ROSERT W GRAHAM CHARLES F OSBORN MAX KAMINOFF 

fIDBERT V. tiOLLAND 

IRWIN L. TREIGER PAUL W. STEERE •• ;ROBERT J BLACKWELL ROBERT A STEWART 

OOfiAl.D I.. JOH~SON 

V 

MICHAEL. a COuFlTNAGE KARL J. EGE 

LAW OFFIOES 

BOGLE & GATE S 

MICHAEL W.DUNCY 

.CHARLES F1. $LUMENFEI,.O JAMES /It. SMITH, JR 

fHOMAS C. GORES kIMBERLY W.OSENBAUGH JOHN F. BOESPFlUG, JR. 

JAMES f TUNE TH~DDAS LAlSTON 

.WASHINGTON STATE AND OISTRICT OF COLUMBIA BARS • -OISTRICT OF COLUMBIA BAR ONLY 

ANN e.KRUSE DAVID fl, MILL.EN ROGER M. TOLBERT 

RICHARD (l WOOD SUZANNE t.UU.ER KOESTNER FENTON p, WIl.KINSON 

KElll1 M, KORENCHUK CAROLYN A. ROEBER 

ELLEN P. SCHREIER JOSEPH F. LOOK EUZA9ETH ROCKWELL BROWN AOBERT J. THOMAS SUSAN e. BOYL.E DENNIS G.STENSTROM 

L 

JEFFREY Fl, MASI BRUCE)I., KING 

COllf1lt/tt 

THE BANK OF CALIFORNIA CENTER 

SEATTLE. WASHINGTON 00164 

CABLE "BOGLE SEATTLE" 

(206) 682-!!>1!!>1 TELEX: 32-1087 

115711 EYE STREET N. W. 

WASHINGTON,D.O.20ool1 

(202) 628-04811 TELEX: 89-7410 

900 WEST FIFTH AVENUE 

ANOHORAGE, ALASKA 901101 

(gor) 276-41551 

ALL OT~E~~~~~I~~~ a:T'liiriXA ONLY PLEASE BEPLY TO SEAl:'TLE OFFICE 

Mr. Daniel S. Lent 

Effluent Guidelines Division, 

Environmental Protection Agency 

401 M Street, S.W. 

Washington, D.C. 20460 

Attn: EGD Docket Clerk 

July 9, 1981 

Canned & Preserved Seafood Processing Industry (WH-552) 

Re: Proposed Rulemaking (46 Fed. Reg. 2544) 

Dear Mr. Lent: 

C. 

(St. 

Please find enclosed the Comments of Petitioners 

Pacific Seafood Processors Association, Morpac, Inc., 

Nefco-Fidalgo Packing Co., North Pacific Processors, E. 

Phillips & Son, Inc., Washington Fish & Oyster Company 

Elias Ocean Products and Juneau Cold Storage) and 

Whitney-Fidalgo Seafoods on the January 9, 1981 Proposed Rulemaking. 

Please let us know if you have any questions. 

Very truly yours, 

BOGLE & GATES 

Charles R. 

Enclosures 
COMMENTS ON 

EPA'S PROPOSED RULEMAKING 

FOR THE CANNED AND PRESERVED 

SEAFOOD PROCESSING POINT SOURCE CATEGORY 

(46 Fed. Reg. 2544) 

The following comments are submitted on behalf of the 

Petitioners in the above-referenced matter. 

I. INTRODUCTION 

A. Background 

As detailed in the January 9, 1981, Federal Register, 

Petitioners submitted a petition for ru1emaking to amend the 

Best Practicable Control Technology Currently Available ("BPT") 

regulations for certain Alaska subcategories of the Canned and 

Preserved Seafood Processing Point Source Category. The petition sought the redesignation of a number of so-called "nonremote" locations as "remote." The Environmental Protection 

Agency ("EPA"), not only proposed to deny most of the petition,l but proposed an even more stringent technology as justification for retaining the existing BPT for the non-remote 

locations. In addition, EPA proposed to expand the boundaries 

of the non-remote designation of Ketchikan and requested comIJuneau was the only location which was redesignated 

in accord with Petitioners' request. 

-1-
ments on adding Dutch Harbor and the entire Kenai Peninsula to 

the list of non-remote locations. 

B. The Proposed Rulemaking Is Not Responsive to 

Petitioners' Petition 

Petitioners strongly disagree with the proposed rulemaking because it is non-responsive to the data presented in 

.--- -

the petition and supplemental filings and EPA fails to provide 

data to support its conclusions. Rather than respond to Petitioners' arguments and supporting documentation, EPA proposed 

an entirely new regime which is based, in part, on new unsupported assertions which Petitioners are now forced to address. 

Petitioners are placed in the unfortunate position of trying to 

hit a moving target. 

Many of EPA's conclusions are summary in nature. An 

example of EPA's lack of responsiveness is the following discussion of Petitioners' barging costs: 

"EPA is in general not persuaded by a number of 

petitioners' assertions as to the type of barge and 

the extent and nature of dock improvements which would 

be necessary to sustain an adequate barging operation." (Emphasis added) 46 Fed. Reg. at 2546. 

This is typical of the type of "response" which is given to 

Petitioners' very detailed supporting data. EPA, however, does 

not provide any data to support its assertion or to disprove 

Petitioners' data -- all that is said is that the data lacks 

-2-

-, 
persuasiveness. We believe Petitioners are entitled to more 

sUbstantive comroent. 2 

In addition there are numerous instances of statements 

made which are totally unsupported by factual data. For 

example, in discussing the Petersburg reduction facility, the 

following statement is made: 

"Inclusion of the petitioner's wastes with those 

of other processors in the area would make this a 

profitable reduction facility. Acceptance of this 

petition could result in closure of this facility, if 

additional Petersburg processors turned to discharging 

their wastes. Unemployment from closing of the 

reduction facility and environmental damage could 

result." (Emphasis added) 46 Fed. Reg. at 2550. 

In this one statement there are four unsupported assertions. 

------------------ There is nothing in the record, nor submitted by EPA, as to 

whether the Petersburg reduction facility is profitable or not, 

whether it is in danger of closing, how many people are employed and what environmental damage will result from its 

closure. While EPA supplemented the record with numerous telephone conversations and internal memoranda,3 there is no data 

on any of the assertions made in the above-cited paragraph. 

2Note that the March, 1981 final report of TAMS for 

the City of Cordova, entitled: "City of Cordova Marine Facilities Study" ("City of Cordova Study") concludes that the cost 

of a tug and barge is $475,000 (at p. 6-23). This is the exact 

figure set forth in Petitioners' petition. 

3Petitioners point out that none of these documents 

were known to exist prior to the Federal Register Notice. Petitioners also take issue with EPA's obvious attempt to support 

-3-
It is clear that administrative regulations must be 

supported by the record. As the Ninth Circuit set forth in 

Association of Pacific Fisheries v. EPA, 615 F.2d 794 (9th 

Cir. 1980): 

"The scope of review in cases like this is well 

settled . . . . Our task is to insure that the Agency 

has accumulated sufficient material upon which to make 

a reasoned decision, reviewed that material, and promulgated regulations that are the result of reasoned 

decisionmaking. Citizens to Preserve Overton Park, 

Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L. 

Ed. 2d 136 (1971); Marathon Oil Co. v. EPA, 564 F.2d 

1253, 1266 (9th Cir. 1977); American Meat Institute 

v. EPA, 526 F.2d 442, 453 (7th Cir. 1975)." 

As the U.S. Supreme Court stated in Burlington Truck Lines v. 

U.S., 371 U.S. 156, 83 S. Ct. 239, 9 L. Ed. 2d 207 (1962), the 

agency must articulate a "rational connection between the facts 

found and the choice made. II 

We submit that EPA has not met its burden in the proposed regulations. EPA has not suffiCiently responded to Petitioners' data and the agency has not provided accurate data to 

support its conclusions. 

(footnote 3 cont'd) 

its conclusions on the basis of selective telephone calls containing conclusions and assertions which are unsupported by 

data or documentation. This is clearly not an appropriate 

basis for ru1emaking. In fact, EPA personnel had numerous 

telephone conversations with Mike B. Tagliavento, the General 

Manager of Bio-Dry, Inc. in Kodiak about the feasibility of 

reduction facilities in Ketchikan and Cordova. Memoranda of 

these telephone calls are not included in the record. We can 

only speculate that Mr. Tagliavento's comments were not included because he does not believe additional Alaska reduction 

facilities are feasible. 

-4-
II. THE PROPOSED RULEMAKING IMPOSES 

A TECHNOLOGY WHICH IS NOT BPT 

The proposed rulemaking at issue not only proposes to 

deny Petitioners' petition; it also attempts to justify the 

current regulations on the basis of a different waste disposal 

technology. ------~ .. " 

Petitioners asserted in th~ir p;;~tion that 

screening was not BPT in Anchorage, Cordova, Juneau, Ketchikan 

and Petersburg because the cost of screening, coupled with the 

barging method of solids disposal, far exceeded the effluent 

reduction benefits of this technology. EPA, tacitly, apparently does not dispute Petitioners' position. Instead, EPA has 

attempted to justify screening as BPT by asserting that screening, coupled with reduction facilities as the solids disposal 

method, meets the cost/benefit requirement for BPT (Clean Water 

Act § 304 (b)(1)(B». 

In concluding that the costs of reduction facilities 

are reasonable in relationship to the effluent reduction benefits, EPA relied heavily on its findings that screening with 

reduction facilities would only cost each fish processing plant 

a fraction of a cent per pound of waste removed. (46 Fed. Reg. 

2547). This finding is based on (1) the construction and operation costs of reduction facilities contained in a recent EPA 

Contractors report and (2) the market value of the fish meal 

produced by such facilities. As detailed below, both the costs 

and the market values used are erroneous. Therefore, the en- (~\ --------V 

-5-

---- --- -1 
tire EPA analysis is erroneous and its conclusions as to BPT 

are without support. 

A. The Construction and Operating Costs For A 

Reduction Facility Are Understated. 

EPA's Contractor attempted to update its July, 1980 

reduction facility costs in November, 1980. 4 However, the 

(1 

November, 1980 report still understates major cost elements. / 

For example, the Contractor used an interest rate of 14% ~" 

processors at present are paying in excess of 20%. The Con-

" tractor understated energy costs: for example, he used 8 cents 

per Kwh in Cordova -- this should be 16 cents; he used $1. 00:) r~ " 

i,1 

per gallon for No.2 Diesel -- currently it is over $1.17. 

These energy costs errors alone significantly increase the 

operating cost figure used by the Contractor for the Cordova 

facilities. In addition, Sea-Land Service, Inc. has raised its 

freight rates by 18% in the last four months. 

In addition to using inaccurate components, the Contractor, and EPA, ignore three key elements in the construction 

of a reduction facility. First, there is no assessment of land 

requirements or availability. EPA apparently assumed that this 

would not be a problem; however, in towns where the sea abuts 

the mountains this is a significant problem. Second, EPA ignored the availability of capital as a factor. The industry is 

4The reports are referenced in the March 23, 1981 

Federal Register Notice (46 Fed. Reg. 18055). 

-6-

----------------------------

.. '-"'. 

~/ 
acknowledged to be capital short, even for production-related 

requirements. For a non-productive investment, such as a reduction facility, it is difficult to determine from what source 

those funds would come -- and if found what the terms would 

be. The Administrator makes no effort to assess or even discuss this problem. In particular, note the lack of discussion 

in the Economic Impact Analysis section (46 Fed. Reg. at 

2548).5 Finally, EPA fails to recognize the seasonal nature 

of the fishery and the cost impact of operating a reduction 

facility only a few weeks a year. For example, the City of 

Cordova Report points out that based on year 1990-2000 waste 

load projections a Cordova reduction facility would only be 

fully utilized two months per year. Mr. Tagliavento, General 

Manager of Bio-Dry, Inc., has indicated to EPA that a reduction 

facility is only feasible in an area which has year-round 

production. 

B. Market Price and Extent of Market is Overstated. 

In addition to understating costs of reduction, EPA 

significantly overestimated the ability of the market to support additional fish meal as well as chitin and chitosen. 

5See the industry's comments on the Draft Economic 

Impact Analysis cited: "Review of Draft Report 'Economic Impact Analysis Of Proposed Limitation Guidelines For The Canned 

And Preserved Seafood Processing Point Source Category' i" University of Washington Division of Marine Resources; December, 

1980. (Attached as Appendix A.) 

-7-
EPA admits that the prevailing market price is key to 

the analysis of the feasibility of reduction facilities. Yet, 

the Agency then assumes an artificially inflated figure of $425 

per ton for fin fish waste and $125 per ton for shellfish waste 

as the average market price. These figures are not averages. 

Even the Contractor's November, 1980 report recognizes that 

$380 is close to the average price for fin fish waste and that 

$425 could be high (at p. 3). Also, Bio-Dry has been unable to 

market shellfish waste at over $105 -- resulting in significant 

losses. In spite of this, EPA based its entire analysis on 

these prices -- and states that if the $425 is low, meal plants 

will even be more profitable (46 Fed. Reg. 1548). Of course, 

there is no mention of what happens if the $425 is too high. 

This reliance on an erroneous $425 figure renders the entire 

analysis faulty and, hence, any conclusions based thereon. 

EPA also seems to assume that there can be an increase 

in market price and in amount of waste at the same time. (46 

Fed. Reg. at 2548). This obviously ignores the fact that if 

more meal plants are built, the increased production will likely result in a decrease in price under the principles of supply 

and demand. Even the Contractor recognizes that the market is 

limited and increased production could decrease price (June, 

1980 Report at pp. 1-7, 1-10 and 1-15). 

Finally, EPA once again cites continuing research 

which indicates that there are promising avenues for shellfish 

-8-

l 
waste reduction. In particular, chitin and chitosen are discussed. EPA has been asserting the feasibility of chitin and 

chitosen production since 1974. 6 While EPA recognizes the 

pilot nature of this technology it still concludes it is 

feasible: 

of existing 

"EPA's 

facilities, 

analysis was 

the 

hampered 

unavailability 

by the pilot 

of confinatur~ dential, proprietary information, each of production 

of cost data regarding reported large-scale production 

in Japan, Poland and Russia, and by the variability of 

costs and marketability of chitin and chitos.n depending on the specie, location and quality of source 

material employed. Nonetheless, EPA's analysis indicated that the process has ~ real potential for 

cost effective production." (Emphasis added) 46 Fed. 

Reg. 2549. 

This is the same "real potential" cited by EPA in 1974. There 

has been little progress since. 7 The EPA Contractor in its 

July, 1980 Report estimates that "another ten years of research 

and development will be required." (at p. V-12) It is clearly 

unreasonable to rely on this speculative technology as support 

for effluent guidelines which are effective immediately. 

C. In Assessing Costs, The Fisheries Conservation 

And Management Act Must Be Considered 

EPA summarily rejected Petitioners' argument that the ,~ 

effluent guideline regulations impose burdens on the industry 

6See : Development Documents for the Canned and Preserved Seafood Processing Point Source Category. 

7See : "Dutch Harbor: A Preliminary Screening of 

UtilizationjDisposal Alternatives For Crab Processing Wastes;" 

University of Washington Division of Marine Resources; June, 

1978. (Attached as Appendix B.) 

-9-
which are inconsistent with Fisheries Conservation and Management Act ("FCMA"). EPA's position is based on its assertion 

that Congress in enacting FCMA did not intend to exempt the 

industry from the Clean Water Act ("CWA"). Of course, we agree 

that the FCMA does not exempt the industry from the CWA. However, we believe that in assessing costs and benefits under the 

CWA the impact or true cost of the regulations must be examined. Even accepting EPA's assertion (which we submit is without 

support) that screening will only cost a few cents per pound, 

the results are significant. For example, 2.5 cents per pound 

equals $50 per ton. In the highly competitive world market, 

where U.S. fish products already have to compete against tariff 

barriers and competing countries' lower labor and regulatory 

costs, $50 per ton can make the difference between a sale or no 

sale. We believe that EPA should seriously consider this impact on the basic purposes of the FCMA when assessing what is 

BPT. 

D. EPA Failed To Consider Non-Water Quality 

Environmental Impact 

The CWA requires EPA, in establishing BPT, to consider 

the "non-water quality environmental impact" of the technology 

"including energy requirements." (§ 304(b)(1)(B». EPA has 

not done this. 

The City of Cordova Report points out that reduction 

facilities emit offensive odors and that facilities in Petersburg, Seward and Kodiak have experienced such problems (at 

-10-

p. 7-14). In fact, Bio-Dry, Inc. in Kodiak is currently having 

compliance problems with the State Department of Environmental 

Conservation. The City of Cordova Report indicates that there 

is no developed technology for controlling such odors. 

The City of Cordova Report also discussed the significant energy demands of reduction plants. During peak operation 

a facility in Cordova will represent a significant load on the 

City's power system. The same is obviously here in Ketchikan, -----~-. 

Petersburg and Seward. 

E. Summary 

In short, the complete foundation of the proposed 

rulemaking is based on a faulty assessment of the costs of reduction facilities and the marketability of the meal. The 

entire analysis fails because it is based on a substantially ~ 

erroneous data base. In fact, the costs of screening, utilizing reduction facilities, are much higher than for screening 

with barge disposal (See: Petitioners' Supplemental Petition). Thus, the cost of screening and waste disposal exceeds 

the effluent reduction benefits and, hence, screening is not 

BPT. 

III. EPA'S ANALYSIS REQUIRES COMPANIES IN ANCHORAGE 

AND PETERSBURG TO RELY ON COMPETITORS' FACILITIES 

Petitioners, in their petition, raised the objection 

to utilizing existing reduction facilities in Seward and 

Petersburg because they are owned by competitors, and consequently, the processors in Anchorage and Petersburg would be 

-11-

dependent on a competitor for their ability to operate legallye Because some of the Alaska processing seasons are so 

short, and the peaks last but a few days, a reduction facility's inability or refusal to handle waste for even a few hours 

could force its competitors to shut down and lose the entire 

season's profitability. The proposed rulemaking, and Mr. 

Schatzow's March 31, 1981 letter (Appendix C), summarily reject 

this concern: 

"Since petitioners generate the type of waste 

material needed by reduction facilities, there will be 

an economic incentive for any competitors that may 

operate reduction facilities to contract for the 

delivery of petitioners' waste. Therefore, it follows 

that competitors would benefit from making contracts 

with petitioners for raw material." 

To anyone who has witnessed the fierce "gloves-off" competition 

during the peak of the season, the above-quoted statement is 

quite naive. The meal plant owner has the ability to hold his 

competitors hostage. In addition, the basic premise is erroneous. During the peak of a season meal plant operators do not 

need more product. The period of time that more waste is 

really needed in Seward or Petersburg is during off-peak 

times. In fact, EPA apparently recognizes that existing reduction facilities may not be able to handle all wastes tendered 

during peak production: 

"The contract [between processor and the reduction facility] can cover allocation of capacity during 

peak loads." 46 Fed. Reg. 2549. 

-12-

However, EPA fails to address how the processer is to dispose 

of the wastes generated if the reduction facility cannot accept 

them. Curtailing processing, if that is EPA's answer, is totally unacceptable. 

In essence, the proposed rulemaking asks the processor 

to accept screening as BPT, even though the compliance with its 

requirements is out of his control. As EPA is aware, permittees have consistently opposed accepting permits which 

include compliance terms the company is not certain it can 

meet. The same is true here. We believe more serious consideration must be given to this issue. 

IV. EPA'S REJECTION CITY-BY-CITY ANALYSIS IS 

BASED ON ERRONEOUS FINDINGS 

A. Anchorage 

One of the major reasons for denying Petitioners' re-

--" 

quest to recl.assify Anchorage was the Municipality of Anchor- i d:1' ) 

age's water quality concerns. Petitioners are surprised that~ 

the proposed rulemaking relies on water quality impacts for 

effluent guideline issues. It is our understanding that the 

CWA contemplates that effluent guidelines will be based on the 

§ 304 criteria, and that water quality-related more stringent 

limitations will be implemented through site-specific permit 

conditions. If, however, EPA is going to consider water 

quality impacts in setting effluent guidelines, we urge that it 

do so uniformlYi such an approach would clearly support our 

petition because water quality is not materially impacted by 

the industry's discharge of natural fish wastes. 

-13-

EPA's other reason for denying Petitioners' request --

availability of a competitor's reduction facility -- has been 

commented on, above. 

B. Petersburg 

EPA's denial of Petitioners' request to reclassify 

Petersburg is based on the existence of a competitor's reduction facility and a critique of Petitioner Whitney-Fidalgo's 

asserted costs of compliance. 

First, we have discussed, above, both the problems of 

relying on a competitor's facility and the lack of support for 

EPA's assertions on the facility's profitability and its threat 

of closure. 

Second, EPA'S rejection of Petitioner WhitneyFidalgo's position that a substantial dock expansion is required is without support and erroneous. There is simply no 

support for EPA's position. Petitioner's data is rejected 

summarily without any contrary data in support. In fact, EPA's 

assumptions are erroneous. During peak, production, WhitneyFidalgo's plant generates about 86,000 pounds of waste. Using 

the proposed rulemaking's 5-ton flat bed truck, one truck load 

will be generated every 1-1/2 hours (two one-way trips during 

that period). The existing dock's one lane is utilized nearly 

to capacity during the peak of the season with the moving of 

finished product to vans for shipment. At least two fork lifts 

are in constant operation. The one-lane dock cannot handle any 

additional regular traffic. 

-14-

-r-
C. Ketchikan 

EPA's denial of Petitioners' request to reclassify 

Ketchikan (and the addition of Ward's Cove by EPA) is based on 

the economics of a reduction facility, the increases in bottom 

fish processing and a possible hatchery program. 

First, as discussed above, EPA has erroneously calculated the cost of reduction facilities. Clearly, screening 

coupled with the construction of an appropriately sized facility in Ketchikan does not meet the cost/benefit criteria of 

BPT. It is important to note that the Contractor's November 

1980 Report did not recommend a reduction facility for Ketchikan (at p. 8), even though its earlier July 1980 Report had (at 

p. IV-16). 

Second, bottom fish processing is conducted predominantly at sea. Presently, most processing is done by foreign 

owned floating processors contrary to the Congressional intent ~ 

of the Fisheries Conservation and Management Act. (See discus-( \ 

\ sion above.) Increased costs of production, including even a 

few cents per pound caused by effluent limitation requirements, 

will insure that no domestic bottom fish processing industry 

develops. In the recent City of Cordova Study, the contractor 

concludes that the major impediment to such development in 

Alaska is the gap between costs and would market price for 

frozen whitefish. "Recent price trends give little reason for 

believing that this gap will close in the near future" (at 

p. ES-2). 

-15-

r 
Third, hatchery programs do not smooth out the seasonal cyclical nature of salmon runs. All hatcheries can do is to 

increase the peaks and to help eliminate poor years. The key 

to the cost of effluent treatment is not the year to year variation, but the length of the season itself. Effluent treatment, equipment including reduction facilities, must be sized 

to handle the peaks which last only a few days or weeks and 

then are left idle the rest of the year. Hatcheries will not 

resolve this basic problem in the economics of effluent 

treatment. 

D. Cordova 

EPA's denial of Petitioners' request to reclassify 

Cordova is based on the same factors used as the basis for 

denying Ketchikan (See discussion above). Specifically, the 

City of Cordova Report concludes that only one bottomfish line 

is assumed to be feasible in the foreseeable future. 

Again, EPA's assumptions are based on erroneous cost 

data. And, again, the Contractor does not recommend reduction 

facilities for Cordova. 

Finally, EPA asserts that the City of Cordova Study 

was halted by the suspension of the regulations. This is not 

true. The March 1981 study includes an extensive discussion of 

reduction facility needs (at pp. 6-24 through 6-33; 7-4; 7-9; 

7-10 and 7-14). 

-16-
Petitioners submit that none of the above-discussed 

locations qualify as "processing center," inasmuch as EPA has 

not demonstrated that processors in these locations "can 

reasonably achieve economies of scale by arranging for collective disposal of screened seafood wastes." In fact, the 

costs of both screening with barging and screening utilizing 

reduction facilities far exceed either method's effluent reduction benefits. 

V. THE LAMOREAUX MEMORANDUM OF DECEMBER 11, 1980 IS 

ILLUSTRATIVE OF EPA'S ERRONEOUS SUPPORTING DATA 

One of the items which was added to the record on 

March 23, 1981 (46 Fed. Reg. 18055) was a December II, 1980 

Memorandum from Bill H. Lamoreaux to Dan Lent. Apparently, the 

information in this Memorandum was used to support the proposed 

rulemaking. The Memorandum is filled with errors. B 

First, no reduction facility is planned for Zacher Bay. 

