensation terms.
Some have suggested that only summaries of this data should be
disclosed. This would not assist those interested in assessing the
validity of the data; it is the detailed data which must be
examined if public scrutiny is to serve any useful purpose.
EPA's position is that trade secret status should be routinely
afforded only to truly secret information concerning manufacturing
processes (and, perhaps, to the list of deliberately-added inert
ingredients in formulated, end-use products). The remaining data
needed to support a registration, including the data describing
the toxicity of a product, its environmental behavior, and its
efficacy, should be routinely available to the public once registra-
tion has been granted. This approach would be consistent with that
recently adopted under the Toxic Substances Control Act.
The procedural aspects of data disclosure are nearly as
important as the substantive issue of which data may be disclosed.
The present law, which requires disclosure of all data except that
which is trade secret (but does not define what data is trade secret),
encourages judicial review. At present, most of the large data-
developing . firms are engaged in litigation seeking to enjoin
EPA from disclosures of data. Some of these firms are arguing
that they are entitled to a complete evidentiary trial in
court to establish the facts concerning the confidentiality ^iid the
value of each item of data in question. It is EPA's position that
the data is publicly available as a matter of law, i.e., that the
statute, properly construed, requires disclosure of the data. However,
if EPA does not prevail on that issue, full evidentiary hearings will
be the result whenever EPA proposes to disclose any item of data against
the data developer's desires.
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If Congress desires to clarify the matter in favor of disclosure,
it should amend FIFRA 10(b) to state that all data pertaining to the
properties, safety, behavior, or efficacy of a registered pesticide
is publicly available, except for those specific portions of an item
of data identified by the submitter as information which, if disclosed,
would divulge details of secret manufacturing methods or quality con-
trol procedures having competitive value to the data developer.
3. Should information concerning the impurity content of
technical-grade pesticide chemicals be available for use
by prospective competitors and disclosure to the public?
Some large data-developing firms have recently argued that
toxicity test data pertaining to one firm's product (even if
it is not trade secret) is simply irrelevant, in a scientific sense,
to the question of the safety of another firm's product containing
the same active ingredient, because of the possible presence in
the second product of toxic impurities. Thus, they allege,
Firm B should be required to perform a complete battery of toxicity
tests on its product, and should not be granted registration on the
basis of tests on Firm A's product. If accepted, this argument
would tend to severely limit competition in the technical-grade
pesticide market.
Traditionally, toxicity testing has focused on the possible
adverse effects of the pesticidally-active ingredient which composes
the bulk of a technical-grade chemical. (Most toxicity testing is
performed using technical-grade chemical as the substance fed to
test animals.) However, this Agency has become increasingly
concerned about the possible adverse health effects attributable to
the Impurities that are present in technical-grade chemicals.
These toxic effects may be either of an acute or chronic nature.
Certain dioxin compounds (present as impurities in some herbicides
unless very careful manufacturing precautions are taken) are among
the most acutely toxic substances known, and also have chronic
adverse effects. Some nitrosamine compounds, present as impurities
in various pesticide products, are highly potent carcinogens, and
there are other highly carcinogenic pesticidal impurities. It is
likely that this concern with impurities' toxicity will continue to
grow as more becomes known about their presence in pesticides.
Because of this concern, EPA has concluded that in the future
its registration decisions must take into account the toxicity of
possible impurities that may be present in marketed quantities of
pesticides. Applicants will be required to state the maximum
limits for the various impurities that they will allow to be
present in marketed products, and the Agency will base its health
evaluations in part on the impurity limits the applicant furnishes.
Enforcement action will be taken against firms whose marketed
products are found to contain impurities in excess of the limits
the applicant prescribed in its application.
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The various toxicity studies required for registration differ
in their ability to demonstrate the toxicity of impurities. A
highly acute toxic impurity may demonstrate its effects even
though it is present in a test substance at very low concentrations.
On the other hand, the long-term animal feeding studies (especially
studies designed to show the possible carcinogenicity of the
pesticide) probably are only marginally useful in demonstrating the
safety of impurities. For one thing, these tests are, for reasons
of economy, designed to produce evidence of possible toxicity by
use of relatively small "test populations" of animals; to do this,
it is necessary to provide the test animals very high daily
dosages of the technical-chemical test substance. But the test
substance is, of course, mostly comprised of the active ingredient.
Impurities are often present in the test substance at very low
concentrations, and therefore a finding that tested animals showed
no chronic adverse effects may demonstrate very little about the
toxicity of the impurity even though it says a great deal about
the safety of the active ingredient. Higher dosages of the
impurity might demonstrate that it is indeed chronically toxic.
Moreover, any given sample of a technical-grade chemical,
including the lot used as the test substance in long-term feeding
studies, may happen to be free of impurities that would be found
in other lots of the same firm's technical-grade product. In
short, a "negative" long-term feeding study is much more persuasive
of the safety of the principal active ingredient than of the
innocuousness of the various possible impurities in the marketed
product.
