MEMORANDUM
Eastern
Research
Group,
Inc.
110
Hartwell
Avenue
Lexington,
MA
02421
Date:
June
16,
2003
To:
James
Covington,
EPA
From:
Colleen
Campbell
and
Cal
Franz,
ERG
Re:
Meat
and
Poultry
Products
Industry
Barriers
to
Entry
Analysis
INTRODUCTION
ERG
projected
potential
barriers
to
entry
for
the
Meat
and
Poultry
Products
(
MPP)
industry
based
on
costs
received
from
Tetra
Tech
on
May
27,
2003
and
weights
received
from
Westat
on
April
10,
2003.
The
barrier
to
entry
analysis
compares
estimated
average
incremental
facility
or
company
capital
costs
incurred
to
meet
the
effluent
guidelines
to
average
total
assets.
The
analysis
was
performed
to
evaluate
the
effect
of
the
proposed
rule
on
the
rate
on
new
entrants
into
the
meat
and
poultry
products
industry.
Increased
start­
up
costs
resulting
from
the
capital
costs
of
the
proposed
regulation
may
prevent
entrepreneurs
from
entering
the
industry.
The
calculated
ratio
of
average
capital
costs
to
average
total
assets
measures
the
potential
for
barriers
to
entry
due
to
the
proposed
rule.
If
the
barrier
to
entry
ratio
is
large,
then
the
possibility
exists
that
the
proposed
rule
will
discourage
entry
into
the
meat
and
poultry
products
market.

The
attached
tables
present
the
results
of
these
analyses.
Table
1
provides
the
facility
level
results
by
subcategory,
and
Table
2
presents
the
company
level
results.

Facility
Level
Results
 
The
facility
level
ratio
of
capital
costs
to
total
assets
ranges
from
0.1
percent
in
Subcategory
A
through
D
under
Option
2
to
7.8
percent
in
Subcategory
K
under
Option
4.

 
Option
4
shows
the
greatest
impacts:
S
Average
capital
costs
of
$
3.0
million
per
facility
in
Subcategory
A
through
D
result
in
a
2.1
percent
ratio,
S
Average
capital
costs
of
$
3.1
million
per
facility
in
Subcategory
K
result
in
a
7.8
percent
ratio.

 
All
other
options
and
subcategories
result
in
ratios
below
2
percent.

1
Company
Level
Results
 
The
company
level
ratio
of
capital
costs
to
total
assets
ranges
from
0.02
percent
under
Option
2
for
red
meat
and
mixed
meat
companies
to
1.7
percent
under
Option
4
for
poultry
companies.

 
Poultry
companies
show
the
largest
impacts,
with
ratios
ranging
from
0.1
percent
under
Option
2
to
1.7
percent
under
Option
4.

 
Red
meat
and
mixed
meat
companies
have
ratios
ranging
from
0.02
percent
under
Option
2
to
0.3
percent
under
Option
4.

2
Table
1
Summary
of
Projected
Facility
Level
Barrier
to
Entry
by
Subcategory
and
Option
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Total
Facilities
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Variable
in
Class
Analyzed*
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Subcategory
A
through
D
Facilities
39
19
$
75
0.1%
$
1,268
0.9%
$
1,777
1.2%
$
2,375
1.6%
$
3,028
2.1%

Average
Facility
Assets
($
000)
NA
$
146,686
Subcategory
K
Facilities
118
24
$
148
0.4%
$
427
1.1%
$
592
1.5%
$
657
1.7%
$
3,070
7.8%

Average
Facility
Assets
($
000)
NA
$
39,182
*
Facilities
with
both
asset
data
and
compliance
costs.
Table
2
Summary
of
Projected
Company
Level
Barrier
to
Entry
by
Meat
Type
and
Option
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Average
Ratio
of
Total
Companies
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Capital
Costs
to
Variable
in
Class
Analyzed*
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Costs
($
000)
Assets
Red
Meat
(
Subcategories
A
through
I)

Companies
9
9
$
748
0.02%
$
4,321
0.1%
$
7,054
0.2%
$
9,442
0.3%
$
11,901
0.3%

Average
Company
Assets
($
000)
NA
$
3,600,502
Poultry
(
Subcategories
K
and
L)

Companies
13
13
$
682
0.1%
$
2,383
0.4%
$
2,569
0.4%
$
3,648
0.6%
$
11,061
1.7%

Average
Company
Assets
($
000)
NA
$
652,136
Mixed
Companies
4
4
$
1,182
0.0%
$
6,351
0.1%
$
9,372
0.2%
$
12,911
0.2%
$
21,132
0.3%

Average
Company
Assets
($
000)
NA
$
6,215,533
*
Companies
with
both
asset
data
and
compliance
costs.