Second, no facility is planned for Cold Bay. Those 

interested in such a facility discovered it would require an 

investment of $45 million -- more than double the recent sale 

price of an existing processing plant. 

Third, the current owners of the Valdez processing 

facility, which has changed hands a number of times, have not 

raised the capital needed for a sonic dryer. 

BIn fact, the Memorandum serves to support Petitioners' position that reduction facilities are neither feasible 

nor financeable. 

-17-
Finally, we strongly object to a number of unsupported 

assertions, including the following: 

"Several of our new or planned future seafood processing facilities have expressed their intentions or 

interest in including fish meal plants even though 

[sic] they will operate in remote areas. 1I 

No names, places or specifics are mentioned. 

This Memorandum is characteristic of EPA's approach to 

reduction facilities over the years. Agency personnel attempt 

to find any thread of support for this concept -- a concept 

which simply is not viable. It is particularly interesting 

that EPA has not used its contacts with Bio-Dry, Inc. in 

Kodiak, even though it is the only facility in Alaska which has 

no vested interest in the proposed regulations. Bio-Dry has 

the longest track record and, unlike Seward Fisheries, its 

books are open for inspection. The experience of Bio-Dry makes 

clear that expanding the Alaskan fish meal supply is not economically viable. 

VI. CONCLUSION 

Petitioners submit that the record does not support 

EPA's proposed decision. As pointed out above, EPA has proposed to deny Petitioners' petition without responding to 

Petitioners' arguments and supporting data; and has proposed a 

new justification for its denial, based on erroneous data and 

unsupported assertion. 

Petitioners submit that the record supports its petition for rulemaking. Screening (accompanied either by barging 

-18-
or reduct~on :tac~l.~t~es) 113 not ts.l:'T I:or tne A.laSKa .loca-c~ons a-c 

issue. The appropriate BPT is grinding recognizing that the 

CWA permits a more stringent technology to be required to protect state water quality standards. 

Petitioners request that EPA withdraw its proposed 

rulemaking and grant Petitioners' petition for rulemaking. 

Respectfully submitted, 

BOGLE &: GATES 

Charles R. Blumenfeld 

Attorneys for Petition 

DATED this 9th day of July, 1981. 

-19-
A WASHINGTON SEA GRANT REPORT 

REVIEW OF DRAFT REPORT "ECONOMIC IMPACT ANALYSIS OF PROPOSED 

LIMITATIONS GUIDELINES FOR THE CANNED AND PRESERVED SEAFOOD 

PROCESSING POINT SOUHCE CATEGORY" * 

* Uhited States Environmental Protection Agency Contractual Report No. 

68-01-5858 prepared by Development Planning and Research Associates, 

Inc., Manhattan, Kansas, July, 1980. 

JAMES BRAY 

OFFICE OF APPLIED MARINE ECONOMICS 

vJSG-MR 80-7 

DECE!'18ER 1930 

WASH' ~I GTON SEA GRANT 

DIVISION OF MARINE RESOURCES 

UNIVERSITY OF \~ASHINGTON SEATTLE 98105 

APPENDIX A 
CONTENTS 

Aa<~EOOEM:ENT • • • • It • It • • • • • It • • • • It • • • • • • • • • • 

ABSTRACT • • • It It • • • • • • • • • • It It • • • • • • • • • • • It • • 1 

I NTRODUCT ION It It • • • • • • • • • • • • • • • • • • • It • • • • • • • 1 

I. IS THE METHOOOLCX;Y (AS PROPOSED) ADEQ,JATE TO THE TASK? 

A. Does the methodology overlook some impacts? • • • • • • • • •• 2 

B. Some impacts of the contractor's methodology . . . . . . . . . 8 

1. The use of net present value methodology • It It • • It • • • 8 

2. Conments 'on several specifics of the contractor's 

appl ication of the present value methodology ••••• 15 

II. STUDY CRITIQUE 

A. Cost of treatment figures from the E.C. Jordan report 

considered • • • • It • It • • • It • • • • • • • • • 21 

B. Several HI inkages ll between the technical and economic 

documents are considered • • It • • • • It It • It It • It It It • • It 2S 

C. Data problems in the DPRA study •••••••••••••••• 29 

s tJrytMRY It • • • • • It • • • • • I) • It • • • • It It It • • • • It • • It • It 3 1 
AO<NOM.EDGEMENT 

The cooperation and results of numerous representatives of the seafood 

processing industry made this report possible. 

gratefully acknowledged. 

Their contribution is 

During the preparation of the report, several persons made substantial 

efforts to coordinate the gathering and analysis of information from 

specific industry sectors. Their efforts are particularly appreciated. 

Alaskan & West Coast crab, salmon, and shri~: 

'\ 

Roger DeCa~ -- Pacific Seafood Processors Association 

Blue crab: 

Thomas J. Murray -- Marine Advisory Program, Virginia Institute of 

Marine Science. 

David Swartz -- Marine Advisory Program, University of Maryland. 

Gul f shr i~: 

Dr. Steven Otwell -- Marine Advisory Program, University of 

Florida. 

Allison Perry -- Gulf Coast Research Laboratory, Ocean Springs, 

Mississippi. 

Sardines: 

James L. Warren -- Maine Sardine Council. 

David M. Dressel, Regulations Coordinator, National Marine Fisheries 

Service. was the catalyst of this cooperative effort. The fund i ng 

provided by his agency and the coordination provided by his office were 

essential. Guidance and encouragement also were provided by Jack L. 

Cooper, National Food Processors Association and Roy E. Martin, National 

Fisheries Institute. 

~ ~ -"i r r.s.~~·,-~." . '. • M, _; ~ .- .... 

",",- :-- ~ ;<.~._'}C;.~,"~:,:" 
REVIEW OF DRAFT REPORT ItECc:::NJMIC IMPACT ANALYS IS OF PROPOSED 

LIM I TAT I ()16 GU I DEL I NES FOR THE CA."'INED AND PRESERVED 5 EAFOOD 

PROCESS 1i'G POINT SOURCE CATEGORY1t 

ABSTRACT: 

This report reviews a draft study analyzing the economic impaet of 

technology proposed for the treatment of wastewater from seafood processing plants. To facilitate the review, various aspects of the crab, 

salmon, sardine, and shri~ industries were used as reference points. 

This report identifies some of the methodological flaws and data 

deficiencies observed In the draft study. These findings indicate that 

even if data deficiencies are overcome, methodological flaws do not permit 

the study to predict the economic impact of the proposed wastewater technology. Further, it is not apparent what the methodology has measured or 

predicted. 

I NTROOUCT ION: 

In recent weeks, various industry representatives and Sea Grant 

personnel have cooperated in a review of the docunent rofere.nced In the 

title of this report. Their efforts have resulted in (l) an exchange of 

information about the industry subcategories and (2) written comments that 

have been prepared for eventual submission to the Environmental Protection 

Agene y (EPA). 

The purpose of this report is to synthesiZe some of the information 

and comments generated by this effort and to consider them in relation to 

EPA's avowed objective of analyzing the economic impact of the technology 

proposed for the treatment of seafood processing wastewater. 

This review will consider the contractor's methodology and the manner 

in which they j~lemented that methodology. No attempt wil I be made here 

to estimate the overal I economic inwact. However, some indication wi I I be 

given as to whether the study has provided or is capable of providing 

useful information on that impact. 
- 2 

In 1974 and 1975, Development Planning and Research Associates (DPRA), 

pro v ide dec 0 n om i c I mp act a n a 1 y s e s 0 f the Ph a s e ( cat f ish, c r a b , 

oysters,and tuna) and Phase II (fish meal, salmon,. bottomfish, clams, 

oysters, sardines, scallops, herring, abalone) technology proposed for the 

seafood processing industry. Although the Phase II analysis waS far more 

dotal I ed than that of Phase I, industry experi ence wi til the Phase 

guidelines prompted them to scrutinize Phase II more closely. As one 

resu I t of th is, they prov i ded EPA wi th nunerous pages 0 f comnents and 

data. In addition, substantial material was provided to EPA in 

conjunction with a suit in the Ninth Circuit Court of Appeals. As a part 

of that suit, the Industry obj ected to important segments of EPAls data 

collection methodology. These were obj ections that the court felt were 

'well taken.' (Association of Pacific Fisheries et al., v. Environmental 

Protection Agency, Ninth Circuit Court of Appeals, 75-2007, 1980.) 

'\ 

However, data and comments provided to EPA prior to the start of this 

study are, for the most part, not reflected inlt. It also appears that 

problems with the quantity and quality of the data used are even greater 

in this study than in the earl ier ones. (Later sections wi II ette 

specific examples.) Some problems with the data are particularly 

noteworthy because they involve data whose val idity has been challenged 

for reasons that are readily demonstrated or refuted. There is no 

evidence in the study that either EPA or its contractors have made an 

apparent effort to do so. Thus, the DPRA study, whi Ie uti I izing a 

methodology whose efficacy is totally reliant on an abundance of detailed 

data, apparently has not verified even the basic characteristics of the 

seafood subcategories and their structure. The importance of this problem 

will become apparent in subsequent sections. 

I. IS THE METHCX)()LCGY (AS PROPOSED) ADEQUATE TO THE TASK? 

'. 

A. Does the methodology overlook somo impacts? 

1 • Th e nee d t 0 u s 0 i n d u s t ria I sub cat ego r i e sis not ani s sue. 

Yet, how those subcategories are defined wi II have a 

s i g n I f i can tin flu e n ceo nth e e con om i c; I mp act 0 f the 

regulations. The technical studies by E.C. Jordan (ECJ) are 

based on extremely limited data. Normal and significant 

variations in the composition of waste flows occur between 
- ;) -

species within subcategories, within species over time, within 

species as a function of where they were harvested, within 

species as a function of their age and size. within plants as 

a function of their utilization rates, within plants as a 

function of the particular product being processed, within and 

between plants as a function of the skill level of that dayls 

labor force, and between plants as a function of the type and 

configuration of processing equipment and the level of 

management expertise. The technical document makes no 

apparent effort to measure the potential I"..,act of these 

factors on the wastewater composition. Frequently, only two 

or three firms are ex~lned in any subcategory. typically in a 

single area more noted for sampl ing convenience than for its 

inherent characteristics, and only for a brief period during 

the s~ason. The lack of appropriate data raises a parenthetic 

question as to whether EPA funding of the technical report is 

sufficient for the task. 

There are several problems resulting from the insufficient 

d a t a • S ome f i rl'M, for rea son sun reI ate d tot he Ire f for tor 

ability at treating wastewater, will find that they are able 

to meet the EPA standards (ftnunbersn) with little or no 

effort. Others, however, wi II find that no matter how hard 

they try, they cannot meet the nunbers based on EeJ's data. 

If such plants are- farsighted enough to recognize the 

situation and close their doors before they install the 

wastewater equipment, they wil I be among the "fortunate." If 

not, they stil I wil I be forced to close, but with even greater 

financial losses. 

There is no question among industry representatives that 

such closures wil I occur. The closure rates wil I vary between 

subcategories. The reason that the issue is discussed here is 

that the economic docunent makes no effort to recognize or 

measure the extent of this problem, although it is real and 

wi II have a profound economic i"..,act on some plants and some 

C oomu nit i es • Since such closures are for technical reasons 

only, they will be in addition to closures for economic 

reasons. I t can be stated wi th certainty that overal J, the 
- 4 -

economic impact of the regulations will be higher (industry 

representatives feel significantly higher) than as identified 

in the'DPRA economic: docunent. 

2. By focusing only on economic, essentia.lly profit and loss, 

considerations, the DPRA analysis understates the economic 

impact of EPA regulations In another area. Some firms wil I be 

required to close because additional land for wastewater 

treatment facilities is not available, local regulations do 

not permit an expansion of their activities, landfills are 

pro h i bit ed, ex pan de d doc k s are not po rm itt ed, 0 r wa s t e 

recovery drying operations are deemed a publ Ie: nuisance. For 

these firms, the proposed technology confl icts with other 

regulations that will constrain them regardless of their 

present economic: viability_ 

Page V-2 recognizes the problem when it notes that, 

"Frequently, land adjoining plant sites has been developed for 

industrial, residential or canmereial activities, enclosing 

seafood plants. Hence, land needed for expansion or wastewater controls is usually available only at excessive prices. 

Also, if available, land is useless because of zoning Jaws or 

geography." However, by fal I ing to gather data on or to 

consider the probabil ity of closures resulting from such 

problems, the economic document significantly understates the 

economic impact of the proposed technology. 

3. The DPRA economic analysis considers only those firms who are 

direct dischargers. Industry representatives report that 

significant numbers of plants anticipate that although they 

pre 50 n t I y are disc: h ar gin g top ubi i c: I y own edt rea tme n t we r k s , 

they,have no assurance or they have been told to expect that 

they will not be able to do' so In the future. In that many of 

these plants are in larger conmunities where land may be 

costly or other restrictions apply (as discussed above), their 

closures wi I I be I n add i t i on to those cited in the economi c 

docunent and their closure rates, once they have to go to 

direct discharge, wil I probably be higher than as indicated in 
- 5 -

the doctrnent. In any caS!::, the problem is one that is not 

c:.onsidered in the economic analysis and results in an understatement of the economic impact of the proposed technology. 

4. Industry representatives are concerned by factual errors in 

the study and by the absence of informat ion about even the 

most basic characteristics of the industrial subcategories. 

Several of these problems will be detailed in subsequent 

sections. Ono problem, however, is pertinent to the proceeding discussion of the impact of the broad categorizations. 

Where a subcategory is one-tiered, selling its product to 

non-seafood processors, first-order impacts are perhaps 

s u f f I c len t tome as u rot h e pro b a b lee los u r era te. Th I sis no t 

true where processing is multi-stage. 

I nth e Gu I f 5 h r imp i n d u s try, n t..r11e r 0 us sma I I buy i n g 

stations and packers perform first-stage processing and 

often sel I part of their product to local restaurants and food 

chains. However, a majority of their pack may be shipped to 

targe, metropolitan shrimp plants where further processing 

creates a variety of products. These larger processing plants 

provide a stable supply of products to national markets, but 

they are essentially dependent on the smaller plants for raw 

product. Most of the buying stations and packing plants are 

direct dischargers. However, the DPRA ana Iys i s found that 

1 00% 0 f tho s 'e wh 0 are, wi I I c los e ( a s dis c u sse din a I ate r 

section). What the economic document fails to consider is the 

domino effec:;t of these closures on the larger plants within 

the same subcategory. In that these plants are not direct 

dischargers, DPRA assumes that they are not at issue in the 

analysis of the economic impact of the proposed technology_ 

Such an assunption is incorrec't and results in a fourth area 

i n w hie h the D P RA 51 u d Y s i g n i fie ant I y u n d erst ate s the 

potential economic impact of EPA requirements. 

5. There is an impl ieit assumption in the economic study that the 

proposed technology will perform to expectations in removing 

waste material from the processing water in each of the 
- 6 -

seafood categories. As reported at the September-, 1980 

Seafood Waste Management meeting in Orlando, Florida, Independent test j ns effor ts have not suppor ted th is assl.lnpt ion .. 

Rather, it appears that the ECJ technical docunent significantly overstates the removal capacity of the proposed 

technology. Thus, it is reasonable to predict that there wil I 

be firms (such as plants with high-salinity process water and/ 

or Intermittent operations attempting to use OAF) and perhaps 

entire subcategories that wi II be technologically unable to 

"meet the ntmbers." The scenario becames uncertain at this 

point, but it is reasonable to asstme that individually and 

through their trade associations, firms will need to spend 

substantial funds to support the research, administrative, and 

legal efforts necessary to survive until such time as the EPA 

r e c 0-8 n I z est he s pee I fie pro b I" ems. Sub seq u e n t I Y I the r e 

probably will be the additional expenses of alternative or 

au~ented technology. 

The net effec t wi II be· tha t some firms wi II be unab 1 e to 

survive the financial strain of this period or may simply "opt 

out" of. what appears I ikely to continue as a particularly 

burdensome financial and managerial open-ended hassle. 

Similar to poker players. they may not choose to ante because 

the I imi t on raises has not been declared. 

Whatever the particular scenario, it is reasonable to 

anticipate that the closure rate will be higher than that 

predicted in the OPRA study. 

6. There is another assumption in the OPRA study that should be 

noted. This is the assumption that the capital costs of 

w.ut'ewater treatment as identified in the technical docllnent 

are appl icabl e to all fl rms in the subcategory. I ndus try 

representatives report that often they are understated and/or 

not appropriate to conditions in a particular plant, thus 

requiring expensive "custom" Installations. A failure to 

consider such problems will result in understating the 

economic impact and the closure rates resulting from the 

proposed technology. 
- 7 -

7. There is a final assl.J1lption in the OPRA study that will be 

noted. The discussion here will begin with somewhat of a 

digression. In the study, n the ability of the 

processor to pass the price of pollution control costs on to 

the consumer ••• n was ex~ined on pages IV-34 through IV-39. 

In that discussion, the abil ity to pass on costs was assumed 

to be closely correlated with plant size. Although prior 

industry corrments have repeatedly challenged this OPRA 

assumption, the economic study does not provide any empirical 

support of it. To assume that various outcomes are dependent 

on firm size, to the apparent exclusion of other factors, does 

not appear to be supportable. 

In the case of pric:e pass through, DPRA's analysis is 

deficient by reason of having failed to consider a factor that 

can be far more significant than firm size. OPRA's analysis 

15 oriented toward the firms who directly diseharge their 

wastewater. In so doing, OPRA does not recognize the 

relevance to price pass through of the extent to which there 

are firms In the industry who are non-direct discharge. 

Th us, i t i 5 I ike I y t hat ins u b cat ego r I e 5 WO ere a 

substantial share of the pack is processed by non-direct 

dischargers with lower wastewater treatment cost5, that direct 

discharge firms will have greater difficulty passing on their 

costs than otherwise. In the West Coast mechanically 

butchered salmon subcategory, this factor is apparently 

dominant. In the Gulf shrimp industry, where foreign products 

must be considered along with the many non-direct dischargers, 

the importance of this factor is again apparent. 

In the bottomf!sh subcategory, DPRA recognizes the impact 

of lower cost foreign products on the ability of domestic 

producers to pass on effluent control costs. It would be 

useful if they also would recognize the significance of the 

differential between direct and non-direct (or off-shore) 

dis c h a.r g e pIa n t s a sap ass t h r 0 ugh d e term ina n t • Fa iii n g t 0 d 0 

so, ita p pea r s t hat an 0 the r d e fie i en c yin OP RA I san a I y sis 0 f 
- 8 -

economic impact will result, on balance, in an understatement 

of the economic impact of wastewater technology. 

In this section, a number of methodological weaknesses have been 

identified that will result in the understating of problems, 

costs, and constraints involving the adoption of the proposed 

technology. It is important to note that within each of these 

pro b I em are as, the r e wi I I be wid e va r I at ion sin the ext en t to 

which a particular firm will be affected. However, it is even 

more important to rem~er that such variations are not offsetting 

in their Impacts. The fact that one firm ftescapes ft a particular 

problem does not offset the impact on other firms. All of these 

impacts are incremental to those identified by the DPRA study, and 

all of the impacts are negative. None of them introduce factors 

that would tend to offset closures al,ready identified by DPRA. 

B. Some impacts of the contractor's methodology 

1. The use of net present value methodology 

Pages 11-8 to 11-19 contain information about various aspects 

of the present value methodology used by the contractor. However, 

they do not contain sufficient information to be able to repl ieate 

(and thereby critique) this particular application of such 

methodology. An example that would permit the mathematical 

results of the analysis of any subcategory to be independently 

reproduced is a minimum requirement for the text of such a study. 

The present value methodology utilized by DPRA can be 

characteriz:d as one whose utility Is extremely sensitive to the 

quantity and quality of available data. To have predictive 

ability, it requires an analyst intimately familiar with the 

characteristics and structure of the industry being considered. 

It further requires detailed financial information, as sometimes 

is available from large, publicly-held corporations. Finally it 

requires an accurate assessment of investor expectations. With 

this level of information, it is theoretically possible to predict 

investor behavior. 
- 9 -

The problem is that (1) the level of publicly-available 

information a.bout the seafood processing industry does not even 

come close to meeting the requirements of the methodology, (2) the 

contractor apparently did not make a significant effort to obtain 

the necessary information from proprietary sources, and (3) there 

is an unanswered question in acad~ic and financial circles as to 

whether such present value methOdology has been demonstrated (in 

the real world) to have predictive ability in terms of investor 

behavior under even the best of operating conditions. If It Is 

not possible to demonstrate that the methodology employed has 

predictive ability, then what assurance is there as to what has 

been measured? There is no apparent justification in using a 

sophisticated tool where the data base is deficient, since the 

tool cannot compensate for the lack of data. 

The methodology used by the contractor is not capable of 

pro v i din g the a n a I y sis 0 fee 0 n om i c imp act des ire d byE P A. 

Industry representatives fel t that its use" might have been avoided 

if EPA and DPRA had carried through with their earlier commitment 

to allow industry to have the opportunity to review proposed 

methodology before the work was undertake~. This problem, 

however, raises a question as to what methodology would have been 

usefu I. 

Since few industry representatives are familiar with present 

value methodology. it is reasonable to aSSlJl1e that they, and 

particularly family-owned firms, may well make their plans on the 

basis of some decision model other than that proposed by the 

contractor. Nor does it appear that plants operated within 

divisions of congl~erate or publicly-held firms wil I utilize the 

methodology utiiized by the contractor in their decisions 

involving wastewater treatment. Their conglomerate cost of 

capital wi II be a function of the opportunity cost of capital in 

the firm's other divisions. Th u S J U n d err e a lis tic cap ita I 

rationing assumptions, the cost of capital used in decision-making 

cannot be identified by reference (as does the contractor on page 

11-13) to market values. 
- 10 -

What models might they use? Quite possibly, they would use a 

less sophisticated cash flow analysis than the present value of 

cash flow, methodology proposed by the contractor. Such 

methodology should consider the realities of the cost and 

availability of debt ,and equity funds, repayment schedules, equity 

di lution, and the fact that fluctuations in sales and revenues 

wil I playa major role in investment decisions. 

Other important factors in their decisions will be the extent 

to which owners of the closely held firms have additional capital. 

This also assumes that they are will ing to further concentrate the 

Investment risk inherent in their personal assets during a time in 

which financial prudence would counsel diversification. This is 

particularly true in the mature sector of the processing industry 

t hat can not ex p e c t t 0 s h are s u ~ s tan t i a I I yin the grow t 11 

anticipated under the 200-mile fisheries legislation. These are 

factors that are important, but which are assuned away by the 

simplifying assumptions of the contractor's present value 

methodology. In practice, the factors proposed for consideration 

here would probably dictate a series of pro forma studies rather 

than the theoretically elegant present value approach. 

The insight possible with pro forma analysis can be demonstrated with even a simplistic example. Such an example may 

also graphically indicate some of the problems inherent in the 

present value methodology. 

Table V-4 (page V-10) presents a financial profile of three 

blue crab model plants, 1978. Data from the "small l

' firm Is not 

used due to the inconsistency resulting from a mathematical error 

in the table. Data for the mediun and large firm are used, along 

with dat~ from Table VI-5 (Page VI-9) and Tables VII-2a, 2b, and 

2c (pages VII-18, 19, and 20). 

These computations (see Exhibit l)indicate that for the 

"large" mechanized blue crab firm, the increased costs of overhead 

and maintenance, depreciation, and interest charges would be 

sufficient to eliminate net income. The rational decision would 
- 11 -

EXHIBIT 1 

SUVMARY OF SELECTED ITEMS FRCM DPRA TABLES V-4, VI-5, AND VII-2: 

ITEM 

Sal es 

Depree i at i on 

Interest 

Earnings before taxes 

Net Income 

Total Fixed Assets 

Total Assets 

Return on Assets 

Capital Costs of Wastewater 

Treatment (1) 

Capital Costs Beyond Screening 

Annual Overhead and Maintenance 

Costs 

o & M Costs Beyond Screening 

Vi ab iii ty 

Canvon tiona I 

Blue Crab 

(Mediun) 

400,000 

4,000 

4,000 

24,000 

19,000 

34,000 

102,000 

18.6% 

59,000 

11,000 

2,000 

900 

V 

Mechanized 

Blue Crab 

(Lar gel 

900,000 

9,000 

9,000 

81, 000 

55,000 

75,000 

228,000 

24.1% 

290,000 

238,000 

46,200 

42,000 

V 
- 12 -

Pro Forma Da ta 

(Assumes 13% interest cost, 30% of new capital financed by 

debi, 11 year I ife for purposes of depreciation/replacement) 

Conventional Mechani zed 

Blue Crab Blue Crab 

(Med i \111) (Large) 

. ' 

,,". 

