EPA-561/I-77-001
NOVEMBER 1977
ANALYSIS OF OPTIONS FOR
DEFINITION OF SMALL BUSINESS,
AND ESTIMATED COST OF THE
INITIAL SECTION 8(0)
REPORTING REQUIREMENTS
U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF PLANNING AND MANAGEMENT
WASHINGTON, D. C. 20460
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This report is available in limited quantities
through the U.S. Environmental Protection Agency,
Industry Assistance Office (TS-788), 401 M Street,
S.W., Washington, D.C. 20460 (202) 755-0535
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ANALYSIS OF OPTIONS FOR DEFINITION
OF SMALL BUSINESS AND ESTIMATED
COST OF THE INITIAL SECTION 8(a)
REPORTING REQUIREMENTS
Report to
The
United States
Environmental Protection Agency
Office of Planning and Management
Washington, D.C.
November 1977
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This report was furnished to the Environmental Protection Agency by
Arthur D. Little, Inc., Cambridge, Massachusetts 02140, in fulfillment of
Contract No. 68-01-4381. The contents of this report are reproduced herein
as received from Arthur D. Little, Inc. The opinions, findings, and con-
clusions expressed are those of the author and not necessarily those of the
Environmental Protection Agency. Mention of company or product names
is not to be considered as an endorsement by the Environmental Protection
Agency.
ill
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TABLE OF CONTENTS
Page
List of Tables vii
List of Figures xi
I. SUMMARY 1
A. INTRODUCTION 1
B. CHEMICAL INDUSTRY CHARACTERIZATION 1
C. ESTIMATED COST OF INITIAL SECTION 8(a)
REPORTING REQUIREMENTS 2
D. SMALL BUSINESS DEFINITION 2
II. INTRODUCTION 7
A. BACKGROUND 7
B. PURPOSE AND SCOPE 7
C. APPROACH 8
III. CHARACTERIZATION OF THE CHEMICAL INDUSTRY 9
A. INTRODUCTION 9
B. SALES 9
C. EMPLOYMENT 12
D. NUMBER OF FIRMS 18
E. PROFITABILITY 18
F. NUMBER OF CHEMICALS 18
G. CONCENTRATION 20
H. ESTIMATED NUMBER OF PROCESSING/MANUFACTURING FIRMS 20
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TABLE OF CONTENTS (Continued) tt
Page
IV. INVENTORY COST AND SMALL BUSINESS DEFINITION FOR
CHEMICAL FIRMS 25
A. INTRODUCTION 25
B. ANALYSIS OF INDIVIDUAL CHEMICAL REPORTING COSTS 25
C. ESTIMATED COST OF INITIAL INVENTORY REPORTING
FOR CHEMICAL FIRMS 33
V. OPTIONS FOR SMALL BUSINESS DEFINITION 35
A. INTRODUCTION 35
B. POSSIBLE PARAMETERS FOR DEFINITION 35
C. POSSIBLE LEVELS FOR DEFINITION OF SMALL BUSINESS 37
VI. RECOMMENDED OPTIONS FOR SMALL BUSINESS DEFINITION 41
A. PARAMETERS FOR DEFINITION 41
B. ESTIMATED COST OF INVENTORY REPORTING FOR SELECTED
SMALL BUSINESS DEFINITIONS 41
C. REASONABLENESS OF THE INVENTORY REPORTING BURDEN 44
VII. INVENTORY COST AND SMALL BUSINESS DEFINITION FOR
NONCHEMICAL FIRMS WITH SOME CHEMICAL PRODUCTION 57
A. ESTIMATED NUMBER OF NONCHEMICAL FIRMS PRODUCING
CHEMICALS 57
B. ESTIMATED COST OF INITIAL INVENTORY REPORTING FOR
NONCHEMICAL FIRMS 63
C. SMALL BUSINESS DEFINITION FOR NONCHEMICAL FIRMS 66
VIII. LIMITS OF THE ANALYSIS 67
A. APPROACHES TO INVENTORY COST ESTIMATE 67
B. LIMITATIONS TO COST-PER-CHEMICAL ANALYSIS 67
C. LIMITATIONS TO DEFINITION OF SMALL BUSINESS 68
vi
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LIST OF TABLES
Table No. Page
1-1 Comparison of Chemical Industry Coverage and Percent of Total
Inventory Cost at Various Definitional Levels for Small Business 4
MM The Fifty Largest U.S. Chemical Producers - 1976 10
111-2 Statistics on U.S. Chemical Firms Grouped by Annual Sales of
Firm - 1976 13
III-3 Average Employees, Sales, and Sales per Employee for U.S. Chemical
Firms Grouped by Annual Sales of Firm 1976 14
III-4 Cumulative Statistics on U.S. Chemical Firms Grouped by Annual
Sales of Firm - 1976 15
111-5 U.S. Chemical Industry -1976
Number of Firms, Annual Sales, and Employment by Industry Sector 16
III-6 Cumulative Statistics on U.S. Chemical Firms by Employment Size
of Firm - 1976 17
III-7 Income of U.S. Chemical Industry 1964-1977 19
III-8 Chemical Industry Concentration Ratios (1972) 21
III-9 Estimated Number of Chemical Processing Firms by Chemical
Industry Sector - 1976 22
111-10 Number of Chemical Processing and Chemical Manufacturing Firms
by Size of Firm Based on Annual Sales 23
111-11 U.S. Chemical Manufacturing Firms by Size Based on Annual Sales
of Firm - 1976 24
IV-1 Estimated Fixed and Variable Components of Inventory Reporting
Cost 26
X
IV-2 Estimated Variable Cost per Chemical per Establishment for
Reporting Chemical Identity Only 27
IV-3 Estimated Inventory Cost per Establishment and per Chemical for
Various Numbers of Chemicals to be Reported 31
IV-4 Estimated Inventory Cost Chemical Basis 34
Vll
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LIST OF TABLES (Continued)
Table No. Page
V-1 U.S. Chemical Producing Firms - By Annual Sales of Firm - 1976 40
VI-1 Average Sales per Employee by Industry Sector 42
VI-2 Average Sales per Employee by Size of Firm Based on Annual Sales 43
VI-3 Estimated Cost per Chemical of Initial Inventory Reporting 43
VI-4 Estimated Number of Manufacturing Firms, Establishments and
Chemical Reports by Size of Firm (Based on Annual Sales 45
VI-5 Average Number of Isolated Chemicals per Firm 46
VI-6 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $0.1 million 47
VI-7 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $1.0 Million 48
VI-8 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $2.5 Million 49
VI-9 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $5.0 Million 50
VI-10 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $10.0 Million 51
VI-11 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $30.0 Million 52
VI-12 Estimated Cost of Inventory Reporting, Small Manufacturer Defined
as Annual Sales of Less than $100.0 Million 53
VI-13 Inventory Reporting Costs as a Percentage of After-Tax Profit for
Representative Firms 54
VIM Number of Firms, Annual Sales and Employment for Nonchemical
Firms With Some Chemical Operations 58
VII-2 Number of Nonchemical Companies With Some Chemical Operations
by Annual Value of Sales 59
Vlll
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LIST OF TABLES (Continued)
Table No. Page
VI1-3 Number of Processing and Manufacturing Firms for Nonchemical Firms
With Some Chemical Operations 63
VIM Estimated Number of Chemicals Reported by Nonchemical Firms With
Some Chemical Operations 64
VI1-5 Cost of Inventory Reporting for Nonchemical Firms With Some
Chemical Operations 65
VI1-6 Cost of Inventory Reporting for Nonchemical Firms With Some
Chemical Operations 65
IX
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I. SUMMARY
A. INTRODUCTION
The Toxic Substances Control Act authorizes the Environmental Protection Agency to
require testing and/or use restrictions on certain chemical substances. As a first step in
implementing the Act, EPA is required to compile a list (inventory) of chemicals manufactured,
imported or processed in the United States. Manufacturers or importers will be required to
submit a premanufacturing notice to the EPA 90 days prior to manufacture or importation of
any chemical substance not on the list.
The Act provides authority to EPA to collect information for administration of the Act, but
also directs the Agency to exempt small businesses from certain reporting requirements. This
report analyzes the options for a one-time definition of small business for the EPA's iriitial
Section 8(a) reporting requirements and also provides an estimate of the initial reporting cost.1
As background, the report also includes a characterization of the chemical industry in terms of
sales, employment, number of firms and other parameters.
Options for the small business definition were selected on the basis of ease of use and
relationship to a firm's ability to bear the burden of the reporting requirements. The initial
reporting cost estimate was prepared by working up from a cost per chemical estimate to an
aggregated total for the industry.
B. CHEMICAL INDUSTRY CHARACTERIZATION
In 1976, the total value of sales of the U.S. chemical industry exceeded $100 billion and
employment was more than 1.1 million. As is typical of a concentrated industry, a relatively small
number of large firms account for the majority of sales and employment.
The chemical industry produces a wide variety of products for many ultimate uses. Most of
the larger chemical firms have operations in several sectors of the chemical industry, while
smaller, more flexible firms tend to seek market niches not served by the larger firms.
Over the last decade, the aftertax profitability of the chemical industry has generally been 6
percent to 8 percent of sales. However, profitability varies significantly between companies and
between sectors of the chemical industry. Generally, the smaller firms are somewhat less profit-
able than the larger firms.
According to the 1972 Census of Manufactures, the value of chemical shipments from
establishments outside the chemical industry (SICs 28 and 2911) accounts for less than 1 percent
of total chemical value of shipments. Approximately 2,125 firms with total annual sales of $453
billion and total employment of 4.1 million were identified as nonchemical firms with some
chemical operations. It is estimated that 80 percent of these firms are chemical processors and 20
percent are chemical manufacturers. The 426 firms producing chemicals are estimated to operate
about 1,000 chemical producing establishments and produce a total of about 5,000 chemicals.
1. The Initial Section 8(a) reporting requirements require reporting of Identities of chemical substances necessary for
the compilation of the list. Small businesses are not exempt from this reporting. They also require reporting of other
Information, such as production volume by site, which Is not necessary for the compilation of the list and from which
small businesses are exempt.
1
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C. ESTIMATED COST OF INITIAL SECTION 8(a)
REPORTING REQUIREMENTS
Preparing an estimate of the initial Section 8(a), "inventory" reporting cost is a difficult
task because only limited information is available on the number of chemicals which will be
reported and on the actual costs which will be incurred in complying with the reporting require-
ments. The analysis is also limited by the questionable accuracy of industry statistics in some
areas (such as sales and employment), and the total lack of statistics in other areas (such as the
number of chemical processors as opposed to manufacturers).
Having dealt with these limits and uncertainties to the extent possible within the time,
scope and budget limitations of the study, an estimate of the total inventory reporting cost was
prepared. The approach used in preparing this inventory cost was to combine an estimated cost
per chemical with estimates of the number of chemicals reported by firms in various size
categories and estimates of the number of firms in each size category.
Final estimates of the inventory cost are presented as point estimates for each of seven small
business definition options. The estimated inventory costs range from about $10 million if a small
business is defined as a firm with annual sales below $100 million, to about $14 million if a small
business is defined as a firm with annual sales below $100 thousand.
D. SMALL BUSINESS DEFINITION
On the basis of the analysis performed and suggestions received from both industry and
government, it is recommended that the one-time inventory definition of small business be based
on a corporate sales level alone or in combination with other parameters. Although the use of
corporate sales as a defining criterion has a number of shortcomings, a sales figure has the great
advantage of being generally available to those who must decide if the definition is satisfied. The
use of other defining criteria would often require a calculation, based on a combination of
parameters, which could involve substantial costs and lead to questions of interpretation.
The ideal definition would take into account the number of chemicals produced by a firm
and use this to prepare an estimated cost of reporting for the initial inventory. This figure would
then be compared with the sales volume (or, better, profit) of the individual firm. However, this
approach would be complex, expensive and impossible to oversee. By choosing a simple sales
criteria and establishing it at a carefully selected level, the determination of which companies
meet the definition is simple and easy to administer, and an unreasonable burden on small
business is avoided.
Having analyzed seven possible levels for the sales definition option, five of these are
recommended for further consideration by the EPA. These sales values are:
$ 1 million in latest fiscal2 year corporate sales,
$ 2.5 million in latest fiscal year corporate sales,
$ 5 million in latest fiscal year corporate sales,
$10 million in latest fiscal year corporate sales, and
$30 million in latest fiscal year corporate sales.
2. Company fiscal year; may be the same as calendar year.
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In noting the increasing cost of reporting, and comparing this to the relatively slow improvement
in coverage of chemicals produced (measured in terms of sales), this range of $1 to 30 million
seems to encompass the inflection point after which the cost of reporting additional information
begins increasing more rapidly than does the chemical coverage.
. The relative levels of chemical firm, establishment, sales and employment coverage
achieved at each of seven levels of a sales definition are contrasted with the relative cost of each
definition in Table 1-1. For the purpose of this report, chemical sales are probably the best single
measure of coverage. As indicated in the table, and graphically illustrated in Figure 1-1, the rate
of increase in percent chemical sales coverage is slower than the rate of increase in cost for
definition levels smaller than about $30 million. Below $5 million in sales, the inventory cost
increases about four times as fast as the coverage level.
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TABLE 1-1
COMPARISON OF CHEMICAL INDUSTRY COVERAGE AND
PERCENT OF TOTAL INVENTORY COST AT VARIOUS DEFINITIONAL LEVELS FOR
SMALL BUSINESS
Definition
Sales Level
Less Than
(million $)
0.1
1.0
2.5
5.0
10.0
30.0
100.0
Chemical1
Firm Coverage
(% firms)
97
56
34
22
15
9
6
cstaJHisnment
Coverage
\% nvMisniMiioi
98
72
54
45
38
31
24
Chemical Sales3
Coverage
(% sales)
100
99
98
96
94
90
84
Chemical Employment
Coverage
(% employment)
100
99
97
95
92
89
83
Percent Oi
Definition Cost
100
95
90
85
81
76
69
Total1
Cost to
Industry
(million $)
14*
13.7
12.9
12.2
11.6
10.9
9.9
1. Reflects all firms required to report.
2. Reflects only SICs 28 and 2911 which account for over 99% of total sales of SIC 28 and 2911 products.
Source: Arthur D. Little, Inc., estimates.