Limitations on availability of test facilities, as well as
cost considerations, make impracticable the theoretically-desirable
requirement of complete testing of impurities. EPA's hazard
evaluations of impurities will sometimes have to be made in the
absence of hard data, and will have to be based in some cases on
the presence or absence of chemical characteristics known to be
indicators of hazard.
Assuming that, using modern hazard criteria and evaluation
methods, EPA has concluded that Firm A's technical-grade product
(with its certified impurity limits) is safe enough to warrant
registration or reregistration, how should EPA respond when a
potential competitor, Firm B, requests registration for its own
technical-grade product containing the same active ingredient?
As already noted, Firm A may argue that EPA should deny
registration until Firm B has thoroughly tested the new product.
There is some merit to this argument, if one assumes that Firm B's
product will contain more at Different impurities than Firm A's.
A new battery of tests just might demonstrate that Firm B's
product is more toxic, because of impurity differences.
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There are, however, counter-arguments, aside from the obvious
limiting effect on competition that required new testing would have.
First of all, Firm A's own product may contain impurities that were
not present in the test substance used for Firm A's tests; thus,
the logic of the alleged need for testing by Firm B would lead one
to conclude that Firm A must also perform a complete new set of
tests on his current product.
Second, it will be remembered that the safety decision
concerning Firm A's product was based on an EPA evaluation of the
likely hazard of all the impurities that Firm A indicated might
be present in its product as marketed. If EPA could be assured by
Firm B that its product's impurity levels would fall within the
limits already found safe with respect to Firm A's registered
product, the hazard decision would be easy to make. However, Firm
B cannot easily make this certification unless it is able to
ascertain what those approved limits are and whether its quality
control methods allow it to conform to those limits.
Under the present law, EPA cannot routinely disclose
information on the formulas of products. Such formula information
would be available to Firm B only in the event that Firm A, when
queried, is unable to demonstrate that the formula is in fact
"secret" or unable to show likely competitive harm in the event of
the formula's disclosure. Each such determination must be made
individually and can be appealed in court, where Firm A would
probably be entitled to a full evidentiary hearing. Because of
the startling advances in analytical methodology, most
commercially-useful formula information is probably not truly
"secret" anymore; but establishing this in court can be an arduous
process under present law.
Accordingly, if Congress desires to encourage competition in
the production of technical-grade pesticides, it should amend
FIFRA SlO(b) to make clear that, as a matter of law, EPA may
routinely disclose to the public the impurity limits which a firm
has stated may be present in commercial quantities of its
technical-grade product (or at least those that pertain to any
product no longer protected by a U.S. patent).
EPA believes that requiring disclosure of impurity content
would also serve the general public's interest in knowing which
chemicals reach the environment as a result of pesticide use.
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PART II
DATA VALIDITY
Before registering a pesticide, the Administrator is required under
§3(c)(5) of the Act to find, among other things, that the product will
not pose "unreasonable adverse effects" on man or the environment. In
order to apply this standard prior to registration or reregistration,
the Agency must determine:
how much data are required in order to make a §3(c)(5) finding;
to what depth should those data be reviewed prior to a
reregistration decision; and
in registering a product, is the Administrator making a
determination that the active ingredient is not posing an
unreasonable adverse effect, or that the individual
product — considering that the environmental burden of that
active ingredient is actually posed by the aggregate of all
products on the market — will pose an unreasonable adverse
effect. In other words, should the Agency consider the whole
hazard of the active ingredient, or consider the incremental
hazard of the product for which registration is pending.
All these considerations are important to the competitive situation
among pesticide registrants, and particularly to pesticide formulators
who do not submit their own data to support product registrations.
With full reregistration, and the accompanying data review, being
stretched years into the future, the Agency is at a critical juncture
in deciding how to treat applications for pesticides which utilize active
ingredients that are also found in products already on the market.
If, on the one hand, the Agency requires all the data on the active
ingredient, the formulator may find it impossible to comply, since some
of the data may never have been generated by any registrant. Meanwhile,
since the Act contemplates that registrants already on the market should
have time to gather missing data, they enjoy a distinct competitive
advantage. Even if a formulator can cite data submitted in the past,
it may be that EPA will be unable to validate the data for reregistration
purposes for three or more years. Because of the Agency workload, it
would not be reasonable to take the data in question out of its scheduled
review sequence; but neither is it desirable to inform an applicant
that his application cannot be processed for three years. From his
standpoint that would be unreasonable.
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On the other hand, the Agency could permit new registrations of
products utilizing active ingredients already on the market until
such time as all products containing the active ingredient are
scrutinized during the reregistration process. This option would
favor a competitive situation within the industry; further, it can
be argued that this option would not jeopardize environmental quality
in that it is the active ingredient as a whole from all sources of
its use which is or is not posing an unreasonable adverse effect, and
thus all products containing that ingredient should be evaluated at
the same time. The legality of the latter option has been questioned
by one Congressional Committee. The Agency is pursuing development of
an approach incorporating conditional registration. This consideration
is at the heart of the resolution of the so-called "double standard"
problem: should products registered under the 1947 Act have the advantage
of remaining on the market while their data base is being verified,
when identical or similar products are denied access to the market-
place until the 1972 FIFRA standards are fully met. Congressional
affirmation of the Agency position would help break the registration
logjam.