Earnings before taxes, 

depreciation & interest (2) 32,000 99,000 

\ 

Annual overhead & maintenance (1 ) 2,000 46,200 

Interest 4,000+(.13}(.3)59,000 = 6,300 9,000+(1.3)(.3)290,000 = 20,310 

Depreciation 4,000+(.09)59,000 = 9;300 9,OOO+(.09}290,OOO = 35,410 

(-2,920) 

NIL 

32,490 

Earnings before taxes 

Income after taxes 

After tax cash flow 

14 ,400 

11 ,500 

20,800 

Capital Assets to be financed 

with new equity • 7( 59,000) = 41,300 .7(290,OOO} = 203,000 

.-

(1) In the interests of real ism, it was assumed that these plants had not ~ 

instal led screens and their 1978 financial data reflected this fact. 

(2) There is little reason to assume an ability to raise prices, in that 

ex-vessel prices to fishermen have been rising faster than wholesale 

prices from'processors. Had processors been able to raise prices, it 

is reasonable to assume they would have done so in the recent period 

of shrinking operating margins. (See DPRA Table IV-l1.) 

- .: - : .. 

i· 
- 13 -

be to close the plant. Even when the unreal istic assUTlption is 

made that the only incremental costs are for grease traps, 

in-plant changes, and dissolved air flotation (see Table VI-S), 

the annual cash flow Is still only $38,718, of which only $6,638 

is profit after taxes. 

Present value computations indicate that the approximate 

present value of an annual (21 year) net cash flow (as defined on 

page 11-12) of $32,490 is less than the plant's required equity 

investment of .7(228,000 + 290,OOO} at costs of capi tal greater 

than 6.6 percent. And, where it is assUTIed that screens are 

already in place, the present value of the future cash flows of 

$ 3 8 I 71 8 i s not e qua Ito the r e qui red e qui t yin YeS tme n t a f 

.7($228,000 + $238,000) at costs of capital greater than 10.4 

percent. Further, if these- cash flows are correctly defined (to 

deduct outlays for replacement of depreciated assets), the returns 

would be negative whether screens are presently in place or not. 

Thus, it is extremely unlikely that owners would invest the 

additional capital or that they would be able to raise new capital 

through the sale of shares whose pro forma earnings expectations 

are negative or trivial. For this firm, where the decision to 

close or remain open has so clear an answer when subj ected to a 

conventional financial analysis, the fact that the present value 

methodology c~e up with "viable" indicates that somewhere in the 

technical detail s of the methodology employed by· the contractor 

there is a significant problem. 

As regards the "medit.mll conventional blue crab processors, it 

again is realistic to assume that the plants do not have screens 

in place and that the 1978 financial profiles reflect this fact in 

both the earnings and asset data. 

For the conventional plant, asslITIing that the purchase of 

$59,000 of pollution control equipnent is 30% financed by new 
- 14 -

debt', $41,300 in new equity financing wi II be required. If the 

present owner(s) supply these funds, then they wil I have invested 

.70($102,000) ~ .70($59,000) or $112,700 in order to earn $11,500 

or 10.2%. It is reasonable to assune that their available capital 

{by breaking up the firm and not using their savings to purchase 

wastewater treattnent equipment} has nunerous opportunities to earn 

higher returns, probably at significantly lower risk levels. 

{And, as indicated earlier, it is not appropriate to Include 

depreciation in cash flow unless an adjustment is made for 

replacement of depreciated assets.} 

If present owners attempt to secure the $41,300 from new 

equity funds, they wi II have $11,500 in earnings after taxes to 

attract such financing: 

\ 

Capitalized at 2 times (a multiplier that is used to 

conservatively value low-quality earnings) the market value of the 

firm1s earnings ($23,000) are not great enough to attract the 

$41,300 required. 

Capitalized at 4 times earnings (an historically appropriate 

multiplier for earnings of this quality) the $11,500 in earnings 

would be worth $46,000. Assuming (unrealistically) no 

underwriting costs, this would mean the sale of 89.7% of the 

firm1s assets and earning power in order to raise the wastewater 

treatment funds. The original owner's investment of $96,000 (4 x 

24,000) at market ($71,400 in I iquidation) would have declined to 

$4,700, an imnediate loss in market value of $66,700 with a 

long-term rate of return of 1.~. ($1,185 in earnings (10.3% of 

11,500) on the opportunity-cost investment of $71,400.) 

In the highly unlikely event that the 'market would value the 

earnings with a multipl ier of 8 (indicative of a blue chip New 

1 This ratio is indicated by the financial profile, in which 

interest charges of $4,000, (at a debt cost of 13%) would mean 

debt of $30,000 or 30% of total assets. 
- 15 -

York Stock Exchange equity), present owners would still be forced 

to give up 45% of the firm (41,300 + 8(11,500) = .449} and suffer 

earnings dilution that would leave them a return of $6,337.50 in 

earnings (.551 x 11,500) on their break-up value of $71,400. This 

is a return of 8.9%, substantially below their opportunity cost of 

capital for risk free investments. Again, It is reasonable to 

anticipate they would choose to I iquidate rather than to endure 

such a substantial loss of earnings and ownership control. As 

with the large mechanized blue crab processor, the study's present 

value methodology (Table VII-2a) came up with a "viable" rating 

and a return on assets of 48.~. In light of the above analysis, 

such a prediction has no credibil ity. 

While it would be fascinating to speculate on just how net 

present value.methodology could come up with such unlikely answers 

as in the case of conventional and mechanized blue crab, it would 

be more helpful if the contractor were to review the methodology 

and to make changes where necessary. Subsequently, the contractor 

should explain the details of their methodology in a manner that 

would permit reviewers to be able to replicate it and others to 

estimate the economic impact on firms in the particular 

subcategories. 

2. Comments on several specifics of the contrac.tor1s application of 

present value methodology 

a. Page 11-9 lists various "eircumstances." 

follows uses the s~e numbering syst~. 

Tn e dis c u s s ion t hat 

(1) Is it primarily supposition, or does the contractor have 

empirical evidence that the cost accounting systems of the 

"small, independent plants" are not "effective"? Industry 

observers have noted that the independents frequently have 

better track records of control t ing costs than do the 

"professionally managed." 

with the small business 

industry. 

This observation is consistent 

nature of the seafood processing 
- 16 -

( 2 ) Wh ere i s the e v ide n c e t hat the 0 Ide r, " f u I I Y d e pre cia ted II 

units are inefficient? Th e con t r act 0 r has f a i led t 0 

recognize that seafood processing is "small" business, in 

which new equipment provides little competitive advantage 

compared with the skills of the "mossback" ( fu I I Y 

depreciated?) operators. 

(3) Psychic income l..!. an important aspect of the small business 

environment found in seafood processing. However, where the 

firm has been in a family for several generations (as 

frequently is the case in this i·ndustry). ownership is spread 

more broadly than is psychic income. Thus, when the "family" 

sits down to decide the extent to which they are willing to 

support the family business, psychic income (for anyone other 

than the founders) may not be a significant decision factor. 

" 

(4) It does not appear that the contractor has considered the 

impact of non-integrated production dependence in the Gulf 

shrimp industry. 

(S) Unprofitability l1. usually temporary. The problem is that it 

i s f r e que n t I yin term itt en t, a con tin u i n g f act 0 f I i f e • Th e 

Issue is whether sources of funds are wi II ing to advance 

further capital, given such fluctuations. 

(6) For some firms, low opportunity costs for assets and labor 

are a real ity. Bu t, g i v e nth iss i t ua t ion, the own e r s til I 

may be very reluctant to put good money after "bad." He only 

exhausts working capital in the anticipation of recovery, not 

as some mindless plunge into financial obi ivion. 

( 7 ) P I a-n t - sit e a p pre cia t ion i s not are a son t 0 con tin u e 

operating, whether losses are short or long-term. 

Appreciation will occur whether the plant Is in production or 

standing empty. The relevance of plant-site appreciation is 

that in areas where waterfront property is at a premit.m 

(Alaska, Florida/Key West and metropolitan areas are notable 

e x amp I e s), p I ant - sit e a p pre cia t ion i s wo r Ie i n g a g a ins t 

investment in the seafood industry. 
- 17 -

This can be seen in DPRAls own methodology. Increases in 

land values lead to increases in I (see the NPV formula, o 

page 11-10). This in turn will lead to higher closure rates 

as indicated above. 

b. Page 11-10. Th e d j sci a i me rat the top 0 f the p age i s not a 

convincing reason for the extent to which reI iance is put on the 

NPY methodology. Simply because the factors may not be able to be 

quantified does not justify the contractor's heavy reI iance on the 

methodology. 

c. Page 11-11. The discussion here uses the same numbering system a~ 

in the study. 

{1} Revenues and costs in the seafood industry have not been 

inflating at the same rates. Prices to fishermen and fuel 

costs in particular have risen much more than wholesale 

prices. (See DPRA Table IY-l1.) Since these factors are not 

reflected in the analysis. does not the use of constant 

dollars become methodologically appropriate? 

(2) The discussion on Page 11-14 defines "working capital" as 

"current assets less current 1 labil ities." 1ft his same 

definition (which Is actually net working capital) is used in 

this section, then it is not appropriate to use a "weighted 

cost of capital,a since the debt-financed current assets have 

already been deducted from athe initial investment." 

Further, Interest on these debt-financed short term assets 

must be deduc;ted or el se the rate of return is overstated. 

Methodologically it would be correct to use total current 

assets as the initial investment. 

(3) After-tax cash proceeds is defined on Page 11-12 and includes 

depreciation. Why is it methodologically correct to adjust 

depreciation on existing assets for inflation? The impact of 

inflation on ~ assets appears to be considered in (4). 

(4) See (3). 
- 18 -

(5) No conment. 

(6) What is the possible rationale for a six-year build-up? Were 

outlays also adjusted for Inflation? 

(7) Se. (6). 

(8) No canment. 

(9) No canment. 

d. Page 11-12. After-tax cash proceeds Is correctly defined only if 

it is first tested for the constraint that R>(E+O). Seafood firms· 

fail. this test with sufficient frequency that this point is not , trivial. 

e. Page 11-12. The treatment of Interest pa~ents has some potential 

errors. 

(1) So long as pack financing is included as a permanent source 

of capital there is no problem in the study's methodology 

regarding interest on current assets. However, where the 

financial profiles do not Include pack financing in total 

assets (as is the apparent case) the interest expense mus t be 

deducted as would any other operating expense, since it is in 

essence a temporary cost of carrying inventory. Available 

information indicated this may be a significant problem in 

the financial profiles and will be discussed later. 

(2) So long as salvage value IS being used to determine the 

inllia1 investment (Io) In fixed assets, actual outlays for 

interest expense must be deducted. Then, a shadow interest 

charge reflecting the weighted interest cost on the salvage 

value can be added back to cash flows. This adjusts the data 

for those firms where salvage value is significantly less 

than the book value of assets financed by debt. 
19 -

f. Page 11-12. Present value methodology that attempts to predict 

investor behavior and which includes depreciation as a cash flow 

is appropriate where the investor' 5 interests (and funds) are 

coincident with the firm's. Where management and ownership are 

wholly or partially separate. the use of depreciation as a cash 

flow is not appropriate. Rather, the investor's behavior should 

be predicted using (1) the present value of future dividends as 

the predictor of equity values and (2) the resultant returns on 

investment under the alternatives of liquidation versus purchase 

of wastewater treatment equlpnent. And, in those instances where 

It is appropriate to add depreciation to the "after-cash cash 

proceeds," it also would be appropriate in the formula on Page 

11-12 to deduct outlays for replacement of depreciated assets. 

g. Page 11-13. Did the contractor use these equity formulae to 

measure the cost of capital? If so, how did their calculations 

overcome the lack of stock prices and dividend yields (two of the 

primary determinants in the formUlae)? And, how was lIgn 

determined so as to be apparently equal for all SUbcategories? 

Such a finding defies the foundations of financial theory. If 

these formulae are not a part of the d~onstrable methodology of 

the study it would be appropriate to delete them. 

h. Page 11-14. The computation of d = .521 significantly understates 

the cost of debt capital for probably a majority of the seafood 

processing plants. This is by reason of the fact that so few have 

tax rates of 48 percent. 

i. Page 11-15. The contractor used "only incremental values ••• In 

order to reflect in-place facilities." Yet, the historical 

financial data apparently has not been adjusted to reflect such 

n i n-p I ace fac iii ties. n In that only a trivial nr..mber of firms 

have screens in place (in spite of the naive assumption on page 

VI-7), the Impact of screens has yet to be reflected in the firmsl 

fin a n cia I d a t a • Tn ere 5 u I tis t hat the inc r eme n tal imp act I s 

grossly understated. Methodologically, it would appear to be 

preferable to drop the assumption rather than to undertake the 

adjustment. 
- 20 -

j. Page VII-1 Indicates the basel ine parameters used in the present 

value methodology. While an inflation rate of 10% is a reasonable 

prediction, 

whether the 

discussion elsewhere raises some questions as to 

Inclusion of the inflation rate is appropriate or 

However, assuming the inflatio.p raU at 10%, it is 

unl ikely that fi rms wi II be abl e to borrow at an 

necessary. 

ex tr eme I y 

interest rate of 12%, as these firms are simply not prime rate 

quality. As for the "cost of capital," it is not. entirely clear: 

is this the weighted cost of capital or the cost of equity 

capital? If It is the latter, it is extremely unlikely that a 3% 

risk differential can reflect the realities of the seafood 

industry. Such a narrow risk differential is historically at the 

low end of the range that has been observed for New York Stock 

Exchange securities, but it is totally inappropriate in the 

smail-business nature of the seafood processing industry. Equally 

Inappropriate is the assumption that debt financing will provide 

50% of assets. Investments in wastewater treatment facilities are 

long-term assets, not readi Iy I iquidated inventory. Does the 

contractor have historic data supporting the contention that 

lenders have been wi II ing to provide 50% of the financing for 

long-term productive assets? Even when a fortunate firm has been 

able to obtain 50% of total assets, the majority of the financing 

has been of inventory. To assume lenders will provide 50% of the 

value of long-term ..!:!2!!.-productive assets (wastewater treatment 

faci I ities), challenges credibi Ii tV. 

As discussed elsewhere, the present value methodology used in 

this study is not appropriate. Nor are the basel ine parameters 

use din it • An d 1 wh e n va r I a t Ion sin tho s epa r ame t e r s are 

considered, it would have been appropriate to provide a worst case 

analysis In which all the factors are at their extreme level of 

negative impact. Such a case would probably be closer to real ity. 

k. Page VII-2 di scusses the "part s" of Tabl es VII-1 through VII-13. 

Unfortunately, the explanation of the "Net Present Value Results" 

is not sufficiently detailed that anyone of the several people 

with economic training who were contacted concerning this document 

had even a clue as to what those results mean, much less how they 
- 21 -

were derived. The primary reaction to this data has been to 

wonder how, for example, it is possible for a firm (small, 

northern shrimp) that is earning 3.5% on investment in the 

financial profile (Table V-l) to earn 14.3% (Table VII-h) on 

assets when future cash flows are discounted. Such a nonsensical 

result suggests that somewhere in the black box of DPRAl s present 

value methodology there is a problem. This review suggests that 

the cause may be the manner in which inflation was introduced in 

the methodology. That is, the model appears to be tel I ing the 

seafood processors, who recently have been experiencing narrowing 

operating margins due to costs inflating faster than revenues, 

that inflation in the future will provide the funds for financing 

wastewater treatment equipment. 

II. STUDY CRITIQUE 

A. Cost of treatment figures from the E.C. jordan report considered 

There are several issues raj sed by the use of the E.C. jordan 

technical report in the DPRA economic impact analysis. 

1. Figures 30 through 48 in the ECj report provide the capital, 

ope rat ion a I, h a u lin g, and dis P 0 s a leo s t s for was t ewa t e r 

treatment. From some of these cost curves, Tables 85 through 

115 are ostensibly constructed. Yet, it seems that in nearly 

every instance in which industry representatives and/or 

independent reviewers attempted to reconstruct the Tables 

from the Figures, they obtained significantly higher capital 

and daily 0 & M costs than in the EC) tables. It also is 

noteworthy that whenever DPRA had to use the cost curves in 

the Figures (rather than obtaining treatment costs from the 

Ta b I e s ) the cap ita I and 0 & M cos t S the y cit e d we r e 

reasonably similar to reviewers' estimates. 

This problem is so pervasive and the variations are so 

pro n 0 un c edt hat the rei s non e edt 0 s up ply e x amp' e s • 

Reference is made, however, to subcategory P, Alaskan 

hand-butchered salmon. Apparently DPRA has had the same 
22 -

problem with the ECJ report as this review, since they 

provide (DPRA page VI-13) figures for a 40 ton per day plant 

that has higher capital and daily 0 & M costs than ECj's 60 

ton per day plant (ECj page 251). A similar inconsistency 

can be found in subcategories A (Catfish) and B (Conventional 

Blue Crab). 

The same problem may ex ist in every other subcateogry 

where DPRA had to Interpolate treatment costs. However, for 

purposes of this review, only subcategories A, B, and P were 

eXMnined for this inconsistency. Each of them displayed it. 

Th e nat u reo f the s e Inc 0 n sis ten c i e sap pea r s toe as t a 

cloud over the- technical and economic docunents that must be 

resolved. Perhaps there. is a section in the E.C. Jordan 

report whose significance was not apparent to the reviewers 

at the time it was read. Perhaps there is an explanation of 

their methodology that E.C. Jordan forgot to include in their 

text or in their discussions with DPRA. 

of these explanations, questions are 

aspect of the economic report. 

But, in the absence 

raised about every 

2. Figures 39 through 46 in the E.C. Jordan report are curves 

for daily overhead and maintenance costs of various treatment 

facilities. Use of such curves, particularly for intermittent or limited operations, is not appropriate. Many of 

the overhead and maintenance costs are not primari Iy a 

function of either season length or flow rate. This is true, 

for example, of skilled mechanical labor and graduate 

engineers who are not available on such flexible terms. Such 

cost curves should be broken out Into their fixed and 

variable cost components. When this is done, it will become 

apparent that the overhead and maintenance costs of treatment, particularly for firms with sophisticated treatment 

equipment but short seasons and/or low flow rates, has been 

greatly understated and should not be used in their present 

form In the DPRA report. 
- 23 -

3. It is not apparent that the costs of surge tanks (in 

essentially every subcategory), wharves, land, and holding 

tanks (in subcategories that would barge), are considered by 

DPRA. The need for surge tanks becomes apparent in a 

subsequent section discussing the impac;t of peak loading on 

the level of treatment equipnent required. The cost of surge 

tanks, although it could be a cost effective alternative to 

more treatment equip'llent, is still not triVial. It should be 

an integral part of the technical and economic reports. The 

need for expanded wharves is cons idered by E.C. Jordan but 

apparently is not included in Tables 85 through 115. The 

cost of the additional land (or the opportunity cost of 

presently-owned land) necessary for wastewater treatment 

equlpnent is not 

• d 1 economic ocuments. 

considered In either the technical or 

The need for holding tanks, apparent to 

anyone who considers the operational characteristics of a 

waste barging operation, is not considered in either the 

technical or economic documents. 

None of the above cost categories are trivial. Anyone 

could be greater in impact than some of the cost figures for 

grease traps, in-plant changes, or even screens. The cost of 

land will sometimes be greater than the entire capital cost 

oft rea tme" t he iii tie s • 

If these four categories of costs have not been evaluated 

by DPRA, then it Is not possible to say with any assurance 

that their study has measured anything. Certainly it has no 

predictive ability as regards econ~ic impact. 

4. Another type of cost apparently not considered by DPRA is the 

cost of hauling and disposal of recovered wastes. Although a 

1 P age V 1-6 , It Co st 0 f I and has bee n ex c Iud e d from the to ta I 

installed cost." 
5. 

- 24 -

limited number of plants may be able to dispose of their 

wastes to secondary processors or at a trivial cost, probably 

a majority of the firms will i.ncur such expenses. In that 

these costs (even using the E.C. Jordan figures that industry 

representatives feel are understated) can be significant when 

compared with net income, it Is reasonable to assl.me that 

DPRA's oversight in this regard serves to significantly 

understate the economic impact of the proposed technology. 

One area where the cost of disposal is considered by DPRA is 

In Alaska. Here, it is asserted by E.C. Jordan that a barge 

capable of meeting the necessary specifications for 

seaworthiness and able to contain and release the recovered 

wastes can be built for $25,000 and operated for $120 a day 

(ECj Table 89). 

" 

David Ern (E.C. Jordan) stated that this capital cost 

reflected information from a Pacific Northwest firm that was 

will ing to bui Id the barge. Subsequently, E.C. Jordan was 

unable to supply Industry representatives with any further 

docunentation of that pr ice quote or even the name of the 

firm who made it. The "barge ll used in Alaska and discussed 

by ECJ is, in reality, a gurry scow. It is a lashed log 

structure hung with chicken wire. 

On Eej. Page 232} a Puer to RI can firm us i ng a. barge is 

cit e dash a v i n g pur c has e d i t for ani nit I a J I n v e s tme n t 0 f 

$25,000. When contacted} the firm gave the date of 

acquisition as 1921. Further, it is used only to handle 

stickwater a.nd would have to be changed significantly to 

handle crab shells or fish heads. However, it apparently is 

not for sale, even at its original 1921 purchase price, and 

there is no indication that others are available. 

Detailed industry data was supplied to EPA earlier in 

1980 indicating that a barging cost of $25,000 for large 

salmon canneries is low by a factor of 10 to 20 times, 

depending on capacity and whether or not the barge is self 
- 2S -

propelled or requires an auxi I iary vessel (a. cost aSSlI11ed 

away by ECl). For such technology, operating costs for the 

season {a daily cost figure is mea.ningless} would again be a 

multiple of the Impl ied cost in the technical report. 

Such costs can be equivalent to or greater than al I other 

capital and operating costs. Once again, it is apparent that 

using the cost data in the technical document will understate 

the econanic impact. 

Th e abo v e dis C u 55 ion per ta ins p rima r i 'y toe 0 s t sin the 

salmon subcategories, a nwarm weather ll fishery. When the 

crab and shrimp fisheries of the winter months are at issue, 

the costs go up for 301 I plants that are not located near fish 

meal plants. For winter barging, the distinction between 

remote and non-remote Is meaningless. The winter months pose 

par tic u I a r pro b I ems for a I I bar gin gop era t ion s • ( Th e 

Aleutian winds are only at the extreme of those problems.) 

Regardless, the capital costs of $25,000 and daily costs of 

$120 are totally unreal istic. The costs of barging used by 

DPRA cannot be supported and should not be used. Industry's 

data appears to be overwhelming compared with what turn out 

to be unsupported assertions in the technical document. 

B. Several °llnkagesl! between the technical and econanic documents 

are considered 

1. On page VII-1, one of the Dbase\ ine parameters for the 

analysi s assumes that BPT was in place for all subcategories 

except Alaska ••• n Such an asslI11ption is not appropriate 

(nor is it inferred in the ECJ report) unless DPRA is prepared 

to demonstrate that the firms from whom they obtained the 

financial data had BPT in place or that DPRA adjusted their 

financial data to reflect the impact of BPT capital costs and 

overhead and maintenance costs. If not, DPRA's analysis wil I 

significantly understate the closure rates resulting from the 

proposed wastewater technology-
- 26 -

Parentheti~allYI it should be noted that for those firms 

who cease operations rather than purchasing either BPT or BCT 

technology, their losses will not be as great as otherwise. 

However, the employment and corrmunlty impacts as well as the 

pot e n t j aId e ere a 5 e I n res 0 u r ~ e uti liz at ion w f I I r ema I n 

essent i a I I Y the same I and wi I 1 be greater than est Ima ted by 

DPRA. 

2. On pages VI-8 to VI-20, DPRA displays treatment cost data 

obtained from the E.C. Jordan report. Th e d a tag I v e s 

treatment costs for various plant sizes (smal-I, medium. 

large), with plant size defined in tons processed per hour. 

DPRA takes these costs and I Inks th~ to the plant's financial 

data In the subcategory, but with plant size defined in terms 

of small, medit.m and large sales \revenues. 

