MEMORANDUM
Eastern
Research
Group,
Inc.
110
Hartwell
Avenue
Lexington,
MA
02421
Date:
June
4,
2003
To:
James
Covington,
EPA
From:
Ian
Cadillac
and
Cal
Franz,
ERG
Re:
Meat
and
Poultry
Products
Small
Business
Economic
Impact
Analysis
1.
Background
This
memo
summarizes
ERG s
draft
small
business
economic
impact
analysis
for
the
Meat
and
Poultry
Products
Effluent
Guideline.
This
analysis
is
based
on
costs
provided
to
ERG
by
Tetra
Tech
on
May
27,
2003
and
survey
weights
provided
by
Westat
on
April
11,
2003.

Projected
small
business
economic
impacts
are
similar
to
those
outlined
in
ERG s
April,
23
2003
memo.
No
companies
are
projected
to
incur
financial
distress,
and
no
facility
level
closure
or
sales
test
analysis
is
possible
due
to
lack
of
data.
Total
annualized
pretax
costs
have
decreased
for
all
options
except
4,
where
we
see
the
average
facility
incurring
an
additional
$
47,000.

2.
Small
Business
Definition
This
effluent
guideline
uses
two
different
definitions
to
categorize
small
facilities:
an
engineering
definition
and
an
economic
definition.
The
engineering
definition
is
based
on
facility
production
and
is
used
to
assign
compliance
costs
to
facilities.

The
economic
definition
of
small
is
used
to
determine
economic
impacts
on
small
companies
to
meet
the
requirements
of
the
Regulatory
Flexibility
Act
(
RFA)
as
amended
by
the
Small
Business
Regulatory
Enforcement
Fairness
Act
of
1996
(
SBREFA).
ERG
used
the
Small
Business
Administration s
guidelines
for
the
North
American
Industry
Classification
System
(
NAICS)
codes
to
define
small
businesses
in
the
Meat
and
Poultry
Products
Industry
(
MPP).
Under
these
guidelines,
a
MPP
facility
is
owned
by
a
small
business
if
its
corporate
parent
employs
500
workers
or
less.

For
this
round
of
costs
the
engineering
definition
includes
no
costs
for
facilities
with
small
production,
but
under
the
economic
definition
ERG
found
18
small
business
owned
facilities.

3.
Projected
Economic
Impacts
This
section
summarizes
projected
economic
impacts
to
small
business
owned
facilities:

 
All
18
small
business
owned
facilities
are
in
subcategory
K.

1
 
Total
national
annualized
pretax
costs
for
small
business
owned
facilities
range
from
$
1.3
to
$
5.6
million
($
74,000
to
$
312,000
per
facility).

 
No
facility
level
closure
or
sales
test
analysis
is
possible
for
small
business
owned
facilities
due
to
lack
of
data.

 
No
corporate
level
financial
distress
is
projected
for
small
businesses.

Impacts
on
small
businesses
have
been
reduced
by
EPA s
decision
not
to
cost
facilities
that
met
the
engineering
definition
of
small.
This
decision
decreases,
but
does
not
eliminate,
the
number
of
facilities
that
meet
the
economic
definition
of
small.
However,
it
eliminates
impacts
on
several
small
business
owned
facilities
that
had
been
projected
as
closures
under
the
draft
impacts
ERG
sent
to
EPA
on
March
25,
2003.

Another
significant
item
to
note
is
that
the
total
annualized
cost
of
the
regulation
does
not
increase
sequentially
from
Option
2
to
Option
4.
Option
2
and
Option
2.5
are
the
least
expensive
options
followed
by
Option
2
+
P
and
Option
2.5
+
P,
with
Option
4
being
most
expensive.

