                                       
                                       
                                 Cost Analysis
            of the Final Product Performance Data Requirements Rule
                                 (March 2022)
                                       
                                       
                                       
                                       
                                       
                                       
                                  Prepared by
                                       
                   BIOLOGICAL AND ECONOMIC ANALYSIS DIVISION
                         OFFICE OF PESTICIDE PROGRAMS
                                       
                                       
                     U.S. Environmental Protection Agency
                          1200 Pennsylvania Ave., NW
                             Washington, DC  20460

Table of Contents

CHAPTER 1: EXECUTIVE SUMMARY	3
CHAPTER 2: BACKGROUND AND OVERVIEW	6
2.1	History of Product Performance Data Requirements for Pesticides Used to Control Invertebrate Pests of Public Health Concern, Invertebrate Wood Destroying Pests, and Invertebrate Invasive Pests	7
2.2	Problem Statement	9
2.3	Appropriateness of Federal Regulation in Lowering Transaction Costs	10
2.4	Statutory Authority for Final Rule	10
2.5	Description of the Final Rule	10
2.6	Brief Description of Costs and Benefits of the Final Rule	11
2.7	Affected Entities	12
CHAPTER 3: COSTS SAVINGS TO REGISTRANTS FROM THE FINALRULE	13
3.1	Introduction	13
3.2	Changes Resulting from the Final Product Performance Rule	14
3.2.1	Changes in Data Requirements	14
3.2.2	Reduction in Uncertainty	15
3.3	Cost Methodology	15
3.4	Data Generation & Processing Costs	17
3.4.1	Data Generation Costs	17
3.4.2	Processing Costs	18
3.5	Sampling Methodology	19
3.6	Impact of Changes in Data Requirements	21
3.6.1	Stinging Insects: Bees, Wasps, Hornets, and Yellowjackets	22
3.6.2	Biting Flies	22
3.6.3	Restricted Species Claims	23
3.7	Impact of Reduction in Uncertainty	24
3.7.1	Impact on Data Generation Costs	24
3.7.2	Impact on Processing Costs	29
3.7.3	Unquantified Cost Savings and Other Benefits from Regulatory Clarity	30
3.8	Estimated Annual Impact of the Final Product Performance Rule	32
3.8.1	Annual Savings from Changes in Data Requirements	32
3.8.2	Annual Total Impact	32
3.8.3	Annual Impact Per Product	35
3.8.4	Annual Impact Per Firm	35
3.9	Impact on Small Firms	35
3.9.1	Industry Profile	35
3.9.2	Impacts to Small Entities	37
3.10	Conclusion	38
REFERENCES	38


CHAPTER 1: EXECUTIVE SUMMARY

The U.S. Environmental Protection Agency (EPA, or the Agency) is finalizing a rule to codify data requirements for label claims against invertebrate pests of public health concern, wood destroying invertebrate pests, and invasive invertebrate pests ("covered pests") under 40 CFR §158 Subpart R.  In March 2019, promulgation of an invertebrate product performance data requirement rule was made a statutory requirement by amendment of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).  As amended, FIFRA requires EPA to finalize product performance data requirements by September 30, 2021. The amendment was developed by a coalition of pesticide stakeholders representing seven different trade groups within the pesticide industry and public interest groups reflecting the environmental and farmworker safety communities.

This document presents an economic analysis of the effects of codifying data requirements for product performance under the final rule, as well as the effects of changes to label claim data requirements published simultaneously.  The Agency regulates covered pests under FIFRA, which mandates the Agency to register pesticides, including those used against covered pests, under conditions of use such that the pesticide is of a composition to warrant the proposed claims.  To make this finding, the Agency requires that registrants submit data demonstrating product efficacy against covered pests.  The product performance data requirements historically levied by the EPA and those being finalized in the rule are for claims against pests that either pose a threat to human health (e.g., mosquitoes and cockroaches) or have significant economic impacts, against which the efficacy of a pesticide cannot be readily determined by the user (e.g., termites and emerald ash borers).  The final rule codifies data requirements for support of label claims that have, to date, been necessary, as determined on a case-by-case basis, to conduct assessments of product performance. This will provide needed clarity to firms seeking to develop and market products to control covered pests.

The current lack of clear data requirements may lead to inefficiencies and wasted resources by both the Agency and industry, i.e., high transaction costs associated with requesting approval for efficacy claims.  While experience over time has led EPA to a fairly standardized set of data requirements for covered pests, applicants may still expend considerable effort to determine those requirements, including hiring consultants or relying on the experience of testing facilities, consulting with EPA, or simply submitting applications to obtain guidance.  In particular, new entrants to the field may be at a significant disadvantage in anticipating the Agency's data needs compared to established firms.  The final rule will help alleviate uncertainties in the regulatory process and enhance transparency for stakeholders.  The Agency is specifying data requirements for all covered pests to better indicate when certain data are needed or not.  On a case-by-case basis the Agency may consider data or waivers that are more appropriate than the final requirements considering the intended purpose and pesticidal claims of a pesticidal product.

Table 1.1. shows the incremental cost savings of the final rule in 2019 dollars.  The incremental cost savings of the final rule are estimated to be about $930,000 annually across all registrants seeking label claims against covered pests, equivalent to about $17,000 in savings per data package submitted to the Agency.  These savings arise because firms may avoid submitting inadequate studies or extra studies because requirements are more clearly specified.  The average savings per registrant is $5,500 annually, considering that registrants do not submit products for review every year.  This impact is expected to remain consistent over the next ten years, with total cost savings to industry of $930,000 annually using either a 3% or a 7% discount rate.  Over ten years, this amounts to about $7.9 million in savings at a 3% discount rate or about $6.5 million in savings at a 7% discount rate.  The most expansive estimate of cost savings of the final rule, including both all likely impacts of the publication of the final rule as well as the impact of changes in data requirements published concurrently with the final rule, is $1.7 million annually, while the estimated worst case is a cost increase to registrants of $640,000 annually.  These estimates are presented in 2016 dollars, while the estimates in the body of this document are in 2019 dollars.

The analysis of the potential impact of the final rule on small businesses suggests that the final rule will have the greatest impact, and the most potential cost savings, for small entities and new registrants.  While large, established registrants have experience with the registration process and are aware of EPA's data requirements of the EPA or have the means to determine the appropriate studies, new and small registrants without that experience may bear significant costs of acquiring this information.  Under the final rule, registrants will have easier access to the data requirements, and the reduction in information acquisition costs will be largest for those registrants with the greatest information acquisition needs.

EPA's registration program and efficacy review has substantial benefits for consumers.  It ensures product efficacy and label consistency across products, increases consumer confidence in product efficacy, and reduces consumer search costs for effective products.  This may help reduce the incidence of vector-borne diseases and damage from wood-destroying and invasive pests.  Clarity in data requirements will enhance the efficiency of the registration process and may speed new products to market, providing consumers with more tools and choices and enhancing competition.

There were no public comments on the economic analysis of the proposed rule that require response.  Based on the public comments received on the proposed rule, EPA has decided to create a "general fly" category, which is likely to increase the cost savings estimated in the proposed rule. EPA has also decided to add an additional option for the representative species for the "scorpion" category, which will have no effect or may increase the cost savings estimated in the proposed rule. However, EPA did not quantitatively assess these changes.  

Table 1.1.  Benefits and Costs of the Final Rule
                      Expected Benefits of the Final Rule
Cost savings per data package 
Submitted
 Average impact per submitted data package of $17,000
Cost savings per registrant submitting data packages
 Average annual impact per registrant of $5,500 [1]
Annualized Cost Savings
 $930,000 at both 3% and 7% discount rates [2]
 This projection assumes 60 data packages submitted annually to the Agency. 
 No capital or fixed costs associated with the final rule
Qualitative Effects
 For registrants: Quicker label changes, lower discovery costs, lower barriers to innovation.
 For consumers: Ensuring product efficacy and label consistency; increased consumer confidence in product efficacy; reduced search costs for effective products; and reduction in damage from covered pests.
                       Expected Costs of the Final Rule
No increased risk to human health or the environment is expected from publication of the final rule.  No increased costs to registrants or consumers are expected from publication of the final rule.  Expected direction of costs for the Agency from the final rule are unknown.
                                 Other Impacts
Small Business Impacts
No significant impact on a substantial number of small entities
 Affected NAICS codes contain up to 5,438 small entities.
       
No increased costs to small entities expected, and cost savings may be relatively larger for small firms who do not have experience with the registration process for invertebrate pests of public health concern, invertebrate wood destroying pests, and invertebrate invasive pests.
[1]	Based on a firm submitting one application every three years, no discounting.
[2]	Annualized cost savings, ten-year time horizon, 2021-2030.

CHAPTER 2: BACKGROUND AND OVERVIEW 

The EPA currently requires the submission of product performance data to support claims against invertebrate pests of public health concern, invertebrate wood destroying pests, and some invasive invertebrate pests on pesticide labels.  In 2002, EPA issued Pesticide Registration Notice (PRN) 2002-1, which presented the "List of Pests of Significant Public Health Importance." This document is currently under revision within the Agency. The 2002 list was derived in large part from review of the pesticide/pest combinations for which product performance data had been required on a case-by-case basis to be submitted and reviewed prior to registration. This list was developed cooperatively by the U.S. Department of Health and Human Services (HHS), U.S. Department of Agriculture (USDA), and the EPA, with input from some non-governmental entities. EPA's Office of Pesticide Programs coordinated the review by experts in public health and/or pesticide use patterns to compile this list.  The purpose of requiring the submission of these data is to verify product label claims are supported.  Conditions of registration include that pesticide's composition warrants proposed claims and that the pesticides would perform its intended functions (FIFRA 3(c)(5)). This helps to ensure that, when used in accordance with label instructions, pesticides may help users to avoid adverse effects caused by the pests targeted by the label claim, including exposure to pathogens, allergic reactions, pain, ecological, and/or financial impacts.  In this chapter, a brief overview of the following topics is presented: the history of the EPA's product performance data requirements leading up to current practice; the problems with current practice; the appropriateness of federal regulation for addressing the problems of current practice; a description of the final rule with its costs and benefits; and the entities affected by the final rule.