The probl~s with this methodology are soveral, they are 

significant, and they are the same problems that were 

identified In the review of DPRA's analysis of Phase II 

guidel ines, prOVided to EPA as a part of the suit in the Ninth 

CI rcu It Cour t. 

In that these are methodological problems that are easily 

verified and corrected through reference to readily obtainable 

facts, it is a matter of concern to industry representatives 

that they were permitted to reappear in this analysis. The 

possible implications of this are also discussed In the 

s tmnary. 

The "sizing error D 

i ncorrec t assumpt ions. 

capcteity of plants in 

in DPRA's study results from two 

First, DPRA assunes that the hourly 

a given subca.tegory is directly 

correlated with plant revenues. Second, it assunes that E.C. 

Jordan's size designations are indicative of the fact that an 

appropriate nunber of plants of that size actually occur in 

the SUbcategory. That is, it asst.mes that there 15 not a 

I a r g e r 0 r sm a I I e r s i z e fir m t h a. tis 5 j g n i f I can t I y mo r e 

predominant tha.n the size used. 
- 27 -

The first assumption is generally invalid across the various 

subcategories. Knowing the hourly capacity of a plant in a 

given subcategory provides only a I imited indication of the 

plant's sales revenue. The reason is that the relationship 

between hourly capacity and annual revenue Is slight. Two 

physically identical plants in different geographic locations 

can have markedly different revenues as the result of 

variations in the number of days that fishermen are landing in 

their area. Revenue differentials can also result from 

variatIons in the total nunber of hours at which the plant 

must work at capacity. This is a function of harvest patterns 

In the area. And, revenue differentials can result from the 

ability of a particular plant manager to operate a given plant 

at muGh higher output levels than another manager. These 

variations ca~ be readily observed in industry data. 

In terms of DPRAl s results, the economic impact can be 

understated when a "Jarge" firm, in terms of hourly capacity, 

is asstmed to have "large" revenues. However, the impact is 

overstated to the extent that some small firms in terms of 

hourly capacity have higher than average util ization rates and 

a greater ability to pay for wastewater technology. Which of 

these is more predominant is a matter of conjecture. 

The second DPRA assumption leads to a methodological error 

whose observed impact is clearly capable of understating the 

ex tent of economic travai I that wi II resul t from the proposed 

wastewater technology. This probl~ is the result of an error 

originating in the Le. Jordan methodology. The error, 

originally demonstrated to EPA in 1976, is that the technical 

report does not recognize the extent of the difference between 

peak loads and average loads. It is an error that occurs when 

a plant1s annual output is assumed to have been produced in 

more operating hours than was the case. This can occur by 

overstating the number of operating days or the nunber of 

processing hours in a typical day. 
- 28 -

Discussions with industry representatives from Alaskan 

crab, mechanized salmon. Gulf shrimp, and Maine sardine 

subcategories gave a clear indication that the sales levels 

I inked by DPRA to particular levels of hourly productive 

capacity and asset levels were significantly overstated. 

(Said another way, the hourly capacity and capital assets 

necessary to produce a given level of sales is understated by 

DPRA's linkages.) The effect of this error is to greatly 

understate the capital costs (and, thereby, the economic 

impact) of the proposed technology. 

This problem was described in detail in material 

concerning the Alaskan mechanized salmon subcategory and 

supp lied to the EPA in 1976. It was asserted at that time 

that the processing day of 18 hours and the 42-day season 

length overstated the ntmber of operating hours. I n the 

recent E.C. Jordan report, the day has been shortened to 16 

hours and the season lengthened to 60 days (ECJ Table 100). 

The result is that the season's total operating hours are 

increased from 756 to 960 hours, or 27%. 

Thus, although financial and operating information made 

available to DPRA in 1975 clearly indicated the historic 

operating levels, It appears that they have perpetuated the 

expanded ECJ er ror. Sin c e the val i d i t y 0 f the i n forma t ion 

already provided might be at issue, spent an afternoon 

reviewing the recent production records of Alaskan salmon 

canneries. Based on this examination, during which I pulled 

the file on any firm about which had a question, it is 

apparent that there are only a handful of firms with historic 

hourly capacities of 5.6 tons per hour (5.1 kkg/hour) or less. 

They are not typical firms and have low historic production 

rates that can be traced to such factors as hand-packed (4 Ib) 

I ines or canning as a sidel ine operation. Whenever a firm had 

°more than one butchering machine, as most did, the operating 

records nearly always indicated historic rates in excess of ... 

8.5 kkg/hour. Many were considerably in excess of that rate. 

(Compare with ECJ Table 100.) Wh i I e s uc h rat e s we reno t 
- 29 -

maintained for the full season, they were maintained for a 

sufficient period that even when the possibility of using 

surge tanks is considered as supplemental alternative to 

wastewater treatment equipment, it is obvious that the capital 

costs and the economic impact are going to be substantially 

greater than as indicated in the DPRA report. 

David Ertz (ECl) stated (Orlando, Sept. 24, 1980) that he 

stands by the figures because canners tell the EPA one thing 

when it comes to how much wastewater equipment they require 

but they tell him another when it comes to their hourly 

capacities. EPA was informed of the industry's views of these 

facts four years ago. The matter is a question of fact 

readily determined from company records. 

I have not ex~ined the operating records of other firms 

in the seafood categories. However, based on discussions with 

industry representatives, on the harvesting characteristics of 

the industry, and on the nature of the assumptions in the ECj 

report, it is reasonable to assume.that any processing plant 

taking del ivery essentially directly from local landings, wi II 

tend to have an hourly capacity that (compared with the annual 

sales level) is much greater than indicated in the DPRA 

effort. 

C. Data problems in the DPRA study 

1. Industry representatives and others who reviewed DPRAls 

financial profiles (Tables V-l through V-27) found that the 

financial data is not typical, representative. or internally 

consistent. In fact, they raised guestionsas to just when 

was the data obtained. from whom, and whether the conrnunication was written or verbal. It is appropriate to asstme 

that such information is not available from publ iely available 

data and EPA has already publ iely acknowledged that economic 

data In the 1975 DPRA study was not adequate for some 

categories. No Industry representatives could be found who 

c 0 u I d r ememb e r h a v i n g g i v en cur r en t fin a n cia I d a t a i nth e 
- 30 

detail that DPRA provided. Page 1-2 indicates that "several" 

plants were visited by DPRA personnel. When and where? Was 

detailed financial data provided at or as a result of these 

several visits? 

2. The data problems appear to be pervasive. That is, they seem 

to appear almost every time the data is constrasted with 

real ity. What follows are examples of some of the problems 

that were identified. 

a. Sales. DPRA Table IV-15 shows a 1978 price per case of 

canned salmon of $60.42. Yet, Table V-23 uses a 1978 price 

per case of canned salmon of $93.63. That figure is sl ightly 

more than the average 1978 net price to processors of a case 

of sockeye salmon. (AI aska values 

" 

are In Febr uary 1979 

Pacific Fisheries Review and March 1979 Pacific Packers 

Report.) 

sockeye. 

However, in 1978, not all canned salmon were 

In fact, sockeye were only 30% of the total pack, 

and pinks were whol esal ing at $60-65/case. In 1978, the 

average case of Alaskan canned salmon wholesaled for less than 

$73. And, that is before a brokerage conmission that is 

typically 7%. This leaves roughly $69.70 for the processor, 

approximately equal to the figure that DPRA shows for the cost 

of goods sold. Somewhere (prices or costs?) there is a data 

pro b I em wh 0 s e imp act i s too v e r s tat e the a b iii t y 0 f the s a I mo n 

canners to pay for wastewater technology and to understate the 

number of plants who wil I be forced to close. 

A problem receiving general comment was that 1978 was an 

excellent year for processors; one of the best for many. 

Sin c e the n , mo s teo s t s h a v e con tin u edt 0 esc a I ate wh i t e 

seaf'Qod prices have sllrnped or dropped sharply. No one was 

found who bel ieved that a return to 1978 conditions would 

o c cur soon 0 r pre v a i I • Th ere sui tis t hat i n terms 0 f the i r 

use as predictors, revenues and profits are overstated, if 

indeed the figures represent 1978 conditions. 

-' 
- 31 -

b. Costs of goods sold and operating expenses. I ndust ry 

representatives could not generalize their experience. Most 

oft he i r c oom en t s rei ate d tot he res i d u a I 0 f s a I e san d 

expenses, which is net profit on sales and is discussed below. 

c. Depreciation. 

or 11% of total 

This non-cash expense appears to average 10 

fixed assets. Th i sis not a nun rea son a b I e 

rate, computed on book value. However, the fixed assets in 

these profiles are carried at salvage value. Thus, it is to 

be expected that they could be 50% in subcategories where the 

break-up value of the plant, equipment, and land is not great 

compared with book value. For this reason it appears that the 

depreciation values are contrived and do not reflect actual 

data. Regardless, the effect on the DPRA analysis is to 

o v e r s tat e pro fit S • 5 inc e t his a 1 so 0 v e r s tat est ax e s , 

correction of this problem will increase cash flow. However, 

the ev entua I impac t on the firms wi I I depend on whethe r or no t 

they are owner financed (as discussed in an earl ier section). 

d. Interest. Interest charges in Table V-23 (salmon canning) 

are much too low. In that the annual pack financing averages 

out to 25-30% of yearly sales (it takes several months just to 

get it down to Washington State for labeling), such interest 

charges are close to 4% of sales (not 0.75 to 1.5%), even if 

the unreal istic assumption is made that salmon canners can 

borrow at 13%. (A rate of 13% probably wi II be the minimum 

p rim era tea s s um i n gas doe s DP RA t hat the rei s a 1 0% 

i n f I at ion. ) Fur the r, ani n t ere s teo s t 0 f 0 n I y 4% 0 f s a I e s 

assumes there are no other new plant and equiJl1lent money 

costs. 

There are indications that the same understatement of 

current assets occurs in other subcategories with seasonal 

operations. (The methodological problem with understated 

interest was discussed previously in section I, B, 2, e.) 

e. Total fixed assets and total assets. Total assets less 

total fixed assets is defined in the report (page 11-14) as 
- 32 -

working capital. The problems inherent In this definition 

already are discussed in 1, B, 2, c, (2) above. 

Industry data indicates that DPRAI S figures generally were 

too low even for plant and equipment alone and were 

sUbstantially low in Alaska, Florida, and other metropolitan 

and resort areas when land values are considered. In recent 

years the value of waterfront property has inflated rapidly. 

The sizing error Is perhaps the reason for the understat~ent 

of the plant and equipment figures. (Industry conment was 

that the values appeared to reflect the E.C. Jordan hourly 

capacity levels rather than actuals.) The sizing error does 

not explain why land values have been totally disregarded. 

The impact of these data problems, as they relate to the 

understat~ent OT current and fixed assets, is that I In the 

a 

NPV formula (page 11-10) is SUbstantially understated. This 

causes the net present value and, therefore, the survival rate 

of these firms, to be significantly overstated in the DPRA 

report. 

1. Return of sales; investment (after tax). Industry 

reaction to DPRAls rates of return reflected the particular 

person or firm1s experience. Frequently, the reaction was 

that the rates reflected a successful rather than a marginal 

or typical firm. The strongest reactions were to the fact 

that the financial profiles obscured the year to year 

variations in harvest levels that translate into fluctuations 

in sales, cos~s, and profits. The probl~ is not so much that 

harvest levels are highly variable. The problem is that the 

variations are so difficul t to predict. Salmon canners 

anticipate that two out of five years will be unprofitable. 

Significant fluctuations in price, harvest, and profit levels 

also occur in the crab and shrimp subcategories. Indeed, it 

was not apparent that any subcategory enjoyed stable harvest 

or profit levels. 
- 33 -

These fac tsar e known to I enders and investor sin the 

various regions. Although lenders generally are willing to 

finance limited inventory build ups, they view any long term 

comnitments with substantial skepticism. Several industry 

representatives reported that seafood plants in their 

subcategory frequently have poor reputations at the banks. 

The NEFCO bankruptcy (page V-4) apparently c~e about when 

banks refused to finance an inventory buildup in 1980. This 

is Indicated by newspaper reports that creditors will be paid 

in ful I and stockholders wil I receive approximately $20{share, 

roughly equivalent to the market price prior to the bankruptcy. Thus, the natlon1s Ia.rgest fish processor could not 

obtain even short-term financing for an operation whose assets 

ha.d a salvage value substantially greater than their debts. , 

Where conglomerate owners are involved, ready access to 

the capital markets is the good news. The bad news is that 

along wi th the ready access come the sharp penc i I s of the 

corpora.te staff. If there is anything that can be generalized 

from my dis c us s Ion s 0 v e r the yea. r s w j t h man .l gem e n tan d 

financial types from the conglomerates, it is that they are 

continually aware ~f the precarious tenure accorded to s~afood 

operations in their firms. Thus, at though funds may be 

available If the decision is made to to keep the plant 

operating, the hurdle rate for profitability is considerably 

higher than for the non-conglomerate or owner-managed plants. 

The above profit factors are not considered in DPRAl s 

methodology. Yet, they are significant determinants of the 

eventual economic impact of the proposed wastewater 

tech~ology. It is important that DPRAl s methodology consider 

such factors. 

3. Measurement of the economic impact j s dependent on correct 

d a t a con c ern I n g the numb e r 0 f pta n t sin the par tic u I a r 

subcategories. 
- 34 -

a. Several subcategories were examined. One, the sardine 

subcategory, had the same ntJ11ber of plants (14) as Indicated 

in the DPRA report. The other subcategories examined are 

considered below. 

b. In conversations with Dr. Steve Otwell, University of 

Florida, representatives from the Gulf shrimp industry have 

Identified more direct discharge firms in Florida alone than 

DPRA c I ted I n the subcategory. Otwell al so has noted that 

there are 56 direct discharge non-Alaskan shrimp plants (DPRA 

page VI-3). Of these, 17 were deleted from the DPRA study 

(DPRA pages V-3 and 111-12) because of their small size. Of 

the remaining 39,2 in the northern non-breaded shrimp 

subcategory presently are not viable and 4 more will close 

(DPRA Table VII-lb). Of the- remaining 33 firms, (in the 

southern non-breaded and breaded shrimp subcategories), 33 

will close (DPRA Table Vll-lb). 

Thus, using DPRA's own analysis, 100% of the direct 

discharger plants in the non-Alaskan shrimp categories will 

c los e • Th e I a c k 0 f c I a r i t yin DP RA 's dis c u s s ion 0 f t his 

impact (pages VII 1-3 through VI I 1-5) may result from the fact 

that their study is not consistent in presenting and analyzing 

"direct discharge,R as distinct from the total number of 

plants. Since both figures have relevance to the measur~ent 

of economic Impact, DPRA's methodology should include both and 

clearly identify whether they are discussing the impact on 

those subj ect to the regulations or the impact on the industry 

in general. 

Analysis indicates that the closure rate cited above is 

only the beginning of problems for the Gulf shrimp industry. 

There are many more of the direct discharge plants than 

indicated in the DPRA figures. As noted earl ier, they are 

t y pic a I I yam a j 0 r sou r ceo f sup ply for the no n- d ire c t 

discharge plants found in metropolitan areas and who handle 

the more complex stages of shrimp processing. 
- 3S -

When the source of supply from the packing plants declines 

sharply or disappears, the "metropolitan" processors, where 

possible, will turn increasingly to imported shrimp. Thus, 

not only will processing jobs be lost in coastal cornrunities, 

but a substantial segment of the (already financially 

trOUbled) American shrimp fleet and the coastal communities in 

which they live and trade wi II be severely impacted. 

The DPRA analysis, which should have a detailed understanding of the shrimp industry before uti I izing net present 

value methodology, does not even recognize these first order 

impac ts. 

c. The number of p I ants in the AI askan data (Tab les VII-6a 

and VII-12a) is also in error. If the 19 plants engaged only 

in mechanized salmon are added to the 25 plants that also have 

hand-butchered operations and the 24 plants that additionally 

have crab and shrimp operations, then it must be that there 

are 68 plants in Alaska that are mechnically butchering 

salmon. In fact, there are approximately 45 mechanically 

butchered plants in Alaska. The report, at a minimum, should 

Indicate how these are spl it between the several 

subcategories. The fact that they are not, along with the 

fact that industry representatives are convinced that since 

1976 DPRA did not ask for or obtain financial information on 

multi-product plants that would be sufficiently detailed to 

provide Tables V-24 through V-27, along with the fact that 

Tables V-24 through V-27 appear to be constructed of data from 

Tables V-20 through V-23, have caused industry representatives 

to conclude that the data is essentially contrived and has no 

greater val idity than that which was already found to be 

Inadequate by the EPA. See Federal Regi ster, February 17, 

1977, Vol. 42, No. 33, page 9665. 

I n that Federal Regt ster J the EPA noted, n recent 

analysis suggests that the methodology and approach used in 

developing the regulations are appropria.te. However, the 

available financial data appear to be insufficient for full 
- 36 -

assessment of the economic impact of the 1983 regulations for 

the Alaskan segment of the industry. The Agency is planning 

additional efforts in gathering and analyzing additional data, 

basic to this assessment ••• " 

In contradiction of the above, OPRA and the Agency have 

utilized a methodology requiring even more data than the 

previous "appropriate" methodology. Ins 0 d 0 i n g I h owe v e r , 

they used essentially the same data that EPA had found earlier 

to be II i nsuff lei ent. 1I I t appear s that EPA has expanded the 

methodological black box without altering the quality of the 

inputs. If so, the result is that the quality of the output 

is vitiated. 

d. The fact that the DPRA repor~, is Incorrect about even the 

most basic subcategory characteristics is also indicated in 

its discussion of the West Coast salmon canning category. 

Page VII-9 states that less than 10 percent of this 

subcategory are direct dischargers. Table VII-6a shows 12 

plants, so it Is reasonable to assume that only ~ plant (two 

would be 1m) is a direct discharger. On Table VII-6b, DPRA 

predicts that one plant will close. Thus, the proposed 

technology will close the orily plant. to which it pertains. 

However, a 100% closure rate is, judging by the DPRA report, 

not noteworthy or remarkable. Perhaps that is because the 

other 11 non-direct discharge plants wi I I survive? But, aside 

from the Bumble Bee and Peter Pan canneries in Bellingham, and 

the Wh i tney-Fi da I go Anacor tes plan t. indus t ry representatives 

believe that 30'1 other West Coast salmon canneries are direct 

discharge. However. they totally agree with the inferences of 

DPRA's data. That is. they do not believe that any direct 

disc~arge plant will be able to install OAF and stil I compete 

with the firms listed abo'le. 

From at I indications. the West Coast mechanized salmon 

subcategory will consist entirely of non-direct discharge 

plants. An d • 0 u r best i n forma t ion 1st hat the rea reo n I y 

three piants satisfying that constraint. Does this mean that 
SLMMRY 

- 37 -

nine out of the 12 plants {instead of the one indicated by 

OPRA} will close? Possibly, but not likely. The probl~, it 

appears, is that OPRA's information on the subcategory is so 

limited that it does not know the number of plants in it or 

its general characteristics. 

There are a number of West Coast salmon canners who do not 

have an "iron chink." the equipment for mechanically 

butchering salmon. Although they were probably included by 

OPRA in the subcategory by reason of their product (canned 

salmon). they are in the' hand-butchered subcategory for 

purposes of determining their permissable waste loads. 

The advantage in thls is that as hand-butchered plants, 

they wi II not have to install the expens lve OAF equi lJllent. 

The problem, however, ;5 that (because of the increased number 

of processing steps. sometimes including filling maChines) 

their waste loads may be so much higher than a typical 

hand-butchered (freSh/frozen) operation that they are unabl e 

to "meet the numbers," t 

The scenario at this point is not apparent. But, again, 

it is reasonable to predict tha.t the impact of the wastewater 

regulations on the West Coast salmon canning industry wi II 

result in the restructuring of the entire industry and 

substantially more closures than indicated in the DPRA report. 

Although essential technical factors were shielded from critical 

review by black box aspects of their net present value methodology, this 

review has identified significant deficiencies inherent in, or introduced 

by DPRA into, that methodology. Additionally. this review has identified 

a variety of factors (related to the proposed wastewater technology) whose 

potential Influence Is not evaluated or indicated in the draft study. 

Yet, the nature of some of these factors is such that their influence wil I 

completely overshadow the impacts that are considered In the study. 
- 38 -

The problems identified are not of the kind that yield readily to 

repair. However, it is hoped that this and other reviews will indicate 

the extent of the problems and the need for some fundamental changes in 

the analytical methodology and process. 

For those who are not trained or experienced in financial economics 

and/or research methodology, it is important to note that although this 

review is the product 'of a university environment, the matters discussed 

in it are not the result of an acad~ic exercise in nit-picking. Nearly 

everyone of the deficiencies noted here challenges the ultimate validity 

and utility of the study. The inescapable conclusion of this review is 

that the draft study would not be judged as adequate for its purposes by a 

panel of appropriate professionals Independent of the EPA and the food 

processing industry. 

If such a panel were conyened, there are a ntmber of questions that 

would be appropriate for consideration: 

1.. Industry representatives and reviewers repeatedly noted that the 

study was not responsive to prior Industry cooments and/or data. Does 

this indicate the need for changes in the study phase of the regulatory 

process? 

2. Why are methodology and data collection/analysis both being 

reviewed at this time? Would not professional experienc:;e indicate the 

need to determine an appropriate metho.dology and define data collection 

needs and collection procedures under a separate contract before the study 

contract is given? 

3. There are saveral indications that the detailed data in the 

financial profiles is contrived and/or not representative of 1978. Is the 

contractor able 'to supply a docunented list of who was contacted in the 

industry, when were the contacts made, and was the exchange of information 

verbal or written? 

4. There appears to be a significant discrepancy between the required 

level of analysis and the level of funding (less than $125,000) made 
-- - 39 -

available by EPA for purposes of this study. Is this discrepancy real or 

only perceived? If real, what level of funding would be appropriate? 

s. Could the presentation of the study be improved if data and 

findings were presented subcategory by subcategory? Might this help to 

avoid some of the study's internal inconsistencies as noted in this 

review? 

6. This review indicates that the study!s methodology overlooks or is 

unable to consider a significant number of factors with substantial 

potential influence on the economic impact of the proposed wastewater 

technology. Would not a case study approach provide data and analysis 

with more predictive ability? 

7. This review has Identified numerous methodological and data . , 

deficiencies. Without any notable exceptions, each has tended to 

understate the economic impact of the proposed wastewater technology: 

a. Are this review's comments on the study's deficiencies val id? 

b. Are there offsetting factors that would reduce the impacts 

noted above and that are not considered In the study or this 

review? 

c. Do the answers to a. and b. provide any basis for suggesting 

that the study is not an adequate and/or objective examination 

of the economic impact of the proposed wastewater technology? 
A 
. 