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1.00
95
90
g
<3 85
1
a>
5
80
75
($100M)
($30M)
($5M)
($10M)
($2.5M)
60
65
70 75 80 85
Percent of Most Restrictive Definition Cost
($1.0M)
($0.1 M)
90
95
100
Source: Arthur D. Little, Inc.
FIGURE 1-1 GRAPH OF PERCENT CHEMICAL INDUSTRY COVERAGE (SALES) VERSUS
PERCENT OF MOST RESTRICTIVE DEFINITION (0.1 MILLION SALES) INVENTORY
COST FOR SEVEN SMALL BUSINESS DEFINITIONAL LEVELS
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II. INTRODUCTION
A. BACKGROUND
The Toxic Substances Control Act (TSCA), Public Law 94-469, was signed into law on
October 11, 1976 and became effective on January 1, 1977. As a first step in implementing this
law, the EPA is required under Section 8(b) to compile, keep current, and publish a list (the
inventory) of chemical substances which are manufactured, imported, or processed for com-
mercial purposes in the United States. Chemical substances not appearing on the inventory will
be considered new chemical substances and will be subject to premanufacturing notification, as
required by Section 5 of TSCA, prior to their manufacture or processing for commercial purposes.
For the purpose of compiling the inventory, EPA, under the authority of Section 8(a) of
TSCA, is requiring chemical manufacturers to report concerning those substances manufactured
since January 1977. In addition to the chemical name for the inventory, EPA is also requiring that
manufacturing site(s) and order-of-magnitude production volume(s) be reported as part of the
initial Section 8(a) reporting requirements. While Section 8(a) of the Act provides broad author-
ity to EPA to collect information for administration of the Act, EPA can only require "small
manufacturers and processors" (small businesses) to submit information necessary for com-
pilation of the initial inventory and to submit other limited information if specific findings are
made and rule-makings are initiated under Sections 4, 6, or 5(b)(4) of TSCA or if a court has
granted relief under Section 5 or 7. For the initial inventory, production volume and manufac-
turing site information may not be necessary for the compilation of the list of chemical substances
required by Section 8(b) and, therefore, small businesses may be exempt from reporting this
information. Although the legislative history makes it clear that those falling under the small
business definition are to be protected from unreasonably burdensome requirements, the Act
leaves to the EPA Administrator's discretion the definition of "small manufacturer or processer."
Finally, Executive Order 11821 (as extended) requires the preparation of an Economic
Impact Analysis Statement to accompany any major Agency action: in general defined as any
action for which annualized costs exceed $100 million, or for which the unit cost exceeds 5 percent
of the product price. This study also contains the cost analysis used in making the determiniation
that additional economic impact analysis is not required.
B. PURPOSE AND SCOPE
This report provides an analysis of the options for a one-time definition of small business for
the initial TSCA inventory reporting requirements (the inventory), and also provides an estimate
of the total cost of compliance with these inventory requirements.
The project scope included, as a first step, a broad-brush characterization of the chemical
industry. The chemical industry was first defined as consisting of those establishments having
primary activities in standard industrial classifications (SICs) 28 and 2911, but excluding 283
(drugs) and 2879 (pesticides). This exclusion is based on the exclusion of drugs and pesticides
from coverage by TSCA. While it is recognized that some chemicals covered by TSCA may be
produced by firms in these SICs (283 and 2879), these chemicals are believed to represent only a
very small fraction of the chemical production in these classifications. Second, an attempt was
made to extend the chemical industry definition to identify and include those firms producing
some chemicals, but whose primary activity is classified outside SICs 28 and 2911. The scope of
work also included preparation of an estimated cost for the initial inventory, a discussion of
selected options for defining small business, and, finally, presentation of a set of recommended
options for this one-time definition.
7
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The scope of work did hot include an evaluation of the overall cost of the Act nor an analysis
for use in defining small businesses for any other Section 8(a) requirements or for Section 26. Also
excluded was a quantitative review of the benefits to EPA of the additional information con-
cerning chemical production volume (by site) which would be available if small businesses were
required to provide this information. Qualitatively, order-of-magnitude production information
can be useful to the EPA in setting priorities for the allocation of Agency resources to specific
existing or potential chemical problems. Site-specific production data can be used for regulatory,
inspection and monitoring actions by EPA and other Federal agencies. To the extent that these
data are useful, having them available for as many production sites as possible is desirable. On
the other hand, TSCA requires that the burden on small businesses not be unreasonable and,
therefore, the Agency must make a judgment in choosing a small business definition which
optimizes this information/burden trade-off.
C. APPROACH
This study was carried out between mid-August and mid-November, 1977. The analysis was
performed using information and expertise supplied by a variety of sources, including representa-
tives of both industry and government. The statistical data on the chemical industry was
compiled from such sources as the EPA, the Small Business Administration, the U.S. Depart-
ment of Commerce, Dun and Bradstreet, Inc., the Manufacturing Chemists Association, and
trade publications. This industry information provided the basic background used in selecting a
set of options for the definition of a small business and for calculation of the estimated inventory
reporting cost.
Options for the definition of a small business were selected on the basis of ease of application
and relationship to burden on these companies. Suggestions from a variety of sources were
considered. These included the Small Business Administration, the Office of Management and
Budget, the Environmental Protection Agency, and chemical firm and industry association
representatives. Various measures of size and compliance capability were included in the review
of definitional options. These included assets, total sales, sales per chemical, production volume,
number of plant sites and employment.
The recommended final options for the small business definition were chosen through
consideration of the results of the analysis and of suggestions presented by the EPA, the Small
Business Administration, the Office of Management and Budget, industry associations and
individual firms. The selection of a preferred definition from among the final options was left to
EPA because consideration should be given to factors which are beyond the scope of this study
and which may affect the choice of a definition. These considerations include the value of the
additional information which would be obtained under a relatively limited or restrictive defini-
tion of small business, and an evaluation of the administrative burden of processing the data
which would be received under a limited definition.
The total cost of compliance estimate for the initial inventory was prepared on the basis of a
cost per establishment calculation which was combined with an estimate of the number of
establishments which are expected to report. This estimate was corroborated through discussions
with representatives of small, medium, and large chemical firms in representative sectors of the
chemical industry. The estimates were also compared with estimates made by EPA and those
submitted to EPA in response to a request for comments on the cost of the inventory reporting
requirements.
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CHARACTERIZATION OF THE
CHEMICAL INDUSTRY
A. INTRODUCTION
The U.S. chemical industry encompasses a broad range of operations and a wide variety of
products. Generalizations concerning the chemical industry as a whole cannot be attributed to
any single sector of the industry or any individual firm. While such information is available for
larger chemical firms, little information is publicly available for the smaller firms in the industry.
Nevertheless, as a basis for characterization of the chemical industry, Dun and Bradstreet
(D&B) data on value of sales, employment, and number of firms by chemical industry sector
(four-digit SIC code) were used. The data on the chemical industry (SIC 28) include some
unknown amount of non-chemical sales and employment information. Non-chemical sales and
employment could not be separated from chemical sales and employment using the information
available because D&B's classification of firms by industry does not exactly coincide with the
Bureau of Census classification. However, the data were adjusted to exclude sectors of the
chemical industry whose primary products are not covered by the Toxic Substances Control Act
(such as the drug and pesticide sectors, SICs 283 and 2879) and to include the petroleum refining
industry (SIC 2911) which is required to report for the inventory. While a significant volume of
petrochemicals are produced by petroleum refineries, petrochemical value of sales is estimated to
be less than 10 percent of all sales by petroleum refineries.
Based upon analysis of the data provided, a small number of large firms account for a high
percentage of total chemical industry sales and employment. While the U.S. chemical industry is
generally more profitable than most industries, industry profitability varies significantly from
year to year. More importantly, profitability varies widely between sectors of the industry and
from firm to firm.
B. SALES
In 1976, total sales of the U.S. chemical industry exceeded $100 billion. The 50 largest
chemical companies had chemical sales of approximately $60 billion in 1976 as shown in Table
III-l. While the names of several industry giants often come to mind when the chemical industry
is discussed, over 10,000 firms comprise the industry. Major sectors of the chemical industry
include:
Industrial inorganic chemicals,
Plastics and synthetic materials,
Drugs (not regulated by TSCA),
Soaps, cleaners and toilet goods,
Paints and allied products,
Industrial organic chemicals,
Agricultural chemicals (pesticides are not regulated by TSCA), and
Miscellaneous chemical products.
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TABLE MM
THE FIFTY LARGEST U.S. CHEMICAL PRODUCERS - 1976
Company
Du Pont
Dow Chemical
Union Carbide
Monsanto
Exxon
W.R.Grace
Celanese
Allied Chemical
Shell Oil
Occidental Petroleum
Hercules
Eastman Kodak
American Cyanamid
Borden
Rohm & Haas
Standard Oil (Ind.)
Gulf Oil
Mobil Oil
Ethyl Corp.
Stauffer Chemical
Phillips Petroleum
Texaco
PPG Industries
Diamond Shamrock
FMC
Air Products
International Minerals
Ashland Oil
B.F. Goodrich
Ciba-Geigy
Standard Oil of Cal.
NL Industries
BASF Wyandotte
Olin
U.S. Steel
Chemical1
Sales
($ millions)
$6,400
3,900
3,800
3.577
3,238
1,961
1,926
1,738
1,574
1,401
1,325
1,247
1,190
1,115
1,096
1,080
1,062
1,027
1,009
1,000
990
950
804
802
801
793
780
743
695
690
685
680
675
657
648
Total
Sales
($ millions)
$ 8,361
5,652
6,346
4,270
48,631
3,651
2,123
2,630
9,230
5,534
1,596
5,438
2,094
3,381
1,153
11,532
16,451
26,063
1,135
1,100
5,698
26,452
2,255
1,357
2,145
818
1,260
4,087
1,996
975
19,434
1,286
710
1,377
8,604
Chemical Sales1
as Percent of
Total Sales
77
69
60
84
7
54
91
66
17
25
83
23
57
33
95
9
6
4
89
91
17
4
36
59
37
97
62
18
35
71
4
53
95
48
8
Net
Income
($ millions)
$ 459.3
612.8
441.2
366.3
2,641.0
131.9
69
126.3
705.8
183.7
106.8
650.6
135.8
112.8
(11.8)
893.0
816
942.5
69.1
113.0
411.7
869.7
151.5
140.0
80.2
63.5
135.4
136.0
15.8
880.1
58.8
34.9
72.6
410.3
Net
Profit
(%)
5.5
10.8
7.0
8.6
5.4
3.6
3.3
4.8
7.6
3.3
6.7
12.0
6.5
3.3
7.7
5.0
3.6
6.1
10.3
7.2
3.3
6.7
10.3
3.7
7.8
10.7
3.1
0.8
4.5
4.6
4.9
5.3
4.8
10
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TABLE 111-1 (Continued)
Company
American Hoechst
Reichhold Chemicals
Mobay Chemical
Atlantic Richfield
National Distillers
Williams Co.
Esmark
Lubrizol
Kerr-McGee
Tenneco
Goodyear Tire
Akzona
Pennwalt
Borg-Warner
Continental Oil
Chemical1
Sales
($ millions)
$ 600
585
545
534
507
481
453
451
437
437
425
423
419
399
385
Total
Sales
($ millions)
$
745
585
545
8,463
1,504
1,003
5,268
451
1,955
6,423
5,791
729
777
1,862
7,958
Chemical Sales
as Percent of
Total Sales
80
100
100
6
34
48
9
100
22
7
7
58
54
21
5
Net
Income
($ millions)
$
16.1
20.1
575.2
90.3
61.2
82.6
51.0
134.1
383.5
122.0
5.6
34.9
81.7
460.0
Net
Profit
2.7
3.7
6.8
6.0
6.1
1.6
11.3
6.9
6.0
2.1
0.8
4.5
4.4
5.8
1. Chemical sales data include sales of drugs and pesticides which are not regulated by the Toxic Substances
Control Act.
Source: CHEMICAL AND ENGINEERING NEWS, May 2, 1977.
11
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The chemical industry produces a wide variety of products for many ultimate uses. Broadly
speaking, three categories of chemicals are produced:
Basic chemicals used in the production of other chemicals,
Chemical products used by other industries before ultimate sales to consumers,
and
Finished chemical products for consumer use.
In characterizing the chemical industry for purposes of an analysis of sales, two major
sectors have been excluded because their primary products are regulated by other legislation:
drugs (SIC 283, which includes biolqgical products, medicinals and botanicals, and pharma-
ceutical preparations), and pesticides (SIC 2879, which includes insecticides, fungicides and
rodenticides). Petroleum refining (SIC 2911) has been included because of the significant volume
of petrochemicals produced within this sector and because petrochemicals must be reported on
the initial inventory. Petrochemical production is estimated to account for less than 10 percent of
the value of sales of the petroleum refining industry. Arthur D. Little, Inc., estimates that
refinery production of petrochemicals totaled $3.3 billion in 1976. The D&B data show total
refinery sales of $40 billion in 1976. While refinery sales are believed to be closer to $65 billion in
1976, using the D&B estimate of $40 billion in sales, petrochemical sales of refineries are
conservatively estimated to be less than 10 percent of total refinery sales. This report uses 10
percent of the D&B sales of refineries as the sales figure for refinery produced petrochemicals.
Based upon an analysis of data compiled by D&B, a characterization of the chemical
industry in terms of annual sales per firm is shown in Tables III-2, 3, and 4. Some 170 firms with
annual sales of over $100 million account for over 80% of the total industry sales. The smallest
sales category, firms with sales of less than $100,000 per year, is comprised of over 1,500 firms with
total combined sales of less than $100 million. Most firms in this size range are believed to be
chemical processors.
Table III-5 shows the number of firms, value of sales, and number of employees by industry
sector. The sectors with the largest value of sales include:
Industrial inorganic chemicals,
Plastics materials and resins,
Organic fibers,
Soaps and detergents,
Toilet preparations,
Industrial organic chemicals, and
Petroleum refining.