2.1	History of Product Performance Data Requirements for Pesticides Used to Control Invertebrate Pests of Public Health Concern, Invertebrate Wood Destroying Pests, and Invertebrate Invasive Pests

Shortly after the EPA's establishment in 1970, amendments to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) in 1972 made it so that the Administrator of EPA was compelled to determine, prior to registering a pesticide, that "it will perform its intended function without unreasonable adverse effects on the environment," which required EPA to assess both the efficacy and risks associated with pesticides.  A later amendment to FIFRA in 1978 (P.L. 95-396) added the following waiver provision to Section 3(c)(5):

      In considering an application for the registration of a pesticide, the Administrator may waive data requirements pertaining to efficacy, in which event the Administrator may register the pesticide without determining that the pesticide's composition is such as to warrant proposed claims of efficacy.

Immediately following the 1978 amendments to FIFRA, on October 6, 1978, EPA distributed "Interim Final Regulations Implementing Section 3(c)(7) of the FIFRA, as amended by the Federal Pesticide Act of 1978."  The preamble set forth EPA's philosophies regarding conditional registration, incremental risk assessment, and efficacy waiver, drawing for the first time a distinction between pesticide "Products of Public Health Significance" and products for "Non-Public Health Uses."  Efficacy data requirements were to remain in place for the former and to be waived for the latter stating:

      It is the Agency's belief that efficacy of such products is more effectively regulated by the pesticide market mechanism itself or by knowledgeable experts in the field. 

Reliance on the marketplace to eliminate products that did not perform well was expanded in regulations proposed in 1982 and finalized in 1983 which greatly expanded the efficacy waiver policy to include nearly all pesticidal claims against invertebrate pests, whether or not they were significant to public health.

The revised requirements for submission of efficacy data were codified at 40 CFR §162.163(c)(2)(i-iii) and read as follows:
(2) Efficacy data. 
[i] Efficacy data for each product that bears a claim to control pest microorganisms that pose a threat to human health and whose presence cannot be observed by the user, including, but not limited to, microorganisms infectious to man in any area of the inanimate environment;
[ii] Efficacy data for each product for which a new or added use is proposed, if the product contains an active ingredient, some uses of which have been suspended, cancelled, or are the subject of a notice issued under 162.11(a)(3)(ii) and the risks identified in the notice or suspension/cancellation action may reasonably be anticipated as a result of the new use; and
[iii] Efficacy data otherwise specifically requested by the Agency for any product.
Despite the changes, pesticide products were always required by law to be effective for their intended use; what changed between the years of 1979 and 1984 was the Agency's policy on whether some efficacy should have to be verified by the Agency.

Ultimately, the Agency reinstated the efficacy data requirements for invertebrate pests of public health concern in 1984 by clearly stating that registrants were required to submit efficacy data for products used to treat microorganisms or vertebrates that posed a threat to public health.  The 40 CFR §158.400(e) test note did not mention invertebrate pests specifically, but it did state that "The Agency reserves the right to require, on a case-by-case basis, submission of product performance data for any pesticide product registered or proposed for registration."

In 2002, the Agency published Pesticide Registration (PR) Notice 2002-1, List of Pests of Significant Public Health Importance.  The notice, prepared in cooperation with USDA and HHS, documents the Agency's scientific knowledge at the time regarding which pests posed a threat to public health.  The covered pests have changed only slightly over time, but for the most part are consistent with those pests of public health concern identified in PR Notice 2002-1.  Differences are due to introduction of new pest species, changes in taxonomy, and changes in our understanding of the risks posed by the listed species.  These changes were considered by the 2013 FIFRA Scientific Advisory Panel, which serves as the primary scientific peer review mechanism of EPA's Office of Chemical Safety and Pollution Prevention (OCSPP) and provides scientific advice, information and recommendations on pesticides and pesticide-related issues as to the impact of regulatory actions on health and the environment.

Since 1984, the Agency has required product performance data for covered pests in order to ensure that products perform as claimed.  The Agency's product registration divisions have typically only required tests for "representative" test organisms.  For example, rather than requiring a registrant to submit tests showing its product is effective against the dozens of medically important mosquito species that occur in the U.S., the Agency has only required the registrant to submit a test for the most aggressive mosquitoes, represented by only a single species from each of three genera: Aedes, Anopheles, and Culex.

The Agency's collection of data has evolved to reflect scientific knowledge in terms of appropriate test species and invertebrate pests of public health concern.  Test methods have also evolved, improving both the reliability of the findings and ethicality of the tests.  With the final rule, the Agency intends to codify its practices of requiring data for invertebrate pests of public health concern, wood destroying pests, and invasive pests according to the most up-to-date science.

2.2	Problem Statement

To register pesticide products, including those making pesticidal claims against covered pests, FIFRA requires that EPA determine that the products will perform their intended function without causing unreasonable adverse effects to human health or the environment.  In the case of pesticides intended to control the covered pests, EPA must determine that the products warrant the claims made on the label.  It is on this premise that the current agency practice of requiring data for certain invertebrate pests on a case-by-case basis and the final rule are based.  Currently, the product performance data requirements for registering these products are not specified in the CFR and are determined on a case-by-case basis.  The case-by-case efficacy data requirement model can lead to inefficiencies and increased transaction costs for registrants.  Determining the data required to adequately demonstrate product performance can lead to incomplete or overly robust submissions and frequently necessitate discussions with EPA in advance of submitting a registration application to understand the data requirements.

In the status quo, registrants may face high transaction costs in the form of difficulties to acquire information about what efficacy data is required for registrants to receive label claims.  The Agency currently relies on the case-by-case provision in the regulations for requiring product performance data for the products claiming to control covered pests, which leads to a lack of clarity and transparency and could lead to inefficiencies and wasted resources by both EPA and the applicant.  On the one hand, there may be delays in registering products because data, which could be generated during the research and development phase of the product, are only identified when a registration is sought.  Delays in registering products result in delays in realizing the benefits the products can provide in terms of protecting human health or preventing damage to property.  On the other hand, in the absence of clear requirements, data may be generated that are unnecessary or inappropriate, wasting resources for both EPA and the registrant.  To avoid significant costs in delay or extraneous data generation, EPA and applicants may spend time and resources identifying data requirements that have, over time, become more standardized.  Firms expend effort to determine the requirements (i.e., hiring consultants/labs, consulting with EPA) and/or preparing/submitting requests that are incomplete or include unnecessary information.  The lack of clarity in the registration requirements can deter new entrants to the market who lack the experience to guide data development and submission.  The lack of transparency can also raise concerns by other shareholders regarding the rigor of EPA's review process.  Finally, the Agency's current practice of efficacy data requirements is based on the list of pests published in 2002 - Pesticide Registration (PR) Notice 2002-1, List of Pests of Significant Public Health Importance and the Technical Support Document (TSD) submitted to the FIFRA Scientific Advisory Panel in 2013.  As scientific knowledge regarding appropriate test species and public health pests evolve over time, the current list of pests evolved to reflect these changes.

2.3	Appropriateness of Federal Regulation in Lowering Transaction Costs

Because the high transaction costs of gathering information about product performance data requirements is the result of federal regulation requiring the submission of product performance data, federal regulation is necessary to lower transaction costs.  The alternative approach, continuing the status quo, would result in the continuation of high transaction costs, the effects of which are described in Section 2.2.  The EPA's approach is a federal regulation consisting of codification and updating of the Agency's current practice of product performance data requirements.

2.4	Statutory Authority for Final Rule

EPA is authorized to regulate pesticides under two Federal statutes.  FIFRA regulates the sale, distribution, and use of pesticide products through a licensing (registration) scheme.  The Federal Food, Drug, and Cosmetic Act (FFDCA), among other things, regulates the safety of pesticide residues in food and feed. For purposes of this rulemaking, the risks addressed by the data requirements finalized here are those specific to EPA's authority under FIFRA for regulating non-dietary risks from the use of pesticides.  In general, under FIFRA, a pesticide product must be registered by EPA before it may be sold or distributed in the U.S. The authority for the final rule comes from the requirement that in order to obtain a registration, the registrant must demonstrate to the Agency's satisfaction that the pesticide's composition is such as to warrant the proposed claims (FIFRA §3(c)(5)(ii)).

2.5	Description of the Final Rule 

The rule, as finalized will codify and update the Agency's product performance data tables and regulatory provisions for covered pests.  Under the authority of Section 3 of FIFRA and 40 CFR § 158.400, the Agency requires the submission of new data or citation of existing data for all pesticide registrations that make claims to control covered pests.  The final rulewill codify that requirement and, in doing so, will clarify for the regulated community which tests should be submitted to fulfill the Section 3 FIFRA data requirements.  In addition to codifying data requirements, the final rule will codify the performance standards or efficacy thresholds that are generally considered to be adequate for demonstrating performance.

Most of what is included in the final rule constitutes current practice since the Agency is already authorized to collect product performance data and does so on a regular basis for certain pests under 40 CFR § 158.400.

The specific provisions of the rule as finalized are the following:
       Codifies. Codifies current data requirements that do not clearly appear currently in part §158.400, but which are routinely required.
       Pest. A total of more than 100 identified invertebrate taxa are specified in the rule.  The majority of those taxa are pests of significant public health concern (84). The remaining are wood destroying (17) and invasive (2) taxa.
       Defines. Defines pests of significant public health and/or economic importance.
       Performance Standards. Provides performance standards and recommended performance level by pest based on product types.
       Label. This final rule identifies efficacy data requirements that support the final label claims.
       Test Notes. These identify test conditions, other than what is identified in the appropriate guidelines.  

2.6	Brief Description of Costs and Benefits of the Final Rule

The cost of the final rule will stem from the difference in the cost of registering a public health or wood-destroying pest product between current practice (lack of clear requirements) and the final rule that clearly delineates the requirements.  For example, the final rule requires a product claiming protection against ticks to submit an efficacy study for three representative tick species.  Since the data requirements are not clear under current practice a registrant may have its product registered with submission of only two tick studies, and under the final rule this product will incur costs of submitting an additional tick study.  On the other hand, in the absence of clear data requirements under current practice, a registrant may submit more tick studies than the three required under the final rule.  In this case, "cost savings" will occur under the final rule.  These cost changes relative to the baseline occur because currently, the informational requirements for registering these products are not specified in the CFR and firms may expend considerable effort to determine the requirements and/or may provide more studies than are necessary to support an efficacy claim or provide insufficient studies.

The benefits of the final rule include the elimination of inefficiencies and transaction costs present under the Agency's current practice and improved transparency.  However, many of these benefits are unquantifiable and/or unobservable; see Section 3.7.3.  Consumers gain from the enhanced information on the product efficacy that results from the EPA's efficacy review process that is more rigorous and transparent.