" 

l' 

r 

A WASHINGTON SEA GRANT REPORT 

DUTCH HARBOR: 

A PRELIMINARY SCREENING OF 

UTILIZATION/DISPOSAL ALTERNATIVES 

FOR CRAB PROCESSING WASTES 

JAMES BRAY 

MARINE ADVISORY PROGRAM 

WSG-MR 78-5 

JUNE 1978 

WASHINGTON SEA GRANT 

DIVISION OF MARINE RESOURCES 

UNIVERSITY OF WASHINGTON. SEATTLE 98105 

,.". - .,.~ .... ,_,~~..l._~~ _, IE ..... '..:,.."'~<''''' . ...,, ___ ... ~' ... ~'\._ 

TABLE OF CONTENTS 

Chapter 1.0 Introduction .•.....•..........................•••...•...•.. 1-1 

1.1 Scope and function .....•••..............•.•......•..••....••.. ]-1 

1 . 2 0 rga n i za t i on • . . • . • . . • . • • . . . . . . • . . . • . . . • . • . . • . . . . . . . • . . . • . • . • •. 1 - 1 

1.3 Areas requiring further study ................................. 1-2 

Chapter 2.0 Planning Parameters •••.•.....•..••..•...••...••.•...•.••.•• 2-1 

Figure 2.1 - Map of North Pacific Ocean ............................... 2-4 

Figure 2.2 - Crab Processing Plants/Amaknak & Unalaska Islands •••.•••. 2-5 

Chapter 3.0 

3. 1 

3.2 

3.3 

3.4 

3.4(a) 

3.4(b) 

Alternatives for Dutch Harbor Summarized .•••.••••••••.•••.• 3-1 

Screening and utilization alternatives ...••.••..•.••.••.••••.• 3-1 

Screening and daily barging ••••.•..•.•....••.••..•.••.••.••..• 3-2 

Impacts and benefits of disposal by screening and barging •.••• 3-3 

An alternative to screening and daily barging •..••••.••.••••.• 3-5 

The principal assumption ..••...••....•.•....•.....••••...•.••• 3-6 

The alternative •.•......••.••••........••••••...•..•.....••••• 3-6 

Chapter 4.0 Examination of Utilization Alternatives .................... 4-1 

4.1 Combined tissue and shell waste utilization - IIfish meal" ..... 4-1 

Figure 4.1 - Fish meal prices as function of protein units •••••••••••• 4-3 

Figure 4.2 - Fuel requirements as function of moisture content ........ 4-7 

4. 1 (a) 

4.2 

4.2(a) 

4.2 (b) 

4.3 

4.3(a) 

4.3(b) 

4.4 

Summary of revenue, fuel, and transportation costs for a 

Dutch Harbor crab meal plant .................................. 4-8 

Physical separation of shell and protein waste •.••••••...••••. 4-10 

era b mea t mea 1 • . • . • • • • . • . . . . . . • . . . . . . . • . . . . . . • . . • . • . • • . . • • • • •• 4 - 1 0 

Shell waste •••.••..•..........•.....•.•..••.......••••...•.•.• 4-12 

Road material ...•.•.......•.•......••.......•••.........•••••• 4-12 

Source material for chitin/chitosan ...•.•.•....••..•••...•••.• 4-13 

Chemical separation of shell and tissue protein ••.••.•••••.••• 4-13 

HC1-pepsin/enzyme .••..•..•..........•••.....•...••..•..••.•••• 4-13 

Chemical separation of tissue protein, firmly-bound protein, 

and shell {chitin/calcium carbonate complex as residual} .••••• 4-14 

Protein extraction ....................••..••••...•...•••••.••. 4-14 

Shellwastes ......•...•.............•.•...•..•.•..........••.•• 4-18 

Alaskan crab shell as a chitin source ......................... 4-18 

Chapter 5.0 

5. I 

5.2 

Chapter 6.0 

6. I 

6. 1 (a) 

6. I (b) 

6.2 

6.3 

6.4 

i ,-. 

Bibl iography 

Systems for Collection of Shellfish Waste .................. 5-1 

A community system for dewatering processing wastes .••..•.•.•. 5-1 

Individual-firm dewatering of processing wastes .••...••...•.•. 5-3 

Tug and Barge Disposa1. .................................... 6-1 

Dump scows .••••••••..•••..•..•....•....•......••..•......•.•.• 6-1 

A community dump scow operating from a community dock ..•••.••. 6-1 

A community scow operating from processor docks •••..••••..•••• 6-2 

Tugs .................................................. ,. ............... 6-2 

Costs of tug and barge disposaL ............................... 6-3 

The safety va 1 ve concept ••••••.••••••••..•..•... ,.............. 6- 3 

............ IlOIlO .............. e ••••••••••• • ~ ...... c •• ~ ••••• .... " •• 01 .. .. 

ABSTRACT 

This report considers alternative methods of utilizing and disposing of crab 

processing wastes at Dutch Harbor. The primary focus is economic, although 

some issues of technical feasibility are considered. With the possible exception 

of an lIextracted proteinll process, there is no apparent economic: use of the 

crab wastes. The costs of disposal by screening and barging are substantially 

greater than the apparent environmental benefits. An alternative to screening, 

utilization, and disposal is reviewed. Areas requiring further study are 

identified. 

PREFACE 

This Washington Sea Grant report was requested in December, 1977 by 

representatives of Dutch Harbor processors, acting through their trade association, the Pacific Seafood Processors' Association. The author is Marine 

Economist with the Marine Advisory Program. Such advisory services are 

derivative from the Act creating the Sea Grant Program and are oriented toward 

providing information and analyses concerning the utilization and development 

of marine resources. Although the report focuses on processing operations at 

Dutch Harbor, it is anticipated that the information may be useful to analyses 

of utilization and disposal alternatives of seafood wastes in other areas. 

The author wishes to thank the scores of persons who cooperated in the 

preparation of this report. Almost without exception, company presidents, 

plant managers, and quality control personnel of seafood and fish meal plants; 

private, government, and academic researchers; suppliers of dewatering, drying, 

and bal ing equipment; suppliers of fuel, fish meal, and industrial chemicals; 

and operators of tugs, barges, and refrigerated or containerized vessels were 

open and generously helpful. Errors of interpretation and judgment are the 

sole responsibility of the author. 

Dutch Harbor: A Preliminary Screening of Utilization/Disposal 

Alternatives for Crab Processing Wastes 

1.0 Introduction 

1.1 Scope and function 

Located near the eastern edge of the Aleutian Islands, Dutch Harbor is the home for 

seafood plants that annually process over 100 million pounds of crab. This paper considers various alternatives for utilization and/or disposal of viscera, shell, and meat 

residuals of those crab processing operations. The primary focus will be economic, although some issues of technical feasibility will be considered. t 

The information provided attempts to be responsive, within the constraints of available 

time, to questions raised by the Environmental Protection Agency and by Dutch Harbor 

processors.

2 However, the time available has required that the precision of several cost 

estimates and the investigation of some alternatives be limited. Thus, the analysis should 

be considered primarily as a preliminary screening of utilization and disposal alternatives 

for seafood wastes at Dutch Harbor. 

The limited available time also has made it necessary to assume that the reader will 

be reasonably acquainted with Dutch Harbor and the essentials of processing king and 

tanner crab. Time permitting, later versions will attempt to be useful to a wider audience. 

1.2 Organization 

Chapter 2 presents information that is basic to an analysis of Dutch Harbor's seafood 

wastes. These planning parameters are summarized in the chapter as a "reference guide" 

to analysis in subsequent chapters and for the ease of access they might provide to others' 

efforts. 

Chapter 3 summarizes subsequent material on utilization (Chapter 4), waste collection 

(Chapter 5), and disposal (Chapter 6). It also analyzes the impacts and benefits of al ternatives discussed in those chapters as well as an alternative that may achieve environmental 

objectives without uti lization or barging of wastes. 

The approximately five million pounds of shrimp processed annually at Dutch Harbor 

are not considered separately here, as they would not significantly impact the costs 

or conclusions in this report. 

2Although requested in Decembei, 1977 by the Pacific Seafood Processor's Association, 

prior commitments made it impossible to begin work before Apri I, 1978. 

1-1 
1.3 Areas requiring further study. 

This study has identified several areas requiring additional information. They are enumerated here for convenience of reference. 

I. The "life cycle" or half-life of crab shell wastes is not known. There is even 

some question as to the age of waste piles that are being used to measure 

potential environmental impact. 

2. There is an abundance of conflicting information on the moisture, chitin, 

calcium carbonate, and firmly-bound protein in crab shell. 

3. Present harvest levels at Dutch Harbor are not adequate as indicators of future 

production. 

4. If disposal by tug and barge is to be considered further as an alternative, weather 

information is not adequate to determine the storage capacity required during 

periods when the tug is "weathered in." 

5. Better information is needed on the availability and cost of land and dock 

space in the Dutch Harbor area. 

6. An independent technical review is needed of protein extraction processes, 

including the potential impact of crab wastes on human allergies. 

7. Information is needed on the extent to which racemization constitutes a problem 

for protein extracted with sodium hydroxide. 

8. Information about market prices for "extracted protein" is essentially speculative. 

9. Baling, as a system for disposing of crab shells, needs to be tested for technical 

and economic feasibility, including the potential impact of fishermen's resistance. 

1- 2 
2.0 Planning Parameters 

In the development of this analysis, various information was gathered that became the 

planning parameters (constraints) for the evaluation of the alternatives considered here. 

These parameters are listed in this chapter as a reference guide. 

I. Recoverable wastes from a crab processing plant are estimated at these approxi mate percentages of live weight: (From Seagran, 1958 and processor data.) 

2. 

Meat line 

Tissue protein 

Shell 

TOTAL 

Section line 

Tissue Protein 

Shell 

TOTAL 

King Crab 

22% 

33% 

55% 

8% 

10% 

18% 

Dutch Harbor - Raw Crab/Production Waste* 

(in millions of pounds) 

Shell 

King Crab Raw Crab Waste 

Sections 34.8 3.1 

Meat 17.2 5.7 

TOTAL 52.0 8.8 

Tanner Crab 

Sections 46.9 4.5 

Meat 3.6 1.2 

TOTAL 50.5 5.7 

TOTAL FOR 

DUTCH HARBOR 102.5 14.2 

*Based on 1977-78 operations 

Tanner Crab 

24% 

35% 

59% 

9% 

10% 

19% 

Butchering Waste/ 

Unpicked Meat 

3.0 

3.8 

6.8 

4.3 

.9 

5.2 

12.0 

3. The actual or projected market prices of various fish meals are shown in Figure 4.1. 

4. The number of gallons of diesel fuel required per ton of fish meal dried to 

90% solids at indicated rates of efficiency are shown in Figure 4.2. 

2-1 
5. There is one daily flight (Reeve Aleutian Airlines) to Dutch Harbor from Anchorage. If the plane is unable to land, passengers are returned to Cold Bay and 

put on board the next day's flight to Dutch Harbor. Industry sources indicated 

experience rates of 20-30% probability of spending the night in Cold Bay. 

The airfare from Anchorage to Dutch Harbor is $177. Airfare from Seattle 

to Anchorage is $119. (Airfare from Seattle to Kodiak is $126.) 

6. Dutch Harbor is 570 miles west of Kodiak and Kodiak is roughly 2,000 miles 

north of Seattle. Dutch is served by Sea-Land containerized vessels. Although 

regularly scheduled every three weeks (as part of a run to Adak), there has 

been a vessel into Dutch every two weeks or better this year. This is a substantial improvement over late 1977, when there apparently were problems with 

breakdowns. Sea-Land's vessel, Aleutian Developer, has the capacity to handle 

61 refrigerated vans and has a 96-van total. Sea-Land indicates they will expand their service in 1979. Industry sources indicated there have been prior 

years in which indicated expansions in service did not materialize. In addition 

to product moved by Sea .. Land and by floating processing vessels delivering 

to Kodiak or Seattle, Dutch Harbor product also goes out bulk-loaded (handstowed) on various refrigerated vessels. The cost of extra handling and product 

damage makes bulk handling a less-preferred method. During crab season, 

little cargo other than crab is carried on these bulk-loaded vessels. 

7. The cost per hundred weight of fish meal (assuming over 28,000 pounds per 

van) shipped from Dutch Harbor to Seattle is $3.85. 

8. At present, there is a ferry operating between Unalaska and Amaknak Islands. 

Plans are apparently underway for a bridge between the islands. 

9. Daily processing capacity at Dutch Harbor is between 1.5 and 1.7 million 

pounds of king crab. Tanner crab capacity is roughly two-thirds of king crab 

capacity. 

10. A t present there are seven firms and fourteen plants processing crab in the 

Dutch Harbor area. Three plants are located on Unalaska Island (two in Unalaska 

and one in Captain's Bay) and three plants are located in Dutch Harbor at the 

north end of Amaknok Island. The remaining plants are spread along lliuliuk 

Harbor on the southeastern tip of Amaknak Island. Sources indicate that one 

and possibly two more plants are planned for the area. 

2-2 
I I. With the exception of the land under most of the processing plants, Amaknak 

Island is owned by a Native American corporation. Federal law permits the 

corporation to lease, but not to sell, the land. (Any leasehold improvements 

revert to the corporation.) Sources indicate, however, that the corporation 

apparently has been reluctant to enter into new lease arrangements. And, 

most processors are already encountering problems of squeezing their operations into the land available. 

2-3 

Figure 2.1 

ARCTIC SEA 

USSR 

BERING SEA 

I(?A.L Ell TJA N ISLA ND 5 

" 

ALASKA , 

I 

I 

I CANADA 

I 

I 

ANCHORAGE I 

... 

o 

&KODIAK 

#,. GUl.f Of Al.ASKA .-

B

* ~ .::-r., 

p' 

.. '" . DUTCH HARBOR 

NOR T H PAC IF 1 C 0 CE A N 

2-4 

J 

o 

Ulakta 

Figure 2.2 

01 EASTPO INT 

02 UNISEA 

03 PACIFIC PEARL (2) 

04 VICEROY and V.ITA 

05 PAN ALASKA 

ROYAL ALASKA 

06 WH ITNEY FIDALGO (2) 

07 THERESA LEE (NEFCO) 

NAUTICAL MILES 

08 SEA ALASKA 

SEA PRODUCER , 

I 

1 2 09 

B 

DUTCH HARBOR SEAFOODS 

PLANNED BRIDGE 

D PROPOSED PUBLIC DOCK 

Crab Processing Plants 

Ama!<nak and Unalaska Islands 

Alaska - AleuHan Islands 

2-5 

3.0 Alternatives for Dutch Harbor Summarized 

Subsequent chapters consider the economic feasibility of screening, utilization, and 

disposal of Dutch Harbor seafood wastes. This information is summarized in Sections 

3.1 and 3.2 of this chapter. Section 3.3 considers the impacts and benefits of the several 

alternatives. Section 3.4 concludes the chapter with examination of an alternative to 

screening, barging, and utilization that may achieve environmental objectives without 

unnecessarily burdening the processors. 

3. i Screening and utilization alternatives 

The costs of building and operating screens at Dutch Harbor will vary significantly between firms and will ultimately depend on whether wastes are transported to a community 

collection site (developed for that purpose) or are dumped into barges adjacent to processor docks. Available information indicates it is reasonable to anticipate that the total 

cost to industry of installing screens would start at approximately $1 million.' 

When the amortized cost of these installations (10 years at a pre-tax cost of capital 

of 20% reflects risks and opportunity costs of Dutch Harbor capita\) is added to anticipated operating costs (estimated at $30,000 per installation), the total annual cost to 

industry of screens is estimated at approximately $450,000. If this cost is avoidable 

(that is, environmental objectives could be achieved without screens), then, with the 

possible exception of extracted protein, there is no apparent economically feasible use 

for crab waste that has been identified by this study. 

I f the cost of screens is considered to be unavoidable, then they are treated as a sunk 

cost for purposes of analyzing economic feasibility. As such, they are not included as 

an offset to potential revenues from waste utilization. However, when this is done, with 

the one possible exception already noted, there still is no apparent economic use for 

Dutch Harbor crab waste. 

The attraction of extracted protein is that it might yield a high percentage protein product 

while at the same time stabilizing the shell stock. The basic technology of protein extraction was originally demonstrated in 1970. Since that time, some pilot plant data on material 

balances and process efficiency have apparently been developed for evaluation by potential 

This initic! investment might be lower if a communi ty dewatering operation is feasible. 

This is discussed in Section 5.1. 

3-1 
users. However, four questions regarding the feasibility of the process remain unanswered 

in this study. 

I. What protein efficiency ratios have been achieved with protein extracted by 

sodium hydroxide? That is, does racemization of the extracted protein constitute a problem for this process? 

2. If protein extraction can produce a product with 90% available protein and 

similar in amino acid content to casein, will the market accept it at or near 

casein prices? 

3. If there is a racemization (indigestibility) problem with extracted protein, 

is there a market for the product as an industrial chemical with casein properties? 

4. Do independent reviews of the process confirm its technical feasibility? 

The other product of the protein extraction process is deproteinated shell waste. Composed 

of chitin and calcium carbonate or ash, it apparently is capable of being held under moist 

conditions (without producing an odor) until there is the opportunity in the summer to 

scoop it onto a barge and dump it in an approved area. Thus, the protein extraction process offers a substantial saving over daily barging costs. 

When the specifics of Dutch Harbor are considered, the cost of land for an extraction 

plant and for a holding area for stabilized shell must be included as a factor that potentially 

could make the project infeasible. The problems of obtaining land for processing operations 

that have already been encountered on Amaknak Island (nor do conditions appear more 

favorable on Unalaska Island) indicate that the availability of land may be the ultimate 

constraint on the feasibility of a protein extraction operation at Dutch Harbor. 

3.2 Screening and daily barging 

Chapter 5 discusses alternative systems for the collection and disposal of seafood wastes 

at Dutch Harbor. While each alternative has specific costs and each firm's costs under 

a specific alternative will vary significantly, it appears that in-plant collection systems 

will add approximately $450,000 to annual costs. Assuming minimum equipment necessary 

for disposal operations, a tug ($568,000) and dump scow ($75,000) would add lease costs 

of $643,000 annually. 

3-2 
Although there are a variety of factors that could cause the total to increase significantly, it appears that screening and barging will increase Dutch Harbor's annual processing costs at least $1,093,000. 

One of the significant risks of waste utilization (as opposed to waste disposal) is that 

the plant will be "sized" incorrectly. If it is too large, then there is a problem of inefficiency and increased costs per unit. If it is too small, then utilization will not have 

avoided the substantial minimum costs of barge disposal. Thus, the degree of flexibility 

in handling capacity for tug and barge systems argues for barge disposal over waste utilization at this time. 

An additional consideration that supports the selection of the barging alternative over 

the short term is that a shortage of land is not peculiar to Dutch Harbor. There is even 

less privately-held land (some say "none") elsewhere in the Aleutians. 

If some of the available land (and capital) is used for a reduction plant, then chances 

of developing a significant bottomfish industry in the Aleutians are correspondingly reduced. Apparently, the qual ity of bottomfish in the area make it likely that such an 

industry could develop. However, it will require separate and different equipment from 

what is now used for crab processing. Thus, economic considerations may make it preferable to screen and barge in order not to reduce the available land and thereby the potential for utilization of the boftomfish resource. 

3.3 Impacts and benefits of disposal by screening and barging 

For the industry as a whole, it should be anticipated that the increased cost of processing 

due to waste disposal will be passed on to consumers in the form of price increases. 

Whether the costs of waste disposal might force the closure (or the movement elsewhere) 

of any Dutch Harbor processor is a matter of speculation. It cannot be determined without 

a firm":by-firm study of costs specific to a particular waste disposal alternative and/or 

the given firm's ability to "opt out." What is apparent, however, is that for the system 

as a whole, many of the collection costs and most of the disposal costs are not sensitive 

on the down side to reduced waste levels. Thus, every time a firm closes or opts out 

of Dutch Harbor, the burden on the remaining firms will increase correspondingly. At 

the extreme, there is a point at which it would be cheaper to transport the wastes in 

vans (for disposal elsewhere) than to maintain a screening and barging system at Dutch 

Harbor. 
If the economics of barge disposal are too burdensome, it is reasonable to anticipate 

that each firm will seek a solution tailored to its own resources. In this situation, it 

appears that firms with the least available land and/or dock area will encounter the 

greatest difficulties under screening and barging. 

There is also the possibility that as a deliberate competitive strategy, firms with space 

available for working their disposal problems might decide to "go it alonell in some way. 

The resulting cost differential might then be exploited in an area such as marketing in 

order to change the competitive structure of the industry. 

The benefits of screening and disposal are more difficult to identify than the cost impacts. 

So far as could be determined, the present disposal area is not used for water-contact 

sports. And, if the present outfall pipes are moved periodically, there apparently is no 

permanent damage to the environment. Nor are there aesthetic impacts to the casual 

observer or apparent human health or safety impacts. Given these conditions, the benefits 

of screening and barging in terms of the objectives of the environmental legislation are 

primarily realized from the increased productivity from the water and the ocean floor 

that are no longer impacted by crab shell. 

Assuming that all of Dutch Harbor's annual 25 million pounds of crab wastes could be 

distributed to cover I 1.5 acres to the depth of one foot and would take four years to 

decompose,2 crab wastes (using a yearly rotation of disposal sites) would take approximately 46 acres out of production. Such a hypothetical area would be approximately 

.035 of the ocean floor out to one-half mile on the west side of Amaknak Island. If grinding increases the separation of shell and meat wastes, then it is reasonable to expect 

that dispersion in the water column might yield considerably less coverage than the .035 

indicated here. (While substantiated information on shell decomposition is notably lacking, observed actual coverage of the ocean bottom on the west side of Amaknak Island 

is apparently less than five acres and not the 46 acres considered here.) 

Contrasting the annual expendi ture of $1,093,000 per year for screening and barging 

with the 46 acres that are returned to production gives an annual cost per acre of $23,760. 

Ccpitalized to reflect the present value of this annual outlay, it appears that a decision 

to use screening and barging imputes a productive value of $118,750 to each recovered 

2This assumes SO pounds of ground crab shell per cubic foot--an approximate figure derived 

from two independent examinations of crab waste weight. 

3-4 
acre of ocean floor.3 If it can be demonstrated that decomposition of the crab wastes 

occurs in less than four years, or is washed away by winter storms, or covers less than 

46 acres (because up to 40% of it is protein that might be carried away by tidal currents), 

then the value of the ocean floor imputed by screening and barging will be correspondingly higher. Conversely, it will be lower if the waste piles take more than four years 

to decompose or take up more space per pound of crab shell than assumed. 

An annual expenditure for ocean disposal of $1,093,000 further implies that the 1300 

acres of ocean bottom at similar depth and within one-half mile of the 7000-yard shoreline on the west side of Amaknak Island beween Arch Rock and Ulakta Head have an 

annual productive value of $31,000,000 and a capitalized value of $154,000,000. 

Thus, it is appropriate to compare the value of the annual harvest from all fisheries in 

the area (Bristol Bay and the eastern half of the Aleutian Islands) with the total number 

of near-shore acres of ocean bottom in the area. If the market value is generously estimated at $400,000,000 and the Bristol Bay and Aleutian shoreline is estimated at 7,000 

miles, then it appears that the area restored to production on the west side of Amaknak 

Island would have an approximate productive value of $8000. (Assuming that all value 

in the fishery is dependent on the zone within one-half mile of the shoreline.) 

These figures indicate that screening and barging would restore to production an area 

with a productive capacity that is apparently less than $10,000 annually. The cost of 

doing so is apparently in excess of $1,000,000 annually. 

In the terminology of managerial economics, the above situation is conservatively referred to as suboptimization. To those unfamiliar with the term, it means that achievement of a secondary objective has been permitted to operate without consideration of 

the cost impact on the primary objective. 

3.4 An alternative to-screening and daily barging 

Analysis in the previous section indicates that screening and barging (as methods of dewatering and disposing of seafood wastes) impose significant burdens on Dutch Harbor 

3This calculation uses 20% as an assumed cast of capital and reflects industry's cost 

of capital for what is essentially an investment in increased productivity from the fishery. 

A rate of 8% might also be appropriate if the cast of capital is the re~urn expected 

from public recreational projects. However, it gives a value per acre of ocean floor 

restored to production of $290,668. 

3-5 
processors without appreciably contributing to the achievement of the nation's environmental objectives. This section is an attempt to develop an alternative. 

3.4(a} The principal assumption 

The environmental problem with accumulations of crab wostes is that crab shell apparently biodegrades over a period of years and has the potential to form waste piles. Butchering wastes and unpicked meat apparently do not pose an environmental problem. 

F or crab processing, screens are primarily useful for their ability to recover butchering 

waste and small pieces of shell in the waste flows. However, most of the shell con be 

recovered without using tangential screens. 

When crab is butchered, the carapace can be recovered before it goes into the waste 

stream by flipping it into a tote. At least one firm, elsewhere, presently uses this method 

to separate shell and butchering wastes. For a section line, the remaining shell (with 

the possible exception of tails) goes out as product. In a meat line, the shell coming 

from the picking areas might be removed from wastewater flows with coarse mesh screens. 

Placement of these screens in the waste flumes would attempt to recover the shell before 

it becomes entangled with butchering waste. If that is not possible, the screen might 

be placed at a point before the processing water goes into the sump. A suitable mesh 

size might allow butchering waste to pass but retain shell fragments without clogging. 

These fragments could then be "pitch-forked" into totes. Without the need to retain 

the soft tissue portions, the water content of the wastes (as well as the hopper capacity 

required to store it) can be significantly reduced. 

The principal assumption of this shell-recovery method is that the remaining wastes 

can be finely ground and returned (pumped) to the ocean without adversely impacting 

the desired environmental objectives. Some testing would be necessary to determine 

the engineering characteristics of the system capable of achieving the principal assumption. 

3.4(b} The alternative 

If shell waste collected in totes can be compacted and baled, then the "bales" might 

be loaded onto the decks of crab vessels that have off-loaded live .crabs Rather than 

barging the wastes, it may be feasible to send the. crab shells back to sea on the vessels 

that brought them in. The crab vessels could winch them overboard or use the crab pot 

"launchers." 