C. EMPLOYMENT
The 1977 U.S. Industrial Outlook estimates total chemical industry employment to be
approximately 1.1 million persons, while the statistics shown in Table ni-6 include over 1.7
million persons. The difference is due to the fact that the latter statistics include some non-
chemical employment for chemical companies and that the definition of a chemical producer
12
-------
TABLE 111-2
STATISTICS ON U.S. CHEMICAL FIRMS GROUPED BY ANNUAL SALES OF FIRM - 19761
(includes SICs 28XX and 2911 except 283X and 2879)
mini Sales Range
($ million)
0.0 - 0.1
0.1 - 1.0
1.0- 2.5
2.5 - 5.0
5.0- 10.0
10.0- 30.0
30.0-100.0
100.0-
Subtotal
Unknown2
Total
Number of
Firms
1,541
3,694
1,343
603
376
284
126
170
8,137
2,578
10,715
Number of
Employees
4,700
34,769
37.165
31,371
34,326
58,797
86,415
1,251,318
1,538,861
99,031
1,637,892
Annual Sales
($ million)
66
1,306
2,017
1,868
2,351
4,213
5,600
87,551
104,972
_
104,972
Percentage
of Firms
(%)
18.9
45.4
16.5
7.5
4.6
3.5
1.5
2.1
100.0
__
Percentage
of Employees
(%)
0.3
2.3
2.4
2.0
2.2
3.9
5.6
81.3
100.0
_
Percentage
of Sales
(%)
0.1
1.2
1.9
1.8
2.2
3.9
5.3
83.4
100.0
__
^
1. Petrochemical production of petroleum refineries (SIC 2911) accounts for less than 10% of the value of sales of refineries. Employment and sales data
for SIC 2911 were included at 10% of total employment and sales of SIC 2911.
2. Annual sales data for 2,578 firms employing 99,031 persons were not available.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
-------
TABLE 111-3
AVERAGE EMPLOYEES, SALES, AND SALES PER EMPLOYEE FOR
U.S. CHEMICAL FIRMS GROUPED BY ANNUAL SALES OF FIRM - 19761
(includes SICs 28XX and 2911 except 283X and 2879)
Annual Sales Range
($ million)
0.0- 0.1
0.1 - 1.0
1.0- 2.5
2.5 - 5.0
5.0 - 10.0
10.0- 30.0 "* '
30.0-100.0
100.0-
f
Subtotal
Unknown2
Total
Number of
Firms
1,541
3,694
1,343
603
376
284
126
170
8,137
2,578
10,715
Number of
Employees
4,700
34,769
37.165
31,371
34,326
58,797
86,415
1,251,318
1,538,861
99,031
1.637,892
Annual Sales
($ million)
66
1,306
2,017
1,868
2,351
4,213
5,600
87,551
104,972
104,972
Employees
Per Firm
3
9
28
52
91
207
686
7,360
189
38
153
Annual Sales
Per Firm
($ million)
0.04
0.35
1.5
3.1
6.3
14.8
44.4
515.0
12.9
_
Annual Sales
Per Employee
($ thousand)
14 '
38
54
59
68
72
65
70
68
1. Petrochemical production of petroleum refineries (SIC 2911) accounts for less than 10% of the value of sales of refineries. Employment and sales data
for SIC 2911 were included at 10% of total employment and sales of SIC 2911.
2. Annual sales data for 2,578 firms employing 99,031 persons were not available.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
-------
TABLE II1-4
CUMULATIVE STATISTICS ON U.S. CHEMICAL FIRMS GROUPED BY ANNUAL SALES OF FIRM - 1976*
(includes SICs 28XX and 2911 except 283X and 2879)
Annual Sales
Less Than
{$ million)
0.1
1.0
2.5
- 5.0
10.0
30.0
100.0
Subtotal
Unknown2
Total
Cumulative
Number
of Firms
1,541
5,235
6,578
7,181
7,557
7,841
7,967
8,137
2,578
10,715
Cumulative
Number
of Employees
4,700
39,469
76,634
108,005
142,331
201,128
287,543
1,538,861
99,031
1,637,892
Cumulative
Annual Sales
($ million)
66
1,372
3,384
5,257
7,608
11,821
17,421
104,972
104,972
Cumulative
Percentage
of Firms
(%)
18.9
64.3
80.8
88.3
92.9
96.4
97.9
100.0
_
Cumulative
Percentage
of Employees
(%)
0.3
2.6
5.0
7.0
9.2
13.1
18.7
100.0
_
Cumulative
Percentage
of Sales
(%)
0.1
1.3
3.2
5.0
7.2
11.3
16.6
100.0
_
_
1. Petrochemical production of petroleum refineries (SIC 2911) accounts for less than 10% of the value of sales of refineries. Employment and sales data
for SIC 2911 were included at 10% of total employment and sales of SIC 2911.
2. Annual sales data for 2,578 firms employing 99,031 persons were not available.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
-------
TABLE 111-5
U.S. CHEMICAL INDUSTRY -1976
NUMBER OF FIRMS, ANNUAL SALES, AND EMPLOYMENT BY INDUSTRY SECTOR
SIC
Code
2812
2813
2816
28181
28191
2821l
2822
2823
2824
2841
28421
2843
2844
2851»
2861
2865
2869
2871"
2873
2874
2875
, 2891'
2892
2893
2895
28991
2911
Industry Sector
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Organic Chemicals, n.e.c.
Industrial Inorganic Chemicals
Plastics Material and Resins
Synthetic Rubber
Cellulosic Man-Made Fibers
Organic Fibers
Soaps, Detergents
Polishes and Sanitary Goods
Surface Acting Agents
Toilet Preparations, Perfumes
Paints and Allied Products
Gum, Wood Chemicals
Cyclic Crudes and Intermediates
Industrial Organic Chemicals
Fertilizers
Nitrogenous Fertilizers
Phosphate Fertilizers
Mixing Fertilizers
Adhesives and Sealants
Explosives
Printing Ink
Carbon Black
Chemical Preparations
Petroleum Refining2
Total
Number
of Firms
58
119
113
7
998
806
130
31
67
586
1,464
130
1,030
1,416
105
126
335
4
261
93
278
503
62
228
6
1,426
336
10,715
Annual Sales
($ million)
5,644
2,551
817
5
12,749
7,091
513
2,557
11,829
9,555
3.372
517
11,419
4,581
171
1,609
15,884
1
4,419
2,960
831
1,426
312
1,231
452
4,524
4,091
111.1133
Employees
75,808
46,494
17,858
105
211,882
102,961
6,936
52,608
208,189
96,229
56,879
5,034
197,086
88,293
3,604
25,666
234.016
17
33,147
24,283
10,156
21,772
6,464
21,616
7,034
66,308
17,447
1.637,892
Sales
per Firm
($ million)
102.6
21.4
7.2
0.7
12.8
8.8
3.9
. 82.5
176.6
16.3
2.3
4.0
11.1
3.2
1.6
12.8
47.4
0.3
16.9
31.8
3.0
2.8
5.0
5.4
75.3
3.2
12.2
10.43
Employees
per Firm
1,378
391
158
15
212
128
53
1,697
3,107
164
39
39
191
62
34
204
699
4
127
261
37
43
104
95
1,172
46
52
153
Sales
per Employee
($000)
74.5
54.9
45.7
47.6
60.2
68.9
74.0 '
48.6
56.8
99.3
59.3
102.7
57.9
51.9
47.4
62.7
67.9
58.8
133.3
121.9
81.8
65.5
48.3
56.9
64.3
68.2
234.5 -
67.8
1. Indicates 1967 SIC codes not yet totally converted to 1972 SIC codes by D&B.
2. Statistics for the petroleum refining industry include only chemical products. It is estimated that chemical sales and employment account for less than
10% of petroleum refining sales and employment.
3. These figures include an estimated $6,141 million in sales for 2,578 firms with unknown sales data. Therefore, these figures do not agree with the figures
on Tables 111-2 through 111-4. The estimated sales were computed using the number of employees of firms with unknown sales data, and the sales per
employee for firms with sales data for each four digit SIC code.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
-------
TABLE 111-6
CUMULATIVE STATISTICS ON U.S. CHEMICAL FIRMS BY EMPLOYMENT SIZE OF FIRM - 1976
(includes SICs 28XX and 2911 except 283X and 2879)
Employment
Less Than
5
10
50
100
250
500
1,000
1.5.00
Total
Cumulative
Number
of Firms
3,311
5,752
9,194
9,899
10,339
10,499
10,595
10,636
10,715
Cumulative
Number
of Employees
8,238
23,239
91,932
135,754
191,922
241.826
297,368
340,706
1,637,892
Cumulative
Annual Sales
($ million)
338.6
1,024.1
5,016.1
7,818.1
11,357.2
14,574.9
18,087.5
22,023.6
111,113.0*
Cumulative
Percentage
of Firms
. (%)
30.9
53.7
85.8
92.4
96.5
98.0
98.9
99.3
100.0
Cumulative
Percentage
of Employees
(%)
0.5
1.4
5.6
8.3
11.7
14.8
18.2
20.8
100.0
Cumulative
Percentage
of Sales
(%)
0.3
0.9
4.5
7.0
10.2
13.1
16.3
19.8
100.0
1. The total sales of $111 billion differs from the totals shown in Tables 111-2 through 111-4 because data include the estimated sales for the 2,578 firms
with unknown sales data. This total agrees with that in Table 111-5.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
-------
includes more companies than the U.S. Department of Commerce definition- In either case, the
data clearly support the fact that the 170 largest chemical companies, with firm sales of over $100
million per year, employ over 80 percent of all workers in the chemical industry as shown in Table
III-2. Furthermore, sales per employee, as shown in Table III-3, increases as the size of the firm
(as measured by value of sales) increases. The largest firms have an average of over $70,000 in
sales per employee, while the smallest firms average only $14,000 in sales per employee. This
reflects the higher percentage of labor-intensive processors among the smaller firms. The industry
sectors with the largest number of employees are the same sectors as those listed above having the
largest value of sales.
D. NUMBER OF FIRMS
Over 10,000 firms have been identified as comprising the chemical industry. The number of
firms may be described by sales volume as shown in Tables III-2 through III-4. As shown in Table
III-2, the vast majority of the firms in the chemical industry have less than $10 million per year in
sales. As expected, the average number of employees per firm increases with size as characterized
by value of sales. The industry sectors with the largest number of firms include:
Industrial inorganic chemicals,
Plastic materials and resins,
Polishes and sanitary goods,
Toilet preparations,
Paints and allied products, and
Chemical preparations, n.e.c.
There are three sectors of the chemical industry with a large number of firms but a relatively
low number of employees and sales polishes and sanitary goods, paints, and chemical prepara-
tions, not elsewhere classified.
E. PROFITABILITY
Table ffl-7 shows the before-tax and after-tax profitability of the chemical industry from
1964 through mid-1977 as reported by the Federal Trade Commission and the Manufacturing
Chemists Association. While after-tax profitability varies from year to year, aftertax profit has
generally been 6 percent to 8 percent of sales in recent years. Table III-l provides an indication of
the variation in after-tax profit between firms for the fifty largest chemical producers. In 1976,
after-tax profit as a percentage of sales varied from negative values to 12.0 percent.
F. NUMBER OF CHEMICALS
It is difficult to estimate the number of different chemicals commercially produced by the
U.S. chemical industry. The Stanford Research Institute (SRI) Handbook enumerates over
10,000 chemicals. The EPA candidate list contains over 30,000 chemicals. The Chemical Abstract
Service has assigned CAS Registry numbers to several million different chemicals. As a lower
bound, it is reasonable to assume that most of the 10,000 chemicals listed by SRI are produced in
commercial quantities. However, the upper bound for the number of commercial chemicals
produced remains a matter for speculation. A reasonable estimate may be approximately 100,000
based on the number of establishments required to report and the number of chemicals per
establishment.
18
-------
TABLE 111-7
INCOME OF U.S. CHEMICAL INDUSTRY 1964-1977
Year
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977 (6 mo.)
Net Sales
($ million)
36,300
40,100
44,500
47,500
52,000
55,500
58,100
62,020
69,338
83,581
84,928
88,168
101,809
53,699
Income
Before Tax
($ million)
NA
NA
NA
NA
NA
NA
NA
6,700
7,788
9,978
10,285
9,668
11,268
6,181
Income
After Tax
($ million)
2,900
3,200
3,500
3,260
3,530
3,590
3,430
3,778
4,422
5,686
7,152
6,703
7,610
4,182
Income
After Tax as a
Percent of Sales
7.9
7.9
7.8
6.9
6.8
6.5
5.9
6.1
6.4
6.8
8.4
7.6
7.5
7.8
Source: Federal Trade Commission, Quarterly Financial Reports, 1971-1977; Manufacturing Chemists
Association, Chemical Industry Facts, 1964-70.
19
-------
Approximately 50 chemicals are produced in quantities of over 1 billion pounds each.
Almost 300 chemicals are produced in quantities of over 10 million pounds per chemical.
Generally, production volume data is unavailable for chemicals produced in quantities of under 1
million pounds per chemical. It is believed that the 300 chemicals produced in quantities of over
10 million pounds each account for over 90 percent of the total weight of all chemicals produced.
G. CONCENTRATION
Concentration ratios for sectors of the chemical industry as determined by the 1972 Census
of Manufactures are presented in Table III-8. The percentage of total sector sales is shown for the
largest 4, 8, 20, and 50 firms in each industry sector. Based upon a review of industry concentra-
tion ratios for previous Census years, it has been determined that although there is a slight trend
toward increased concentration, concentration ratios have remained relatively stable with time.
The Census does not provide a concentration ratio for the chemical industry as a whole, so
concentration ratios were estimated for the chemical industry in 1976. Using the chemical sales
values of the 50 largest U.S. -chemical producers shown in Table III-l, and estimating total
chemical industry sales to be $100 billion in 1976, concentration ratios were computed for the
chemical industry as a whole and are shown in Table III-8. A small number of larger firms in the
chemical industry account for the vast majority of chemical sales. The largest 50 chemical firms
accounted for almost 60 percent of the industry value of sales in 1976. Most of the larger chemical
firms have operations in several sectors of the chemical industry, but generally not in all industry
sectors.