The Agency is reducing the number of required test species for two categories of pests  -  flying stinging insects and biting flies.  This change may have the benefit to registrants of reducing the costs to receive a claim against these pests, and may indirectly benefit consumers by leading to more products being produced which target these pests.  This change may have a cost insofar as not testing the product against as many species may result in the product being ineffective against one of the untested species.  The Agency considers the likelihood of this to be small.

The Agency is also disallowing claims against individual species of mosquitos and ticks.  This may lead to increased costs to registrants wishing to receive product label claims against these pests, and may indirectly lead to consumers having fewer products available against these pests.  The benefit of this change is that consumers are often unable to distinguish between specific species of mosquitos and ticks, and this rule will give consumers greater confidence that the product they purchase will work against the pest they target.

2.7	Affected Entities

Entities that may be directly or indirectly affected by the final rule include pesticide registrants, users of pesticides, and the EPA.

Pesticide registrants (NAICS code 325320: Pesticide and Other Agricultural Chemical Manufacturing) that wish to register and market products with claims to control invertebrate public health pests, wood destroying pests, or invasive pests may be directly affected by the final rule.  Registrants may be required to submit fewer tests, which will decrease the cost of registration.  They also might have lower transaction costs of registration due to clearer data requirements and less correspondence with the Agency to establish which tests are required.

Both professional and non-professional consumers of pesticide products claiming to control invertebrate public health pests, wood-destroying pests, or invasive pests may be indirectly affected by the rule as finalized.  Consumers will have better information about the efficacy of products which could reduce vector borne disease transmission, injury from covered pests.

The final rule will also affect EPA by increasing efficiency for data reviewers and other registration staff.  The clearer data requirements could reduce the number of meetings before submissions to discuss data requirements and reduce EPA effort per data package submitted to the Agency.  However, as the registration requirements become clearer, it becomes easier for registrants (especially those with little experience with EPA's registration process) to submit applications, leading to an increase in number of registrant submissions, and therefore it is unclear whether Agency burden will increase or decrease overall.

In addition to the entities described above, there are other entities that may be affected by the final rule.  These include research and development (R&D) institutions that are involved in research related to the covered species: R&D laboratories or services that perform efficacy testing for the covered pests (NAICS code 541714: Research and Development in the Physical, Engineering, and Life Sciences (except Nanobiotechnology)), and/or establishments of higher learning which are engaged in research and development of products for invertebrate pest control (NAICS code 611310: colleges, universities, and professional schools). With clear data requirements and product performance standards established by the final rule, these institutions may save their resources by not conducting research on the species for which EPA does not require testing.


CHAPTER 3: COSTS SAVINGS TO REGISTRANTS FROM THE FINAL RULE

Impacts on registrant costs arise from two aspects of the Product Performance Data Requirements rule  -  the rule is being published simultaneously with the publication of explicit changes to testing requirements and the publication of the rule will result in increased clarity to registrants about EPA testing requirements.  The former may save data generation costs for certain generic claims; the latter may save data generation and/or application costs. While not every element of the rule will result in savings for registrants, EPA conservatively estimates that the rule will result in $1 million in annual cost savings to registrants in the process of receiving label claims against pests of significant public health concern, wood destroying pests, and invasive pests ("covered pests"), equivalent to about $17,000 in savings per data package submitted to the Agency.  The average savings per registrant is $5,500 annually.  There will be further non-quantifiable impacts on registrants, mostly in the form of reduced barriers to receiving label claims against covered pests.  The impact of the rule is expected to be greatest for small firms and first-time registrants, that is, greatest cost savings for small firms and first-time registrants.  There may be other benefits that EPA is unable to quantify.  Ultimately, consumers may also benefit if lower transaction costs result in greater innovation and more products coming to market.

3.1	Introduction

The purpose of this assessment is to estimate the cost impacts of the final Product Performance Rule on registrants and other parties.  EPA first describes the practical implications of how the final rule will be expected to change the level of effort and expenditure by the registrants in Section 3.2.  This section also describes the baseline used in the analysis.  In Section 3.3, EPA explains the methodology that was used to estimate the cost impact of the final Product Performance Rule.  Section 3.4 estimates current registrant costs for generating efficacy data and applying for label claims assuming appropriate studies are known, while Section 3.5 explains the sampling procedure EPA used to build a sample of recent submissions to determine how accurately registrants identify the studies EPA uses to verify label claims.  In Section 3.6, EPA breaks down the ways that the changes in data requirements impact registrant costs, using examples of anonymized sample data packages from Section 3.5.  In Section 3.7, EPA breaks down the ways that the publication of the final Product Performance Rule is expected to impact registrant costs, using examples of anonymized sample data packages from Section 3.5. Section 3.7 also discusses other potential cost savings that are not quantified and benefits to consumers.  Section 3.8 calculates annual total and per-product impact of the final rule, and the small business implications of the final rule are discussed in section 3.9.  The conclusions of the economic analysis are presented in Section 3.10.

3.2	Changes Resulting from the Final Product Performance Rule

The purpose of this document is to estimate the cost impacts of the final rule on registrants.  This rule will impact registrants in two main ways: by implementing changes in data requirements and by reducing registrant uncertainty.  The publication of this rule will not be necessary for EPA to change its data requirements to support label claims against covered pests because EPA has authority to require data to ensure that pesticides can be used safely and will function in the intended manner.  However, because some of the changes in data requirements were made in part due to the review of practices as part of the rule development, EPA assesses the impact of both developments.

After years of experience and discussions with stakeholders, including pesticide registrants, EPA has identified appropriate data to evaluate efficacy claims that firms use on labels to signal to consumers the performance of their products.  However, currently, the data requirements for registering these claims with the EPA are not codified in the CFR and registrants behave in the absence of clear written requirements.  This situation constitutes the baseline for the purpose of estimating the cost impacts of the final rule.  Because of the lack of the codified requirements, uncertainty may exist for registrants regarding the exact requirements for a successful registration of the claims, potentially increasing the costs of obtaining EPA approval of efficacy claims.  These costs include the time and effort required to learn what studies are appropriate for particular claims, but also include the cost of failing to identify the proper studies leading to mistakes in data submission  -  e.g., submitting unnecessary or inappropriate studies.  By codifying the EPA's current data requirements, the final rule is expected to reduce this uncertainty and thus decrease the frequency of such mistakes.  Registrants' current practice is estimated based on the information contained in a sample of studies recently submitted by registrants.  The analysis of the sample indicates that the extent of mistakes in data submission is significant.  The current analysis quantifies avoidance of these mistakes as the cost savings resulting from the final rule.  Other potential cost savings, e.g., in reduced time and effort to determine the requirements, are discussed qualitatively.

      3.2.1	Changes in Data Requirements
The costs of registering a product for or adding new covered pests to a pesticide label registration will be impacted by explicit changes to the data required to support certain label claims.  As part of the effort to codify the Product Performance Data Requirements, EPA reviewed the existing requirements and identified three cases where pest testing requirements will change.  Changes to data requirements supporting claims against stinging flying insects and biting flies are already being followed by EPA reviewers.

      3.2.1.1 Stinging Flying Insects
In order to support a label claim against bees, wasps, hornets, and yellowjackets, registrants were previously required to submit four tests, one against each species of stinging insect.  Registrants only have to submit three tests, demonstrating efficacy against wasps, hornets, and yellowjackets, and they will be allowed to make label claims against bees as well as the other stinging flying insects.

      3.2.1.2	Biting Flies (not including Sandflies)
Previously, if registrants wished to make label claims against the category of "biting flies", the registrant will need to submit test data demonstrating efficacy against individual species of biting flies.  There are nine covered species, but EPA would typically grant a generic claim if data on a sufficient number of species were submitted.  However, the exact number of species needed for a generic claim was largely left to the judgment of individual reviewers.  Under future practice, registrants will only need to submit test data demonstrating efficacy against three species of biting flies to support label claims against the group "biting flies".

      3.2.1.3 Restricted Species Claims
Under past practice, products were allowed to demonstrate efficacy against specific species and list those species on their labels.  Because a typical consumer will not be purchasing products for specific tick and mosquito species that may carry different diseases, claims against mosquitos and ticks must be supported by evidence of control across a range of species of public health concerns.  As a result, registrants wishing to support a control claim will have to conduct tests on three species of mosquito or tick instead of one; support a claim against mosquitos or ticks as groups rather than claiming control of an individual species.  Specific species claims will continue to be allowed for other groups.

      3.2.2	Reduction in Uncertainty
To date, the requirements for the data needed to support label claims against covered pests are marked by a lack of clarity and transparency in data requirements that could lead to inefficiencies and wasted resources by both EPA and registrants. Registrants may face delays in registering products because data which could be generated during the research and development phase of the product are only identified when a registration is sought.  Delays in registering products result in delays in realizing the benefits the products can provide in terms of higher agricultural output and/or lower production costs.  On the other hand, in the absence of clear requirements, data may be generated that are unnecessary or inappropriate, wasting resources.  The lack of clarity in the registration requirements can deter research and development, particularly by new entrants to the market who lack the experience to guide data development and submission.

Many of these costs, including delays in bringing products to market, cannot be quantified with available data.  EPA is, however, able to estimate costs in cases where unnecessary or inappropriate data have been submitted and/or insufficient information was submitted.

3.3	Cost Methodology

The cost of supporting a claim of efficacy against covered pests consists of data generation costs and processing costs.  Data generation costs are the costs of running tests to demonstrate product efficacy against one or more pest species.  Processing costs include fees charged by the Agency under the Pesticide Registration Improvement Act (PRIA) to review applications and the paperwork burden of collecting and submitting registration data to the Agency.  To estimate potential reductions in costs associated with obtaining a label claim of efficacy against covered pests, EPA identifies unnecessary data generated in past applications and inadequate submissions that might be avoided in the future, given greater clarity of the requirements.

EPA also presents estimates of expected data generation costs associated with efficacy claims against common pests and for common pesticidal products.

Data generation costs are calculated using average study costs available on the EPA's website.  The EPA maintains a database of estimated test costs for most studies listed in the Code of Federal Regulations (CFR).  The test costs are obtained by EPA from a sample of independent laboratories and the averages of the costs are publicly available.  Actual costs for a specific study may vary, depending on the exact pest and/or type of product.  Processing costs include Pesticide Registration Improvement Act (PRIA) fees, and paperwork burden, estimated in EPA's Information Collection Request (ICR) for new and amended pesticide registrations.