3-6 
Given the density of the material, a 400-500 pound bale apparently would be roughly 

2'x2'x2'. Although definitive tests have not been run to determine the ability of such 

a crab bale to hold together, the SOO-pound size was chosen because (I) it is a weight 

that crab vessels are accustomed to handling (crab pots apparently weigh 600 pounds 

each) and (2) the 2-foot square bundle is of a size that could be put into a reinforced 

paper bag or carton. 

There are several apparent advantages of such a system: 

I. The cost of a baling unit is about the same as that of tangential screens (uninstalled). 

2. The baling operation would require a relatively small area and few in~plant 

changes. This would reduce the competitive impact of waste disposal on spaceshort firms. 

3. Individual plants (with the exception of a short feeder/conveyor into the baler) 

would not need the elevated structure, storage hoppers, pumps, loading docks 

and/or conveyors of a screen collection system. 

4. The cost of a community collection site, building, storage hoppers, and barge 

loading system would be avoided. 

5. Each firm would bear only its own costs of disposal. Such costs and the firm's 

ability to operate would not be dependent on actions by other firms. 

6. The cost of leasing and operating a tug and barge would be avoided. 

7. The system would not cease functioning during weather that would keep a 

tug and barge in port. 

A system of collecting and baling shell has several potential problems: 

I. Vessel owners may resist "carrying out the garbage" and take their crab to 

ports or plants where it is not necessary. 

2. Vessels may not wait until they are north of Ulakta Head to off-load the crab 

bales. 

3. Processors may attempt to gain new boats in their fleets by offering a Unorecycle" option and solving the waste problem in some other manner. 

3-7 
4. The flmemory" of crabshell might cause the bales to spring apart. One processor, attempting to reduce dumping costs (charged on a volume basis in the 

U.S.) reported that straps around the bales did not work, as the crabshell between the straps tended to spring free. 

5. Limited deck space would not permit simultaneous off-loading of live crab 

and loading of crab waste. Further, there would be a one-vessel lag between 

arrival of live crab and departure of wastes. Thus, a processor would need 

a storage area sufficient to hold processing wastes from at least two vessels. 

6. Crab wastes on the docks and the deck can be extremely slippery as well as 

difficult to remove. Waxed cartons would probably be necessary to contain 

the wastes. 

7. If there is a significant delay between vessel departuress the plant would need 

an alternative system to avoid the inevitable odor problems. 

3-8 
4.0 Examination of Utilization Alternatives 

The analytical efforts in this study focused primarily on crab waste utilization methods 

that might serve as alternatives to barging and deep-water disposal. The reason for 

, " this 'is-that tug and bargeoperaHons have fairly limited economies of scale. They are 

expensive whether waste loads are large or small. Thus, utilization techniques that merely 

reduce waste loads do not address the primary problem, how to avoid the burden of tug 

and barge operations. 

The discussion in this chapter does consider, however, each of the utilization alternatives 

that came to light during the course of the investigation. Methods of utilizing combined 

tissue and shell wastes are considered first. Then, alternative uses of tissue waste are 

considered separately from uses of shell wastes. 

4.1 Combined tissue and shell waste utilization - "fish meal" 

Fish meal is a generic term useful in casual conversation. However, if market demand, 

product availability, and meal prices are to be considered, the terminology of fish meal 

becomes specific and technical. 

Commodity brokers and feed mills determine prices based on units of protein. A unit 

of protein is I % of a ton (20 Ibs.). How much is paid for a protein unit depends on whether 

the meal is made from herring, bottomfish, tuna, shrimp, crab, or some combination 

of these or other marine species. In turn, these reflect the efficiencies of transportation 

and handling of protein versus non-protein fractions of the meal. (See Figure 4.1) As 

one broker commented, "If you can provide us with a fish meal that runs over 60% protein, 

we can find a home for it." However, he also noted that since the decline in the availability 

of Peruvian anchovy meal, the protein balance in meals has been achieved with methionine 

and lysine supplements. This has caused a general reduction of interest in fish meals. 

The apparent premium of fish meals is herring. Highly prized historically for its nutritive 

values, the price is still supported in some areas by a requirement that herring meal 

be a specific (ltforced") portion of some feed blends.' At up to $6.50 a protein unit and 

'Nith 70% protein content, British Columbian herring meal has recently sold as high as 

$455 a ton. 

Herring was the premium fish meal when vlhole herring from a reduction fishery (available a!mosr year-round) '"vere used. Presently, the meal is made from carcasses after 

brining or freezing has been used to IIpOp" the roe out. 

4-1 
Menhadden (60% protein) and salmon (60-62%) have been selling in a $330-350 range. 

With fewer protein units (36-42%), shrimp meal sells at $3.50-4.50 a protein unit, ar 

less than $200 per ton. 

In the hierarchy of fish meals, crab meal is the apparent bottom rung--just below shrimp 

meal. At 30-32% protein for crab meal the delivered price ($3.30-3.60 a protein unit) 

has fluctuated recently between $100-120 per ton. Sales commissions and inland transpartation typically reduce the net to seller by $15-20 per ton. Sources indicated that 

shrimp and crab meal are "not the world's best income producers." "Crab meal is a miserable market." "Fish meal is I % of the selling problem you encounter with shrimp and 

crab meal." "My customers never want to see it again. They try it once and don't come 

back." "The more we produce the more we lose on it.n "We only make it into meal to 

get rid of it.If There are several apparent reasons for these problems: 

I. Crab meal is not used in any but poultry feeds. Nor is it used in high-energy 

poultry feeds. And, where it is used, not more than 10-15% can be crab meal. 

It is not used in other feeds because of the high percentage of calcium carbonate 

and because a considerable portion of the protein (apparently over 1/2) is firmly 

bound in the shell and not readily available to monogastrics. 

2. With poultry feeds reported as no longer so dependent on calcium carbonate, 

the low value per protein unit also reflects the discount applied to the cost 

of transporting the non-protein portion of the meal. Meal users, particularly 

in poultry feeds, pay for a high-protein product that is cost-effective in terms 

of protein per ton of transported feed, transported waste, and metabolic energy 

consumed in its utilization. 

3. One feed mill complained of uncertain deliveries (reflecting Alaskan shipping 

problems), odor problems as a poultry feed, and high variation from load to 

load in the protein percentage. Soy bean, cottonseed, and meat meals are 

fairly consistent in quality, are available year-round, and are the primary feed 

constituents. While a large mill would be able to balance their feed blend 

to compensate for the protein variations, they have found the price of crab 

meal too high for the available protein-particularly when they have to cut 

it out of the bags. One feed mi II found it needed a delivered cost of $67 per 

ton to justify its use. At this price, the use is still limited to poultry feeds 

and apparently would not greatly increase demand. It would, however, establish 

4-2 
700 

Dollars 

per ton 

..j:.-

I 

I..N 

Ic.DO 

Soo 

'/00 

300 

200 

/00 

o 

Prices r extracted 

protein and crab meat meal 

are based on their protein 

levels relative to the line 

projected from other prices. 

High-volume crab was 

estimated price willing 

to be paid by bulk 

Other prices are 

spring 1978. 

gh-volum Crab 

Crab 

~ritish Columbia Herrin 

California Anchovy 

< , i':~. 

Extracted 

Protein 

"1, 

(,fj 

:.J-

::J 

(t) 

OJ 

U 

.. 

n 

(f) 

(,fj 

OJ 

(,fj 

'1 -t) 

c: (Q 

::J c: n '"1 rt (j) 

0 .j::>. 

::J . 0 

-t) 

u 

.. 

0 

rt 

(t) 

::J 

c: 