H. ESTIMATED NUMBER OF PROCESSING/MANUFACTURING FIRMS
No published information was available to determine the number of firms manufacturing or
producing chemicals (i.e., where a molecular change occurs) and the number of firms simply
processing chemicals (i.e., mixing or formulating chemicals). Since firms processing chemicals
are not required to report for the initial inventory, an estimate was made of the number of
processing firms that would be excluded from reporting.
Table III-9 shows the percentage of firms in each four-digit SIC code of the chemical
industry estimated to be chemical processors. The estimate was made based upon the knowledge
of Arthur D. Little, Inc., specialists. Estimates are necessarily approximate to the nearest 10
percent and are judgmental because data are not available. Overall, 5,740 of the 10,715 firms or 54
percent were estimated to be processors. Many processing firms were found in the following
sectors:
Soaps and detergents,
Polishes and sanitary goods,
Toilet preparations and perfumes,
Paints and allied products,
Mixing fertilizers,
Adhesives and sealants,
Printing ink, and
Chemical preparations, n.e.c.
20
-------
TABLE II1-8
CHEMICAL INDUSTRY CONCENTRATION RATIOS (1972)
Percentage of Total Industry Value of Shipments
SIC
Code Industry
2812 Alkalies and Chlorine
28-13 Industrial Gases
2816 Inorganic Pigments
2819 Industrial Inorganics, n.e.c.
2821 Plastics Material and Resins
2822 Synthetic Rubber
2823 Cellulosic Man-made Fibers
2824 Organic Fibers, Noncellulosic
2831 Biological Products
2833 Medicinals and Botanicals
2834 Pharmaceuticals
2841 Soap and Detergents
2842 Polishes & Sanitation Goods
2843 Surface Acting Agents
2844 Toilet Preparations
2851 Paints and Allied Products
2861 Gum and Wood Chemicals
2865 Cyclic Crudes & Intermediates
2869 Industrial Organics, n.e.c.
2873 Nitrogenous Fertilizers
2874 Phosphati c Ferti I i zers
2875 Fertilizers, Mixing Only
2879 Agricultural Chemicals, n.e.c.
2891 Adhesives and Sealants
2892 Explosives
2893 Printing Ink
2895 Carbon Black
2899 Chemical Preparations, n.e.c.
28 Chemicals and Allied Products (1976)1
2911 Petroleum Refining
4 Largest
Companies
72
65
52
34
26
62
96
74
37
59
26
62
43
28
38
22
68
34
43
35
29
24
39
19
67
39
74
16
18
31
8 Largest
Companies
91
81
72
52
41
81
91
53
75
44
74
54
42
53
34
83
52
57
53
47
38
57
31
86
54
99
26
27
56
20 Largest
Companies
99
93
91
76
65
98
100
99
82
90
75
85
65
64
74
51
94
77
74
84
83
57
76
52
98
75
100
41
41
84
50 Largest
Companies
100
98
99
93
90
100
100
95
98
91
92
78
89
91
66
99
96
92
100
99
74
89
76
99
88
58
59
96
1. Concentration ratios for the Chemical and Allied Products industry were estimated by Arthur D. Little, Inc.,
for the year 1976. The Census does not provide concentration ratios for the chemical industry as a whole, but
only for individual sectors. Using an estimated total industry sales of $100 billion in 1976 and chemical sales
of the fifty largest firms shown in Table 111-1, concentration ratios were computed for the industry as a whole.
Source: U.S. Department of Commerce, 1972 Census of Manufactures, Subject and Special Statistics, MC72(SR2),
and Arthur D. Little, Inc., estimates.
21
-------
TABLE II1-9
ESTIMATED NUMBER OF CHEMICAL PROCESSING FIRMS BY
CHEMICAL INDUSTRY SECTOR - 1976
SIC
Code
2812
2813
2816
28181
28191
2821'
2822
2823
2824
2841
28421
2843
2844
2851 *
2861
2865
2869
28711
2873
2874
2875
28911
2892
2893
2895
28991
2911
Industry Sector
Alkalies and Chlorine
Industrial Gases
Inorganic Pigments
Organic Chemicals, n.e.c.
Industrial Inorganic Chemicals
Plastics Material and Resins
Synthetic Rubber
Cellulosic Man-made Fibers
Organic Fibers
Soaps, Detergents
Polishes and Sanitary Goods
Surface Acting Agents
Toilet Preparations, Perfumes
Paints and Allied Products
Gum, Wood Chemicals
Cyclic Crudes and Intermediates
Industrial Organic Chemicals
Fertilizers
Nitrogenous Fertilizers
Phosphatic Fertilizers
Mixing Fertilizers
Adhesives and Sealants
Explosives
Printing Ink
Carbon Black
Chemical Preparations
Petroleum Refining2
Total2
Number of
Firms
55
119
113
7
998
806
130
31
67
586
1,464
130
1,030
1,416
105
126
335
4
261
93
278
503
62
228
6
1,426
336
10,715
Processor
Firms
0
0
20
0
10
10
50
80
60
70
80
10
90
90
20
10
10
0
0
0
80
80
40
80
0
50
_0
54
Number of
Processing
Firms
0
0
23
0
100
81
65
25
40
410
11
13
927
1,275
21
13
34
0
0
0
222
400
25
182
0
713
0
5,740
1. Indicates 1967 SIC codes not yet totally converted to 1972 SIC codes by Dun & Bradstreet.
2. Statistics for the petroleum refining industry include only chemical products. It is estimated that
chemical sales and employment account for less than 10% of petroleum refining sales and employment.
Source: Arthur D. Little, Inc., estimated based on Dun and Bradstreet data.
22
-------
Table ffl-10 shows the number of producing and processing firms by size of firm in terms of
annual value of sales. The 2,578 firms for which D&B sales data are unavailable were also shown
as processors. Based on the number of employees per firm, these 2,578 firms are typical of
chemical industry firms with annual sales of less than $100 million. The remaining processing
firms were assigned primarily to the smallest annual sales categories. Contacts with industry
confirmed the belief that processors tend to be the smaller firms.
Table HI-11 shows chemical manufacturing firms (excluding processing firms) arranged by
annual value of sales per firm. For each category of annual sales per firm, the number of firms,
number of employees and total annual sales are provided. Approximately 4,975 chemical manu-
facturing firms are shown with total sales of nearly $104 billion and total employment of 1.5
million workers. Manufacturing firms with annual sales less than $5 million per year represent
over 80 percent of all manufacturing firms, but only 4 percent of manufacturing sales and 5
percent of employment.
TABLE 111-10
NUMBER OF CHEMICAL PROCESSING AND
CHEMICAL MANUFACTURING FIRMS BY SIZE OF FIRM BASED ON ANNUAL SALES
Estimated
Annual Sales Number Number Number
($ million) of Firms of Processors2 of Manufacturers
Unknown3 2,578 2,578 0
0.0- 0.1 1,541 1,400 141
0.1 - 1.0 3,694 1,500 2,194
1.0- 2.5 1,343 200 1,143
2.5- 5.0 603 30 573
5.0- 10.0 376 20 356
10.0- 30.0 284 12 272
30.0- 100.0 126 0 126
100.0-10,000.0 170 p_ 170
Total 10,715 5,740 4,975
1. Includes SIC 28XX and 2911, except SIC 283X and 2879.
2. Based upon interviews with industry and Arthur D. Little knowledge of the chemical
industry; the smaller the firm, the more likely the firm is a processor. The number of
processors was estimated by using a high percentage of smaller firms and lower percent-
ages of larger firms.
3. The D&B data included 2,578 firms for which annual sales value is unknown.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
23
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TABLE 111-11
U.S. CHEMICAL MANUFACTURING FIRMS BY SIZE BASED ON ANNUAL SALES OF FIRM - 1976
(excluding processing firms)
(includes SICs 28XX and 2911 except 283X and 2879)
inual Sales Range
($ million)
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0-
Total
0.1
1.0
2.5
5.0
10.0
.* .*
30.0
100.0
Number of
Firms
141
2,194
1,143
573
356
272
126
170
4,975
Number of
Employees
430
20,650
31,630
29,800
32,500
56,330
86,420
1,251,320
1,509,080
Annual Sales
($ million)
6
775
1,715
1,775
2,225
4,035
5,600
87,550
103,681
Percentage
of Firms
2.8
44.2
23.0
11.5
7.2
5.4
2.5
3.4
100.0
Percentage
of Employees
0.03
1.4
2.1
2.0
2.2
3.7
5.7
82.9
100.0
Percentage
of Sales
0.006
0.75
1.65
1.7
2.1
3.9
5.4
84.5
100.0
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
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IV. INVENTORY COST AND SMALL BUSINESS
DEFINITION FOR CHEMICAL FIRMS
A. INTRODUCTION
An estimate of the total cost of the TSCA inventory may be approached in several ways. In
this chapter, the estimate is based on a calculated reporting cost per chemical in combination
with an estimate of the number of chemicals which will be reported either in toto, or by
individual establishments. In Chapter VI, additional inventory cost estimates are developed on
the basis of a more detailed examination of the inventory reporting costs of firms in selected size
categories.
B. ANALYSIS OF INDIVIDUAL CHEMICAL REPORTING COSTS
As with most operating costs, the cost to a firm (or establishment) of complying with the
TSCA inventory requirements may be broken down into fixed and variable components. For
example, the cost of a staff member's time spent in familiarizing him or herself with the specific
requirements of the inventory is a relatively fixed cost, in the sense that it is little affected by the
number of chemicals which a firm may report. In contrast to this, the time spent in collecting
production information for a chemical may be considered a variable cost, in the sense that this
time will vary considerably with the number of chemicals reported.
A detailed breakdown of incremental fixed and variable costs for preparing the EPA
inventory reporting forms is presented in Tables IV-1 and IV-2. The individual time and cost
estimates shown in these tables are based on numerous simulations of an inventory form
completion experience and on estimated wage and overhead rates for the levels of skill required
for each task. Comments by industry contacts have also been taken into account in these
estimates.
As indicated in Table IV-1, a fixed charge of $300 per establishment is viewed as a
reasonable estimate for the incremental fixed cost of preparing the required inventory forms. This
includes eight hours for familiarization with the forms, instructions and general requirements of
the Act and promulgated regulation for reporting, as well as additional time and cost allowances
for setup, final review of the completed forms, and expenses such as postage.
The estimated variable cost per chemical is derived in the second part of Table IV-1. In
preparing this estimate of variable cost, the existence of three classes of chemicals was taken into
account: 1) chemicals which are found on the EPA Candidate List, 2) chemicals which are not
found on the list but which have Chemical Abstract Service (CAS) Registry numbers assigned to
them, and 3) chemicals not on the list and without CAS Registry numbers. Each class of chemical
has associated with it a different time allocation to allow for the variation in the estimated time
required to collect the information necessary for completion of the different inventory forms. The
results of considering these three classes of chemicals are combined on the basis of their estimated
frequency of reporting, using a weighted average derived from industry comments and an analysis
of the fraction of chemicals in each class. The weighted average variable cost per chemical per
establishment is thus estimated to be $100.
25
-------
TABLE IV-1
ESTIMATED FIXED AND VARIABLE COMPONENTS OF
INVENTORY REPORTING COST
(incremental costs for inventory)
I. Fixed Cost/Establishment
Task Hours Cost/Hour Task Cost
A. Familiarization 8 $20 $160
B. Facilities, Postage, etc. 30
C. Set Up, Type Company Info. 2 10 20
D. Review of Completed Form 3 30 90
Total Fixed Charge Per Establishment $300
II. Variable Cost/Chemical/Establishment for Reporting Chemical Identity and Production Information
Time/Chemical Reported
Chemical Not on Candidate List
Listed on EPA With CAS Without CAS
Task Candidate List Registry No. Registry No.
A. Collect Information on Production
(order of magnitude) 180 min. 180 min. 180 min.
B. Find CAS Registry No. or provide
necessary information 150 min. 480 min.
C. Fill in Form (includes looking up
chemicals in Candidate List) 10 min. 10 min. 20 min.
D. Review Form, Decide on Confidentiality 30 min. 30 min. 30 min.
E. Final Typing 10 min. 10 min. 20 min.
Total Time/Chemical 230 min. 380 min. 730 min.
Weighted Average1 Total Time/Chemical = 300 min. = 5 hr.
Total Variable Cost/Chemical/Establishment (at $20/hr.2) = $100.00
1. Weighting based on estimate that 65% of commercial chemicals are on Candidate List; 30% are not on
Candidate List but have CAS Registry Number; 5% are unlisted.
2. Weighted average cost per hour, based on 10% of effort costed at $10/hr., 80% at $20/hr., and 10% at
$30/hr.
Source: Arthur D. Little, Inc., estimates.
26
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TABLE IV-2
ESTIMATED VARIABLE COST PER CHEMICAL PER ESTABLISHMENT FOR
REPORTING CHEMICAL IDENTITY ONLY
Time/Chemical Reported
Chemical Not on Candidate List
Listed on EPA With CAS Without CAS
Task Candidate List Registry No. Registry No.
A. Find CAS Registry No. or
Provide Necessary Information 150 min. 480 min.
B. Fill in Form (includes looking up
chemicals in Candidate List) 10 min. 10 min. 20 min.
C. Review Form, Decide on Confidentiality 30 min. 30 min. 30 min.
D. Final Typing 10 min. 10 min. 20 min.
Total Time/Chemical 50 min. 200 min. 550 min.
Weighted Average1 Total Time/Chemical = 120 min. = 2 hr.
TOTAL VARIABLE COST/CHEMICAL/ESTABLISHMENT (at $20/hr.2) = $40.00
1. Weighting based on estimate that 65% of commercial chemicals are on Candidate List; 30% are not on
Candidate List but have CAS Registry Number; 5% are unlisted.
2. Weighted average cost per hour, based on 10% of effort costed at $10/hr., 80% at $20/hr., and 10% at
$30/hr.
Source: Arthur D. Little, Inc., estimates.