BACKGROUND
Why has data validation become an issue and what does it mean
in terms of competition?
The original reregistration program was based on the assumption
that data on file were accurate and reliable and had been reviewed
internally in a thorough manner according to still valid scientific
principles. The section 3 regulations thus made a distinction in
the data requirements for new registrations and reregistrations in
order to ease the administrative burden of reregistering 30,000+
pesticides (by October 1976). While a full range of data would be
necessary to support an application for a new registration, a much
more limited range of data would be sufficient to support an
application for reregistration. It was felt that given a product's
prior registration and its use history, the §3(c)(5) safety finding
would be adequately met until full compliance with the data
requirements could be achieved.
To ensure that reregistration would proceed in an orderly and
systematic manner, products were grouped into batches on the basis
of similarity of formulation and broad use patterns. At a scheduled
time an entire batch would be called in for reregistration. In
addition, active ingredients were assigned to one of five categories
based on a review of data to determine simply whether data existed to
meet the data requirements: Category I, all data requirements filled;
Category II, long-term data gaps; Category III, short-term data gaps;
Category IV, rebuttable presumption against registration (RPAR) (presume
not to reregister); Category V, unreviewed. Because of our assumption
that the data were generally reliable, the review did not actually
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examine the quality of the data on hand. A preliminary call-in schedule
for the batches and a list of active ingredients in the five categories
were published in the Federal Register on February 17, 1976.
However, as reregistration began, it became increasingly apparent
that the distinction between data requirements for new registrations
and reregistrations was creating serious inequities for producers of new
products. Registered products could be conditionally reregistered and
marketed pending the completion of long-term testing but identical new
products could not be registered without full submission of data, some
of which have not yet been developed. To alleviate this situation to
some extent, the Agency issued a General Statement of Policy - Data
Requirements for Registration in the Federal Register on May 27, 1976.
This notice provided for the conditional registration of new pesticide
products which were identical or substantially similar to currently
registered products which had been reviewed and found eligible for a
full or conditional reregistration (that is, products with no data gaps
or only long-term data gaps). Products not identical or substantially
similar to presently registered products still required the complete
submission of data prior to registration. Like full and conditional
reregistration, conditional new registration relied fundamentally on
the reliability of the data in Agency files.
However, early in 1976 new information came to light which
questioned the assumptions of the registration and reregistration
process. Senate hearings, discussions with. GAO and FDA concerning
the reliability of certain data submitted to FDA, and a subsequent
preliminary report of an independent toxicologist on a sample
of pesticide data raised serious doubts about 1) the adequacy
of the testing in EPA files, and 2) the completeness of the Agency's
own review and follow-up. Since then, in December 1976, the staff
of the Senate Subcommittee on Administrative Practice and Procedure
has issued a report stating that the Agency has, in fact, been
negligent in its public duty by not reviewing all data in depth
prior to reregistration.
In August 1976, reregistration was halted because the Agency
decided it was notu necessary to actually review the data in our
files. There are several important consequences of the Agency
commitment to this review.
. The May 27, 1976, policy statment is basically inoperable,
because all products are back in Category V (unreviewed). New
products utilizing chemicals already on the market are thus not
eligible for conditional registration, since the supporting data are
not reviewed.
. Reregistration will take far longer than was originally
anticipated. A recent zero-based program analysis indicates that,
at current resource levels, the task will take 10 years or more.
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. It is no longer reasonable to have different requirements for
registration and reregistration. Policies which would have worked
during a short transition period will not be equitable in a lengthy
transition. The removal of the distinction between registration and
reregistration requirements has also been recently required by a recent
Federal District Court injunction.
. Because of the large amounts of efficacy data which are on file,
considerable resources would have to be dedicated to complete validation
of those tests. EPA believes that except for public health and
disinfectant type products, the user community can best judge
a product's efficacy, based on local conditions and pest resistance.
Because of this and because a manufacturer would not find it in his best
interests to go to the expense of registering a product which did not work,
public resources can most effectively be put to use in hazard rather than
efficacy evaluation of products other than public health/disinfectant uses,
The length of time necessary for reregistration and the
complexities of handling individual registration actions resulting
from the trade secret disputes have led the Agency to the conclusion
that a new approach for regulating pesticides in this country is
in order. Specifically, Agency resources could best be utilized if
devoted to intensively reviewing technical products rather than
end-use products.
CURRENT PENDING DECISION
Currently registered products may remain registered and on
the market pending completion of data review and registration;
in this respect, they are not seriously affected by data validation
problems. Similar new products are in a much more difficult situation.
On the one hand, we could ask registrants of new products utilizing
old chemicals to provide all required data. On the other hand, we
could just request data corresponding to the difference (e.g., new
target pest, new site, new method of application, new formula, etc.)
between the new products and those already on the market. The choice
of one of these two general options (or some combination of each) will
have a significant effect on the structure of the pesticide chemical
industry.