::J 

rt 

(,fj 

~~~'l,~.,:\to"''''<fl.:.,.~~.~~ .. /\.:,~:, "r'~:I041~~"'~.!o~_~~"_ ·~""'.f.Q. 1;'. l:~;;:"'fi~i~!t:;;:;lv., ~ ... 

~Q.~~::J;'ft\:<: .. (.~::.:;.,2Jj,:: 30 LfO 50 bO f." <;-7Q{~b;,~:~~~~;:'; , aD 90 '~gf.~.:\:. ;,':i'" , · ... ·;·~,.Wt·;P·rot~i·n·units per ton ·.;:'~~¢:~f··<,:V~}:· . ·)~:::;~~lf'( On~i.;protei n un it i s ~o "·,·i·"" . ,"'",~: '''''''''pounds o.c prateln) ',,~~:\~\ Jf. '''~; , : ,:r ~ , ~ 
a new market price at which existing crab meal producers would lose even 

more than at present. 

4.. Crab and shrimp meals are dusty. Employees in feed mills and reduction plants 

as well as transport workers have experienced significant allergy reactions 

("respiratory problems") to the dust.2 While meal with oil added receives $5 

more per ton, a mill that adds oil to reduce dust problems in its plant in response 

to OSHA directives reports it does not cover its cost of doing so--in spite of 

the fact that it has low-cost oil available from other meal operations. Around 

10 gallons of oi I are used per ton of crab meal and oi I costs around $1.40 per 

gallon or 20¢ a pound. The dust problems will particularly affect the economic 

feasibility of a reduction plant operating entirely on crab and/or shrimp waste, 

as is the case with Dutch Harbor. In addition to plantf transportation, and 

feed mill problems, another aspect of the dust is considered below. 

5. If crab meal, in the quantities available at Dutch Harbor, is to find a market, 

then it must be available year-round. Feed mills prefer to stabilize their blends 

as much as possible and particularly will not switch readily to a low-protein 

meal. This means that an Alaskan plant (producing intermittently over a ninemonth period) would have to "warehouse" meal or absorb a demurrage cost 

of $40 a day ($2.00 to 2.67 per ton) on container vans. In the Seattle area 

warehouses typically have not been willing to accept bagged crab meal. If 

they were to do so, they apparently would not allow it to be stored near boxes 

or cartons. For bulk storage, the problem is that grain terminals are unwilling 

to contaminate their lines or tanks with the material when the clean-up cost 

is so great in relation to the volume handled. However, the material would 

probably be bagged, since feed mills who might use some of the meal have 

said they would not use a volume sufficient to justify committing any of their 

bulk storage bins to crab meal. In short, it appears that a separate warehouse 

for Dutch Harbor crab meal would need to be built, probably in Seattle. 

At the present time, reduction plants in Kodiak, Seward, and Petersburg produce crab 

meal. For the most part, a specialized market is able to absorb the meal as it is produced. 

With Dutch Harbor's recoverable wastes at approximately 25 million pounds per year, 

the Alaskan production of crab meal would essentially triple with a Dutch Harbor reduction plant. Given the present difficulty of selling shellfish meal, it is reasonable to assume 

2 See Orford, 1976 and p. 44, Higgins, 1978 for a discussion of this problem. 

4-4 
that the price per ton would decline sharply and that the Pacific Northwest market would 

be unable to absorb the available supply. 

Even with the naive assumption that meal prices would remain the same with increased 

production, the evidence is that the cost of producing an Alaskan shellfish meal is much 

greater than the anticipated revenue. A contrary finding requires that inefficiency or 

insufficient volume of existing units be demonstrated. 

In terms of technical efficiency, the meal plants at Seward and Petersburg represent 

the best in Norwegian technology. Norwegian equipment can be found in fish meal plants 

throughout the world and on board many processing vessels.3 As to sufficiency of volume, 

one of the plants apparently does not have the volume to achieve break-even operations. 

The other plant is operating profitably with the exception of crab meal production. One 

plant reported that revenue from oil (extracted from such species as herring and salmon) 

was responsible for a significant portion of net revenue. Crab is a "dry" species and 

this source of revenue would not be available at Dutch Harbor. 

The technical efficiency of the Kodiak plant is more difficult to assess. Apparently, 

the firm, having had its share of false starts and growing pains, is fair game for the comments of outside observers. Yet, after spending over three-quarter million dollars (t 971-

72) on its first meal line and enduring some cash flow problems, the firm is now operating 

profitably (since 1976) with tailored equipment (in-house design) costing much less. In 

spite of this, there is no anticipation that crab meal operations, which are a major portion 

of Kodiak wastes, will become profitable. At present, Kodiak processors pay a service 

fee for the processing of their wastes. This fee averages $40-50 per ton of dried meal. 

This fee would increase in response to price declines resulting from increased supplies 

of Dutch Harbor crab meal. 

If technical efficiency and adequate volume are not sufficient conditions for profitable 

crab meal operations elsewhere, can the potential cost problems for Dutch Harbor be 

identified? To an extent, they can: 

I. As a process, the production of crab or shrimp meal is quite simple. After 

screening and any supplemental dewatering, the waste is dried, ground, and 

bagged or blown into container vans. Crab's low oil content does not need 

3Engineers from the two primary Norwegian manufacturers were on a Seattle! Alaska 

"four in early May. The details of the Dutch Harbor situation were reviewed with them 

and the discussion here reflects the information obtained from them as regards drying 

costs. 4-5 
the cooking or oi I extraction cycle that requires the more complex equipment 

and greater technical proficiency of making meal from herring or salmon 

wastes. Thus, the process and the equipment do not appear to be a problem. 

2. At commodity rates for fish meal of $3.85 per hundred pounds (rate applicable 

to vans containing over 30,000 pounds), a ton of product wi II cost $77 to ship 

from Dutch Harbor to Seattle. This is a least-cost estimate using Sea-Land 

containerized vans. Any other shipments would be break-bulk (bags or cartons). 

Even if dust is not a problem, there would tend to be space available on these 

carriers only in the summer, as frozen crab tends to use all available space 

on non-Sea-Land carriers during the processing season. 

3. Crab meal at ~ is 20-25% of screened crab waste. (And, when wastes are 

dewatered to this extent, it would be more accurate to refer to the product 

as crab shell meal.4) The balance is moisture that must be removed. That 

is, each ton of meal requires removal of at least three tons of water. Using 

Norwegian estimates, 1.3 pounds of steam are needed to evaporate one pound 

of water and fourteen pounds of steam can be produced from one pound of 

fuel oil. 

T a produce one ton of crab meal would require 7,800 pounds of steam produced 

by 560 pounds of fuel oil. At 48¢ per gallon, this indicates a minimum fuel 

cost per ton of crab meal of $37.86.5 One reduction plant that is on a rail 

line reports that it is able to use "slop oil" that is asphalt waste with a high 

BTU value and low cost per gallon. Apparently the only fuel available at other 

Alaskan reduction plants is diesel fuel. 

It 

'Section line wastes typically have less than 15% solids, meat line wastes will have up 

to 15-20% solids. This results from the fGct that moisture content of tissue orotein 

is 84%. end there typically is a substantial amount of cI inging water -from pro'cessing 

operatIons. 

5 Assumes 48¢ a gallon for Dutch Harbor diesel fuel (net of road taxes) and a weight of 

7.1 pounds per gallon of diesel fuel. 

4-6 
ercent of 

solids in 

material to 

be dried 

'10 I 

! 

! 

I 

35 

I 

Figure 4.2 

Fuel requirements as function of moisture content 

30 ~.--+-++-Ir---------~----- I Assumptions: 

I

II Temperature of feed: 50°F 

Diesel Fuel: 18570 B.T.U.s per pound 

Density: 7.1 pounds per gallon 

25J .--.~- .. ---.. --- To evaporate 1 pound of water: 1133 B.T.U.s200 300 '/IJO Seo bOO 

Gallons of diesel fuel required per ton of 

product dried to 90% solids at indicated rates 

of effi ci ency 
A fuel requirement similar to the Norwegian estimate can be developed with 

an alternative approach. The waste is assumed to be 22.5% solids. 

6,000 

xl ~150 

6,900,000 

18,570 

62900%000 

18,570 

7.1 = 

371.57 

7.1 

$0.48 

0.48 x 52.3 

66% 

25.12 

.66 

'-

= 

= 

= 

= 

= 

Pounds of water to be removed 

STUs needed to evaporate one pound of water starting at 350 F. 

STUs needed to evaporate 6,000 pounds of water 

STUs in one pound of diesel oil 

371.57 pounds of diesel fuel to produce 6,900,000 STUs 

pounds in one gallon of diesel fuel 

52.3 gallons of diesel fuel required to evaporate 6,000 pounds of 

water 

price (net of road taxes) of diesel fuel in Dutch Harbor, Alaska. 

$25.12 = cost of fuel to evaporate 6,000 pounds of water assuming 

100% thermal efficiency 

assumed operating efficiency of steam boiler and dryer 

$38.06 = cost of fuel under assumed operating conditions 

These figures are least-cost estimates of fuel expenditures. For planning 

purposes a thermal efficiency of 50% is considered to be a conservative estimate of obtainable performance. 

Figure 4.2 charts fuel requirements at various moisture and efficiency levels. 

Using assumed rates of solids of 10-12% for section line waste and 15-20% 

for meat Hne wastes, the percent of solids in king crab wastes at Dutch Harbor 

is estimated at 15% and tanner crab wastes is 12%. Unless there is a means 

of mechanically dewatering the waste without Jiquifying and losing the viscera 

and soft tissue, fuel costs (60% thermal efficiency) during king crab season 

would be $69 per ton of dried (90%) meal and $89 per ton of meal during tanner 

crab season. 

4.1 (a) Summary of revenue, fuel, and transportation costs for a Dutch Harbor crab meal 

plant 

If a delivered price of $120 per ton is assumed, the fish meal plant could anticipate revenue 

of approximately $100 after selling commissions (up to 5% on low-value meals) and ground 

transportation (around $15) in the Pacific Northwest area. With fuel ($77) and transportation 

4-8 
($77) costs of $154 a ton (assuming 60% king crab meal and 40% tanner crab), a Dutch 

Harbor fish meal plant producing 3,125 tons per year could anticipate an annual loss 

(before costs of operation other than fuel and transportation) of $169,000. Further, for 

every $10 decline in the market price, it should anticipate an additional loss of $31,250. 

Using the $67 per ton figure cited by one feed mill as the price at which they would use 

crab meal, an additional loss of approximately $159,000 would occur. If some of the 

Dutch Harbor production is not sold, this loss would increase. 

Thus, total potential losses, considering only fuel and transportation costs for a Dutch 

Harbor fish meal plant, are between $169,000 and $328,000 per year. If, in addition, 

least-cost estimates of labor ($300 per 20-hour operating day with a total of 5 employees), 

depreciation ($500 per operating day assuming a $1,000,000 plant),6 bagging and supplies 

($150 a day), and electricity ($50 per day) are considered, "direct operating costsll of 

$ I ,000 per operating day or $200,000 per year ($64 per ton) are incurred. 

Plant maintenance, repairs, truck expenses, and general and administrative expenses 

including manager's salary, office supplies, travel, legal and accounting, and telephone 

could be expected to add "other expenses!! of $100,000 per operating year or $32 per 

ton. 

Costs per Ton of Crab Meal 

(3,125 ton annual production) 

Fuel* 

Direct operating costs 

Other expenses 

Transportation 

$77 

64 

32 

77 

$250 

*Fuel could be less if dewatering results primarily in shell waste. 

Under the optimistic assumption that the entire Dutch Harbor production could be sold 

at $67 a ton ($50 net to seller), a meal plant would have operating losses of $200 per 

ton or $625,000 per year. 

When cost of capital considerations are included, the investment in assets (including 

6Comparable fish meal plants (requiring cooking and oil recovery) will probably cost 

significantly more than the conservative estimate here of $1 million. A depreciation 

rate of 10% is conservative, given the nature of the investment. U,,\ARIBUS--Assumpfion 

/I! 0 states: For investment purposes, the value of the inftial investment may be assumed 

to decline by 10-20% per yera.) 

4-9 
$100,000 'l'/orking capital) would require a pre-tax return of $160,000 at a pre-tax cost 

of capital of 20%7 It also is appropriate to include in this discussion the costs of collecting the wastes for processiQg. As discussed in a subsequent section on screening costs, 

this is between $400,000 and 500,000. 

When operating, capital, and screening costs are combined, the annual pre-tax cost of 

a crab meal operation starts at $1.2 million. If there are insufficient crab meal markets 

in the Pacific Northwest, this figure would rise accordingly. And, not included in the 

cost is the land rent. 

Given the uncertainties and costs of a crab meal plant, it appears that a lower-cost alternative might be to incinerate the crab wastes. The shell ash could then be barged on 

a yearly basis. Such a~ operation might require less fuel than would be involved in drying 

and transporting of crab meal and would certainly involve much less in the way of assets 

at risk. While it is considered here as an unconscionable waste of fuel and of nutrients 

that could be returned to the ocean, the economics of incineration appear better than 

the economics of crab meal. 

4.2 Physical separation of shell and protein waste 

Combined, the only apparent use of crab shell, butchering waste, and unpicked meat 

is as crab meal. The economics of that product were considered in Section 4.1. 

This section considers the possibility of separate utilization of shell and "tissue." Inherent in this technique is the requirement that there be a compatible utilization and/or 

disposal of both waste components. Since this study assumes that wastewater problems 

concerning Dutch Harbor crab wastes are a problem of shell waste rather than tissue 

waste, the primary focus will be on shell waste utilization. The utilization of tissue 

protein is considered as a possible revenue offset to the utilization and/or disposal of 

shell. However, if some form of tissue utilization does not prove to be feasible, it is 

assumed that the butchering wastes and unrecovered meat could be returned without 

adverse impact to the ocean on the west side of Amaknak Island. 

4.2(a) Crab meat meal 

As a source of protein, crab meal (30-32%) is inefficient. Not only does it require procesinherent risks in Dutch Harbor crao operations, 20% is a conservative estimate 

cost of capitol. (MARIBUS--Assumption fill states; The minimum before-tax 

return on investment that would be .equired to induce a rational firm to ma~e 

a contemplated investment in sheli waste processing is between 20-40% of the total 

capi tal investment per year.) 

4-10 
sing, drying, and transporting over 3 pounds of material to obtain I pound of protein, 

it also increases waste loads for users. A further problem is that a part (roughly estimated 

at 66%) of the protein in crab meal is "firmly-bound" in the she". This makes it unavailable to most animals although poultry can assimilate it to an extent if the crab meal 

is not more than 10-15% (depending on poultry species) of the feed. For this reason, 

crab meal is used only in poultry feeds. However, even its use in poultry feeds is limited, 

since it is not suitable for high energy feeds. And, as a source of calcium carbonate, 

it cannot compete with limestone selling at $12 a ton. 

These facts, developed in Section 4.1, raise a question of whether it would be economically feasible to physically separate the tissue protein (butchering waste and unpicked 

meat) from the waste shell, for use in a crab meat meal. 

The answer to the problem of physically separating the unpicked meat from the shell 

is one that has been sought by industry for some time. Various techniques are already 

employed. However, should a successful system be developed, its probable use would 

be in the production of human food that would yield (on a wet basis) roughly 300 times 

as much as that same material dried for a high-quality meal.8 The economic stimulus 

for separating flesh and shell already exists. The potential for its use in the production 

of a crab meat meal is trivial by comparison. 

Thus, crab meat meal probably would be composed of butchering wastes--gills and viscera. 

If the collectible (non-liquid) wastes could be obtained directly, without any clinging 

liquids or process water diluting them, they would be approximately 16.6% solid (Seagran, 

1958). A drying operation capable of 60% thermal efficiency would require 126.61 gallons 

or $60.77 of diesel at Dutch Harbor prices. When fuel costs are combined with freight 

costs of $77 to Seattle, they total $137.77. Butchering wastes have a protein content 

(dried) of approximately 48%. Thus, crab meat meal might sell (net of sales commissions 

and inland transportation) for $200 a ton.9 After fuel and freight, this would produce 

revenue of $62 per ton or $38,500. (Dutch Harbor butchering wastes would be around 

9 million pounds wet, 620 tons dry.) This amount of revenue would not cover even the 

annual depreciation charge on a fish meal plant. 

B"Crab meat sells at wholesale prices over $6 a pound. That same pound of flesh (86% 

moisture) dried as crab meat meal (78% protein) would probably sell for less than 2¢. 

9 Although containing only 50% more protein than crab meal (48% versus 32%), crab meat 

mea! would be a better quality protein, would have a broader market, and 'Nould receive 

a higher price per protein unit. 

4-11 
The discussion above assumes a crab meat meal operation under unrealistic conditions. 

Even assuming that butchering wastes do not come in contact with processing water, 

they are still immersed in the crab's body fluids. Such fluids are nearly double the volume 

of butchering wastes and would cling to the wastes. A system that kept the wastes separate frorn process water would probably keep them associated with the body fluids. 

Or, if the wastes come in contact with the processing water, they would include a significant quantity of clinging water. 

These relationships are supported by the experience of Alaskan fish meal plants. In one 

area, wastes from section lines (high in viscera relative to shell) tend to be 10-12% solids. 

However, screened wastes at Kodiak have run as little as 2-3% solids. With the shell 

removed, it appears reasonable to assume that under typical operating conditions the 

waste will have Jess than 10% solids. 

Because of the fragile nature of crab butchering wastes, using a press or centrifuge would 

apparently liquify a good part of what is available. Thus, a crab meat meal operation 

at Dutch Harbor would operate with a trivial amount of raw material or would have to 

pay at least $ J [0 for fuel per ton of meal produced. Adding freight charges of $77 per 

ton would net approximately $13 per ton on revenue of $200 per ton. At a production 

level of 620 tons per year, this would produce less than $10,000 to pay other operating 

costs. These can be conservatively estimated in the hundreds of thousands of dollars. 

A crab meat meal operation has two major deficiencies. It does not eliminate the need 

for daily barging of shell waste or provide revenue from utilization that could be used 

to offset the costs of disposal. 

4.2(b) Shell waste 

Road material 

Preliminary results of a concurrent study by Brown & Caldwell (engineering consultants 

studying dispersal techniques for Dutch Harbor's crab wastes) indicated the possibility 

that fine grinding of the waste might result in a differential settling rate between shell 

and protein wastes. This raised the possibility that shell fragments could be "scrubbed" 

of tissue protein and perhaps be used as an "oyster shell" type of road material in the 

Dutch Harbor area. It also raised the possibility that the shell waste could be stabilized 

sufficiently to permit disposal on other than a daily basis. 

Efforts by a graduate student working with the University of Washington Department 

4-12 
of Food Science and Technology attempted to confirm the relationship. Using tanner 

crab shell, he observed the di fferenfial settling rate but found that part of the protein 

was carried along with the fall ing shell. A visual examination also indicated that the 

"scrubbing" was not complete. There are two problems inherent in using crab shell mixed 

with'tissue protein for road material. First, is the overwhelming odor that will occur 

when the tissue rots. Second, when the road becomes dusty in summer, the dust will 

contain the allergenic properties of crab meal. These problems were considered to be 

sufficient reason not to pursue the idea further. Later sections, however, will consider 

alternative methods of stabilizing the shellfish waste as a means of avoiding the daily 

costs of disposal. 

Source material for chitin/chitosan 

The physical separation of shell and tissue also was considered as a possible means for 

segregating shell waste for use in the production of chitosan. Had the separation technique 

worked, however, the method probably would not have been useful. Food, Chemical 

and Research Laboratories, operators of the chitoson pilot plant located in the Seattle 

area, found that a filtration step in the chitoson production process los1 the "fInes," pieces 

of material less than 1/8" in size. Given this problem, fine grinding would not be complementary to a process involving use of crab shell in a chitin operation. 

Other aspects of the potential use of crab shell in chitin/chitosan production will be 

considered in Section 4.4. 

4.3 Chemical separation of shell and tissue protein 

4.3(a) HCI-pepsin/enzyme 

Two methods of recovering protein from butchering wastes and un picked meat involve 

enzymatic processes. The first, employing hydrochloric acid and pepsin, was developed 

by scientists at the University of Washington. It is not considered in detail here because 

there is no apparent way, short of chartering a tug and barge, to ship the acid to Alaska. 

(HCI is not Q permitted tariff item on common carriers.) It is reasonable to anticipate 

that the cost of such an operation could easily overwhelm the potential revenues. A 

further indicator of the economics of an HCI/pepsin process is that although it has been 

demonstrated to be technically feasible, firms with a greater potential than those at 

Dutch Harbor (in terms of utilizing such a process) are presently waiting to invest until 

the economics improve. 

4-13 
Another method for enzyme recovery of protein is under development at the Oregon 

State University Astoria Seafood Lab. Utilizing enzymes in the viscera of dungeness 

crab, it has a process time of approximately I hour. The technology has not been attempted 

on king or tanner crab and is apparently a proprietary process. In addition to questions 

concerning the method of concentrating the recovered protein (in light of the cost figures 

for drying developed here in Section 4.2), there is also some question as to the efficacy 

of visceral enzymes that have been leached with process water before being used in the 

protein recovery process. Since the process is proprietary and still at a developmental 

stage, no further efforts were made to evaluate the economic feasibility. 

Another important consideration in the feasibility of these two processes is the shell 

waste. Apparently, neither is capable of stabilizing the shell waste in a manner that 

would eliminate the need for daily barging. 

4.3(b) Chemical separation of tissue protein, firmly-bound protein, and 

shell (Chitin/calcium carbonate complex as residual) 

Protein extraction 

"Pollution Abatement and By-Product Recovery in Shellfish and Fisheries Processing" 

was published in June 1971 by the U.S. Environmental Protection Agency in its Water 

Pollution Control Research Series (12130 F JQ 06/7 I). The report (CRESA) was a joint 

venture of Food, Chemical and Research Laboratories (Seattle) and Engineering-Science 

of Alaska. In the report, a protein extraction process developed by the Seattle firm 

(FCRL) is discussed in some detail. The process is of particular interest here for several 

reasons: 

I. It utilizes chemical reagents, sodium hydroxide and sulphuric acid, that can 

be shipped to Dutch Harbor. (Although the process in the report uses hydrochloric acid, sulphuric acid can also be used for precipitation of the protein.) 

2. The process, by chemically treating and extracting protein from the entire 

waste load, stabilizes the shell waste. This eliminates the need to utilize or 

dispose of shell waste on a daily basis. 

3. The residual of the process is a complex of calcium carbonate and chitin. 

As such, it has a potential use in the production of chitosan. And, with the 

protein removed, its chances of being shipped economically are correspondingly greater. This is discussed in greater detail in Section 4.4. 

4-14 
Essentially, the FCRL process of protein extraction utilizes sodium hydroxide to solubilize 

the tissue proteiD in the unrecovered meat, viscera, and gills and the firmly-bound protein 

in the shell. This solution of sodium proteinate is precipitated with sulphuric acid, decanted, washed to remove solt and then (by filtration or centrifuge) concentrated to 

increase the ratio of solids to water. Finally, the material is dried. (The relative importance of the concentration step can be seen in Figure 4.2. In it, changes in fuel consumption are shown at varying levels of solids.) 

This process produces a product containing 90% protein and comparing "favorably with 

casein in total essential amino acid content. The percentages of arginine and isoleucine 

are significantly higher for the shellfish proteins while casein shows higher values for 

valine and leucine. Feeding tests have been conducted on rats using both the shrimp 

and crab waste proteins. Both show marked deficiency in sulphur-containing amino acids 

which can be corrected by supplementation with either cystine or methionine. Otherwise 

the shellfish waste proteins were found to be equal to casein in nutritional value and 

there were no toxic effects noted.1I (CRESA, 1971, p. 34) 

The above discussion glosses over a fairly sophisticated chemical process, particularly 

when put into the context of Dutch Harbor and the traditional treatment of seafood 

and seafood wastes. Further, the comparison of the nutritional value of extracted protein 

with casein raises some speculative issues. At present, casein made from milk products 

and imported primarily from such countries as Australia, can be purchased on the West 

Coast at 60¢ a pound as an industrial chemical and at 64-65¢ a pound as animal or human 

foodstuff. On the other hand, a fish meal containing 90% protein might be expected 

to sell at 35-40¢ per pound. It is a matter of speculation as to whether extracted fish 

protein would sell in the casein or in the fish meal market. 

In attempting to develop information on potential marketability, various contacts were 

made. Several of the people contacted were concerned about an issue that is fundamental 

to the economic feasibility of an extraction process in which sodium hydroxide is used 

to solubilize the protein. It was their opinion that sodium hydroxide would cause the 

racemization of the amino acids. That is, instead of continuing as optically active compounds, part of the amino acids would become optically inactive forms of the same com .. 

pounds and thus unavailable as protein for humans and single-stomached animals. The 

extent of racemization was estimated by them at 50%. 

If their assessment is correct, then it appears reasonable to believe that the extracted 

4-15 
protein (45% available) would sell for around 10¢ per pound--unless it could be sold as 

an industrial chemical with properties similar to casein. That is, capable of being used 

in glues, inks, and paper finishing. 

The issues raised above are technical and must be considered in a forum other than an 

analysis of economic feasibility. However, until they are resolved, the economic feasibility of such a process must be considered to be highly speculative. 

It is possible, however, to develop some preliminary cost figures for a protein 

extraction process at Dutch Harbor. Given that some waste might be held over 

a day,such a plant would operate between 200 and 240 days per year (90 days 

on king crab and 150 days on tanner crab) and would need (at present capacity, 

production rates and product mix) the capacity to process 400-500,000 pounds 

of wet waste per day. An operating yeor of 200 days is used here. Assuming that 

37,500 pounds of waste (dry weight) are processed in an average day will provide 

a minimum operating cost figure. Data indicates that 45% of the waste from 

king crab operations (lf3 meat, 2f3 sections) is protein and that protein recovery 

is S5%. Daily production would be 14,344 pounds of protein and 15,940 pounds 

of product. Using process requirements provided by FCRL: 

Chemicals 

!\IaOH @ 15% of protein = 21521bsfday @ 34.4¢ =$740fday 

H2

S04 49/40 x 2152 = 2636 Ibs/day@ 19.2¢ = S06/day 

Daily chemical costs = 

Labor 

3 men per 10-hour shift @ $60 ea/2 shift day = 

Heat 

Extraction: 15% slurry = 250,000 pounds 

T emcPerature rise (Fo

) = 6400 - 320 = 10SoF 

lOS x 250,000 = 27 x 10 BTU @ 48¢ per 132,203 BTU = 

DAILY 

COSTS 

$1,246 

360 

98 

Protein drying: 20% slurry 4 Ibs wGIte~/lb product @ 50% efficiency 

(15,940)(4)( 1,000) x 2 = 127.5 x 10 BTU @ 48¢ per 132,203 BTU 463 

Bagging and Suppies 

Transportation to Seattle @ 77/ton 

Sales commissions (2V:z%) 

4-16 

75 

614 

140 

$2,996 

{ 
Sold as a fish meal with 90% protein, the product has been projected (see Figure 4.1) 

to sell at approximately $700 net per ton. This would produce revenue of $5,579 per 

day and leave $2,583 per day or $516,600 per year to cover screening costs, depreciation, 

capital costs, repairs and maintenance, electricity, truck, plant manager's salary, and 

general and administrative expenses including administrative salaries, insurance, legal 

and accounting, telephone, travel, and patent fees. 

Based on a review of plant and equipment from a variety of sources, it appears doubtful 

that a plant of sufficient capacity could be built at Dutch Harbor for tess than $1 million. 

And, there are indications this figure may be considerably greater. Investment in a waste 

collection system can be expected to add roughly another $1 million. A $2,000,000 investment amortized over 10 years at a pre-tax cost of capital of 20% to reflect the minimum 

inherent risks, would require a cash flow of $477,046 per year. 10 Roughly estimated, 

the overhead items enumerated above could readily add another $100,000 in expenses. 

Still not included are the land rent or the annual cost of storing and barging the shell 

waste. Nor do the figures reflect operating contingencies, inefficiencies resulting from 

variations in product flow, and a plant that must be sized at 700% of average tanner 

wastes-due to lower daily tanner production and the lower waste levels per pound of 

tanner crab processed. 

Offset against these expenses are the foregone costs of the least expensive alternative 

method of crab waste disposal. Collection and disposal costs are discussed in Chapters 

5 and 6. 

This section has identified annual costs of $1,176,246 and annual revenues of $1,120,000 

(1,600 tons) for a Dutch Harbor protein extraction plant whose plant is sold in the fish 

meal market. These figures indicate that the economic feasibility of such a project 

will be determined by the question of whether protein extracted with sodium hydroxide 

can be sold at casein prices. 

If racemization has significantly reduced the available protein, it should be anticipated 

that total revenue in the fish meal market will be around $325,000. This is $800,000 

less than a conservative estimate of expenses and the alternative appears infeasible. 

If racemization has not altered the efficiency rating of the extracted protein, then two 

outcomes are possible. Sold in the fish meal market (see figures developed above), the 

1O'\~ARi3US--Assumption 11 10 uses 5 to 10 year amortization periods and Assumption 

If: II uses cost of capital of 20-40% as appropriate for this type of investment. 

4-17 
economic feasibility of the project is not demonstrated but may become an acceptable 

disposal alternative depending on the foregone costs of alternative disposal methods. 

Sold in the casein market, however, the protein could bring $1.9 to 2.0 million in revenues 

against preliminary expense estimates of $1.2 million. These possibilities warrant study 

of the protein efficiency ratings of the extracted protein, the technical feasibility and 

costs of the process under operating conditions, and the future availability of raw material. 

Such a study might also resolve a problem identified in this effort. For an investor concerned with evaluating economic feasibility, there is a troubling question regarding protein 

extraction processes. This is the fact that most available information has come from 

their developers. To date, there is no evidence of an independent review of the technical 

and/or operational aspects of the processes. Until such review is undertaken, an invest· 

ment based on available information cannot be considered as prudent. 

Shellwastes 

One of the benefits of a protein extraction process that removes tissue protein attached 

to the shell as well as the protein contained in the shelf is tha1 the shell waste is essentially stabilized. For purposes of chitin recovery, it can be kept moist for three months 

without a reduction in the quality of the chitin recovered (see Section 4.3). Further, 

the shell apparently could be stockpiled without developing an offensive odor. In the 

absence of a market for the shell, this would permit the processors to avoid the cost 

of daily barging of shell wastes. Instead, the shell waste could be barged in a one or 

two week operation at the end, of the processing season-when the cost might be consid. 

erably less than during the winter months. 

Another conceivable use of the chitin/calcium carbonate residual would be as road material. 

While the absence of protein reduces the allergenic danger that is apparently present 

in ground crab wastes, the general dustiness of the product might sti II make it undesirable. 

Another factor that could be a problem in wet or dry weather is that crabshell is known 

to be fairly abrasive. While apparently not abrasive enough to have industrial potential 

(Mendenhall, 1971), there is the potential for damage to the moving parts of wheeled 

vehicles and other exposed machinery in the Dutch Harbor area. 

4.4 Alaskan crab shell as a chitin source 

In the previous section, the nature of the problem and the scarcity of definitive data 

require that rough approximations be used to estimate the amount of tissue protein and 

firmly-bound protein in crab waste. If present, the errors in such estimates would affect 

4-18 
primarily the economies of scale. That is, if the protein content is lower than estimated, 

the primary factor impacted would be the extent of investment in plant and equipment 

(materials handling) relative to the volume of salable product. In terms of total operating 

costs used in a preliminary examination of economic feasibility, such errors can be tolerated. 

In considering the economics of crab waste as a source of chitin, however, accurate estimates of waste composition are essential to the analysis of economic feasibility. Since 

chitosan production requires low-cost hydrochloric acid (CRESA, 1971 & MARl BUS) not 

available in Alaska, Alaskan shell would need to be dried and shipped to a processing 

center. For purposes of this analysis, such a center is assumed to be in the Continental 

United States. 

The impact of transportation and drying costs on the cost per pound of available chitin 

can be seen in the following chart. I t assumes drying cost of $100 per ton and transportation costs to Seattle of $77 per ton. (The cost of evaporating a ton of water is less than 

the cost of shipping it to Seattle.) 

Chitin as % of 

dry raw material 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 

Cost per pound F .O.B. 

Seattle of chitin available for processing 

into chitosan $1.77 89¢ 59¢ 49¢ 35¢ 30¢ 25¢ 22¢ 20¢ 18¢ 

The range of 5-50% in the above table is not arbitrary. It reflects the divergence of 

available opinion as to the chitin content of the chitin/ash residual that might result 

from a protein extraction process on king crab waste. (See Seagran, 1958, p. 18, and 

Seattle Times Magazine, April 30, 1978, page 8.) If the generous assumption is made 

that other forms of crab waste can be dewatered to 75% moisture before drying, the 

table can also be used to find the F.O.B. Seattle cost of chitin in any form of dried crab 

waste from Dutch Harbor, so long as the percent of chitin in the mixture is known. 

When combined with estimates of process costs and product prices developed in the 