27
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Because the exemption from reporting chemical production is the main feature differ-
entiating the small company, it is worth noting that the cost of collecting production information
is estimated to be about $60 per chemical (on the basis of 3 hours or 180 min. at $20/hour).' This
task, therefore, accounts for about three-fifths of the variable cost of inventory reporting. With
this information it is possible to calculate the level of sales required for a single chemical to
support the incremental cost of submitting production information given an assumption of an
economic impact measure of "reasonableness." For example, as illustrated in Figure IV-1, if a
cost amounting to 1% of after-tax profits is viewed as reasonable, then a firm having an after-tax
profit rate of 6 percent will not be unreasonably burdened by a $60 reporting cost for a chemical
having annual sales of $100,000.2
Using the graphs in Figures IV-1 and IV-2 it is possible to determine the average sales level
per chemical which would be required to avoid an unreasonable burden under a variety of
assumed costs and levels of impact. Furthermore, if this approach is combined with an estimate
of the average number of chemicals per firm, it is possible to approach a definition of small
business on this basis. For example, a firm reporting 100 chemicals would require a sales level of
$10 million ($100,000 x 100) to avoid an unreasonable burden under the sample profit and percent
of profit conditions discussed above. An added consideration is that because this is a one-time
charge, the costs could, in theory, be spread over a period of several years. This would reduce the
level at which reporting costs would be considered a burden.
Having calculated incremental fixed and variable costs for inventory reporting, it is possible
to estimate a total cost per firm, and a total cost per chemical for firms reporting various numbers
of chemicals. This is done, in Table IV-3, for one chemical, five chemicals and so on, up to a
hypothetical 10,000 chemicals per establishment.
As may be seen by examining the graph of these data in Figure IV-3 the total reporting cost
per chemical drops off rapidly from $400 for one chemical, to $130 for 10 chemicals, to $103 for 100
chemicals. In fact, at a level of about 15 chemicals or more, the fixed costs represent less than 20
percent of total reporting cost. One implication of this is that, for most establishments, the
variable cost components such as the cost of collecting production data become the major
costs for preparing the inventory. This, in turn, means that the total cost of the inventory to the
chemical industry will be affected by the cost of the time required to collect production informa-
tion and by the small business definition, which exempts companies from this requirement.
According to the preceding analysis, the cost of collecting production information represents
half of the total reporting cost for an establishment reporting 15 chemicals.3 For establishments
reporting more than 15 chemicals, the production reporting cost could become the largest single
cost element.
1. As with the other fixed and variable cost estimates comprising the basis for the inventory reporting costs, the time
required for collecting production information was estimated by considering the individual steps necessary to
accomplish the required task. Where possible these steps were carried out for selected chemicals in order to arrive
at an appropriate time estimate. In this case it Is estimated that 3 hours allows sufficient time to compile order-of-
magnitude production data from customer invoices. If necessary, and this is therefore believed to be a conservative
estimate of the cost.
2. Calculated as follows: $100,000 sales x .06 profit rate = $6,000 profit; $6,000 profit x .01 assumed reasonable re-
porting cost rate = $60).
3. Calculated as follows: 15 chemicals x $60 = $900; $900 -s- $1,800 ($300 fixed cost + 15 x $100 variable cost) = 50
percent.
28
-------
Variable Cost/Chemical To Report Production Information
(Dollars)
Source: Arthur D. Little, Inc.
j:..-.
FIGURE IV-1 SALES LEVEL PER CHEMICAL REQUIRED TO SUPPORT
PRODUCTION INFORMATION REPORTING
(ASSUMING PROFITS OF 6% OF SALES)
29
-------
10 20 30 40 50 60 70
Variable Cost/Chemieal To Report Production Information
(Dollars]!
Source: Arthur D. Little, Inc.
80
FIGURE IV-2 SALES LEVEL PER CHEMICAL REQUIRED TO SUPPORT
PRODUCTION INFORMATION REPORTING
(ASSUMING PROFITS OF 8% OF SALES)
30
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TABLE IV-3
ESTIMATED INVENTORY COST PER ESTABLISHMENT AND PER CHEMICAL
FOR VARIOUS NUMBERS OF CHEMICALS TO BE REPORTED
No. of Chemicals Reported
Per Establishment
1
5
10
50
100
500
1,000
5,000
10,000
Total Cost1
Per
Establishment
400
800
1,300
5,300
10,300
50,300
100,300
500,300
1,000,300
Cost/Chemical
Per
Establishment
400
160
130
106
103
100.60
100.30
100.06
100.03
1. Consisting of $300 fixed cost oer establishment and $100 variable cost
per chemical.
Source: Arthur D. Little, Inc., estimates.
31
-------
400
300
.0
.5
'C
(0
TJ
ca .,
O £
X =
200
N)
100
10 50 100
No. of Chemicals Reported per Establishment
500
1,000
5,000
FIGURE IV-3 ESTIMATED INVENTORY COST PER CHEMICAL PER ESTABLISHMENT FOR
VARIOUS NUMBERS OF CHEMICALS TO BE REPORTED
-------
C. ESTIMATED COST OF INITIAL INVENTORY REPORTING
FOR CHEMICAL FIRMS
An estimate of the total cost of the inventory was prepared, as shown in Table IV-4, on the
basis of an estimated cost per chemical (as derived above) and an estimated number of chemicals
to be reported, prepared on a per establishment basis.
The number of chemical reports was calculated assuming that approximately 5,000 manu-
facturing firms in SICs 28 and 2911, except 283 and 2879 (see Table HUD,will report for the initial
inventory. These firms have a weighted average of approximately 1.5 establishments per firm (see
Table VI-4), or a total of 7,500 establishments. These establishments produce an average of 15
reportable chemicals each. This number was derived from comments and interviews with in-
dustry and from an analysis of the SRI Directory of Chemical Producers. It also corresponds to
the weighted average number of chemicals per establishment shown in Table VI-4. Using this
estimate, reporting is, therefore, expected on about 112,500 chemicals. The average cost for an
establishment reporting 15 chemicals is $120 per chemical ($300 fixed cost plus $100 per chemical
variable cost, divided by 15).
On the basis of this analysis, the total cost of the inventory for all chemical manufacturing
firms will be about $13.5 million dollars.
A similar calculation was performed for the non-chemical sector firms which manufacture
chemical substances and are required to report. The cost to these firms is approximately
$800,000. Therefore, the maximum total inventory cost is approximately $14.3 million for all
those required to report.
This estimate assumes that no businesses are classified as small and therefore that all
establishments will be required to report order-of-magnitude production volume on all chemicals.
33
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TABLE IV-4
ESTIMATED INVENTORY COST - CHEMICAL BASIS1
I. For SIC 28,2911 Firms
Estimated Number of Chemical Manufacturing Firms
Estimated Number of Establishments/Firms
Estimated Total Number of Establishments
Estimated Number of Chemicals/Establishments
Estimated Total of Chemicals Reported
Average Cost Per Chemical of Reporting
Subtotal Cost for Chemical Firms
II. For Other Firms Manufacturing Chemicals (see Chapter VII)
Estimated Number of Establishments
Estimated Number of Chemicals/Establishment
Estimated Number of Chemicals Reported
Average Cost Per Chemical of Reporting
Subtotal Cost for Other Firms
III. Total Cost of Reporting
5,000
1.5
7,500
15
112,500
$120
$13.5 million
5,000
$160
$800,000
$14.3 million
1. Assumes that all companies would have to report production by site.
Source: Arthur D. Little, Inc., estimates.
34
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V. OPTIONS FOR SMALL BUSINESS DEFINITION
A. INTRODUCTION
In passing the Toxic Substances Control Act (TSCA), Congress required that small busi-
nesses be exempted from certain record-keeping and reporting requirements of the law in order to
"protect small manufacturers and processors from unreasonably burdensome requirements." In
order that the EPA comply with this provision of the law, a definition of "small manufacturer,"
taking the burden to small businesses into account, is required for the initial Section 8(a)
reporting requirements (the inventory).
These inventory reporting regulations are likely to require a more encompassing definition
of "small manufacturer" than other reporting regulations, since the inventory reporting is likely
to be less burdensome to the companies required to report than future requirements under
Section 8(a). However, it is recognized that this requirement will affect a larger number of firms.
This chapter deals primarily with the analysis of options for a definition of which firms should
qualify as small manufacturers for the purposes of these initial Section 8(a) inventory reporting
requirements.
The overall objective of the TSCA reporting section may be stated as giving the EPA the
authority to gather information necessary for the administration of the Act without unreasonably
burdening small manufacturers. Information gathered under TSCA is to be shared with other
Federal government agencies. This information could be used by a variety of government
agencies, including the EPA, for such purposes as:
Determining which industrial plant may be responsible for suspected discharge of
a chemical,
Determination of worker exposure to selected chemicals, and
Providing government agencies with a data base for setting priorities on suspected
toxic chemicals and taking actions affecting the chemical industry.
As an overall approach to defining small businesses for the purpose of the inventory, three
steps are proposed:
Select parameters which may be used to describe a small manufacturer,
Screen these parameters for usefulness, ease of definition, and implementability,
then
Determine hurdle criteria for each parameter, i.e., "draw the line" with quan-
titative measures that separate small manufacturers from other manufacturers.
In the following sections, these three steps are discussed and some general industry statistics are
displayed to provide policy makers with information indicative of the number of firms or
establishments affected by alternative definitions.
B. POSSIBLE PARAMETERS FOR DEFINITION
The. legislative history of TSCA makes if clear that the intent of Congress is to require a
definition based on the firm rather than the individual establishments. That is, the choice of
35
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parameters describing a small manufacturer should be applied to the total of all establishments
owned or controlled by that manufacturer. On this basis, the parameters available for a small
business definition include company sales, sales per chemical, assets, employment, manufac-
turing sites, and production volume.
1. Company Sales
Annual sales (f.o.b. plant) is probably the single most useful parameter. Sales are well
known by manufacturers and often reported internally and externally. While some firms may
experience fluctuations in sales from year to year across whatever sales value may be chosen to
define a small manufacturer, the number of such firms is likely to be small relative to the total
number of firms. A manufacturer can easily determine the firm's sales and know whether
reporting is required. Sales is also useful as a criterion in determining the reasonableness of
burden since it provides some indication of a company's ability to divert cash flow to reporting
costs. Generally, the larger the sales, the larger the staff employed by a firm; therefore, sales
provides a general indication of the number of employees and, hence, a rough indication of work
place exposure. A disadvantage of sales is that it does not provide an accurate picture of the value
added by the manufacturer, which is a better indicator of the firm's ability to bear the reporting
cost burden.
2. Sales Per Chemical
The cost or burden of the reporting requirements increases with the number of chemicals to
be reported by a manufacturer. A parameter such as sales per chemical to be reported would
provide a good measure of the ability of a firm to manage the reporting requirements for an
individual chemical. On the other hand, while a manufacturer could determine the number of
chemicals to be reported, information on sales per chemical is not publicly available at this time.
Thus, this parameter would be difficult to implement although it does provide a useful measure
of reasonableness of burden. While some measure of sales per reported chemical may not be
appropriate in determining the definition of a small manufacturer because of implementation
problems, consideration was given to this measure in determining the cost impact of the inven-
tory reporting requirement (see Chapter IV).
3. Assets
The value of assets employed by the firm is a possible parameter for a small business
definition. Assets provide an indication of the size of the firm and a general indication of the
reasonableness of the reporting cost or burden. However, some specific definitions of assets would
have to be determined in implementing this parameter. Total gross assets employed would
include such long-term assets as properties, plant and equipment, investments, and deferred
charges; and such current assets as cash, short-term investments, accounts receivable, invento-
ries and prepaid expenses. Defining each of these components of total assets would be difficult;
e.g., EPA would need to determine whether plant and equipment should be valued at cost or at
market value. Thus, there may be some difficulty in using this parameter (for the EPA, or for the
manufacturers) because a determination would need to be made as to whether the firm has
sufficient assets to be required to report. Despite these problems, some value of assets could be
useful in defining a small business, if it were used in combination with some other parameter.
4. Employment
Some measure of the number of employees (total employment, non-operating employment
or operating employment) may be a useful parameter for a definition of small business. In fact,
36
-------
this is the measure used by the Small Business Administration to define small businesses in the
manufacturing sector. This parameter is also of interest to OSHA in determining the number of
workers potentially exposed. However, some difficulties with this parameter are apparent. For
example, a business may be seasonal and the number of employees may vary through the year. In
this case, a previous year's average employment may be a more useful criterion. In addition, the
' number of employees is not necessarily correlated with the number of chemicals to be reported
and, therefore, the total cost of inventory reporting.
If non-operating employment were used as the criterion, the reasonability of the reporting
requirement could be more properly assured. However, it is difficult to define a non-operating
employee while some cases are clear, other cases may not be so clear; e.g., a foreman whose
primary responsibility is supervisory and reporting, but occasionally fills in for absent operating
employees.
5. Manufacturing Sites
The number of manufacturing sites (establishments) may be a useful parameter if used in
combination with another parameter such as sales. For example, in addition to some value of
sales, a small manufacturer could be defined as having only one manufacturing site. It is possible
that some otherwise small manufacturers may have several very small manufacturing sites.
However, in such cases, this information would be useful to EPA particularly if toxic substances
are shipped between sites.
6. Production Volume
Finally, the annual production volume of a given chemical may be used as a parameter for
defining a small business. Currently, such information is not publicly available for most chem-
icals. Using this parameter would require manufacturers to collect information not necessarily
gathered now in order to screen chemicals that would have to be reported. While the definition is
clear, it could be difficult to implement for both manufacturers and the EPA. On the other hand,
some threshold level of annual chemical production, in conjunction with a less restrictive small
business definition, could be used to reduce the number of chemicals reported by firms by
exempting a large number of firms except for those chemicals with large production volume. This
would reduce the burden to the small manufacturers and yet provide the EPA with reporting on
all large production volume chemicals. It would also allow the EPA to be more lenient in defining
who qualifies as a small manufacturer because it would significantly reduce the uncertainties
concerning the information reported under the regulations.
C. POSSIBLE LEVELS FOR DEFINITION OF SMALL BUSINESS
While all six of the parameters discussed above are possible choices for use in defining a
small manufacturer, comprehensive data are not available by firm for sales per chemical, value of
assets, number of manufacturing sites, or production volume. In discussing the possible impact of
certain values of hurdle criteria for the parameters defining a small business, one is basically
limited to annual sales and number of employees. Since employment is generally closely corre-
lated with sales, and sales is preferred over employment as a means of defining a small business,
only different values of sales are further analyzed. Sales and assets are also closely correlated, so
using one of these criteria essentially includes the other. As a general rule, assets are approx-
imately 50 percent of sales in the chemical industry, although this figure varies between firms and
segments of the chemical industry. In the following, the number of companies affected is
estimated depending upon the hurdle criterion^phosen for a definition of small businesses in the
chemical industry, based on annual sales.