4.
Impact
Changes
from
April
11,
2003
Costs
Except
for
national
costs,
projected
impacts
on
small
business
owned
facilities
detailed
in
this
memo
are
identical
to
those
in
the
April
23,
2003
Small
Business
Impacts
memo.
Compared
to
the
previous
costs
total
national
pretax
annualized
costs
increase
by
17
percent
($
832,000)
for
Option
4
and
decrease
for
all
others.
The
largest
decrease
of
25
percent
occurs
in
Option
2
($
438,000)
and
Option
2.5
($
674,000),
while
the
smallest
decrease
of
3
percent
($
147,000)
is
in
Option
2.5+
P.

5.
National
Costs
None
of
the
small
businesses
analyzed
receive
any
tax
shield,
therefore
both
pretax
and
post­
tax
annualized
costs
are
equal.
The
18
small
business
owned
facilities
represent
15
percent
of
facilities
in
subcategory
K.
Under
Option
2,
they
incur
16
percent
of
total
pretax
annualized
costs
for
subcategory
K
declining
to
7
percent
of
costs
under
Option
4.
For
Option
2
the
average
small
business
owned
facility
bears
a
pretax
annualized
cost
that
is
$
3,000
higher
than
other
facilities
in
the
subcategory.
However,
for
Option
4
the
average
annualized
pretax
compliance
cost
for
a
small
business
owned
facility
is
$
473,000
less
the
average
large
business
owned
facility
costs.
As
the
cost
of
the
rule
increases
the
percentage
of
costs
borne
by
small
business
owned
facilities
decreases.
Further
information
on
national
costs
is
located
in
Table
1,
which
breaks
out
total
and
average
costs
by
subcategory,
option,
and
small
business
classification.

6.
Closure
Analysis
ERG
conducted
facility
and
company
level
closure
analyses
using
a
net
income
test
under
several
different
projections
for
future
market
conditions.
If
facilities
are
projected
to
close
ERG
estimated
the
impact
in
terms
of
lost
employment
and
revenue.
ERG
is
unable
to
conduct
the
closure
analysis
at
a
facility
level
(
Table
2)
for
small
business
owned
facilities
because
these
companies
do
not
track
site
level
financials.
The
company
level
analysis
shows
no
projected
closings
(
Table
3)
among
small
businesses.
Company
level
results
are
unweighted.

2
7.
Corporate
Financial
Distress
ERG
employs
the
Altman
ZN
model
to
test
for
corporate
distress
after
implementation
of
proposed
EPA
regulations.
Based
on
the
weighted
average
of
five
financial
ratios
the
Altman
ZN
test
determines
whether
a
corporation s
financial
condition
is
healthy,
indeterminate,
or
stressed.
No
small
businesses
show
any
impacts
under
any
of
the
proposed
options.
Further
information
can
be
found
in
Table
4,
which
breaks
out
Altman
ZN
results
by
meat
type,
option,
and
small
business
status.

8.
Sales
Test
The
sales
test
compares
pre­
and
post­
tax
annualized
compliance
costs
to
annual
facility
revenues.
The
results
indicate
the
number
of
facilities
with
compliance
costs
that
exceed
1
percent
and
3
percent
of
sales.
ERG
is
unable
to
perform
a
facility
level
revenue
test
because
none
of
the
small
business
owned
facilities
analyzed
track
financials
at
the
facility
level.

3
Table
1
Total
and
Average
Compliance
Costs
by
Subcategory,
Option,
and
Small
Business
Status
Total
Costs
($
000)
Average
Costs
($
000)

Total
Business
in
Class
Size
Cost
Type
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Subcategory
A
through
D*