To estimate the impact of changing data requirements, EPA calculates savings per claim impacted by the change in data requirements, and annual savings across the industry.  EPA calculates savings per claim as the difference in number of required species efficacy tests under past and future practice, multiplied by the expected data generation cost of those tests.

EPA calculates the annual savings to industry as the estimated savings per claim multiplied by the estimated number of claims submitted to the Agency each year that will be affected by the change in data requirements.  The estimated annual number of claims is extrapolated from a random, statistically valid sample of 30 invertebrate efficacy data submissions to EPA reviewed between 2013 and 2017. The sample is discussed in more detail in Section 4.5.  The same method is used to estimate the impact of reducing uncertainty on data generation costs, and to estimate the impact of reducing uncertainty on processing costs (paperwork burden and PRIA fees), multiplying the number of relevant mistakes resulting from uncertainty by the cost of those mistakes.

While the changes in data requirements for label claims are being published concurrently with the final rule, these changes are not directly the result of the rule and are already being adopted by reviewers.  For this reason, EPA does not include them in the primary estimate of the cost savings attributable to the rule.  EPA calculates the impact of changes in data requirements by comparing past practice (the costs registrants would have paid prior to the process of publishing the Product Performance Rule) to future practice (the costs registrants will pay once the Rule has been published), including both the effects of changes to data requirements (currently being implemented) and the reduction in uncertainty resulting from the publication of the rule (which will not occur until the rule is published).

All of the information on study costs used in estimating the cost savings from the proposed rule is based in 2019 dollars and has not been updated for inflation.  The Office of Management and Budget (OMB) is not requiring results to be presented in real dollars using a baseline year.  Based on the public comments received on the proposed rule, EPA has decided to create a "general fly" category, which is likely to increase the cost savings estimated in the proposed rule. EPA has also decided to add an additional option for the representative species for the "scorpion" category, which will have no effect or may increase the cost savings estimated in the proposed rule. However, EPA did not quantitatively assess these changes.   


3.4	Data Generation & Processing Costs

      3.4.1	Data Generation Costs
Registering products under past practice requires registrants to submit data demonstrating product efficacy against target pests appropriate for the claim to be placed on the label.  The number of species required to be tested differs by pest type  -  bed bug claims require only one efficacy test to be submitted, while termite claims require four.  Further, costs vary by product type  -  for instance, tests for human skin repellents are more expensive than tests for premise treatments even though they may be for the same species.

Table 3.1 shows a selection of test costs under past practice by product type and target pest.  EPA estimates that test costs range in price from $19,000 for tests under guideline 810.3100 ("Soil treatments for imported fire ants") to $197,700 for tests under guideline 810.3200 ("Livestock, poultry, and fur & wool-bearing animal treatments").  The number of tests required under past practice for a label claim varies from one test for fleas up to 4 tests for termites.

Table 3.1: Costs of a Sample of Tests 
Product Type / Application Method
Pest
Test Guideline
Number of Species to be Tested
Cost per Species[1]
Baits
Termites
810.3800 Methods for efficacy testing of termite baits

4
$73,700
Direct Contact
Stinging Insects
810.3500 Premise Treatments
3[3]
$18,400 

Indoor Premise
Cockroaches
810.3500 Premise Treatments
2
$18,400 
Indoor Premise
Bed bug 
810.3900 Laboratory product performance testing methods for bed bug pesticide products
1
-[2]
Livestock Premises
Biting Flies
810.3200  -  Livestock, poultry, and fur & wool-bearing animal treatments
3[3]
$197,700 

Livestock Premises
Biting Flies
810.3500 Premise Treatments
3[3]
$18,400
Livestock Premises
Filth Flies
810.3200  -  Livestock, poultry, and fur & wool-bearing animal treatments
2
$197,700 

Outdoor Premise
Fire Ants
810.3100- Soil treatments for imported fire ants
1
$19,000 

Outdoor Premise
Mosquitos
810.3400  -  Mosquito, blackfly, and biting midge treatments
3
$55,300 

Pet Product
Ticks
810.3300 -Treatments to control pests of human and pets
3
$50,000
Pet Product
Fleas
810.3300 -Treatments to control pests of human and pets
1
$50,000 

Soil Applied Liquid Termiticide
Termites
810.3600 Structural Treatments
4
$35,600
Structural Treatment
Carpenter Ants
810.3600 Structural Treatments
1
$35,600
Topical Repellent
Mosquitos
810.3700 Insect Repellents to be Applied to Human Skin
3
$100,000
Topical Repellent
Ticks
810.3700 Insect Repellents to be Applied to Human Skin
3
$100,000
Source: Cost Estimates of Studies Required for Pesticide Registration, 2018.  https://www.epa.gov/pesticide-registration/cost-estimates-studies-required-pesticide-registration
1 EPA requested comment on all test costs in conjunction with the Notice of Proposed Rulemaking.   
2 EPA does not have test cost information for 810.3900 products.  EPA requested comment on the cost of 810.3900 bed bug products in conjunction with the Notice of Proposed Rulemaking. 
3 Test costs have changed as a result of the rule publication process


In modeling costs, EPA assumes that all data is generated for the submission to EPA, and thus registrants must pay for any test they submit to EPA.  In reality, publicly available or previously submitted data may be utilized (cited), if relevant, instead of running tests.  However, registrants who cite existing studies conducted by other firms may have to pay data compensation, which theoretically could be almost as much as running the study themselves.  Registrants who cite studies they have previously conducted still had to pay for the study at one point.

      3.4.2	Processing Costs
Processing costs include the paperwork burden required to submit data to the EPA, the PRIA fees the EPA charge to review data packages, and the paperwork burden of paying PRIA fees.

      3.4.2.1	Paperwork Burden
Submitting data to the EPA requires the completion of paperwork, which includes reading FIFRA instructions, planning activities, gathering and creating information, compiling and reviewing data, completing paperwork, submitting registration information to the Agency, and storing/maintaining data.  In the ICR for new and amended pesticide registrations7, the Agency estimates that, based on the time required for various activities and hourly wages for the relevant employees, the cost of submitting data to the EPA is $1,282 per data package.

      3.4.2.2	PRIA Fees
In order for a registrant to receive data review by the EPA, the registrant must pay fees under the Pesticide Registration Improvement Act.  If the registrant wishes to add one or two target pests or claims to a conventional pesticide label, this is an R340 action, which costs $5,238 per data package.  If they wish to add 3 or more target pest label claims, this is an R341 action, which costs $6,288 per data package.  While there are other relevant cost categories (for instance, registering biopesticides or antimicrobial products), EPA uses the R340 and R341 costs as they are the upper bounds that a registrant would pay for review of the efficacy data.

3.5	Sampling Methodology

Over the period of 2013-2017, 366 data packages were submitted to the EPA involving claims against covered pests requiring the submission and review of invertebrate efficacy data.  Some of these packages were duplicates, while the data in other packages were never reviewed by the EPA because the submissions were withdrawn.  Seven of the data packages were for skin-applied insect repellents.  EPA does not anticipate that any of the changes resulting from the final rule will impact human skin applied repellents.  Products under guideline 810.3700 (Insect Repellents to be Applied to Human Skin) must go through a specific review process, the Human Studies Review Board (HSRB).  EPA expects that the final Product Performance Rule willnot impact skin applied repellent products in a substantive way because registrants of these products already have access to data requirements for their products because skin applied repellent protocol and efficacy reviews are made public in the EPA's HSRB meeting and the meeting minutes.  Therefore, these products were excluded from sampling.

Accounting for these exceptions, EPA estimates that EPA reviews about 60 data packages annually that represent the kinds of products that the final Product Performance Rule will impact.  In order to estimate the impacts of greater regulatory clarity on data generation and submissions, EPA randomly sampled 30 data packages from appropriate cases submitted between 2013-2017, a sample equivalent to half of the number of packages reviewed annually. Each data package was matched to a Product Performance Test Guideline (e.g. 810.3200 Livestock, Poultry, Fur- and Wool-Bearing Animal Treatment; 810.3500 Premises Treatments) and to a product type (e.g. Direct Contact; On Animal).  Table 3.2 summarizes the products in this sample of data packages.  Frequently appearing product types include direct contact, on-animal, pet, and premises (indoor, livestock, outdoor).  The majority of data package submissions were under guidelines 810.3200 (Livestock, Poultry, Fur- and Wool-Bearing Animal Treatment), 810.3300 (Treatments to control pests of humans and pets) and 810.3500 (Premises Treatments).

The 30 data packages sampled are listed and numbered by product type and guideline in Table 3.2.

Table 3.2: Sample Data Packages by Product Type, Pest, and Guideline.
Product #
Product Type / Application Method
Guideline(s)
Requested Pest(s)
1
Direct Contact
810.3500
Bees, Hornets, Wasps, Yellowjackets
2
Direct Contact
810.3500
Ticks, Carpenter Ants, Harvester Ants
3[1]
Direct Contact
On-Animal
Indoor Premise
810.3500
810.3200
810.3900
Ticks, Scorpions, Spiders, Centipedes, Fleas, German Cockroach, Cockroaches, Face Fly, Mosquito, Black Fly, Deer Fly, Horn Fly, Horse Fly, House Fly, Stable Fly, Bed Bug, Ants, Carpenter Ants, Fire/Harvester Ants, Pharaoh Ants, Bees, Hornets, Wasps, Yellowjackets, Termites, Firebrats, Silverfish
4
Feed Through
810.3200
Face Fly, Horn Fly, House Fly, Stable Fly
5
Feed Through
810.3200
Horn Fly, Horse Fly, House Fly, Stable Fly, Flies
6
Feed Through
810.3200
House Fly, Stable Fly, Flies
7
On Animal
810.3200
Fleas
8
On Animal
810.3200
Face Fly, Horn Fly, Flies
9
On Animal
810.3200
Ticks, Face Fly, Mosquito, Black Fly, Horn Fly, Stable Fly
10
On Animal
810.3200
House Fly, Stable Fly
11
Pet
810.3300
Mites, Ticks, Fleas, Mosquito, Biting Flies, Lice
12
Pet
810.3300
Ticks, Fleas, Mosquito, Stable Fly, Lice
13
Pet
810.3300
Ticks, Fleas, Lice
14
Pet
810.3300
American Dog Tick
15
Pet
810.3300
Fleas 
16
Pet
810.3300
Fleas
17
Indoor Premise
810.3500
Spiders, Cockroaches, Mosquito, House Fly, Bed Bug, Ants, Fire Ants, Termites, Silverfish
18
Indoor Premise
810.3500
Mites, Ticks, Scorpions, Spiders, Centipedes, Fleas, Cockroaches, Mosquitoes, Horn Fly, Stable Fly, Bed Bug, Carpenter Ants, Fire/Harvester Ants, Pharaoh Ants, Wasps, Flies
19
Indoor Premise
810.3500
Cockroaches
20
Indoor Premise
810.3900
Bed Bug
21
Indoor Premise
810.3500
Cockroaches
22
Indoor Premise
810.3500
Fleas, Cockroaches, Mosquito
23
Livestock Premise
810.3200
House Fly, Flies
24
Livestock Premise
810.3200
Filth Flies, House Fly, Stable Fly
25
Livestock Premise
810.3500
Biting Flies, House Fly, Flies
26
Livestock Premise
810.3200
House Fly
27
Outdoor Premise
810.3500
Cockroaches
28
Outdoor Premise
810.3500
Ticks, Scorpion, Spider, Fleas, Cockroaches, Mosquito, House Fly, Carpenter Ants, Fire Ant
29
Outdoor Premise
810.3100
810.3500
Ticks, Fleas, Fire Ant
30
Outdoor Premise
810.3400
Aedes Mosquito
[1] This is a single product with multiple product types / application methods that falls under multiple guidelines.