37
-------
Table V-l shows the cumulative number of firms, employees and annual sales for chemical
manufacturing firms grouped by value of sales per firm. If annual sales were used to define a
small business, the number of firms exempted at various levels of annual sales per firm would be
as shown in the table. For example, firms with less than $10.0 million in sales per year may be
characterized as accounting for:
4,407 firms (88.6 percent of all chemical manufacturing firms),
115,010 employees (7.6 percent of all chemical employees),
and $6.5 billion annual sales (6.3 percent of chemical sales).
These characteristics are illustrated in Figure V-l for various definitions of a small business.
From Table V-l, it may be determined that a small number of firms (170 firms) with annual
sales of over $100 million account for over 80 percent of total industry sales and employment.
From the point of view of cost-effective coverage of the chemical industry, it is clear that imposing
reporting requirements on a relatively small number of very large firms will provide substantial
coverage. However, from the point of view of knowing where most toxic or potentially toxic
substances are produced, and in what quantities, coverage of more firms may be necessary.
38
-------
100
Number of Employees (%)
0.1
Source: Arthur D. Little, Inc.
2.5 5 10 30 100
Sales of Manufacturing Firms (less than value shown) (Millions of Dollars)
1,000
10,000
FIGURE V-1 CHEMICAL INDUSTRY STATISTICS BY SIZE OF FIRM
-------
TABLE V-1
U.S. CHEMICAL PRODUCING FIRMS - BY ANNUAL SALES OF FIRM - 1976
(Excluding Processing Firms)
(Includes SICs 28XX and 2911 Except 283X and 2879)
Annual Sales
Less Than
($ Million)
0.1
1.0
o 2.5
5.0
10.0
30.0
100.0
Cumulative
Number of
Firms
141
2,335
3.478
4.051
4.407
4,679
4,805
Cumulative
Number of
Employees
430
21,080
52,710
82,510
115,010
171,340
257,760
Cumulative
Annual Sales
($ Million)
6
781
2,496
4,271
6,496
10,531
16,131
Cumulative
Percentage of
Firms
(%)
2.8
46.9
69.9
81.4
88.6
94.0
96.6
Cumulative
Percentage of
Employees
(%)
0.03
1.4
3.5
5.5
7.6
11.4
17.1
Cumulative
Percentage of
Sales
(%)
0.006
0.8
2.4
4.1
6.3
10.2
15.6
Total
4,975
1,509,080
$103,681
100.0
100.0
100.0
Source: Arthur D. Little, Inc., estimates.
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VI. RECOMMENDED OPTIONS FOR
SMALL BUSINESS DEFINITION
A. PARAMETERS FOR DEFINITION
As previously discussed, it is possible to analyze the impact of a small business definition
based upon a firm's annual sales or employment but not possible for assets, sales per chemical,
number of manufacturing sites or production volume. Furthermore, within the chemical in-
dustry, the average value of sales per employee is relatively constant across sectors of the
industry. As shown in Table VI-1, the average value of sales per employee for SIC 28 is $66,050
with a range among industry sectors of $45,700 to $133,300. The petroleum refining industry has
very high sales per employee, approximately $234,500 per employee. Since sales per employee is
relatively constant within the chemical industry, a definition of small manufacturer based upon
number of employees would be roughly comparable to a definition based upon an annual value of
sales.
While sales per employee does not vary significantly among sectors of the industry, it does
vary significantly depending upon size of the firm (as defined by annual sales), as shown in Table
VI-2. Firms with annual sales of less than $100,000 have an average of $14,000 in sales per
employee. Firms with annual sales of over $100 million have an average of $70,000 in sales per
employee.
The Small Business Administration (SBA) suggested a definition of a small business for the
purposes of the TSCA inventory of 100 employees per firm. The SBA notes that the August 2,
1977 EPA re-proposed inventory reporting regulations proposed a small business definition of less
than $100,000 in annual sales. While the EPA proposed definition would classify almost 20
percent of the firms in the industry as small businesses, the SBA stated that they believed that
such firms would be mostly processors and would not include many, if any, chemical manufac-
turers. The proposed SBA definition of 100 employees would require full reporting on chemicals
representing over 90 percent of the value of sales and employment in the industry, but would
require only 8 percent of the firms to report production volume information (by site). At the
average chemical industry value of sales per employee of $68,000 (including chemical production
in the petroleum refining industry), the SBA proposed definition of a small business (100
employees or less) would be equivalent to sales of $6.8 million per year or less.
Because sales data is more readily available than employment data, a small business
definition based upon annual sales appears to be the most readily implementable. Also, as
discussed earlier, a sales-based definition provides a better indication of the reasonableness of the
reporting cost or burden than does an employee-based definition.
B. ESTIMATED COST OF INVENTORY REPORTING FOR SELECTED
SMALL BUSINESS DEFINITIONS
As discussed in Chapter IV, the cost of the inventory reporting to a firm is dependent upon a
number of factors:
Number of chemicals produced,
Number of manufacturing sites, and
Whether the firm is a small business or a large business for the purposes of
reporting.
41
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TABLE VI-1
AVERAGE SALES PER EMPLOYEE BY INDUSTRY SECTOR
SIC Value of Sales Per
Code Industry Sector Employee
2812 Alkalies and Chlorine $74,500
2813 Industrial Gases 54,900
2816 Inorganic Pigments 45,900
2819 Industrial Inorganic Chemicals 60,200
2821 Plastics Material and Resins 68,900
2822 Synthetic Rubber 73,900
2823 Cellulosic Man-Made Fibers 48,600
2824 Organic Fibers 56,800
2841 Soaps, Detergents 99,300
2842 Polishes and Sanitary Goods 59,300
2843 Surface Acting Agents 102,700
2844 Toilet Preparations, Perfumes 57,900
2851 Pai nts and Al I ied Products 51,900
2861 Gum, Wood Chemicals 47,500
2865 Cyclic Crudes and Intermediates 62,700
2869 Industrial Organic Chemicals 67,900
2873 Nitrogenous Fertilizers 133,300
2874 Phosphatic Fertilizers 121,900
2875 Mixing Fertilizers 81,800
2891 Adhesives and Sealants 65,500
2892 Explosives 48,300
2893 Printing Ink 57,000
2895 Carbon Black 64,300
2899 Chemical Preparations 68,200
28xx Chemicals and Allied Products 66,050
2911 Petroleum Products1 $234,500
Weighted Average $ 67,800
1. Petrochemical production of petroleum refineries (SIC 2911) accounts
for less than 10% of the value of sales of refineries. Employment and
sales data for SIC 2911 were included at 10% of total employment
and sales of SIC 2911.
Source: Arthur D. Little, Inc., estimates based on Dun and Bradstreet data.
42
-------
TABLE VI-2
AVERAGE SALES PER EMPLOYEE BY SIZE OF FIRM BASED ON ANNUAL SALES
Average Annual Sales
($ Million)
0.0-
0.1 -
1.0-
2.5-
5.0-
10.0-
0.1
1.0
2.5
5.0
10.0
30.0
30.0- 100.0
Over 100.0
Weighted Average
Sales Per Employee
$14,000
38,000
54,000
59,000
68,000
72,000
65,000
70,000
68,000
Source: Arthur D. Little, Inc., estimates based on
Dun and Bradstreet data.
The cost of inventory reporting has been estimated for seven different levels of annual sales per
firm that could be used to define a small business:
$ 100,000 annual sales,
$ 1,000,000 annual sales,
$ 2,500,000 annual sales,
$ 5,000,000 annual sales,
$ 10,000,000 annual sales,
$ 30,000,000 annual sales, and
$100,000,000 annual sales.
The estimated unit costs of reporting described in Chapter IV were used to estimate the
reporting costs per chemical and Table VI-3 summarizes these estimated costs. The estimated
TABLE VI-3
ESTIMATED COST PER CHEMICAL OF INITIAL INVENTORY REPORTING
Number of
Isolated
Chemicals Per
Establishment
5
10
15
20
30 .
Cost to Report Name Only
Cost to Report Name
and Volume
Fixed Cost
Per Chemical
Reported
$60
30
20
15
10
Variable
Cost Per
Chemical
Total
Cost Per
Chemical
Variable
Cost Per
Chemical
Total
Cost Per
Chemical
$40
40
40
40
40
$100
70
60
55
50
$100
100
100
100
100
$160
130
120
115
110
Source: Arthur D. Little, Inc., estimates, calculated from estimates shown in Table IV-1.
43
-------
cost per chemical to report only the name of the chemical produced ranges from $50 to $100 per
chemical depending on the number of chemicals produced at each establishment. Similarly, the
estimated cost of reporting both the chemical name and the order of magnitude production
volume ranges from $110 to $160 per chemical. It is estimated that about 114,000 chemical reports
(i.e., isolated chemicals to be reported) will be required from 4,975 firms manufacturing chem-
icals at 7,400 establishments, as shown in Table VI-4. Table VI-5 also shows the average number
of isolated chemicals per firm which will have to be reported on the initial inventory.
Tables VI-6 through VI-12 provide estimates of the initial inventory reporting costs at
various levels of a sales-based small business definition. In each case it was assumed that those
firms qualifying as a small business would only report chemical identity information, while firms
above the sales level used to define small businesses would report both chemical identity and
production volume information (by site). The total costs of the initial inventory reporting for the
chemical industry (SICs 28 and 2911 except 283X and 2879) at various levels of a small business
definition are summarized as follows:
Small Business Definition Total Cost of
Based on Annual Sales Inventory
(Less than) Reporting
$ 100,000 $13,604,000
1,000,000 12,945,000
2,500,000 12,087,000
5,000,000 11,443,000
10,000,000 10,802,000
30,000,000 10,149,000
100,000,000 9,242,000
C. REASONABLENESS OF THE INVENTORY REPORTING BURDEN
As shown above and in Tables VI-6 through VI-12, a small business definition of under $100
million per year in sales would result in a chemical industry reporting cost of $9.2 million, while a
definition of $100,000 per year in sales would result in a reporting cost of $13.6 million. Addi-
tionally, Table VI-13 shows the initial inventory reporting cost as a percentage of after-tax profits
for chemical firms at the annual sales levels of the small business definitions analyzed. This table
shows the estimated reporting costs per firm for reporting chemical identity only and for reporting
both chemical identity and order of magnitude production volume (by site). These costs are for
those firms in SICs 28 and 2911 only and do not include firms outside SICs 28 and 2911 with
chemical production. Costs for those firms are covered in Chapter VII. Annual after-tax profits
were assumed to be 6 percent of sales. As noted earlier, the overall profitability of the chemical
industry has generally been between 6 percent and 8 percent of sales.
As would be expected, the reporting cost as a percentage of profit increases as the size of the
firm decreases. Costs of reporting both chemical identity and production information are 13.3
percent of after-tax profit for a firm with $100,000 annual sales and 0.4 percent for a firm with
$100 million in annual sales.
A small business definition based on annual sales in combination with a requirement that
all firms report the production volumes of those chemicals manufactured in excess of 100,000
44
-------
TABLE VI-4
ESTIMATED NUMBER OF MANUFACTURING FIRMS, ESTABLISHMENTS AND
CHEMICAL REPORTS BY SIZE OF FIRM (BASED ON ANNUAL SALES)
en
Annual Sales
($ Million)
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0-
0.1
1.0
2.5
5.0
10.0
30.0
100.0
Number1
of Manufacturing
Firms
141
2,194
1,143
573
356
272
126
170
Average Number
of Establishments
Per Firm
1.0
1.0
1.25
1.25
1.5
2.0
4.0
8.0
Total
Number of
Establishments
141
2,194
1,429
716
534
544
504
1,360
Average Number
of Isolated Chemicals
Per Establishment
5
5
10
15
20
20
30
30
Number
of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Total
Weighted Average
4,975
1.5
7,422
15
114,185
1. Number of manufacturing firms as esti mated in Table 111-10.
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-5
AVERAGE NUMBER OF ISOLATED CHEMICALS PER FIRM
Average Number of Average Number of Average Number of
Annual Sales Isolated Chemicals Establishments Isolated Chemicals
($ Million) Per Establishment Per Firm Per Firm
0.0 - 0.1 5 1.0 5
0.1 1.0 5 1.0 5
1.0 2.5 10 1.25 13
2.5 5.0 15 1.25 19
5.0 - 10.0 20 1.5 30
10.0- 30.0 20 2.0 40
30.0-100.0 30 4.0 120
100.0+ 30 8.0 240
Source: Arthur D. Little, Inc., estimates.