IMPACTS OF TWO BASIC OPTIONS
Option 1: Require full data submission or data citation for every
application for registration.
For individual pesticide producers, this means that where
long-term data gaps exist new applicants will not be able
to register products similar or even identical to those which
current registrants are selling for several years. While
current registrants are able to continue to market such
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products for up to three years while the data gaps are filled,
there will be no data for a "new registrant" to cite and it
will not be impossible for him to complete required tests
should he be willing and able to do so.
For the industry as a whole, the requirement of full data
submission will, to a large extent, preserve the status quo.
Those now marketing registered products will continue to do
so. But few new competitors, in particular small formulators,
will be able to enter the market for at least three years, and
probably much longer than that.
Registrations for minor uses will be impeded.
The total environmental burden of particular pesticide
chemicals may remain substantially the same until assessments
of their hazards can be completed. However, current registrants
are limited mainly by the elasticity of demand, and their own
capital formation abilities, from substantially increasing
production and sales. Thus, the environmental burden of a
particular pesticide may be more directly affected by marketing
strategies than regulatory controls.
On the other hand, the approach provides the greatest assurance
that each product will be assessed for safety thoroughly before
entering market.
Option 2: Generally require full data for new chemicals. However, for old
chemicals, require only the data pertinent to the incremental differences
between the new product registration and those already on the market to
achieve conditional registrations. Products thus conditionally registared
would have to meet the full requirements of the amended FIFRA when the
active ingredient as a whole is evaluated during reregistration.
. "Double standard" would be removed; all products containing
the same active ingredient would be treated fairly.
Competition would thus be served in that a barrier would be
removed for registrants of "me too" products and other new
products formulated with old active ingredients.
The interests of the environment can be served in that
a) the environmental burden of the chemical may not, it
can be argued, be appreciably increased by encouraging
competition for the existing market or by legalizing minor
uses; and b) the decision as to the environmental safety or
being posed can most efficiently and systematically be made
on the chemical as a whole.
The legality of such a conditional registration scheme
may be open to question. FIFRA does not specifically
provide for conditional registrations; its silence on
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this subject could be interpreted to mean that the Agency
should not proceed in this direction.
AGENCY POSITION
The Agency believes it is in the best public interest to devote
its currently scarce resources to assessing the effects of pesticide
chemicals from a generic standpoint rather than laboriously processing
thousands of individual product actions. This approach, would
. focus attention on the broad risks and benefits of any
pesticide, encompassing all uses and all formulations;
. limit the primary data compensation arena to registrants
of technical, rather than end-use, products;
. provide a simple registration mechanism for formulators
who utilize an already-registered technical material,
in which only data pertinent to the individual product
which has not already been submitted to support the technical
registration would be required, which would thereby
. free EPA reviewers from complex paper work and record
keeping so that resources could be best utilized in
assessing the larger risk and benefits issues.
Regardless of whether the Agency maintains the current
product-by-product approach, or adopts the generic chemical approach,
there will be a transition period of many years before all data are
validated and reregistration is accomplished. What to do with new
applications during this time is crucial to the competitive situation
in the industry. Generally speaking, the Agency subscribes to the
philosophy articulated in the second option above, i.e., that it is
the incremental hazard which should be assessed during the transition
period, and that registrants of like products generally should be
treated alike. Our overriding concern will be to answer several
fundamental questions:
. will the product pose a risk additional to that posed
by products already on the market?
. if so, are data available on the additional hazard?
. has an RPAR or intent to cancel notice been issued
on the active ingredient?
. is there a known inert or contaminant problem?
. will public health or the environment benefit by
denying the product access to the market place, or
would denial simply affect the structure of the industry?
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SPECIFIC TREATMENT OF_ CLASSES OF APPLICATIONS
Application For New Chemical
. Generally, all data required by Section 3 must be present.
— For exceptional circumstances on a case by case basis —
in reliance on the chemical structure of the pesticide,
the exposure expected from use of the pesticide, and
short term indicator tests — a conditional new registration
may be granted where one long term study has been completed
with negative results and the second is underway.
Application For Old Chemical, Old Use Pattern
("ME-TOO")
. Register product if all requisite data are submitted or cited
(with appropriate permission or offer to pay reasonable
compensation) for active ingredients not subject to an
RPAR or intent to cancel notice.
. Provide a conditional registration when long-term data are
missing, so long as registrant provides or cites short-term
data (and offers to pay reasonable compensation if applicable)
supporting registration of product already on the market
which is not subject to an RPAR or intent-to-cancel notice.
Full data requirements will have to be met by all like products
at the time of reregistration.
. Conditional registration may be granted if active ingredient
is an RPAR candidate, since the risk has not been validated
and in any event is not greater than that already being posed
by like products already on the market.
Application For Old Chemical, New Use Pattern
. Registration will be granted if all required data are
submitted or cited (along with permission or offer to pay
where applicable).