3.6	Impact of Changes in Data Requirements

To illustrate the ways that the changes in data requirements will impact the costs of receiving label claims for a product, EPA looks at how the changes in data requirements will have impacted the products registered from 2013-2017, as seen in our sample of 30 data packages.  EPA has identified three categories of changes in data requirements: stinging insects, biting flies, and species claims.  Across all 30 data packages, EPA estimates that the changes in the data requirements for label claims will save registrants over $200,000 per year.
The savings due to changes in data requirements are not directly attributable to the rule.  EPA has discretionary authority to require submission of efficacy data and has begun relying on the standards the final Product Performance Rule will codify.  EPA estimates savings in this assessment for two reasons.  First, the change in requirements is a result of the review of practices EPA initiated to develop the final rule.  Second, issuance of the final rule informs industry of the change in EPA's practices that it may otherwise not know.  The net savings due to recent changes in the data requirements are included in the total impacts of the rule as a sensitivity analysis.  See Section 3.8, Table 3.10.

      3.6.1	Stinging Insects: Bees, Wasps, Hornets, and Yellowjackets
Under past practice, to receive a label claim against bees, wasps, yellowjackets, and hornets, submission of four pest tests, one on each of the four species, would be required.  Only three species must be tested: wasps, yellowjackets, and hornets.  If the registrant successfully submits those three tests, they will be able to make label claims against bees without needing to submit any tests on bees.  

Product #1 in Table 3.2 illustrates this change.  Under past practice, the registrant could have been required to provide four stinging insect tests. Because of the final rule, the registrant is able to provide only tests on wasps, yellowjackets, and hornets and still receive a claim against bees if they so desire.  This data package was submitted for a direct contact product under guideline 810.3500, and therefore the registrant saved $18,400 by not having to submit an additional test (Table 3.3).  In total in EPA's sample of data packages, three different data packages requested bees, wasps, yellowjackets, and hornets.  All three data packages were under 810.3500 guidelines, and therefore in all three cases, this rule reduced data generation costs by $18,400 per product, for a total cost saving of $55,200 for the sample (Table 3.3).

      3.6.2	Biting Flies
A second change to the requirements of receiving label claims is in biting flies.  Under past practice, EPA reviewers did not have a consistent approach to registrant submissions requesting label claims for biting flies, and registrants usually opted for label claims against specific species rather than seeking a group label claim. Under the final rule only three tests, against stable fly, a large biting fly species, and a small biting fly species will be required to support a more generic claim.

An example of this category shows up in Product #11 (Table 3.3), a pet product under guideline 810.3300.  This product also requested mites, ticks, fleas, mosquitos, and lice.  Under past practice this product may not have been able to receive a label claim against biting flies.  Now, this product willonly have to submit three tests to receive a label claim against biting flies.  EPA estimates that the cost of a test under guideline 810.3300 is $50,000.  This means that registrants can receive a broader label claim while submitting a limited number of tests.  To help illustrate the impact of this change quantitatively, EPA calculates cost savings from this change as a one-test reduction in registrant burden.  Therefore, the change in this requirement reduces the cost of receiving a generic claim for biting fly by $50,000 (Table 3.3).  In total in EPA's sample of data packages three data packages requested biting flies.  The second product was an on-animal product under guideline 810.3200  -  as EPA estimates that tests under guideline 810.3200 cost $197,700, this change will reduce the cost to receive a biting fly claim by $197,700 (Table 3.3).  The third product was a livestock premises product under guideline 810.3500  -  EPA estimates that 810.3500 tests cost $18,400, and therefore EPA expects the change to reduce the cost of receiving a biting fly claim by that amount (Table 3.3).  In our sample of 30 data packages, this change will have reduced the cost of receiving requested biting fly claims by $266,000.  The size of this savings is driven mostly by the on-animal product.

      3.6.3	Restricted Species Claims
Under past practice, products may be allowed to demonstrate efficacy against a species and list that specific species on their labels.  An example of this category of change is Product #14 (Table 3.3), a pet product data package submitted requesting a claim against American dog tick, Dermacentor variabilis, under guideline 810.3300.  The product received a label claim against this tick species and was only required to submit a single test demonstrating efficacy against that specific tick species.

Currently, species claims against specific ticks and mosquitos are not allowed; this will be codified under the final rule.  Thus, a product similar to Product #14 will be required to support a general tick claim. It will not be able to make any claims against the individual species, Dermacentor variabilis.  A tick claim requires the submission of three tests showing efficacy against tick species, two more than were required for Product #14 to make its species claim.  EPA estimates that claims under guideline 810.3300 cost $50,000 per test, and therefore under the final rule a product comparable to Product #14 will have to pay an additional $100,000 in test costs to receive a tick label claim instead of a species label claim (Table 3.3). In our sample of data packages, only this single data package exhibited this concern.  A second data package, Product #30, received a label claim against a single species of mosquito, however this is a product intended to be used by mosquito abatement professionals to control a specific mosquito species using a trap that exploits the biology of that mosquito genus. It is not a product intended for use by general consumers that do not have the expertise to understand the limitations of the product.

Table 3.3.  Cost Savings from Changes in Data Requirements
Product ID
Product Type / Application Method
Pest
Change
Cost Savings
1
Direct Contact
Stinging Insects
3 species instead of 4
                                                                        $18,400
3

Direct Contact /
On-Animal /
Indoor Premise
Stinging Insects

3 species instead of 4

                                                                        $18,400


Biting Flies
3 species instead of 4
                                                                       $197,700
11
Pet Product
Biting Flies
3 species instead of 4
                                                                        $50,000
14
Pet Product
American Dog Tick
3 species instead of 1
                                                                      -$100,000
18
Indoor Premise
Stinging Insects
3 species instead of 4
                                                                        $18,400
25 
Livestock Premise
Biting Flies
3 species instead of 4
                                                                        $18,400
Total
                                                                       $221,300


3.7	Impact of Reduction in Uncertainty

Based on economic theory, EPA hypothesizes that the lack of clarity around product performance data requirements might lead to high transaction costs in the process of registering products.  EPA finds supporting evidence in the sample of 30 data packages.  Registrants submit studies for species that EPA does not register (not pests of public health concern, wood destroying pests, or invasive species pests), and they submit packages that do not include all requisite information, or that include too many tests.  To illustrate the ways that the final rule willresult in reduction in registrant uncertainty and thus the costs of receiving label claims for a product, EPA looks at how a reduction in uncertainty could have impacted the products registered from 2013-2017, as seen in our sample of 30 data packages.  EPA has identified six ways in which the reduction in uncertainty provided by the final rule will impact registrant costs and behavior: reducing excess data generation, reducing wasted processing costs, label change delays, high discovery costs, deterred innovation, and tightened test requirements.  Data generation costs are the costs of running tests to demonstrate whether or not a product has efficacy against specific pests.  Processing costs are the costs of submitting label claim requests to the EPA.  Label change delays are the losses in time and sales resulting from not getting a product to market as quickly as possible due to delays in receiving label claims.  Discovery costs are the costs in time and money that registrants must pay in order to acquire information about what the EPA requires to receive label claims.  Deterred innovation occurs when registrants choose not to undertake creating or registering a product due to the preceding costs.  Tightened test requirements include the possibility that after the publication of the final rule, EPA reviewers will be better able to enforce EPA data requirements.  In this section, EPA estimates the value of cost savings through clearer data requirements via a reduction in unnecessary data generation and processing costs.  Other transaction costs are discussed qualitatively.

      3.7.1	Impact on Data Generation Costs
Data generation costs are impacted by the Product Performance Rule because the reduction in uncertainty will decrease the likelihood of registrants running expensive tests that do not meet EPA standards or are not required by EPA in order to receive label claims.  There are three types of data generation costs impacted by the Product Performance Rule: excess tests, unregulated species tests, and unacceptable tests.  Further, EPA anticipates that the publication of the rule may lead to tightened test guidelines for registrants.

      3.7.1.1	Excess Tests
Excess testing occurs when registrants run and submit tests on more species than are required to receive a label claim.  In the absence of clearly defined requirements, registrants may not know how many species tests are required to receive a label claim and may, to avoid rejection, conservatively choose to run and provide too many tests rather than too few.  An example of this would be Product #11 (Table 3.4), a pet product under guideline 810.3300 that requested mites, ticks, fleas, mosquitos, biting flies, and lice.  The registrant of this product submitted 4 tick tests  -  but only 3 tick tests are required to receive a label claim.  As these tests were conducted under guideline 810.3300, EPA estimates that this unnecessary test cost the registrant $50,000 to run.

In our sample of 30 data packages, there were 11 tests provided in seven data packages that were in excess of the EPA requirements to receive a label claim (Table 3.4).  Eight of those tests were for products under guideline 810.3500, each of which EPA estimates costs $18,400 to run.  One of those tests was under guideline 810.3200, which EPA estimates costs $197,700 to run.  Two of the tests were under guideline 810.3300, which EPA estimates costs $50,000 to run.  In total in the sample, the excess tests cost registrants $444,900 (Table 3.4).