0
Small
Capital
$
0
$
0
$
0
$
0
$
0
NA
NA
NA
NA
NA
O&
M
$
0
$
0
$
0
$
0
$
0
NA
NA
NA
NA
NA
One
Time
$
0
$
0
$
0
$
0
$
0
NA
NA
NA
NA
NA
Post­
tax
Annualized
$
0
$
0
$
0
$
0
$
0
NA
NA
NA
NA
NA
Pre­
tax
Annualized
$
0
$
0
$
0
$
0
$
0
NA
NA
NA
NA
NA
39
Other
Capital
$
6,646
$
36,385
$
67,885
$
86,118
$
104,090
$
170
$
933
$
1,741
$
2,208
$
2,669
O&
M
$
4,328
$
31,996
$
5,071
$
33,320
$
37,459
$
111
$
820
$
130
$
854
$
960
One
Time
$
64
$
64
$
979
$
979
$
979
$
2
$
2
$
25
$
25
$
25
Post­
tax
Annualized
$
3,037
$
23,089
$
8,986
$
27,875
$
31,418
$
78
$
592
$
230
$
715
$
806
Pre­
tax
Annualized
$
4,951
$
35,574
$
12,359
$
42,004
$
47,627
$
127
$
912
$
317
$
1,077
$
1,221
Subcategory
K
18
Small
Capital
$
4,273
$
5,343
$
4,586
$
5,657
$
15,057
$
237
$
297
$
255
$
314
$
837
O&
M
$
927
$
2,397
$
1,581
$
3,054
$
4,186
$
51
$
133
$
88
$
170
$
233
One
Time
$
0
$
0
$
185
$
185
$
185
$
0
$
0
$
10
$
10
$
10
Post­
tax
Annualized
$
1,329
$
2,885
$
2,023
$
3,582
$
5,611
$
74
$
160
$
112
$
199
$
312
Pre­
tax
Annualized
$
1,329
$
2,885
$
2,023
$
3,582
$
5,611
$
74
$
160
$
112
$
199
$
312
99
Other
Capital
$
14,584
$
60,301
$
69,632
$
93,852
$
284,121
$
147
$
609
$
703
$
948
$
2,870
O&
M
$
5,558
$
30,208
$
6,836
$
32,318
$
48,666
$
56
$
305
$
69
$
326
$
492
One
Time
$
32
$
32
$
1,093
$
1,093
$
1,114
$
0
$
0
$
11
$
11
$
11
Post­
tax
Annualized
$
5,327
$
26,799
$
11,298
$
31,161
$
59,790
$
54
$
271
$
114
$
315
$
604
Pre­
tax
Annualized
$
7,004
$
36,114
$
14,306
$
41,910
$
77,758
$
71
$
365
$
145
$
423
$
785
*
Pending
further
direction
from
EPA
the
7
facilities
that
process
both
red
meat
and
poultry
have
been
included
in
subcategory
A­
D.
Table
2
Summary
of
Projected
Facility
Closure
Impacts
by
Subcategory,
Option,
and
Small
Business
Status
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Business
Total
Baseline
Facilities
not
Variable
Size
in
Class
Closure*
Analyzed**
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Subcategory
A
through
D
Facilities
Small
0
0
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
39
2
21
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Revenues
($
000)
Small
$
0
$
0
NA
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Other
$
9,303,506
CBI
NA
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Employees
Small
0
0
NA
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
48,114
CBI
NA
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Subcategory
K
Facilities
Small
18
0
18
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
99
10
66
0
0.0%
0
0.0%
0
0.0%
0
0.0%
7
7.5%

Revenues
($
000)
Small
CBI
$
0
NA
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Other
CBI
$
1,584,596
NA
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
CBI
CBI
Employees
Small
CBI
0
NA
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
CBI
13,258
NA
0
0.0%
0
0.0%
0
0.0%
0
0.0%
CBI
CBI
*
Baseline
closures
are
facilities
projected
to
have
a
negative
NPV
under
at
least
3
of
5
forecasting
methods
prior
to
regulatory
costs.