. Conditional registration will be granted if
— long term data are missing but all short term data
are submitted or cited;
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. data supporting the efficacy and safety of the new
use, i.e., the incremental difference between the
already registered uses and the proposed new use,
can support a §3(c)(5) finding;
if a food crop is added, pertinent data required to support
a tolerance under the Federal Food, Drug, and Cosmetic
Act must be provided if a tolerance is not already
established; and
the active ingredient is not subject of an RPAR
notice or notice of intent to cancel.
. Products utilizing active ingredients which are in the RPAR
process will be eligible for conditional registration but
the burden of justification for the §3(c)(5) finding for
the use will bear more heavily on the applicant.
The Agency believes that this approach would be conducive to
eliminating many of the current regulatory and statutory roadblocks
to registrations as formulators and other new registrants of products
utilizing chemicals already in use could enter the market on the
same footing as old registrants. This would eliminate the "double
standard" by equalizing registration requirements for products
containing the same active ingredient.
POTENTIAL CONGRESSIONAL ACTION
The Congress could either sanction or disagree with the Agency
position through a specific statement in the law or the Committee
Report regarding Congressional intent on conditional registrations.
The Agency would welcome discussion and instruction in this area.
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PART III
OTHER IMPACTS
The primary impacts on competition of FIFRA and its administration
by EPA were dealt with in the previous two sections. Those were primarly
negative impacts, and ways to alleviate those negative effects were
described. This section describes five other areas where effects
can be identified — on new product research and development, on inte-
grated pest management, on application technology, on child protective
packaging, and on users and applicators.
NEW PRODUCT R & D
How has FIFRA affected new product research and development? A
look at history shows that most new product research and development
has been done by larger firms. Therefore, although small businesses
are not presently a major factor in the innovation of new chemicals,
it does not appear that FIFRA has contributed significantly to this
situation. 3/
Although some firms have left the pesticide research and
development field in recent years, about an equal number have entered
the field. High profits and profit potential have kept the industry
interested. 4/ There has been some trend to consolidation of business
in the larger firms. Since few small firms have ever been in the field,
however, this trend is making very little change in the situation.
Chemical research and development, synthesis, screening, production, and
marketing have always required some substantial size for success.
As suggested by studies conducted by outside organizations for
EPA and the investment community, 5/ as well as by EPA's own contacts
with the regulated industry, the pesticides industry expects that
opportunities for innovators to be fewer in number than in the past,
but that a big success will be relatively more spectacular. In
addition, the industry will continue to build on its existing research
and development base with changes in use patterns and formulations of
previously-registered products, and new chemicals within already
successful classes of compounds.
One segment of the industry, however, is adversely affected by
increasingly stringent regulatory requirements — those firms currently
or potentially pursuing products with inherent limitations on market
size. This applies to pesticides for minor crops, to biological controls
(predators and pathogens), and to such chemical agents as insect growth
regulators, pheremones, attractants, repellants, antimetabolites and
antifeeding agents. Many of these products are attractive from an
environmental point of view because of their low volume of use,
specificity of action to a small number of species, low toxicity to
humans and other non-target organisms, and lack of persistence. 6/.
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But to determine these desirable characteristics requires test lag costs
of a magnitude similar to products with much larger production and
profit potential. The Agency is able to waive all or part of the $10,000
tolerance petition fee if the applicant can show financial hardship
or if waiving of the fee would be in the public interest. Considering
product development costs running into the millions of dollars, it
cannot be expected that waiving tolerance fees would be much of an
inducement to potential developers of such products.
INTEGRATED PEST MANAGEMENT
Integrated Pest Management (IPM) is an approach to pest
management that utilizes all suitable techniques and methods in
as compatible a manner as possible, to maintain pest population
at levels below those causing unacceptable economic or aesthetic
injury. It usually employs a means of scouting or monitoring; use
of "action thresholds" to trigger treatment; consideration of the
dynamic interactions among pests, weather, parasites or predators,
and costs of treatment; consideration of a series of strategies; and
selection of the most appropriate tools, with high priority given
to long-term human health and environmental concerns.
This is an area where opportunity exists for the entry, expansion
and prospering of small businesses. The primary responsibility for
the development and promotion of IPM lies with USDA, but the Agency's
actions could encourage or discourage the growth of IPM. Therefore,
it is worthwhile to examine the consequences for small businesses
and competition from a growth in IPM.
Characteristics of the IPM Industry
IPM is a knowledge industry. It operates by collecting and
analyzing information about crops, pests and their interactions, and
providing guidance for actions by the growers or managers of agricul-
tural crops, structures, parks, lawns, rights-of-way, etc. Practi-
tioners come by their knowledge via long experience in the field,
by formal training (associate degree to Ph.D.), informal in-house
training courses or a combination of these.
There is a high degree of decentralization of the delivery
of services, since advice, to be useful, must be tailored to the
particular circumstances prevailing at the growers' sites. However,
some demonstration projects have utilized centralized data analysis,
in order to incorporate weather projections and other data more
amenable to a regional approach (eg., the Purdue system for alfalfa,
the Michigan State University system for apples, and a model for
cotton at the University of California.)