Table 3.4.  Cost Savings from Avoiding Unnecessary Data Generation
Product ID
Product Type / Application Method
Pest
Excess Study
Cost Savings
3
Direct Contact /
On-Animal /
Indoor Premise
Ticks
Scorpions
Spiders
Cockroaches
Ants
4 instead of 3
2 instead of 1
3 instead of 2
3 instead of 2
3 instead of 2
                                                                        $92,000
9
On Animal
Mosquitoes
4 instead of 3
                                                                       $197,700
11
Pet
Ticks
4 instead of 3
                                                                        $50,000
12
Pet
Ticks
4 instead of 3
                                                                        $50,000
17
Indoor Premise
Termites
4 instead of 3
                                                                        $18,400
22
Indoor Premise
Cockroaches 
3 instead of 2
                                                                        $18,400
27
Outdoor Premise
Cockroaches
3 instead of 2
                                                                        $18,400
Total
                                                                       $444,900


Given codification of the requirements, registrants will be less likely to spend money running excess tests because they will have easier access to the test requirements and will know how many tests are required.

      3.7.1.2	Unregulated Species Tests
Unregulated species tests are tests of product efficacy against pests for which EPA does not require submission of efficacy data.  Because registrants may not know which species count as covered pests, registrants may run tests and request label claims for species that the EPA does not regulate label claims for.  An example would again be Product #11 (Table 3.5), a pet product under guideline 810.3300 that requested mites, ticks, fleas, mosquitos, biting flies, and dog lice.  The registrant of this product provided a test demonstrating product efficacy against dog lice, but dog lice are not a covered pest for which EPA requires the submission of supporting data.  This product was submitted under guideline 810.3300, so EPA estimates that this unnecessary test cost the registrant $50,000 to run.  In EPA's sample of 30 data packages, 6 unregulated species tests were submitted by 5 data products  -  three tests were submitted for products under guideline 810.3300 (expected cost of $50,000), and three tests were submitted for products under guideline 810.3500 (expected cost of $18,400).  In total, registrants spent $205,200 running tests on unregulated species (Table 3.5).

Table 3.5.  Cost Savings from Avoiding Testing Unregulated Species
Product ID
Product Type / Application Method
Pest
Unregulated Species Tests
Cost Savings
3
Direct Contact /
On-Animal /
Indoor Premise
Firebrats
Silverfish
2 unregulated species
                                                                        $36,800
11
Pet
Lice
1 unregulated species
                                                                        $50,000
12
Pet
Lice
1 unregulated species
                                                                        $50,000
13
Pet
Lice
1 unregulated species
                                                                        $50,000
17
Indoor Premise
Silverfish
1 unregulated species
                                                                        $18,400
Total
                                                                       $205,200


40 CFR§158.400(e) requires that firms have support for all label claims, so firms may still have to generate these data.  However, EPA only requires efficacy data be submitted for evaluation to support claims for covered pests.  Thus, firms may still generate these data; they will only save processing costs, which may be near zero if submitted as part of a larger package.  These processing costs are captured in section 4.7.2.

      3.7.1.3	Unacceptable Tests
Registrants often submit tests that do not meet EPA standards for demonstrating product efficacy.  In our sample of 30 products, 13 of the 30 data packages sampled included at least one test that was rejected by EPA for being incorrectly run.  An example product is Product #12 a pet product seeking a label claim against, among other pests, stable flies (Table 3.6).  A label claim against stable flies requires one test, which the registrant submitted, and which is estimated to cost $50,000. However, the test was rejected by the EPA for not being correctly run.  In total, 37 tests were rejected; this is nearly 1/3 of all test data submitted to the EPA in this sample.  These 37 unacceptable tests were run at an estimated cost over $1.6 million. (Table 3.6) This includes 3 tests for two on animal products under guideline 810.3200  -  each estimated to cost $197,700 to run.

Table 3.6.  Potential Cost Savings from Unacceptable Tests
Product ID
Product Type / Application Method
Pest
Unregulated Species Tests
Total Cost Savings for each Product ID
3
Direct Contact /
On-Animal /
Indoor Premise
Face Flies
x1
                                                                        $18,400
8
On Animal
Face Flies
x1
                                                                       $197,700
9
On Animal
Ticks
Face Flies
Black Flies
x3
                                                                       $593,100
11
Pet
Ticks (x2)
x2
                                                                       $100,000
12
Pet
Stable Flies
x1
                                                                        $50,000
13
Pet
Ticks (x2)
Fleas
x3
                                                                       $150,000
16
Pet
Fleas
x1
                                                                        $50,000
17
Indoor Premise
Mosquitos (x2)
Fire Ants
x3
                                                                        $55,200
18
Indoor Premise
Ticks (x2)
Spiders
Cockroaches
Mosquitos
Horn Flies
Stable Flies
Bed Bugs
Carpenter Ants
Wasps
x10
                                                                       $184,000
19
Indoor Premise
Cockroaches
x1
                                                                        $18,400
20
Indoor Premise
Bed Bugs
x1
                                                                           -[1]
22
Indoor Premise
Fleas
x1
                                                                        $18,400
28
Outdoor Premise
Scorpions
Spiders
Fleas
Cockroaches
Mosquitos (x2)
House Flies
Carpenter Ants
Fire Ants
x9
                                                                       $165,600
Total
                                                                     $1,600,800
 1 EPA does not have test cost information for 810.3900 products, and so is underestimating the cost savings of the final rule by not including bedbug test costs in calculated savings.  


While the test requirement standards are available on the EPA's website, the published rule will direct registrants to the correct test guidelines.  With improved access to the testing requirements, standards, and guidelines, registrant spending on incorrectly run tests will be reduced.  Registrants will have an easier time familiarizing themselves with EPA standards for a properly conducted test, and thus will be less likely to run tests that EPA will reject.  Therefore, we anticipate the publication of this rule will reduce this category of errors.  However, it is unlikely to completely eliminate the potential for testing errors.

      3.7.1.4	Tightened Test Requirements
The publication of the Product Performance Rule will reduce uncertainty for registrants, but it will also reduce uncertainty for the Agency.  In the past, products have sometimes received label claims without exactly adhering to EPA's data requirements.  This may occur because the testing requirements are not only unclear for registrants, they are also unclear for EPA reviewers and decision-makers.  This problem is illustrated in the biting flies discussion above, where EPA reviewers did not have a consistent approach to what constituted a sufficient data submission to warrant a biting flies label claim.  An example of this in the data sample is Product #24 (Table 3.7), a livestock premises product under guideline 810.3200.  This product submitted a test showing efficacy against house flies, Musca domestica, and received a label claim against both house flies and stable flies, Stomoxys calcitrans.  This does not accord with testing requirements, which requires a test against stable flies to make a claim against stable flies.  Label claims were granted to products that did not provide test data according to requirements for two of the 30 products sampled.

By making the testing requirements more clearly accessible and explicit, EPA anticipates that reviewers will be less likely to allow products that do not meet standards to receive label claims.  In order for a product similar to Product #24 to receive label claims against both house flies and stable flies, the registrant of the product will be required to submit two tests showing efficacy against both species.  This will require the registrant to run and pay for an extra test, at an additional cost of $197,700 compared to the costs faced by the registrant of Product #24.  In total, to register two products similar to the two that were registered without submitting all the required data, registrants will face an increase in data generation costs of $218,100 (Table 3.7).

In certain, very limited number of circumstances, registrants may receive label claims without submitting all of the required acceptable data if the Agency determines that it is the appropriate risk management decision.  This may mean that registrants will not see cost increases, as the number of cases of registrants receiving label claims without submitting all required acceptable data may remain the same under the final rule as under past practice.

Table 3.7.  Cost Increases from Tightened Test Requirements
Product ID
Product Type / Application Method
Pest
Requirement Avoided
Cost Increases
24
Livestock Premise
House and Stable Flies
Claim accepted without stable fly test
                                                                       $197,700
29
Outdoor Premise
Ticks
Claim accepted with only two of three required tick tests 
                                                                        $18,400
Total
                                                                       $218,100


      3.7.2	Impact on Processing Costs
Processing costs are impacted by the Product Performance Rule because the reduction in uncertainty will decrease the likelihood of registrants incurring costs to submit test data that does not lead to desired label claims.  The rule may reduce processing costs by reducing unnecessary paperwork and excess PRIA fees.

      3.7.2.1	Paperwork Burden
When a registrant submits a data package to the EPA, they have to put the package together, a process which can be consuming in both time and money.  EPA refers to the cost of assembling a package as "paperwork burden."  When a registrant submits a package and receives no label claims at all, this paperwork burden was wasted.  An example of this is Product #28 (Table 3.8), where the registrant submitted a data package for an outdoor premise product requesting label claims against house fly, cockroaches, ticks, scorpion, spider, fleas, mosquito, carpenter ants, and fire ant under guideline 810.3500.  The product received none of the requested label claims, due to a combination of missing data and unacceptable tests, and therefore all the effort the registrant spent assembling the package for EPA review was wasted.  In the Section 3 ICR, EPA estimates each data package has a paperwork burden of $1,282, which is separate from and in addition to the costs of data generation.  In EPA's sample of 30 data packages, 6 of them led to zero received label claims.  In these cases, the paperwork burden for submitting the package was entirely wasted  -  this sums across the 30 package sample to a total waste of $7,692.

      3.7.2.2	PRIA Fees
In order for a registrant to receive data review by the EPA, the registrant must pay fees under the Pesticide Registration Improvement Act[3].  If the registrant wishes to add one or two target pests or claims to a label, this is an R340 action, which costs $5,238 per data package.  If they wish to add 3 or more target pest label claims, this is an R341 action, which costs $6,288 per data package.  A registrant who pays PRIA fees for an R341 action wastes $1,050 if they only receive one or two label claims and wastes all $6,288 if they receive no label claims.  A registrant who pays PRIA fees for an R340 action but receives no label claims wastes $5,238.  An example of this is Product #9 (Table 3.8), an on-animal product under guideline 810.3200, which requested label claims against tick, mosquito, face fly, black fly, horn fly, and stable fly.  This product paid for an R341 action, $6,288 in PRIA fees.  This product only received two label claims  -  against horn fly and stable fly  -  from their request, and thus paid $1,050 more in PRIA fees than necessary.  There are 14 data packages in our 30 data package sample that paid more than necessary in PRIA fees (between $1,050 and $6,288), for a total PRIA fee waste of $44,028.
Because the final rule will make test requirements more easily accessible, a registrant with a similar product will be more likely to know that they would not receive the tick, mosquito, and rejected fly claims, and will therefore only pay for an R340 action.  Relative to the registrant of Product #9, a registrant of a similar product under the final rule saves $1,050 and receives the same label claims.