***
Pending
further
direction
from
EPA
the
7
facilities
that
process
both
red
meat
and
poultry
have
been
included
in
subcategory
A­
D.
Table
3
Summary
of
Projected
Company
Closure
Impacts
by
Meat
Type,
Option,
and
Small
Business
Status
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Business
Total
Baseline
Variable
Size
in
Class
Closure*
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Red
Meat
(
Subcategories
A
through
I)

Companies
Small
0
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
9
1
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Revenues
($
000)
Small
$
0
$
0
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Other
$
29,949,011
CBI
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Employees
Small
0
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
80,755
CBI
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Poultry
(
Subcategories
K
and
L)

Companies
Small
1
1
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
12
5
0
0.0%
1
8.3%
0
0.0%
1
8.3%
1
8.3%

Revenues
($
000)
Small
CBI
CBI
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Other
CBI
CBI
$
0
0.0%
CBI
CBI
$
0
0.0%
CBI
CBI
CBI
CBI
Employees
Small
CBI
CBI
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
CBI
CBI
0
0.0%
CBI
CBI
0
0.0%
CBI
CBI
CBI
CBI
Mixed
Companies
Small
0
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
4
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Revenues
($
000)
Small
$
0
$
0
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Other
$
89,439,473
$
0
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%
$
0
0.0%

Employees
Small
0
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
184,834
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

*
Baseline
closures
are
facilities
projected
to
have
a
negative
NPV
under
at
least
3
of
5
forecasting
methods
prior
to
regulatory
costs.
Table
4
Altman
Z'
Results
by
Meat
Type
and
Small
Business
Status
Option
Number
of
Companies
with
Z'
Score**

Business
Less
than
2.9;

Meat
Type
Size
Greater
than
2.9
Greater
than
1.23
Less
than
1.23
Baseline
Red
Meat
Small
0
0
0
Other
7
1
1
Poultry
Small
0
1
0
Other
8
4
0
Mixed
Small
0
0
0
Other
0
3
1
Post
Regulatory
Incremental
Change
(
Relative
to
Baseline)*

Option
2
Red
Meat
Small
0
0
0
Other
0
0
0
Poultry
Small
0
0
0
Other
0
0
0
Mixed
Small
0
0
0
Other
0
0
0
Option
2+
P
Red
Meat
Small
0
0
0
Other
0
0
0
Poultry
Small
0
0
0
Other
0
0
0
Mixed
Small
0
0
0
Other
0
0
0
Option
2.5
Red
Meat
Small
0
0
0
Other
0
0
0
Poultry
Small
0
0
0
Other
0
0
0
Mixed
Small
0
0
0
Other
0
0
0
Option
2.5+
P
Red
Meat
Small
0
0
0
Other
0
0
0
Poultry
Small
0
0
0
Other
0
0
0
Mixed
Small
0
0
0
Other
0
0
0
Option
4
Red
Meat
Small
0
0
0
Other
0
0
0
Poultry
Small
0
0
0
Other
­
1
1
0
Mixed
Small
0
0
0
Other
0
0
0
*
Numbers
indicate
the
number
of
companies
with
Altman
Z
scores
changing
from
one
category
to
another.
**
Altman
Z
scores
greater
than
2.9
indicate
a
financially
healthy
company;
scores
less
than
1.23
are
in
danger
of
bankruptcy;
scores
less
than
2.9
but
greater
than
1.23
are
indeterminate.
Table
5
Facilities
with
Annualized
Costs
Exceeding
Specified
Percentage
of
Revenues
by
Subcategory,
Option,
and
Small
Business
Status
Facilties
with
Annualized
Costs
Exceeding
Specified
Percentage
of
Revenues
Option
2
Option
2+
P
Option
2.5
Option
2.5+
P
Option
4
Percent
Compliance
Business
Total
of
Revenues
Costs
Size
in
Class
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Number
Percent
Subcategory
A
through
D
1%
Pre­
tax
Small
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
39
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Post­
tax
Small
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
39
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

3%
Pre­
tax
Small
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
39
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Post­
tax
Small
0
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
39
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Subcategory
K
1%
Pre­
tax
Small
18
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
99
0
0.0%
0
0.0%
0
0.0%
4
4.0%
17
16.9%

Post­
tax
Small
18
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
99
0
0.0%
0
0.0%
0
0.0%
0
0.0%
7
7.5%

3%
Pre­
tax
Small
18
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
99
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Post­
tax
Small
18
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%

Other
99
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