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IPM is currently fairly labor intensive because of the reliance
on scouts in the fields. Some technology is evolving to reduce this
reliance, such as satellite or airplane surveillance for presence of
plant pathogens or weed infestations, but there are limits on this
development — there will probably always be a need for scouts in the
field, not only for the detailed information they can produce, but
to act as an effective human interface between the provider of the
information and the grower users. Likewise, there are opportunities
for more efficient means of information collection and processing,
but IPM represents a small move away from the current trend in capital
intensive farming.
In considering the potential acceptability of IPM, it should
be noted that the infrastructure and traditions exist in some areas
(eg., in California, where private farm advisors have become estab-
lished, consistent with the high degree of regulation of agricul-
tural activities), but IPM services delivered by private parties
would be seen as a new idea in other areas.
There is some set-up cost involved in developing and testing
out IPM techniques. This work has primarily been carried out by univer-
sity and USDA sponsored researchers, but some small firms have been
successful in developing their own techniques and adapting those
developed with public funds. In addition, some pesticide manu-
facturers have developed parts of IPM programs as vehicles for
the commercialization of their products (such as the information
provided by the Zoecon Corporation for effective use of their
insect lures.)
These characteristics create an environment particularly
suited to small, localized firms, providing services via high-labor
and low-capital mechanisms, and dealing in information and innovation.
Experience to Date
Government sponsored or run programs have predominated,
reflecting the unique capabilities of the land grant system for
developing and proving out new ideas of use to the farmer. Among
the scouting and pest management projects examined by APHIS and
EPA, the program participants experienced a decline in pesticide
use and production costs, and increases in yield and profits, and
must therefore be deemed successes. 7/
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Studies conducted for EPA's Office of Research and Development
on farmers' considerations of risk have indicated the preferability
of information, as opposed to insurance or other mechanisms, as a
means for reducing growers' uncertainties. J3/ In this context,
pest infestation information and other components of IPM programs
can be cost effective means for maintaining profits and productivity,
while reducing environmental exposure to pesticides.
Results from a Ph.D dissertation from the University of
California suggest that the spread of IPM can best be promoted by
focusing support on the providers of information (as opposed to the
users of the information.) 9f Governmental policies to encourage
an expanded supply of information services might include price
subsides to the information providers, training of potential IPM
practitioners, or cooperative development of pest management
techniques for particular crop/pest situations. Although the limited
crop and geographical bounds on that study restrict the ability to
generalize from it, it is worth noting, however, that this finding
is consistent with the long-established practice of USDA providing
area specialists to deal with particular crop production problems.
Over the past few years, numerous pest control advisors or
farm management firms have achieved recognized success. 1Q/
Success is measured not only in their own financial well-being,
but in their ability to improve their clients' profit situation.
EPA Mandate
Conduct of the pesticides registration scheme requires EPA to
understand IPM well enough to make intelligent regulatory decisions.
In addition, Section 20(a) directs EPA to conduct a research program,
giving "priority to research to develop biologically integrated
alternatives to pest control." Finally, Sec. 4(c) directs EPA
to provide information on IPM to those pesticide users requesting
it.
EPA Actions
EPA is evolving a statement on its stance and programs on
IPM, with particular attention to the research needs and where
the research should be conducted. EPA is looking into the develop-
ment of IPM in urban settings. EPA is also providing materials
potentially useful to persons interested in applying IPM to their
pest control problems to USDA,for distribution through the Cooperative
State Extension Service. IPM will be considered among alternative
pest control practices in RPAR, cancellation and suspension decisions.
Through its research, information distribution and regulatory actions,
EPA intends to help create a climate that is conducive to the further
development of a healthy vigorous system of private providers of IPM
services.
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AFPLICATION TECHNOLOGY
The Agency feels that its actions may also have an effect on
the portion of the pesticide industry which is concerned with
application technology. EPA regulations should stimulate changes
in methods of application, since more efficient application can
reduce the amount, and therefore the risks, of pesticides applied.
This is not a big push, but the pressure is there. The industry
seems aware of the need to refine application techniques, and users,
of course, are interested.
As an illustration of the potential savings involved, it has
been estimated that for a typical application of an agricultural
foliar insecticide, 40% of the quantity applied winds up away from
the target area through drift, misapplication, volatilization,
leaching and surface transport. Another 15%, although falling in
the target area, does not land on the target crop. Of the remaining
45%, only 4 % is typically applied near the target insect, and the
bulk of that makes no contact with the insect. Thus, less than 1% of
the amount applied is absorbed by the insect through contact, inhala-
tion and ingestion. The details are different for different crops
and pesticide types, but sizable opportunities exist for reducing
the quantity of pesticides applied without sacrificing any benefits
through the reduction of drift, improvement of placement within the
target area and attracting target pests to pesticide deposits, ll/
Innovations in recent years include ultra-low volume (ULV), micro-
encapsulation and time-release formulations and their attendant
application equipment; chemicals and devices for improved baits,
lures and traps; and other improvements stemming from an increased
understanding of the aeronautical and physical principles underlying
pesticide applications. 12/
Any market created for innovations in application methods need
not be restricted to large companies. Small firms are as viable
a source for new approaches to research, development and production
of application equipment as are larger firms.