Table 3.8.  Cost Savings from Reduced Processing Costs
Product ID
Product Type / Application Method
Processing Cost Category
Cost Savings
2
Direct Contact
PRIA Fees  -  Paid for 3+ claims, only received 1 or 2
                                                                         $1,050
6
Feed Through
PRIA Fees
                                                                         $1,050
8
On Animal
PRIA Fees
                                                                         $1,050
9
On Animal
PRIA Fees
                                                                         $1,050
11
Pet Product
PRIA Fees
                                                                         $1,050
12
Pet Product
Paperwork
                                                                         $1,282


PRIA Fees  -  Paid for 3+ claims, received none
                                                                         $6,288
13
Pet Product
Paperwork
                                                                         $1,282


PRIA Fees
                                                                         $6,288
16
Pet Product
Paperwork
                                                                         $1,282


PRIA Fees
                                                                         $5,238
18
Indoor Premise
Paperwork
                                                                         $1,282


PRIA Fees
                                                                         $6,288
20
Indoor Premise
Paperwork
                                                                         $1,282


PRIA Fees  -  Paid for 1 or 2 claims, received none
                                                                         $5,238
22
Indoor Premise
PRIA Fees 
                                                                         $1,050
24
Livestock Premise
PRIA Fees 
                                                                         $1,050
25
Livestock Premise
PRIA Fees 
                                                                         $1,050
28

Outdoor Premise
Paperwork
                                                                         $1,282


PRIA Fees 
                                                                         $6,288
Total
                                                                        $51,720


      3.7.3	Unquantified Cost Savings and Other Benefits from Regulatory Clarity
The final rule will have impacts on registrant costs that EPA is not able to quantify with available information.  Beyond the program impacts listed above, EPA expects the final rule to have impacts on label change delays, discovery costs, and deterred innovation.

      3.7.3.1	Label Change Delays
A registrant who submits an application that fails to lead to receipt of a desired label claim may face delays in the process of rectifying the mistake.  This delay  -  a period of time where the registrant cannot include the desired claim on their label - can translate into lost sales and lost profits even if eventually the registrant receives their desired label claim.  As 21 of the 30 sampled data packages had at least one requested label claim rejected, the number of registrants who currently resubmit data to receive all desired label claims and the resulting losses in sales may be significant.

      3.7.3.2	Discovery Costs
Because the requirements for registration are not publicly available in a single location that is easy for registrants to access, registrants who are uncertain about the requirements of registration must undertake efforts to determine the standards which their tests need to meet to demonstrate efficacy and receive label claims.  Acquiring this information can be time and money consuming, including meeting and communicating with the Agency and/or hiring consultants.  
The time required for registrants to obtain the necessary information about the pests for which data are required and the performance standards that must be met to support their intended label claims is variable. Once a registrant is speaking with an efficacy reviewer and explains the claims to be made, the reviewer can explain the pests for which data are required, the representative species, and the performance standards. Obviously, the more pests that the registrant intends to put on the label, the more time it takes to explain the data requirements and standards.  The time to convey the information, however, may be much shorter than the time that it takes to have a registrant's inquiry directed to an efficacy reviewer.  Responding to the telephone calls and/or email messages and scheduling a meeting can be immediate or take several business days depending on the request and the availability of the reviewer. Most commonly, these types of inquiries are addressed by the Agency within a few business days. 
The cost of these interactions may be greater for new registrants and small businesses than larger firms, as the latter have typically submitted many data packages to the EPA previously and are more likely to be familiar with the requirements and the EPA personnel than firms who have submitted few data packages.  Whereas large firms often have a permanent regulatory staff in their employment who can handle such inquiries, small businesses may have to hire consultants when needed.  These efforts result from the lack of clarity that exists in the baseline where no clear written data requirements are available for registrants.  It is expected that these unnecessary efforts will likely be reduced under the final rule.

      3.7.3.3	Deterred Innovation
The costs of discovering the requirements for label claims and the risks of running unnecessary tests may be a significant burden to potential registrants.  Registrants who would have to spend the resources to either discover EPA registration requirements or risk submitting data incorrectly may be deterred from seeking label claims against covered pests at all.

      3.7.3.4	Consumer Benefits
While the main cost savings from the final rule will accrue to registrants, consumers may also benefit from the rule.  Lower transaction costs for registrants, equivalent to a decrease in production costs and a downward shift of the supply curve, will result in a higher equilibrium quantity and a lower equilibrium price.  Increased innovation may increase the number and variety of products brought to market.  More innovation and lower prices may increase consumer surplus.

3.8	Estimated Annual Impact of the Product Performance Rule

EPA estimates that about 60 data packages are submitted to the EPA each year, on average, based on the number of submissions from 2013 to 2017.  EPA's sample of data packages included 30 data packages that represent the kind of packages that will be affected by the publication of the rule.  Therefore, EPA estimates the annual impact of the rule to be equal to double the estimated impact of the rule within the 30 data package sample.

      3.8.1	Annual Savings from Changes in Data Requirements
EPA calculates the impact of the changes in data requirements publicized with the Product Performance Rule by extrapolating from the 30-product sample.  EPA estimates that on average 60 data packages are submitted to and reviewed by EPA annually.  Therefore, EPA estimates the annual impact of the rule as twice the impact of the rule change calculated in the 30-product sample (Sections 4.6).  EPA anticipates a total of almost $450,000 annually in registrant savings resulting from the changes in data requirements publicized with this rule (Table 3.9).  This includes $100,000 in registrant savings from the stinging insect rule change, almost $550,000 in registrant savings from the biting flies rule change, and $200,000 increase in registrant costs from the restricted species claims change.

Table 3.9.  Annual Cost Savings
Savings
Total in Sample
Expected Savings per Year
Changes in Data Requirements (Table 3.3)
$221,300
$442,600
                                                               Stinging Insects
                                                                        $55,200
                                                                       $110,400
                                                                   Biting Flies
                                                                       $266,100
                                                                       $532,200
                                                      Restricted Species Claims
                                                                      -$100,000
                                                                      -$200,000
Changes in Uncertainty  -  Data Generation
$592,000
$1,184,000
                                             Excess Data Generation (Table 3.4)
                                                                       $444,900
                                                                       $889,800
                                Unregulated Species Data Generation (Table 3.5)
                                                                       $205,200
                                                                       $410,400
                                           Incorrectly Run Tests (Table 3.6)[1]
                                                                       $160,000
                                                                       $320,000
                                        Tightened Test Requirements (Table 3.7)
                                                                      -$218,100
                                                                      -$436,200
Reduced Processing Costs (Table 3.8)
$51,720
$103,440
                                                               Paperwork Burden
                                                                         $7,692
                                                                        $15,384
                                                                      PRIA Fees
                                                                        $44,028
                                                                        $88,056
Total
                                                                       $865,020
                                                                     $1,730,040
 1 Incorrectly run tests are assumed to be 1/10[th] of all unacceptable tests for purposes of illustrating impact of publication of final rule


      3.8.2	Annual Total Impact
To provide a complete picture of the total impact of the final rule on registrants, EPA provides three estimates of annual impact of the final rule. 
 The most likely estimate of rule impact
 The highest possible cost of rule impact
 The most expansive estimate of rule impact

EPA estimates a conservative program impact to result in annual registrant savings of almost $1 million.  Focusing only on aspects of the program that may increase registrant costs, EPA calculates potential cost increases of over $600,000 annually.  When including all possible results of the publication of the final rule, the most expansive estimate of program impact estimates annual registrant savings of over $1.7 million annually. (Table 3.10)

Table 3.10.  Total Annual Cost Savings
Savings
All Inclusive
High Cost
Likely
Changes in Data Requirements 
$442,600
-$200,000
-
                                                               Stinging Insects
                                                                       $110,400
                                                                              -
                                                                              -
                                                                   Biting Flies
                                                                       $532,200
                                                                              -
                                                                              -
                                                      Restricted Species Claims
                                                                      -$200,000
                                                                      -$200,000
                                                                              -
Changes in Uncertainty  -  Data Generation
$1,184,000
-
$889,800
                                                        Excess Data Generation 
                                                                       $889,800
                                                                              -
                                                                       $889,800
                                            Unregulated Species Data Generation
                                                                       $410,400
                                                                              -
                                                                              -
                                                          Incorrectly Run Tests
                                                                       $320,000
                                                                              -
                                                                              -
                                                    Tightened Test Requirements
                                                                      -$436,200
                                                                      -$436,200
                                                                              -
Reduced Processing Costs
$103,440
-
$103,440
                                                               Paperwork Burden
                                                                        $15,384
                                                                              -
                                                                        $15,384
                                                                      PRIA Fees
                                                                        $88,056
                                                                              -
                                                                        $88,056
                                                                          TOTAL
                                                                     $1,730,040
                                                                      -$636,200
                                                                       $993,240


      3.8.2.1	Expansive Estimate
In calculating upper bounds on the impact of the Product Performance Rule, EPA sums the impacts of every category of cost savings and cost increase that we believe could reasonably be interpreted as resulting from the rule. 
 
Calculating the upper limit on the impact of explicit changes in data requirements, EPA concludes that registrant costs will be almost $450,000 lower annually under the Product Performance Rule (Table 3.10).  This is the combination of annual registrant savings of over $500,000 from reduced biting fly test requirements, annual registrant savings of $100,000 from reduced stinging insect test requirements, and annual increase in registrant costs of $200,000 resulting from reduced species claims.

The reduction in registrant uncertainty resulting from publication of the Product Performance Rule will reduce registrant data generation cost by almost $1.2 million annually (Table 3.10).  This number is the total of almost $900,000 wasted by registrants by running tests beyond those required by the Agency, $400,000 wasted by running tests on species the EPA does not consider covered pests, and over $300,000 wasted on running tests that do not meet EPA testing requirements.  Finally, the tightening of test requirements resulting from the publication of the rule will increase registrant costs by over $400,000 annually.

The reduction in registrant uncertainty resulting from publication of the Product Performance Rule will also reduce registrant waste on processing costs  -  paperwork burden and PRIA fees.  EPA estimates the rule will save $100,000 annually, mostly from reduced overpayment of PRIA fees (Table 3.10).

In total, this calculation of savings sum to $1.7 million annually.