46
-------
TABLE VI-6
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $0.1 million
Annual Sales Number of Firms
{$ Million) Reporting
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1.143
573
356
272
126
170
Number of Chemical
Reports/Firm
5
5
13
19
30
40
120
240
Number of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Average Cost
for Chem. Report Total Cost
100
160
130
120
115
115
110
110
70,500
1,755,200
1,857,700
1,288,800
1,228,200
1,251,200
1,663,200
4,488,000
Cost per Fi
500
800
1,625
2,250
3,450
4,600
13,200
26,400
Total
4,975
114,185
13,603,675
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-7
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $1.0 MILLION
Annual Sales
($ Million)
Number of Firms
Reporting
Number of Chemical
Reports/Firm
Number of Chemical
Reports
Average Cost
for Chem. Report
Total Cost Cost per Firm
00
0.0-
0.1-
1.0-
2.5-
5.0-
10.0 -
30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1,143
573
356
272
126
170
5
5
13
19
30
40
120
240
705
10,970
14,290
10,740
10,680
, 10,880
15,120
40,800
100
100
130
120
115
115
110
110
70,500
1,097,000
1,857,700
1,288,800
1,228,200
1,251,200
1,663,200
4,488,000
500
500
1,625
2,250
3,450
4,600
13,200
26,400
Total
4,975
114,185
12,944,600
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-8
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $2.5 MILLION
Annual Sales Number of Firms Number of Chemical
($ Million) Reporting Reports/Firm
Number of Chemical
Reports
Average Cost
for Chem. Report
Total Cost Cost per Firm
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1,143
573
356
272
126
170
5
5
13
19
30
40
120
240
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
100
100
70
120
115
115
110
110
70,500
1,097,000
1,000,300
1,288,800
1,228,200
1,251,200
1,663,200
4,488,000
500
500
875
2,250
3,450
4,600
13,200
26,400
Total
4,975
114,185
12,087,200
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-9
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $6.0 MILLION
Annual
Sales Number of Firms
($ Million)
0.0-
0.1 -
1.0-
2.5-
5.0-
10.0-
30.0-
100.0 +
0.1
1 0
2.5
5.0
10.0
30.0
100.0
Reporting
141
2,194
1,143
573
356
272
126
170
Number of Chemical
Reports/Firm
5
5
13
19
30
40
140
240
Number of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Average Cost
for Chem. Report Total Cost
. 100
100
70
60
115
115
110
110
70,500
1,097,000
1,000,300
644,400
1,228,200
1,251,200
1,663,200
4,488,000
Cost per F
500
500
875
1,125
3,450
4,600
13,200
26,400
Total
4,975
114,185
11,442,800
Source: Arthur 0. Little, Inc., estimates.
-------
TABLE VI-10
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $10.0 MILLION
Annual Sales Number of Firms
($ Million) Reporting
0.0-
0.1-
1.0-
2.5-
5.p-
10.0-
30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1,143
573
356
272
126
170
Number of Chemical
Reports/Firm
5
5
13
19
30
40
120
240
Number of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Average Cost
for Chem. Report Total Cost
100
100
70
60
55
115
110
110
70,500
1,097,000
1,000,300
644,400
587,400
1,251,200
1,663,200
4,488,000
Cost per Firm
500
500
875
1,125
1.650
4,600
13,200
26,400
Total
4,975
114,185
10,802,000
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-11
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $30.0 MILLION
Annual Sales Number of Firms
($ Million) Reporting
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
.30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1,143
573
356
272
126
170
Number of Chemical
Reports/Firm
5
5
13
19
30
40
120
240
Number of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Average Cost
for Chem. Report Total Cost
100
100
70
60
55
55
110
110
70,500
1,097,000
1,000,300
644,400
587,400
598,400
1,663,200
4,488,000
Cost per Fii
500
500
875
1,125
1,650
2,200
13,200
26.400
Total
4,975
114,185
10,149,200
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-12
ESTIMATED COST OF INVENTORY REPORTING, SMALL MANUFACTURER
DEFINED AS ANNUAL SALES OF LESS THAN $100.0 MILLION
t/i
Annual Sales Number of Firms
($ Million) Reporting
0.0-
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0 +
0.1
1.0
2.5
5.0
10.0
30.0
100.0
141
2,194
1,143
573
356
272
126
170
Number of Chemical
Reports/Firm
5
5
13
19
30
40
120
240
Number of Chemical
Reports
705
10,970
14,290
10,740
10,680
10,880
15,120
40,800
Average Cost
for Chem. Report Total Cost
100
100
70
60
55
55
50
110
70,500
1,097,000
1,000,300
644,400
587,400
598,400
756,000
4,488,000
Cost per Fi
500
500
875
1,125
1,650
2,200
6,000
26,400
Total
4,975
114,185
9,242,000
Source: Arthur D. Little, Inc., estimates.
-------
TABLE VI-13
INVENTORY REPORTING COSTS AS A PERCENTAGE OF AFTER-TAX PROFIT FOR
REPRESENTATIVE FIRMS
(A)
(B)
(C) (D)
Reporting Cost Per Firm For
(E)
(F)4 (G)5
Total Reporting Cost as a
Percentage of After-Tax
Profits
Annual Sales
($ Million)
0.1
1.0
2.5
5.0
10.0
30.0
100.0
Number of Chemicals
Reports/Firm
5
13
19
30
40
120
240
Identity
Only1
500
875
1,125
1,650
2,200
6,000
12,000
Identity and
Production2
$ 800
1,625
2,250
3,450
4,600
13,200
26,400
Annual Profits
After Tax3
$ 6,000
60,000
150000
300,000
600000
1,800,000
6,000,000
Identity
Only
8.3
1.5
.75
' .55
.37
.33
.20
Identity and
Production
13.3
2.7
1.5
1.2
0.8
0.7
0.4
1. Reporting costs used are costs to report chemical name (identity) only.
2. Reporting costs used are costs to report both chemical identity and order of magnitude production volume.
3. Annual profit after tax is estimated to be 6% of sales.
4. (F) =
-------
pounds has not been analyzed in detail in this report. However, in Table VI-13 the costs of
reporting chemical identity only and the costs of reporting production volume are shown, as are
those costs as a percentage of after-tax profits. A requirement that firms of all sizes report
production volumes in excess of 100,000 pounds would result in a total cost somewhat greater
than that estimated for the sales-based definitions above. The total inventory reporting cost
would be between the costs shown for a small business definition based on sales alone and the
maximum total cost of the inventory ($13.6 million for the chemical industry plus $0.8 million for
non-chemical firms).
55
-------
VII. INVENTORY COST AND SMALL BUSINESS
DEFINITION FOR NONCHEMICAL FIRMS
WITH SOME CHEMICAL PRODUCTION
A. ESTIMATED NUMBER OF NONCHEMICAL FIRMS
PRODUCING CHEMICALS
Some firms, primarily producing other products, also produce relatively small amounts of
chemicals, generally as by-products or to be assured a source of supply for some chemical required
for other products. An analysis of Table 5C of the 1972 Census of Manufactures shows that less
than 1 percent of the value of shipments of SIC 28 and 2911 products is contributed by industries
outside SICs 28 or 2911. The initial Section 8(a) inventory reporting regulation requires reporting
of all chemical substances manufactured during calendar year 1977 at a site if:
(1) Thirty percent or more of the weight of the products distributed from the site
consists of products of the type described under SIC 28 or 2911; or
(2) The total pounds of reportable chemical substances manufactured at the site
equals one million pounds or more; and
(3) Any chemical substance not reported under (1) or (2) above was manufactured
during calendar year 1977 in quantities equal to or greater than 100,000 pounds.
Very little information is available concerning chemical production by establishments not
primarily engaged in chemical manufacture (i.e., by establishments not classified in SICs 28 and
2911). It is not possible to determine the exact number of firms required to report under the
criteria outlined in (1) through (3) above. It has been conservatively assumed, for the purposes of
this analysis, that all establishments producing chemicals will report those chemicals for the
initial inventory regardless of the percent of the weight of products distributed that those
chemicals represent. Thus, it has been possible to estimate the number of nonchemical firms
(firms operating establishments which are primarily classified outside SICs 28 and 2911) which
produce some chemicals. Due to time constraints and data limitations, this estimate is neces-
sarily imprecise. However, additional analysis was not considered necessary since these firms
represent less than 1 percent of the value of shipments of SIC 28 and 2911 products and a very
small portion of the inventory reporting burden.
Table VII-1 shows the number of nonchemical firms identified by Dun & Bradstreet that
have some non-primary sales of SIC 28 or 2911 products. Since D&B allows as many as 6 SIC
codes to be shown for each establishment, this data should represent a reasonably complete
tabulation of nonchemical companies producing some chemicals. The total annual sales and
employment (including nonchemical sales and employment) is also shown. It may be seen that
2,125 nonchemical firms with total annual sales of $453 billion and total employment of 4.1
million are included in this tabulation of companies producing some chemicals. Chemical sales
and employment for these firms are unknown, but are believed to be less than 1 percent of the
respective totals, based on the fact that less than 1 percent ofv the value of shipments of SIC 28
and 2911 products are from non-28 and 2911 establishments. Total sales in the chemicals industry
are approximately $104 billion. Thus, it is assumed that chemicals sales of nonchemical firms are
approximately $1 billion, or less than 1 percent of the total sales of $453 billion shown for these
companies.
57
-------
TABLE VIM
NUMBER OF FIRMS, ANNUAL SALES AND EMPLOYMENT
FOR NONCHEMICAL FIRMS WITH SOME CHEMICAL OPERATIONS
Annual Sales
Per Firm Number of Annual Sales1
<$ Million) Firms ($ Million) Employees1
0.0- 0.1 176 9 690
0.1 1.0 512 201 6,025
1.0- 2.5 292 439 9,510
2.5- 5.0 146 500 8,475
5.0- 10.0 123 824 16,000
10.0- 30.0 120 1,982 35,180
30.0-100.0. 89 4,948 86,120
100.0+ 199 444,000 3,908,650
Unknown 468 0 36,510
Total 2,125 452,903 4,107,160
1. Annual sales and employment data are primarily for nonchemical
production.
Source: Arthur D. Little, Inc., estimates based upon D&B statistics.
Table VII-2 shows a detailed breakdown of the 2,125 firms by size of firm (as defined by
annual sales) and by industry. Industries accounting for more than 50 firms include:
Primary Number
SIC Code Sector of Firms
13 Oil and gas extraction 63
20 Food and kindred products 160
30 Rubber and misc. plastics 90
32 Stone, clay, glass and concrete 58
34 Fabricated metal products 72
35 Machinery, except electrical 116
39 Misc. manufacturing industries 78
50 Wholesale trade-durable goods 222
5t Wholesale trade-nondurable goods 440
59 Micellaneous retail 50
67 Holding and other investment offices 78
73 Business services 120
58
-------
Primary
SIC
Code
01
02
07
10
11
12
13
14
15
16
17
20
21
22
23
24
25
26
27
30
31
32
33
34
35
36
37
38
Industry
Agricultural - Crops
Agricultural Livestock
Agricultural Services
Metal Mining
Anthracite Mining
Bituminous Mining
Oil and Gas Extraction
Nonmetallic Mining
Building Construction
General Contractors
Special Trade Contractors
Food
Tobacco
Textile Mills
Apparel
Lumber and Wood
Furniture
Paper
Printing
Rubber
Leather
Stone, Clay, Glass
Primary Metals
Fabricated Metal
Machinery
Electrical Machinery
Transportation Equip
Instruments
TABLE VI1-2
NUMBER OF NONCHEMICAL COMPANIES WITH SOME CHEMICAL OPERATIONS BY ANNUAL VALUE OF SALES1
Annual Sales ($ million)
$0.0-0.1
2
3
2
5
5
1
2
3
2
3
5
5
2
5
1
2
1
$0.1-1.0
3
4
7
2
1
2
3
12
32
5
7
3
3
1
24
2
7
6
17
26
6
3
13
$1-2.5
4
3
2
2
3
20
5
6
5
1
5
4
15
1
10
7
9
25
2
3
2
$2.5-5
2
2
1
1
1
1
2
10
2
1
2
4
3
5
6
2
3
8
1
1
2
$5-10
2
2
1
10
1
2
4
3
8
5
2
4
7
1
1
$10-30
1
3
2
1
1
13
2
2
3
1
1
5
3
4
3
6
4
3
1
2
$30-100
2
3
2
17
1
4
2
1
1
1
5
3
1
7
6
3
2
3
$100-Over
4
1
41
3
25
3
2
1
8
1
9
7
8
5
8
2
6
5
Sales
Unknown
4
1
2
2
1
11
4
3
1
9
26
2
1
4
5
6
14
11
9
21
30
8
4
3
Total
15
10
16
8
1
1
63
13
10
8
32
160
4
18
19
26
9
31
23
90
6
58
36
72
116
33
23
32
1. Annual sales for each firm is primarily non-chemical sales.
-------
Primary
SIC
Code
39
40
42
47
49
50
51
62
53
54
55
56
57
58
59
62
64
65
67
70
72
73
75
76
78
80
82
83
86
89
Total
TABLE VI1-2 (Continued)
Annual Sales ($ million)
Industry
Misc. Manufacturing
Railroads
Motor Freight
Transportation Services
Elec., Gas, Sanitary Services
Wholesale - Durable Goods
Wholesale Nondurables
Building Materials
General Merchandise
Food Stores
Auto Dealers, Gas Stations
Apparel Shops
Furniture Stores ^
Restaurants
Misc. Retail
Security & Commodity Brokers
Insurance Services
Real Estate
Investment Offices
Hotels
Personal Services
Business Services
Auto Repair
Misc. Repair
Motion Pictures
Health Services
Educational Services
Social Services
Membership Organizations
Misc. Services
$0.0-0.1
8
3
19
29
3
2
1
1
2
14
1
6
4
21
1
3
1
3
1
4
176
$0.1-1.0
19
2
94
91
24
2
3
2
2
1
11
1
3
6
1
6
37
8
7
1
2
512
$1-Z5
14
4
1
1
29
80
3
. 2
2
1
4
16
1
292
$Z5-5 $5-10 $10-30
7 45
2
1
10 12 10
53 33 27
2 4
1
1 1
1
1 2 1
1
4 59
4 65
1
2
146 123 120
$30-100 $100-Over
2 3
1
1
11
7
15 19
2 2
1
1
1 3
1
2 5
1
1 3
1
1
1
89 199
Sales
Unknown
16
2
1
1
41
93
8
2
2
1
1
2
18
6
37
9
27
1
2
*
2
1
3
8
468
Total
78
1
14
3
13
222
440
48
6
5
13
3
6
3
50
1
1
11
78
1
20
120
4
13
1
14
1
1
4
17
2,125
Source: Arthur D. Little, Inc., estimates based on D&B data.
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In order to estimate the number of firms which only process chemicals and are therefore
exempt from the inventory reporting, some of the more important industries were examined by
four digit SIC code. The food industry (SIC 20), which represents 160 of these nonchemical firms
includes:
Primary Number
Sic Code Sector of Firms
2077 Animal and sea fats and oil 8
2087 Flavoring extracts and syrups 19
2099 Food preparations, not elsewhere classified 14
The remaining firms producing some chemicals are widely spread throughout the food
industry. However, it is unlikely that molecular changes are occurring in these operations, so
most firms would be chemical processors rather than manufacturers.