CHILD PROTECTIVE PACKAGING
The Agency is planning to publish proposed child protective
packaging regulations early in 1977. Use of child protective
packaging will enable some products to be used in the home that
otherwise would not have been available. These are products with
an inherent toxicity making them candidates for restricted use.
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A recent study showed that the total annualized incremental cost of
child protective packaging will be less than $6 million, which is less
than 8 cents per container subject to the regulations. This cost should
not be a serious problem for manufacturers or formulators, particularly
since it means that these products can be kept in the home market. 13/
Developers and vendors of child protective packaging and
closures include a variety of large and small firms. The regulations
will expand the market for special packaging and both large and
small companies will be stimulated to compete on the basis of inno-
vative designs, price, and performance.
USERS AND APPLICATORS
Certification and training of applicators, as a condition on
the use of restricted use pesticides, is not expected to deny
agricultural users the benefits of such products, nor to make them
more dependent on commercial applicators than in the past. The
certification and training program has ample provision to allow
such agricultural users to qualify as private applicators.
Section 3(c)(5) provides that the Administrator "shall not make
any lack of essentiality a criterion for denying registration of any
pesticide." This allows multiple products to be introduced to compete
for the same use patterns. When considering products for cancellation
or suspension, EPA weighs the costs and benefits of the products' usess
particularly the effects on productivity in the affected agricultural
sector. A cancellation decision typically has different impacts on
agricultural users in different parts of the country, and some minor
uses may be adversely affected. Where cancellation occurred, the Agency's
judgment was, however, that these disadvantages were outweighed by
the advantages of the cancellation. 14/
Some products intended for home use will be available only as
restricted use products, although the exact numbers depend on re-
registration decisions between now and October 1977. This probably
will cause some increased reliance on professional applicators in
these instances, creating some benefit to that sector of the industry.
Contacts with the professional applicator industry show optimism
that classification of pesticides into restricted and general use
will be good for business.
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APPENDIX
STUDIES
Several studies done in recent months have given the Agency
a more accurate idea of the side effects of our actions and some
suggestions for how the negative effects might be lessened.
ECONOMIC IMPACT OF REGISTRATION DATA REQUIREMENTS
EPA is in the process of revising the Guidelines for Registering
Pesticides, proposed in June 1975. Concurrent with the development
of the Guidelines is an assessment of the cost impacts of the testing
requirements. EPA estimates on the Guidelines as proposed in 1975
amounted to an incremental one-time cost of $68 million. 15/
Industry's own estimates have been much higher. A recurring problem
has been to identify what increased costs are due to data requirements
made progressively more stringent in the 1960Ts and 1970's and
which are attributable to the Guidelines themselves. As the
Guidelines stood in mid-1976, the incremental one-time costs were
roughly estimated at $97 million or $29 million annualized over a
5 year period. As the Guidelines reach the point of re-proposal in
1977, the costs will be summed up and reported.
INCENTIVES AND DISCENTIVES
A study has recently been completed on incentives in the
pesticide industry. A working conference took place in October 1976
and EPA received the final report in January 1977. 16/ The study con-
cluded that although action by EPA, USDA, and the industry cannot
be expected to bring about a major change in pest control innovation,
EPA and others could take some incentive measures to improve the
likelihood of pest control research and development. Steps recommended
for implementation as soon as possible included specific actions to:
* Decrease regulatory hindrances to research and development
* Reduce the risk of product development by industry
* Increase the availability of minor use pesticides
* Lengthen patent life
* Advertise safety on product labels
* Increase use of integrated pest management
* Increase Information and training for pesticide users.
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A STUDY OF SMALL BUSINESSES
A study was conducted in 1975 for the Experimental Technology
Incentives Program and the Small Business Administration on "The
Impact on Small Business Concerns of Government Regulations that
Force Technological Change." IT/ Although FIFRA and the FFDCA are
laws which bring about technological change, the effects of these
statutes were not examined directly in this study. The statutes
considered were of the "minimal standard" or "allocation/distribution"
type, and not "permission/prohibition" variety which characterizes
FIFEA and FFDCA. In spite of the lack of direct applicability of
the study to the specifics of the pesticide regulatory situation,
some of the findings are worthy of mention:
Among the firms studied, the costs of compliance (per unit of
output) with the statutes under consideration rose as size of the
firm decreased (reflecting economics of scale,) except for the very
smallest firms. This is related to exceptions that are made for
smaller firms (in the form of extension, modifications and exemptions) ,
and to flexibility of enforcement. In the opinion of the contractor,
flexible enforcement is more common among the older, more established
regulatory bodies, but even the "younger, brasher outfits like EPA"
have "confronted and accepted the impossibility of total enforcement."