      3.8.2.2	Highest Cost Case Estimate
In calculating maximum potential costs to registrants, EPA sums the possible cost increasing elements of the Product Performance Rule while not including the possible cost saving elements of the rule.  There are two ways that the rule can increase registrant costs  -  the restriction on species claims, and the potential tightening of test requirements.  When totaled, these two impacts sum to an annual total cost increase to registrants of over $600,000 annually (Table 3.10).  In practice it is highly unlikely that cost increases will be experienced by registrants  -  this number is provided to show the limited downside risks of the final rule.

      3.8.2.3	Likely Estimate
In estimating the most likely outcome from the passage of the final rule, EPA focuses only on cost changes that explicitly result from the rule.  Thus, we exclude certain categories:
 The Agency did not need to pass the Product Performance Rule in order to change its covered pest data requirements, however, the process of passing the Rule alerted EPA to the opportunity to make these adjustments.
 Some of the savings from the reduction in uncertainty may also be viewed as overestimated.  While registrants may submit tests demonstrating efficacy against species the EPA does not consider covered pests, registrants are required to keep data on file demonstrating product efficacy against any pests listed on a product label (even if they do not submit those data to the EPA).
 Further, it is possible that the rule will not reduce expenditures on badly run tests  -  while the final rule will make more information available to registrants about the process of receiving label claims and the number of tests required for each species, the actual test guidelines are already publicized on the EPA website, and therefore the publication of the rule may not eliminate registrants completing bad tests.
 EPA also expects that while the publication of the rule may improve consistency in data requirements levied on registrants. In certain, very limited number of circumstances, registrants may receive label claims without submitting all of the required acceptable data if the Agency determines that it is the appropriate risk management decision.  This may mean that registrants would not see cost increases, as the number of cases of registrants receiving label claims without submitting all required/acceptable data may remain the same under the final rule as under past practice.

When calculating a likely estimate of the impact of the rule, EPA sums savings resulting from reduced data generation for excess tests, and reduced submission of packages that waste money on paperwork and PRIA fees.  This produces an estimate of $1 million in annual savings to registrants resulting from the publication of the Product Performance Rule (Table 3.10).

      3.8.3	Annual Impact Per Product
The per-product impact of the rule can be estimated as the total expected annual impact of the rule divided by the total expected number of products registered annually (60 products).  Thus, the conservative estimate of the impact of the rule is cost savings of $17,000 per product, the worst-case impact is a cost increase of $10,000 per product, and the most expansive estimate of the impact of the rule is cost savings of $75,000 per product.

      3.8.4	Annual Impact Per Firm
To estimate the annual per-firm impact of the final rule, EPA first estimates the number of firms that submit data packages to the EPA each year.  In the random sample of 30 data packages over five years, 18 firms were responsible for the 30 data packaged submitted to the EPA.  While firms may submit different numbers of data packages for review, this limited number of companies  -  coupled with the fact that as of 2011 only 400 companies had registered any products against covered pests (see Section 4.9)  -  implies that most registrants submit less than one package per year.  EPA estimates that the average firm submits one package every three years.  Annual cost savings of the rule per data package are nearly $17,000 (see Section 3.8.3).  Therefore, the annual savings per registrant are expected to be, on average, about $5,500.

3.9	Impact on Small Firms

The Regulatory Flexibility Act (RFA) of 1980 and its 1996 amendment, the Small Business Regulatory Enforcement Fairness Act (SBREFA), require that consideration be given to the effects of regulations on small business entities.  The regulations require that a determination be made as to whether the regulation will have a significant adverse economic impact on a substantial number of small entities (SISNOSE).  In some instances when SISNOSE is expected, agencies are also required to examine regulatory alternatives that may reduce adverse economic effects on significantly impacted small entities.  Small entities include (1) small businesses as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.
EPA has determined that this final rule does not impact any small governmental jurisdictions or any small not-for-profit enterprise because these entities are rarely pesticide applicants or registrants.  The small entities directly regulated by this final rule are small businesses or registrants of pesticides.

      3.9.1	Industry Profile
In this section, the entities that are affected by the final rule are described.  In particular, pesticide registrants (NAICS code 325320: Pesticide and Other Agricultural Chemical Manufacturing) that wish to register and market products with claims to control covered pests may be directly affected by the final rule.

Pesticide and Other Agricultural Chemical Manufacturing (NAICS 325320). This industry comprises establishments primarily engaged in the formulation and preparation of agricultural and household pest control chemicals (except fertilizers).  These companies frequently register products with EPA under FIFRA. In April 2011, there were almost 1700 unique pesticide registrants with FIFRA Section 3 or Section 24(c) registrations.  Of these, over 400 (26 percent of registrants) had registered at least one product that was labeled for a covered pest.

Colleges, Universities, and Professional Schools (NAICS 611310). This industry comprises establishments primarily engaged in furnishing academic courses and granting degrees at baccalaureate or graduate levels. These entities also engage in research and experimental development in the physical, engineering, or life sciences, such as agriculture, environmental sciences, biology, botany, biotechnology, chemistry, food, fisheries, forestry, health, medicine, physics, veterinary, and other allied subjects.

The Department of Education maintains information on universities and colleges in the U.S. In 2017-18, there were 750 public four-year institutions in the U.S. and 2,078 private four-year institutions (U.S. Dept. of Education, 2018).

Research and Development in the Physical, Engineering, and Life Sciences (except Nanobiotechnology) (NAICS 541714). This industry comprises establishments primarily engaged in conducting biotechnology (except nanobiotechnology) research and experimental development.  In 2017 there were 4,691 establishments conducting research and development in biotechnology, except nanotechnology (D&B Hoovers, 2019). Per U.S. Census guidance, NAICS code 541714 includes the following applications: agriculture bacteriology, biology, botany, chemical studies, entomology, environmental science, food science, genetics, health sciences, industrial research, medical sciences, physical sciences, and veterinary sciences.  Some portion of these 4,691 establishments may be involved in research and development for products covered by the final rule but the Agency could not project how many.

In Table 3.11 the U.S. Small Business Administration size criteria and the percent of the firms classified as small are reported for these establishments.

Table 3.11. Percent of Affected Entities that Classify as Small Businesses
                               Affected industry
                    Criteria to classify as small business
           % of firms doing business in U.S. classified as small[*]
Pesticide and Other Agricultural Chemical Manufacturing (NAICS 325320)
                             < 1,000 employees
                                     90.1%
Colleges, Universities, and Professional Schools (NAICS 611310)
                        < $30 million annual revenue
                                     36.8%
Research and Development in the Physical, Engineering, and Life Sciences (except nanobiotechnology) (NAICS 541714)**
                             < 1,000 employees
                                     99.8%
Source: D&B Hoovers and US Small Business Administration (referred to size classifications)
[*]Report uses 2017 NAICS codes. Percentages based on total number of firms that reported employees or revenues. Includes parent and independent firms that listed the relevant code as their primary or secondary industry.  
[**]Entities reported in this category include the following applications: agriculture bacteriology, biology, botany, chemical studies, entomology, environmental science, food science, genetics, health sciences, industrial research, medical sciences, physical sciences, and veterinary sciences. Agriculture related R&D firms could not be easily identified and separated from other areas of research. 


      3.9.2	Impacts to Small Entities
EPA estimates that the final rule will save firms applying for control claims about $17,000 per submission, on average (see Section 3.8.3).  There may be greater cost savings for small and first-time registrants.  Registrants that have submitted numerous products to the EPA may have gained experience in the process of receiving label claims and may already be familiar with the process and requirements of the Agency.  They may have an established relationship with reviewers and know how to acquire information on registration standards.  Smaller registrants and first-time registrants, on the other hand, face more of a burden, as they may not have the established relationship with the Agency or possess information on what is required of them when running tests and submitting data packages.  Many of these discovery costs (Section 3.7.3.2) are not quantifiable.

EPA's review of current submissions does not provide clear evidence that differences in firm size will lead to differences in quantifiable savings.  EPA sampled 30 data packages submitted to the Agency from 2013-2017 as discussed in Section 3.5.  Each data package may include applications for multiple label claims; thus, EPA reviewed requests for 143 label claims.  Overall, about one half of the requests were successful.  The remaining requests provide insufficient information for the efficacy evaluation (e.g., too few studies) or were not for claims against covered pests (e.g., unnecessary studies).  Of the 27 label claims submitted by small firms, only about 20 percent were successful, indicating that small firms were more likely to make insufficient or inappropriate submissions implying higher costs associated with the lack of clarity in data requirements.  However, small firms appear to make fewer requests for label claims per package, which could mean that savings per submission for small firms are lower.

EPA estimated that an individual firm might save about $5,500 annually, given that a firm may submit an application for efficacy claims about once every three years (Section 3.8.4).  The 30 packages analyzed were submitted by 16 different firms, four of which EPA was able to identify as small businesses according to the SBA Employees or Revenue Thresholds.  Only one of the four small firms submitted more than one package over the five-year period, which suggests that small firms apply for label claims less frequently than the overall average.

EPA's estimated $5,500 in cost savings per firm per year, on average, represents a very small proportion of a firm's revenues.  The four small firms in the sample average about $40 million per year in total sales, although these firms may not be representative of all small firms that may apply for efficacy claims against covered pests.

EPA processes about 60 requests for efficacy claims per year, on average, about double the size of the sample analyzed.  Thus, there will probably be fewer than ten small firms, on average, submitting applications each who will benefit from the clarity provided by codifying the data requirements.

3.10	Conclusion

The Product Performance Rule will have two main impacts on registrant costs  -  explicit changes in data required for label claims, and a reduction in uncertainty for registrants about data requirements.  EPA estimates approximately $1 million annual cost savings from a reduction in uncertainty for registrants.  As explained in Section 3.6, the savings due to changes in data requirements are not directly attributable to the final rule and are not included in the $1 million savings estimate.  While not every element of the final rule will result in savings for registrants, EPA conservatively estimates that the rule will result in $1 million in annual reductions in registrant expenditures on the process of receiving label claims against pests of significant public health concern, wood destroying pests, and invasive pests, equivalent to about $17,000 in savings per data package submitted to the Agency and about $5,500 per registrant in annual savings.  There will be further non-quantifiable impacts on registrants, mostly in the form of reduced barriers to receiving label claims against pests of significant public health concern, wood destroying pests, and invasive pests.  The impact of the rule, particularly in reducing non-quantified discovery costs, is expected to be greater for small firms and first-time registrants.  Lower transaction costs for registrants may benefit consumers by lowering product prices.

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