1\t\ARI8US study, data suggest that even if the more optimistic estimates of chitin content 

(15-20% in crab meal) are correct, Alaskan crab wastes might be economic as a chitin 

source only in the form of deproteinized shell. (See Tables 3.10 t03.13 and Figure 3.3, 

MARl BUS.) Since deproteinization is an optional step in chitosan recovery (so that deproteinized shell has no significant advantage over other forms of shell waste), it appears 

4-19 
that Alaskan crab shell will not be used in the production of chitosan unless the protein 

extraction process is economically feasible on its own merits. 

Low chitin content in crab waste affects the eventual cost of the processed chitosan 

in two ways. First as indicated in the discussion above, it can raise the cost of the raw 

material alone to the level of selling prices for some of the applications of the finished 

product. (See MARl BUS, pages viii-ix.) Second, since a low chitin content means a high 

calcium carbonate content, the cost of demineralization with hydrochloric acid, a major 

expense in the chitosan process, is correspondingly higher. 

There is another problem with the use of deproteinized shell from Alaska as a source 

of chitin. Industrial firms who have evaluated the economic feasibility of chitosan production have indicated that protein recovery is considered to be an important aspect of 

the material balance (of chemicals) and a significant portion of anticipated revenues 

from a shell-utilization operation. Thus, even if deproteinized shell could be provided 

at no cost, there is no assurance there would be any chitosan producers interested in 

it. 

This problem with deproteinized shell is particularly true of Alaskan shell. Compared 

with most other sources available to a firm that may decide to venture into the production of chitosan, Alaskan crab shell has a higher mineral and a lower chitin content. 

As such, it is a high cost source of chitin that probably will not be "mined" until the lowercost supplies are utilized. Nor will it be mined until some definitive data is developed 

on the chitin, protein, and moisture content of various portions of crab waste. Without 

such information, investment in a chitosan operation based on Alaskan crab waste would 

be imprudent. 

4-20 
5.0 Systems for Collection of Shellfish Waste 

The previous chapter considered the utilization of crab waste as an alternative to the 

present system of grinding and pumping of seafood wastes at Dutch Harbor. This chapter 

will consider alternative systems for the collection of the recoverable waste material. 

The economics of collecting shellfish wastes at Dutch Harbor ultimately are dependent 

on the economics of utilization and disposal. If the preceding chapter had identified 

a potential use for shellfish waste capable of profitable operation on a small scale, then 

it would be appropriate for each seafood processing firm to consider collecting their 

own wastes and to individually exploit such an opportunity. Aside from capital requirements, their ability to do so would depend primarily on the availability of land. 

Since most Dutch Harbor firms are already constrained by limited land available for 

crab processing operations, it is reasonable to assume they would have to be presented 

with an equally attractive opportunity before they would use land for waste processing. 

Such utilization could mean the forfeiting of an ability to expand in a firm's primary 

area of operations, seafood processing. And, with the possibility increasing that the 

next decade may see the development of bottomfish operations in the Dutch Harbor 

area, expansion considerations are particularly significant. 

The analysis in Chapter 4 of utilization alternatives for Dutch Harbor wastes indicated 

that if economic opportunities for such wastes do exist, the economies of scale dictate 

that the waste be processed on a combined basis. Chapter 6 finds that the economics 

of disposal also favor a community system. 

5.1 A community system for dewatering processing wastes 

This section will consider the possibility that processing firms at Dutch Harbor might 

pump their wastes to a common location. For the most part, they already have the necessary equipment in their present discharge systems. With the exception of Pacific Pearl 

on Captain's Bay, NEFCO, and Sea-Alaska, the firms are located close enough to one 

another that there might be the opportunity for a joint venture. Whether NEFCO and 

Sea-Alaska would find it economic to participate in the venture would depend on the 

cost of turning their pipes and extending them toward a common location. 

Feasibility of a joint venture will ultimately depend on the availability of land. Most 

potential sites apparently are owned by a single Native American organization. Under 

federal law, the land can only be leased, not sold. And, without information available 

5-1 
of land leases occurring, there is not a market price to include in this analysis. The 

possibility of one processing firm giving up some of its land also exists, but again, the 

market price of the land is a matter of speculation as to how individual firms might deal 

with their competitors. 

If land is available, the advantages of a community system are in the economies of scale 

that can be achieved with a single operation. While there is little reason to believe that 

the total number of screens could be significantly reduced, savings in building costs, 

hoppers, conveyors, loading areas, and labor could be substantial. 

If a 6 ft. tangential screen is able to clean approximately 600 gallons of waste water 

per minute, then a firm using up to 1.5 million gallons per 20-hour processing day will 

apparently need two screens. Each screen sells for less than $10,000. However, capital 

costs for screen installation developed in an analysis of Phase II Wastewater Guidelines 

for Alaskan processing plants, found that installation costs for equipment capable of 

screening 400 to 800 gallons per minute sti II had significant economies of scale. That 

is, total costs of screening 800 gallons were approximately only 50% greater than screening 400 gallons. Whi Ie it was obvious from the data that economies of scale were being 

lost with increasing size, it did not appear from extrapolating the data that they would 

disappear while the flow rates were below 5,000 gallons per minute. (Appendix to Petitioner'S Brief, Figure 4, p. A31 5.) 

The analysis of Alaskan screening costs (updating EPA's 1971 estimates with 1975 prices) 

found that a screen installation for 600 gallons per minute can be expected to cost around 

$100,000. In the same graph (Figure 4 cited above), there was also a revision of the EPA 

figures to reflect (I) engineering assumptions based on some.of the particular needs and 

observed practices of Alaska as well as (2) revised shipping costs and (3) a 1.5 factor 

on Alaskan construction rates. When these factors were included, the price went to 

$140,000. With a 2.5 factor, the price goes to $220,000. While there has been insufficient 

time for this study to determine the applicability to Dutch Harbor of these prior estimates 

of Alaskan screen costs, the figures do indicate the general magnitude of the dollars 

involved. 

Even assuming that individual firms operating in Dutch Harbor combined the waste flows 

from their various plants for purposes of screening (rather than each plant of each firm 

individually screening its wastes), it appears likely that the cost of constructing screening 

operations (at seven Dutch Harbor operations) could cost $1 million. However, if a system 

5-2 
could be designed that would assure individual firms that their ability to process would 

not be endangered by "breakdowns" at a community waste collection site, it might be 

capable of significant savings in capitol, land rent, and operating expenses. Although 

the overall history of community water, electricity, and sewage systems indicates the 

general feasibility of cooperative efforts, this study does recognize the perceived risk 

to individual firms of relying on systems beyond their control--particularly when outfall 

lines carrying crab waste plug so readily. However, an engineering study of the potential 

savings and risks of a community system does appear to be warranted. If such a study 

found the availability of land is not the problem assumed in this report, then, rather 

than screening, a "settling tonk" approach to waste recovery (as used in municipal wastewater systems) might be feasible. 

5.2 Individual-firm dewatering of processing wastes 

If firms individually dewater their own processing wastes, then they will install and operate equipment tailored to their particular problems and needs. And, such problems and 

needs will vary considerably among the firms. 

The primary design and cost determinants of screening systems will apparently depend 

on whether recovered wastes are transported to a common site on the island for utilization or disposal, or are disposed of by being barged from the individual plants. In turn, 

the feasibility and cost of barging from individual plants will depend on whether each 

plant has its own barge or it is possible to bring a community barge alongside on a regular 

basis. As noted in the previous section, the availability of a community site, whether 

it is for a utilization plant or as a collection point for waste that would be barged and 

dumped, will be a primary determinant of the economic feasibility of the alternatives 

discussed here. However, even if land could be obtained for a community collection 

site, the inability to obtain the use of a dock, at which the waste could be put onto a 

barge, could force the use of individual barges. In this event, until a community dock 

is built, some firms would have to radically change their operating procedures. Given 

the wide variations in the size of processor docks, the impact could significantly alter 

the competitive position of Dutch Harbor processors. 

For the individual firm, the impact on screening costs of the above factors will be on 

whether the firm is able to flow wastes through the plant and "out the back door" (perhaps using available space on shore) or whether it must use limited dock area for barges, 

hoppers and/or conveyors. Without an engineering study specific to each firm, it is not 

possible to know the Dutch Harbor costs of a screening system that would barge wastes 

directly from each plant. 

5-3 

6.0 Tug and Barge Disposal 

This chapter assumes that if ocean dumping is used for waste disposal, only one tug will 

be necessary to serve all processors. The reason will become apparent when the costs 

of operating a tug are considered. It also is assumed that it will be necessary to cover 

the barge. Good sanitation practices require that seafood wastes be covered outdoors. 

The alternative would probably be the creation of a public nuisance in the form of birds, 

flies, and rodents. 

6.1 Dump scows 

There are some problems inherent in the "barging" of Dutch Harbor's seafood wastes. 

The first problem is that a barge with built-up sides would be a continuing source of 

viscera and rice meat leaking onto the surface waters of lliuliuk Harbor. Second, wind 

and swell conditions would make it difficult to unload at sea. 

Thus, because of their ability to retain wet wastes and to self-empty, this study assumes 

that dump scows will be the "barging" component of screening and barging. And, because 

of the requirement that seafood wastes be covered1 a pocket scow with sliding doors 

would be used rather than a split or scissors barge (in which the holding bins open like 

clamshell scoops) that would need to be uncovered at sea before dumping. 

6.1 (a) A community dump scow operating from a community dock 

One of the primary needs of a community scow operation is regular access to a dock 

that itself has access to hoppers and/or conveyors used in the storage and transport of 

processing wastes. Since Amaknak Island does not have a public dock (although it is 

reported that one is planned at the present site of the Theresa Lee, NEFCO's leased 

operating site) the resolution of this problem will be a matter of negotiation between 

those who have such resources and those who need them. In the absence of available 

market prices, it is a matter of speculation as to what the cost of dock privileges might 

be. Another problem of a community scow picking up waste from a common collection 

point is that, until a bridge is built from Unalaska Island to Amaknak Island, Pacific Pearl 

(Captain's Bay) and Pan Alaska {Unalaska} would need to arrange for separate pickup 

on Unalaska Island. 

The greatest waste volume at Dutch Harbor would be during king crab season. At these 

times, recoverable wastes could run as high as 640,000 pounds (380 yards) per day. Although clinging water could increase this figure significantly, a SOO-yard scow should 

6-1 
be sufficient for average wastes (before clinging water) of 220 yards per day. Further, 

the tug and barge could readily make more than one trip per day and the processors would 

themselves plan excess hopper capacity to store waste between pickups and for contingencies. (See Section 6.4 for a discussion of possible "contingencies.") 

New, a SOO-yard scow could be built for perhaps $750,000. Or, if available, one could 

be leased (insured) for around $8,000 a month including the time to haul it to Alaska 

and return. Such a scow could be dumped by radio controls from the tug, although tug 

operators indicated this was not necessary even for Dutch Harbor operations. 

Owners of dump scows in the Seattle area indicated that if arrangements are made in 

time, it might be possible to lease a SOO-yard dump scow for the 1978 processing season. 

However, most of the equipment is committed to on-going and/or construction projects. 

Availability during any given year is not assured. 

6.1 (b) A community scow operating from processor docks 

If, instead of operating from a community dock, the scow picks up wastes from the docks 

of the individual processors, the problems and costs of creating a community dock might 

be avoided. However, for the processors it would mean that a "flow-through" of wastes 

would not be possible and that wastes would have to be conveyed and/or stored in the 

dock area. The cost of this as well as the logistical problems of scheduling dump scows 

and crabbers for the same dock space, are the proper domain of an engineering study. 

From the information available to this report, it appears that a disposal operation collecting wastes from processors' docks would be a significant logistical burden for several 

of the processors. 

6.2 Tugs 

The size (and cost) of a tug would depend on the size of the dump scow that must be 

horsed around the harbor and towed at sea. Assuming that a SOO-yard scow is used, a 

tug could be leased for between $1,500 and $3,000 per day. The primary difference in 

these costs is in whether a union or non-union crew is used. The low bid, however, also 

reflects a tiJg that would be avaiiabie only 8 hours per day, 7 days a week. In all cases, 

the crew would live on the tug. If dock space were not available, the vessel and barge 

could tie up at a buoy dropped in the bay. (Permission for a buoy must be obtained from 

the District Engineers.) For around $2,000 per day, a tug would be on call 24 hours per 

day, 7 days a week. The tug would take about II days to get to Dutch Harbor and could 

tow the barge. 

6-2 
The 1978 king crab season will open September 10 and probably will operate until early 

December. After a two- to three-week break, processing of tanner crab wi II begin in 

early January and continue until late Mayor early June. Assuming travel time up and 

back of 22 days for the tug and barge, the leased period would be approximately 284 

days. At $2,000 per day {24-hour operations will maximize the opportunity to take advantage of breaks in the weather} the tug cost would be $568,000. 

6.3 Costs of tug and barge disposal 

With tug expenses of $568,000 and scow expenses of $76,000, the costs of barging crab 

wastes from Dutch Harbor can be estimated at a minimum of $643,000. If more than 

one barge or a larger barge is necessary, the costs would rise. However, there is no 

apparent reason to believe that a reduction in the waste load (such as through utilization) 

would appreciably reduce the tug and barge costs. That is, the estimated rates are not 

sensitive on the down side to waste loads. One factor that might reduce barging costs 

is a shorter season due to increases in the crab fleet working against a quota. However, 

shorter seasons are more likely for king crab than for tanner crab, where both bairdi 

and opilio are now being harvested. 

6.4 The safety valve concept 

The need for a "safety valve" becomes apparent when the nature of the tug and barge 

contract is considered. It is not a performance contract. Rather, it is a contract to 

perform when the weather permits. And, the person who legally decides when the weather 

permits, is the master of the tug. 

At the beginning of this study, informed opinion was that no one would be fool enough 

to commit their lives and equipment to the risk of a barging operation in the Dutch Harbor 

area.' Such opinions miss the point. When men and equipment are reimbursed whether 

they work or not, and whether they work is their own decision, then the risk of bad weather 

is primarily on the person requiring performance. The master of the tug bears another 

risk, the risk of being penalized for operating under conditions when he should have stayed 

"in port." The two risks are not offsetting. Indeed, the severity of penalty to the master 

tends to increase the risk to the processors of non-performance. It is this dilemma that 

underlies the safety valve concept. 

Weather in the Dutch Harbor area could make tug and barge operations inoperable for 

The power of Dutch Harbor'S winds and "williwaws" are aptly described (page 19) in 

"The Thousand-Mile War ••. World War I r in Alaska and the Aleutians." 

6-3 
several days at a time. The passage out of the north end of Iliuliuk Harbor is very narrow 

("a stone's throw") and would pose particular hazards in bad weather. And, sources indicate 

the new bridge would probably preclude exiting to the south. 

Winds in that general area of the Aleutians are over 28 knots 19% of the time in November 

and February, with waves over 20 feet 20% of the time in February and over 8 feet 40-

50% of the time in October. (U.S. Navy ••• Climate Atlas) It appears that contingency 

planning at the least would require enough storage or barge capacity to hold five days 

of processing waste. Whether to opt for a large scow ($1,500,000 for 4,000 pound capacity) 

or a series of smaller ones is a problem in balancing the costs and risks of docking and 

towing a large scow against the greater flexibility but higher costs per yard of capacity 

of a fleet of smaller scows or on-shore storage containers. 

In either case, the problem is that even a five-day capacity might not prevent the closing 

of processing operations under extreme weather conditions at Dutch Harbor. 

Given the cost of the excess waste capacity necessary to prevent operating shutdowns 

due to weather, it becomes apparent that a "safety valve" other than excess capacity 

is necessary and reasonable. The safety valve concept assumes that only one scow would 

be used in a Dutch Harbor disposal operation. The ultimate size of the scow would be 

a function of weather and wave conditions balanced against operating characteristics, 

dock capacities, risks to docks, and maritime regulations for tug and barge operations. 

However, once this balance is obtained, should weather conditions prevent ocean operations, processors would be permitted (after scow and reserve capacity is filled) to grind 

and pump their wastes {rather than ceasing operations} until the weather again permits 

ocean disposal. The safety valve concept assumes that grinding and pumping of crab 

wastes during periods when tug and barge operations are not possible would not produce 

waste loads great enough to prevent the achievement of environmental objectives. 

Given the problem of equipment availability discussed earlier, contingency planning may 

dictate that a community scow be purchased. While this will require a significant capital 

outlay, a dump scow is multiple-purpose equipment. Thus, if at some time in the future 

it becomes feasible to utilize rather than dump seafood waste, there will probably be 

a resale market for the scow. 

The limited availability of scows, however, poses a problem greater than the cost of 

purchase. Nor can it be solved by insuring the craft. The problem is that if the dump 

6-4 
\ 

r 

scow is lost, it is doubtful that another could be obtained during the same processing 

season. Even if "business-interruption" insurance could be obtained at a reasonable price, 

it would not compensate processing employees or indemnify the fishing fleet against 

losses that would be much greater than a seaon's net revenue for processors. Faced with 

this situation, again it appears that the safety valve of a grind and pump operation would 

be appropriate. 

6-5 

BIBLIOGRAPHY 

Agreement for All Alaska Between Northwest Towboat Association and International 

Organization of Masters, Mates and Pilots, Branch No.6 and Inlandboatmen's Union of 

the Pacific. 1977-1980. 

Alaska Sea Grant Program. 1977. The Bering Sea Tanner Crab Resource: U.S. Production 

Capacity and Marketing. Alaska Sea Grant Report No. 77-5. 

Anderson, P.J. and F.G. Gaffney. 1977. "Shrimp of the Gulf of Alaska." Alaska Seas 

and Coasts 5:3. University of Alaska. 

Appendix to Petitioner's Brief, On Petition for Review of Action of the Administrator 

of the Environmental Protection Agency. Association of Pacific Fisheries, et 01. vs. 

Environmental Protection Agency. United States Court of Appeals for the Ninth Circuit. 

No. 75-2007. 

Area-Shellfish Monthly Report. 1976, 1977. State of Alaska Deportment of Fish and 

Game. 

Burchard, Boyd. 1973. "Crabs may yet give us their all." SeaUle Times, 12 December:G2. 

City of Unalaska and State of Alaska, Division of Economic Enterprise. 1975. Una laska ••• 

An Alaskan Community Profile. 

CRESA, under contract to The Environmental Protection Agency. 1971. Pollution Abatement and By-Product Recovery in Shellfish and Fisheries Processing. Water Pollution 

Control Research Series. No. 12130 F JQ 06/71. 86 p. 

Cumulative Shellfish Catch Report. Preliminary Data 1977, 1978. State of Alaska, Department of Fish and Game. 

Dassow, John A. 1950. Freezing and Conning King Crab. U.S. Fish and Wildlife Service, 

Fishery Leaflet 374. 

Effluent Guidelines Division. 1974. Office of Water and Hazardous Materials. U.S. 

Environmental Protection Agency. Development Document for Effluent Limitations 

Guidelines and Standards of Performance for the Catfish, Crab, ShrimpCand Tuna Segments 

of the Conned and Preserved Seafood Processing Industry Point Source ategor>',. EPA44071-74-0200. U.S. Government Printing Office, Washington, D.C. 389 p. . 

Environmental Protection Agency: Office of Enforcement. 1974. Evaluation of Waste 

Disposal Practices of Alaska Seafood Processors. Notional Field Investigations Center. 

EPA-330!2-75-001, Denver, Colorado. 335 p. 

"Forecast of Some Alaska Salmon Returns." 1978. Pacific Fisheries Review. The Fishermen's News 34:2,19-30. 

GClrfield, Brian. 1969. The Thousand-Mile War ..• World "Var ! ! in Alaska and the Aleutians. 

Doubleday & Co., Inc., New York. 351 p. . 

Goodwin, R.F. 1974. Washington Sea Grant: The First Five Years ••. An Evaluation 

of Selected Projects. Division of Marine Resources, University of Washington. WSGPM 74-1. 31 p. 

B-1 
Hattis, D. and A.E. Murray. 1977. Industrial Prospects for Chitin and Protein from Shellfish 

Wastes ... A Report on the First Marine Industries Business Strategy Program Marine . 

Industry Advisory Service. Massachusetts Institute of Technology Sea Grant Program. 

Report No. MITSG Tl-3. 99 p. 

Higgins, John. 1978. The North Pacific Deckhand's and Alaska Cannery Worker's Handbook. 

Albacore Press, Eastsound, Washington. 

Institute of Business, Economic and Government Research, University of Alaska. Review 

of Business and Economic Conditions. November 1975. 8 p. 

Johnson, E.L. and Q.P. Peniston. 1971. Pollution Abatement and By-Product Recovery 

in the Shellfish Industry. National Symposium on Food Processing Wastes, Denver, Colorado. 

March 23-26,1971. P.51-73. 

Jones, W.G. 1975. "The Marketing Crunch." Alaska Seas and Coasts 3: I. University 

of Afaska. 

Kama, Duane W. 1978. Investigations of Seven Disposal Locations Used by Seafood 

Processors at Dutch Harbor Alaska •.. October 1976 Se tember 1977. Environmental 

Protection Agency Surve.illance and Analysis Division. eattle, Washington, Region X. 

Working Paper No. EPA 910-8-78-101. 

Katzenstein, Dorothea. 1978. "Big Japanese Demand for Herring Roe is Reviving Canadian 

Fishmeal Business." The Wall Street Journal, 24 March: 14. 

Kreag, Rand F.J. Smith. 1973. Seafood Solid Waste in Oregon: Disposal or Recovery? 

Oregon State University Extension. Marine Advisory Program. Special Report 395. 

21 p. 

Krenmayr, Janice. 1978. "'Second life' for waste seashells?" Seattle Times Magazine, 

30 May:8, 9. 

Leudicke, A.H., B. Hendrickson, and G.M. Pigott. 1977. A Method for the Concentration 

of Proteinaceous Solutions by Submerged Combustion. WSG MR 77-5. University of 

Washington, Institute for Food Science and Technology, College of Fisheries. 17 p. 

MARIBUS, see Hattis, D. and A.E. Murray. 

Mendenhall, Vivian. 1971. Utilization and Disposal of Crab and Shrimp Wastes. University of Alaska Sea Grant. Marine Advisory Bulletin No.2. 40 p. . 

MIT/Marine Industry Collegium. 1976. Chitin and Chitin Derivatives ••. Opportunity 

Brief No.1. Marine Industry Advisory Service. Massachusetts Institute of Technology 

Sea Grant Program. Report No. MITSG 76-5. 21 p. 

National Marine Fisheries Service. 1978. Final Supplement to the Final Environmental 

Impact Statement/Preliminary Fishery Management Plan King and Tanner Crab Fisheries 

of the Eastern Bering Sea. Alaska. 8 p. 

National Marine Fisheries Service. 1976. Preliminary Fishery Management Plan for 

King and Tanner Crabs of the Eastern Bering Sea. Northwest Fisheries Center, Seattle, 

Washington. 41 p. 

North Pacific Fishery Management Council. 1976. Fishery Management Plan for Alaska 

Shrimp. Alaska. 93 p. 

B-2 
I 

I 

I 

l 

North Pacific Fishery Management Council. 1976. Fishery Management Plan for King 

Crab. Alaska. 131 p. 

Oceanographic Commission of Washington. 1973. "Pi lot plant could develop into new 

industry for converting waste shells into chitin and chitosan." Pacific Northwest Sea 

6:1. 

Orford, Robert R. 1976. Epidemiological and Immunological Studies in Workers Exposed 

to King Crab. Master Public Health Thesis. Seattle, Washington: University of Washington. 54 p. 

Pariser, E.R. and S. Bock. 1972. Chitin and Chitin Derivatives •.• An Annotated Bibliography of Selected Publications from 1965 through 1971. Sea Grant Project Office, Massachusetts Institute of Technology. Report No. MITSG 73-2. 

Pigott, G.M., G.O. Bucove, and J.G. Ostrander. 1976. Engineering a Plant forEnzymatic 

Production of Su lemental Fish Proteins. University of Washington, Division of Marine 

esources. - A 76-9. 29 p. 

Port of Seattle. 1978. "Outbound Sailing Schedule}' Tradelines. 

Powell, G.C. and R.B. Nickerson. 1965. Meat Content of King Crabs (Paralithodes camtschatica, Tilesius) From Kadiak Island, Alaska. State of Alaska Department of Fish and 

Game Informational Leaflet 46. 

Seagran, Harry L. 1958. "Contribution to the Chemistry of the King Crab (Paralithodes 

camtschatica)." Commercial Fisheries Review 20( 1 I): 15-22. 

State of Alaska. Dept. of Environmental Conservation. 1978. Alaska's Draft Water 

Quality Standards, Title 18. Chapter 70. 42 p. 

State of Alaska. Dept. of Environmental Conservation. 1978. Public Notice of Proposed 

Changes in the Regulations of the Alaska Department of Environmental Conservation. 

Stewart, R.K. and D.R. Tangarone. 1977. Water Quality Investigation Related to Seafood 

Processin Wastewater Dischar es at Dutch Harbor Alaska ••• October 1975 October 

1976. nvironmental Protection Agency Surveillance and Analysis Division, Seattle, 

Washington, Region X. Working Paper No. EPA-91 0-8-77-1 00. 

Texas A&M University. 1977. "The Continuing Promise of Chitin." Sea Grant 70's, 7( 15):4,5. 

"U.S. Bering Sea Crab Catches Rise." 1978. Pacific Fisheries Review. The Fishermen's 

News 34:2, 87-91. 

U.S. Navy Marine Climate Atlas of the World. 1977. Vol. 2. North Pacific Ocean. Naval 

Oceanography and Meteorology. 

vanHaagen, R., ed. 1972. Total Utilization Concept .•. Fish and Shellfish Processing 

'Hestes. Report of a Workshop. Seattle, Washington, April 18, 1972. WSG-WO 72-'. 

p. 

"Where Crab Is King." 1965. Pacific Fisherman Maga:?:ine 63:7. Miller Freeman Publications. 

B-3 
f 
( (~ 

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

WASHINGTON, D.C. 20460 

MAR 3 1 1981 

Mr. Charles Blumenfeld 

Bogle and Gates 

The Bank of California Center 

Seattle, WA 98164 

Dear Mr. Blumenfeld: 

The following technical information is being supplied to you as 

requested in your letter of February 17, 1981. This information and 

letter will be available for inspection and copying at the EPA Public 

Information Reference Unit, Washington, D.C., EPA Region X, and EPA 

Alaska Operations Office. 

You requested that we send you, or make available to you, the following: 

1. The updated study: Market Feasibility Study of Seafood Waste 

Reduction in Alaska, November, 1980. 

A copy of this study is enclosed for your use. This document 

was apparently separated from the record in the Seattle 

Library, and another copy is being forwarded for public review. 

2. The basi s for the statement on page 2549 that" •.• the Agency feels that suitable long term contractual arrangements ean be 

agreed upon between processors and competitors who operate [reduction] facilities." 

The basis for this statement is explained in the last two 

paragraphs of page 2549 of the Federal Register. As 

indicated in the notice, reduction fad 1 ity operations depend 

on a supply of seafood waste to produce saleable by-products. Since petitioners generate the type of waste material needed 

by reduction facilities, there will be an economic incentive 

for any competitors that may operate reduction facilities to 

contract for the delivery of petitioners' wastes. Therefore, 

it follows that competitors would benefit from making contracts with petitioners for raw material. EPA has not 

suggested specific contractual provisions for use by peti- tioners and reduction facility operators. The Agency feels 

APPENDIX C-l 
( ( 

that these details are more appropriately resolved by the 

parties. In areas where no reduction facility exists, if 

interested processors cannot reach an agreement on facility operation, an independent organization can be established, 

such as already exists in Kodiak, and raw material supply and 

financial support can be contractually arranged through the 

independent entity. 

3. The names of five Anchorage processors referred to on page 2550; the volume of waste they haul from Anchorage to Seward; 

and the number of trips per week they make. 

The Agency cannot disclose the names of the five Anchorage 

processors at this time because there may be claims of confidentiality pertaining to the information. However, if this 

information is important to your analysiS the Agency will 

determine if the companies consider the information confidential and, in accordance with the procedures in 40 CFR 

Part 2, determine if the information is entitled to confidential protections under EPA's statutes. Please get back 

in touch with us if you would like us to take these steps. 

The Agency did not determine the volume of waste hauled or the 

number of trips per week that were made. EPA did investigate 

the feasibility of trucking waste from Anchorage to Seward 

and found that the additional peak waste of 88,000 pounds per day generated by the petitioning plant at Ship Creek in 

Anchorage would not exceed the 150 ton per day capacity of the 

Seward reduction facility. As discussed in points 4 and 5, 

the Agency's inquiry as to feasibility included a determination of the availability and cost of hauling. 

4. The basis for the statement on page 2550, that "EPA believes 

that load restrictions would not impair waste hauling. 1I 

EPA understands that load restrictions may be imposed during 

the spring thaw, which occurs between mid-March and mid-June. 

These restrictions require reductions in allowable axle 

weight as well as a reduced speed limit. The Agency recognizes that the restrictions may occur during parts of 

the herring roe extraction season, but the Agency understands 

that Seward Fisheries intends to buy two trucks for hauling 

wastes to their facility and that the load restrictions will 

affect neither their ability to haul all of the wastes 

generated during this period nor the charge for hauling the 

waste. Load restrictions should in no way hinder transportation of salmon waste, since peak production occurs 

during July and August. Finally, as noted in the Federal 

Register, if the road were closed temporarily, processors would have emergency access to the Anchorage city landfill. 

APPENDIX C-2 
( ( 

5. The basis for the Agency·s estimate of hauling costs of $20.00 

per ton from Anchorage to Seward. 

This information was obtained by our Alaska Operations Office 

from Seward Fisheries. This was the cost estimated by an 

independent trucking firm before the 1980 processing season. 

6. The source of the $8.00 to $12.00 per ton which the Agency states 

is being paid by the Seward facility. How much is being paid for 

which type of waste? 

EPA stated the range of prices paid was $8.00 to $12.00 per ton. 

The exact price paid would depend on the type of waste, any 

contractu a 1 arrangements made among processors and reduction 

facilities, as well as fish meal and fish oil market conditions. 

The Agency did not determine the exact prices paid by Seward, but 

rather determined what might be a reasonable price range. 

Recent communications with Seward Fisheries indicate that a 

credit of $8.00 to $10.00 per ton of waste will be given to 

processors supplying waste for reduction by the Seward facility. 

7. Information on the Cordova salmon hatchery program, referred to 

on page 2551, and a description of how it is going to IIsmooth out 

the cycl ic nature of the salmon runs. 1I What is the planned 

production of the hatchery program? 

Information on the salmon hatchery program was obtained by our 

Alaska Operations Office from the City Manager of Cordova. This 

information was verified by discussions with the Alaskan Department of Fi sh and Game. As wi 11 be noted in the Federal 

Register, a telephone memo has been added tb the record on this 

subject. The Agency stated in the Federal Re2ister that if this 

program proves successful it should result 1n a more constant 

salmon supply by assuring an adequate supply every year. The 

Agency realizes that the program is only beginning and t~erefore 

speCific figures for full-scale hatchery operation cannot be 

known. 

8. The reduction facility feasibility study undertaken by the City 

of Cordova, and the basis for the Agency·s optimism that the 

study may be resumed. 

TAMS Engineering is currently conducting a Marine Industrial 

Feasibility Study for the City of Cordova, sponsored by the 

Department of Community and Regional Affairs under the Coastal 

Zone Management Program. This effort initially included an 

evaluation of seafood waste recovery systems and their feasibility. Subsequently, the Agency suspended BPT regulations for 

certain "non-remotell cities, including Cordova. Suspension of 

the regulations meant that grinding and ocean disposal of 

APPENDIX C-3 
( ( 

processing wastes would be allowed. Thereafter the reduction 

facility study was halted. EPA believes that regulations 

requiring screening would result in a greater need for a land 

based recycle alternative for the screened waste solids, and may 

result in renewed investigation of the feasibility of the 

reduction facility option. This information was obtained by the 

Agency's Alaska Operations Office and a memo on the subject has 

been added to the record. This addition to the record will also 

be noted in the Federal Register. 

As indicated to your office by a telephone conversation with John Riley, 

the Agency does intend to extend the comment period for 60 days as you 

requested in your letter dated February 11, 1981. A Federal Register 

notice is being prepared announcing this extension and the availability of 

additional supporting information, mentioned above. 

Finally, the Administrative Orders issued to petitioning companies by the 

Enforcement Division of Region X in June of 1980, which in effect provided 

these companies with revised interim effluent limitations equal to 

effluent limitations for IIremote" plants, will remain in effect until 

formally terminated by letter after final Agency action on the petition. 

. 

ft~ Steven Schatzow 

Deputy Assistant Administrator 

for Water Regulations and Standards 

Enclosure 

cc: Honorable Ted Stevens 

Honorable Frank H. Murkowski 

APPENDIX C-4