Smaller firms face higher interest changes, less advantageous
terms of payment, and less availability of money to finance spending
required by regulatory demands than larger firms. There is a tendency
to be able to pass through either nearly all or nearly nothing of the
costs incurred. The further down the production - distribution chain
a company is located, the less likelihood of cost pass-through.
The small firms studied also had non-financial problems with
compliance which seem to be shared to some degree with pesticide
registrants — time and paperwork burdens, confusion over regulatory
requirements, difficulties in dealing with agency personnel and in
the formulation of legislation and regulations.
The study notes the benefits partly off-setting the costs of
regulation, citing "a wide range of industries, including many small
businesses, (which) receive indirect benefits through sales of
materials, equipment, supplies, and services to manufacturers of
pollution control equipment and the like."
The report recommends several kinds of action to the Small
Business Administration, including intervention and advocacy in the
federal legislative and regulatory process; financial assistance via
Regulatory Economic Injury Assistance Loans and the like; technical
assistance of several types; and programs to foster cooperative
action among similarly-affected small businesses.
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NEW, INNOVATIVE PESTICIDES
A study on "New, Innovative Pesticides: An Evaluation of
Incentives and Disincentives of Commercial Development by Industry,"
is being conducted for OPP. Tentative findings include the expectation
that, over the next ten years, there will be a steady flow of products
from the chemical industry for pesticide uses, but that .innovative
products (such as bacterial, pheromonal and viral pesticides) will
not be registered and available in sufficient quantities to dramatically
substitute for conventional chemical products, although some are expected
to complement the use of chemicals in selected markets. These conclusions
are based both on analysis of economic factors and on the views of
pesticide users.
By viewing profit as incentive for product development by
private industry and risk as disincentive, two limiting factors on
the development of innovative products are their generally narrow
spectrum (limiting the ultimate market size) and the lack of
proprietary protection. Therefore, the government should consider
the following changes to encourage develoment of innovative products.
* Means to give some measure of proprietary protection to firms
seeking to market naturally-occurring agents.
* Means to reduce risk to the developers, possibly through support
for R & D costs and modification of performance liability constraints.
These are preliminary conclusions, but it is worthwhile to
note that the measures seen as helpful in encouraging development of
innovative products are to some degree in conflict with the promotion
of an atmosphere of competition.
CHILD PROTECTIVE PACKAGING
Another recent study looked at the cost of the child protective
packaging which will be required later in 1977. 18/ It showed that
the total annualized cost will be less than $6 million and less than
8 cents for each container subject to the regulations. The effects
of the special packaging regulations were discussed further in the text.
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Eootnotes
1. Memorandum, March 5, 1976, to Deputy Assistant Administrator
for Pesticide Programs from EPA General Counsel.
2. The "data validation" problems will not be solved by this legis-
lative action.
3. Incentives for Research and Development in Pest Control,
Volume II, Appendices, 1976, EPA-540/9-77-009, pp. 1-12.
4. The Pesticide Industry — An Overview, William Blair and
Company, July 7, 1975, p. 15.
5. Ibid., and Incentives for Research and Development in
Pest Control,op. cit.
6. Contemporary Pest Control Practices and Prospects , Vol.1
of Pest Control: An Assessment of Present and Alternative
Technologies, National Academy of Sciences, 1975, pp. 340-386.
7. An Evaluation of the Scouting Activities of Pest Management
Programs, 1974, EPA-540/9-75-014, pp. 34-38.
8. Crop Insurance and Information Services to Control the Use
of Pesticides, draft final report, 1974.
9. The Diffusion of Pest Management Information Technology,
Wayne Richard Willey, Ph.D. dissertation in economics,
University of California, Berkeley, 1973.
10. Contemporary Pest Control Practices and Prospects , op. cit. ,
p. 397, and volume III, Cotton Pest Control.
11. Production, Distribution, Use and Environmental Impact Potential
of Selected Pesticides, 1974, EPA 540/1-74-001, pp. 106-108.
12. Incentives for Pesearch and Development in Pest Control.Volume II,
op. cit., pp. 8-12, and Contemporary Pest Control Practices and
Prospects, op. cit., 365-380. ""'
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13. Economic Impact of Child-Proof Packaging Regulations on the Cost
Of Pesticide Containers in the United States, draft screening
study, Office of Pesticide Programs, U.S. EPA, 1977.
14. DDT: A Review of Scientific and Economic Aspects of the Decision
to Ban Its Use as a Pesticide, prepared for the Coifeaittee on
Appropriations, U.S. House of Itepresentatives, by the U.S. EPA,
July 1975.
15. Incremental Cost lapacts of the 1972 FIFRA, 1976, EPA-540/9-76-002,
p. 41.
16. Incentives for Research and Development in Pest ControlT volumes
I and II, op. cit.
17. September 1975, CAI-8CO-F-2R.
18. Economic Impact of Child-Proof Packaging P-egulaticns on the
Cost of Pesticide Containers in the U.S., op. cit.
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