The nonelectrical machinery industry (SIC 35), which represents 116 of the nonchemical
firms includes:
Primary Number
SIC Code Sector of Firms
3523 Farm machinery 9
3449 Special industries machinery 11
3569 General industrial machinery 8
3589 Service industry machines 27
3599 Machinery, not elsewhere classified 12
It is likely that these firms are reclaiming chemicals from some plating operations, where
molecular changes do not occur. Therefore, many of these firms would also be considered
chemical processors.
The durable goods wholesale trade industry (SIC 50), which represents 222 of the non-
chemical firms includes:
Primary Number
SIC Code Sector of Firms
5013 Automotive equipment 12
5039 Construction materials 12
5084 Industrial machinery 30
5085 Industrial supplies 15
5086 Professional equipment and supplies 20
5087 Service establishment equipment 60
5099 Nondurables, not elsewhere classified 23
61
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It appears that most of these firms would be wholesaling chemicals with other equipment or
would be processing purchased chemicals.
The nondurable goods wholesale trade industry (SIC 51), which represents 440 of the firms
includes:
Primary Number
SIC Code Sector of Firms
5122 Drug and proprietaries 53
5153 Grain 38
5161 Chemicals and allied products 156
5172 Petroleum products 27
5191 Farm supplies 85
5198 Paints, varnishes and supplies 20
5199 Nondurable goods 22
While many of these firms deal with products for which reports are not required (drugs and
insecticides), it is not possible to determine whether some of these firms may also be manufac-
turing chemicals. Some limited production may occur in some firms, but most firms are likely to
be mixing or otherwise processing purchased chemicals.
The business services industry (SIC 73), which represents 120 of the nonchemical firms
includes:
Primary Number
SIC Code Sector of Firms
7342 Disinfecting and exterminating 11
7391 Research and development labs 39
7392 Management and public relations 20
7399 Detective and protective services 32
It appears that most of these firms are mixing chemicals and that some R&D labs are
producing small quantities of chemicals, probably not for commercial purposes.
As shown in Table VH-3, 80 percent of these 2,125 nonchemical firms are estimated to be
chemical processors. In comparison, approximately 54 percent of the chemical industry firms
(SICs 28 and 2911) were estimated to be processors. This estimate is necessarily approximately
and may be better stated as a range of from 70 percent to 90 percent of the nonchemical firms.
Table VII-3 also shows the estimated percentage of processing firms by size of firm as defined by
annual sales. Smaller firms were assumed to represent a higher percentage of processors. As a
result of this analysis, the number of chemical manufacturing firms whose primary production is
outside the chemical industry (outside SICs 28 and 2911) is estimated to be 426 firms. The
distribution of these firm* by size of firm is also shown in Table VII-3.
62
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TABLE VI1-3
NUMBER OF PROCESSING AND MANUFACTURING FIRMS FOR NONCHEMICAL FIRMS WITH
SOME CHEMICAL OPERATIONS
Annual Sales
Per Firm
($ Million)
0.0- 0.1
0.1 1.0
1.0- 2.5
2.5 - 5.0
5.0- 10.0
10.0- 30.0
.30.0-100.0
100.0-
Not Shown
Total
Weighted Average
Totel
Number of
Firms
176
512
292
146
123
120
89
199
468
2,125
Percentage
of Firms
Processing
Chemicals
100%
90%
80%
80%
75%
60%
45%
20%
100%
80%
Number of
Processing
Firms
176
462
234
116
93
72
39
39
468
1,699
Number of
Manufacturing
Firms
0
50
58
30
30
48
50
160
0
426
Source: Arthur D. Little, Inc., estimates.
B. ESTIMATED COST OF INITIAL INVENTORY REPORTING
FOR NONCHEMICAL FIRMS
Table VII-4 shows that estimated number of chemicals to be reported by the 426 firms
whose primary production is outside the chemical industry but that have some chemical pr^duc-
tion. A total of 5,020 chemical reports are estimated for these 426 firms from 1,004 estab-
lishments. In comparing this estimate with that made for SICs 28 and 2911, two major differences
can be seen. The number of chemical establishments per firm is assumed to be fewer because\
these firms are not primarily chemical manufacturers. Also, it is assumed that each estab-
lishment manufactures only five chemicals. Since chemical production is not the primary busi-
ness of these firms, it is believed that very few chemicals are manufactured by these firms.
Although there are likely to be a small number of establishments manufacturing more than five/
chemicals, many establishments are likely to be making only one or two chemicals; therefore, it is
felt that this estimate is reasonable.
Table VII-5 shows the estimated cost of inventory reporting based upon a cost of $100 per
chemical to report only the chemical name and $160 per chemical to report the chemical name
and order of magnitude production volume. The $100 and $160 estimates were previously
explained in Chapter VI as the estimated costs of reporting for establishments producing five
chemicals. Table VTI-6 uses these estimates provided in Table VII-5 to show the estimated cost of
the initial inventory reporting for nonchemical firms at various levels of a sales-based small
business definition. At a small business definition of $100 million per year in sales, the cost is
estimated to be $0.7 million; at a small business definition of $0.1 million per year in sales, the
cost is estimated to be $0.8 million.
63
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TABLE VI1-4
ESTIMATED NUMBER OF CHEMICALS REPORTED BY NONCHEMICAL
FIRMS WITH SOME CHEMICAL OPERATIONS
Annual Sales
Per Firm
($ Million)
0.0
0.1-
1.0-
2.5-
5.0-
10.0-
30.0-
100.0-
0.1
1.0
2.5
5.0
10.0
30.0
100.0
Number of
Manufacturing
Firms
0
50
58
30
30
48
50
160
Number of
Establishments
Per Firm
1
1
1
1
1
2
2
4
Number of
Establishments
0
50
58
30
30
96
100
640
Number of
Chemicals Per
Establishment
5
5
5
5
5
5
5
5
Number of
Chemical
Reports
0
250
290
150
150
480
500
3,200
Totals
426
1,004
5,020
Weighted Averages
2.4
Source: Arthur D. Little, Inc., estimates.
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TABLE VI1-5
COST OF INVENTORY REPORTING FOR NONCHEMICAL FIRMS
WITH SOME CHEMICAL OPERATIONS
Annual Sales
Per Firm
($ Million)
0.0-
0.1-
1.0-
2.5.
5.0-
10.0-
0.1
1.0
2.5
5.0
10.0
30.0
30.0-100.0
100.0-
Total
Weighted Average
Number of
Chemical
Reports
0
250
290
150
150
480
500
3,200
5,020
Chemical Name Only
Chemical Name and
Production Volume
Cost per
Chemical1
Total
Cost
$100
100
100
100
100
100
100
100
$ 0
25,000
29,000
15,000
15,000
48,000
50,000
320,000
$502,000
$100
Cost per
Chemical2
$160
160
160
160
160
160
160
160
$160
Total
Cost
0
40,000
46,000
24,000
24,000
76,800
80,000
512,000
$803,200
1. This figure is based on a $300 fixed cost per establishment plus a variable cost of $40 per chemical.
As noted in Table VII-4, each establishment is assumed to produce 5 chemicals.
2. Based on a $300 fixed cost per establishment and a variable cost of $100 per chemical as noted in
Table VII-4, each establishment is assumed to produce 5 chemicals.
Source: Arthur D. Little, I nc., estimates.
TABLE VI1-6
COST OF INVENTORY REPORTING FOR NONCHEMICAL
FIRMS WITH SOME CHEMICAL OPERATIONS
Annual Sales Value Used to
Define Small Business
Cost to Report Chemical Name
and Production Information
$100,000
1,000,000
2,500,000
5,000,000
10,000,000
30,000,000
100,000,000
Source: Arthur D. Little, Inc., estimates.
$803,000
788,200
770.800
761,800
752,800
724,000
694,000
65
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C. SMALL BUSINESS DEFINITION FOR NONCHEMICAL FIRMS
It is difficult to estimate the initial inventory reporting cost as a percentage of after-tax
profit for these nonchemical firms. These firms produce products in many different industries and
chemical sales are only a small portion of total sales. It is logical to expect that these inventory
reporting costs as a percentage of total firm profits will be far less for this group of companies than
for the chemical industry (SICs 28 and 2911) simply because chemical production is such a small
portion of total firm sales.
However, value of production per chemical is likely to be lower and fixed costs will be a
larger part of the total costs (due to the small number of chemicals reported) than for the average
chemical firm. If costs were computed as a percentage of chemical production profits, it is
reasonable to expect the cost of reporting as a percentage of only chemical profits to be greater
than for the chemical industry. However, since the legislative history makes it clear that small
businesses should be defined on the basis of whether the reporting cost or burden is reasonable for
the entire firm, the initial inventory reporting costs should be compared to total firm sales and
profits.
As stated above, inventory reporting costs as a percentage of total firm profits are expected
to be significantly less for nonchemical firms manufacturing some chemicals than for chemical
firms. Thus, the same small business definition options or more restrictive options could be
considered for these nonchemical firms. Assuming that the same small business definition is
applied to these nonchemical firms, the impact on these firms and their respective industries
should be less than the estimated effect on the chemical industry. For example, assuming a small
business definition of $5 million in annual sales, the inventory reporting costs would represent
substantially less than 1. 2 percent of the firms' aftertax profits.
66
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VIM. LIMITS OF THE ANALYSIS
A. APPROACHES TO INVENTORY COST ESTIMATE
The basic approach used to estimate the cost to the industry of preparing the information
and reporting for the inventory of chemical substances required by Section 8(b) of the Toxic
Substances Control Act has a number of inherent limitations imposed by the availability of data,
time, and funds.
The approach used is to develop the cost per chemical of meeting the inventory reporting
requirement. With this cost per chemical established, then a total cost of compliance can be
estimated provided that the number of chemicals to be reported is known and that the analyst
includes in his estimates the frequency with which the chemical is produced in a multiplant
company. The cost per firm can then be calculated after estimating the number of chemicals per
firm.
B. LIMITATIONS TO COST-PER-CHEMICAL ANALYSIS
Theoretically, costs for reporting on a per chemical basis can be derived, and these can then
be multiplied by the number of chemicals produced, to define total compliance cost. In practice,
the accuracy of this estimate is limited by the accuracy of the individual estimates which are
used. Indeed, discussions with industry indicated extreme differences in reporting cost per
chemical (as derived from total cost divided by total chemicals to be reported). Primarily, the
problem is that industry members are concerned with evaluating a one-time exercise for which
there is little or no precedent. Their calculation of what the "cost" might be is conditioned by
their expectation of how they will approach the problem. This might include bringing in new
personnel specifically for a one-time exercise, or in instances where the number of entities to be
reported is relatively small, diverting personnel from other activities to develop the chemical
inventory. In the latter case and in less-sophisticated firms, the termed "cost" could be close to
zero, when no additional personnel costs are incurred. In most cases, industry representatives
would judge the cost burden in terms of a proportion of the time required of various existing
employees. They might or might not add overhead burden to estimate the cost. Furthermore, in
some instances, the "cost" might be (correctly) construed as the lost opportunity cost of some
professional. This would include not only his salary and overhead burden but also a reduced
profit potential.
A second limitation imposed in the cost per chemical approach, is the extreme diversity of
the chemical industry "universe." The universe consists of companies with sales ranging from less
than $100,000 per year to over $5 billion per year (a 50,000-fold difference). It includes areas of
relatively simple activity in which there are no new molecular configurations developed (such as
at air separation plants or in printing ink manufacture), to complex operations which produce
hundreds, or thousands, of new molecules (such as dyestuff and dye intermediate manufacturers,
or chemical job-shop operations). As another measure of diversity, the universe includes com-
panies which manufacture a few individual products in only one location where the president
of the firm may be the only person who can fill out the inventory form to those which
manufacture hundreds of chemicals in many locations and which may have an existing com-
puterized information system which is capable of supplying the information required for the
inventory at a fraction of the cost per chemical used in this analysis (depending on charges for
computer time*).
67
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A third limitation, in attempting to scale up estimates of cost per chemical to estimates of
total industry costs, arises from the fact that there are no reliable indices of the total number of
substances produced by the industry. The SRI Directory of Chemical Producers lists approx-
imately 10,000 commercial chemicals. This listing very probably significantly understates the
total number of discrete chemical molecules manufactured for a commercial purpose because of
grouping together mixtures such as specifically derived fatty acids or families of surface active
agents. The TSCA Candidate List contains about 33,000 separate entities. This does not propose
to be complete, yet there are obvious redundancies such as the specification of water not only as
water, but also as water vapor, ice, and three separate specifications of deuterium oxide. In
addition, there is no assurance that all of the chemicals on the Candidate List are commercially
important, and, by the same token, many may be used exclusively as pesticides and drugs or may
be naturally occurring and thus may be exempt from the inventory.
As with the approach taken by individual firms within the chemical industry, a calculated
total cost of the inventory reporting requirements suffers from numerous limitations. The major
limitation is the lack of data on the two main components of the estimate; first, the number of
chemicals which will be reported by establishments in SICs 28 and 2911 and by nonchemical
establishments; and, second, the industry average cost per chemical (per establishment) for
reporting. The estimates used in this report reflect the application of Arthur D. Little judgment
to available data.
C. LIMITATIONS TO DEFINITION OF SMALL BUSINESS
Existing legislation specifies that small companies may be required to submit only certain
information required for compilation of the initial inventory of chemical products because of the
probability of unreasonably adverse impact on their operations. Apparently the legislators be-
lieve that economic impact will be related to company size. There is no clear indication, a priori,
that this is necessarily true.
Ideally, the economic impact would be defined as the total cost of conducting the inventory
as a percent of total company profits. On this basis, the impact is much more closely related to
the nature of the business in which the enterprise is involved than is a definition based on the size
of the enterprise. While the largest companies in the industry tend to have larger average sales per
chemical because they are involved in capital-intensive, continuous processing of intermediates
and end products, there may be many small companies with a low ratio of chemical inventory
cost to profitability and many large companies with a high cost to profit ratio. This could happen
because of the different natures of the businesses in which they are involved, e.g., organic
pigments, dyestuffs, flavors and fragrances, and specialty surfactants. The nature of the industry,
therefore, discourages to some extent a meaningful relationship between company size and
economic impact.
*UA60KRI«ENT PRINTING OfFICE 1977-260-880/113
68
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