ROSERTW GRAHAM CHARLES F OSBORN MAX KAMINOFF fIDBERT V. tiOLLAND

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

ROBERTA STEWART OOfiAl.D I..**JOH~SON** V

MICHAEL.a COuFlTNAGE KARL J. EGE LAW OFFIOES 

### BOGLE 

# & GATES

MICHAELW.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 (lWOOD 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 MStreet, 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. EnclosuresCOMMENTS 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-



### ---- --- -1tire 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- 

# lwaste 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: 

### "EPA's analysis was hampered by the pilot

# natur~ of existing facilities, the unavailability of confidential, 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' ) Petitioners are surprised

# that~ age's water quality concerns. 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-



# rThird, 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-

### AWASHINGTON 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

INTRODUCTION 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



## stJrytMRY It • • • • • It • • • • • I) • It • • • • It It It • • • • It • • It • It 3 1AO<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 ing 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 ITAT I()16 GUIDELINES FOR THE CA."'INED AND PRESERVED 5EAFOOD 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.

INTROOUCTION:

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 Ageney (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 II 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), prov idedec0 nomi c Impact a n a 1yses 0 f the Phase (catf 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 Ied than that of Phase I, industry experience wi til the Phase guidelines prompted them to scrutinize Phase II more closely. As one resuIt of this, they prov ided 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 Iizing 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• The need t 0 u s 0 i n d u s t riaI subcategor iesis not anissue. Yet, how those subcategories are defined wi II have a s i g nIf i cantinflue nceonthe economic; Impact 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 dat a• Some f irl'M, for reasonsunreIated totheIref 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 Coomunit i es• Since such closures are for technical reasons only, they will be in addition to closures for economic
reasons. It 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 proh ibited, expanded dock s are not pormitted, 0 r was 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 pre50n t Iy are disc:harging topubi ic: Iy ownedtreatmen t werks , 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 In add i t ion to those cited in the economic 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 information 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 fIc lent tomeasurothe probableelosu r erate. ThI sis no t true where processing is multi-stage.

Inthe GuI f 5hr imp i n d us try, nt..r11er 0 us smaI I buy i ng 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 anaIysi s found that 100% 0 f thos'e wh0 are, wi I I close (as disc ussedin a Iater 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 whieh the D PRA 51u dY s ign i fieant Iy u n derstates 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 testj

### ns efforts have not supported this assl.lnption

.. 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 ec0-8nIzesthe speeIfie probI"ems. Subsequen t IYI ther e probably will be the additional expenses of alternative or**au~ented** technology.

The net effect wi II be· that some firms wi II be unab 1e to survive the financial strain of this period or may simply "opt out" of. what appears Iikely 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. Industry 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.

Thus, i t i 5 I ike I y t hat insubcategor I e 5 WOere 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) discha.rge pIant s a sapass t hr 0 ugh d eterminant • Fa iiin g t 0 d 0 so, itappears t hat an0 ther defie iencyin OPRA I sana Iysis 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 probIem areas, there wi I I be wide var Iationsin the extent 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 ftescapesft 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 prov i ding the a na Iy sis 0 fee0 nomi 

### c impact des ired byEPA. 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 usefuI.
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. Thu S J Un derrea listic capitaI 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 cannot expec t t 0 s hare s u**~**s tant i a I Iyin the growt 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

Sales Depree i ation 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 iiity CanvontionaI 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

(Largel
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 Data (Assumes 13% interest cost, 30% of new capital financed by debi, 11 year Iife for purposes of depreciation/replacement)
Conventional Mechani zed Blue Crab Blue Crab (Medi\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 equa Ito the r equi red equi tyinYeStmen t af .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 Iiquidation) 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 Iiquidate 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~.** Tne discu 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 ) Where i s the e vidence that the 0 Ider, "f uI IY depreciated II units are inefficient? The cont r act0 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" ( fuI IY 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 equen t Iyintermittent, a continu i n g fact 0 f Ii f e• The 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. But, g i v enthissi tuat ion, the owne r stil 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 ) PIa-n t - site a ppreciat ion i s not area son t 0 continu 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 xamp Ie s), pIant

- site a ppreciat ion i s wor Ie i n g a g a inst 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. The d j scia imerat the top 0 f the page 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 1labil ities." 1fthis 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
ni n-pIace 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 fina nciaI data• Tnere5uItis t hat the incremental impact Is 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. extreme Iy 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 Iiquidated 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 Iities), challenges credibi Ii tV.

As discussed elsewhere, the present value methodology used in this study is not appropriate. Nor are the basel ine parameters usedin it• And 1 whe n var Iat Ionsin thoseparameter 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 "parts" of Tables 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 Iing 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, operat iona I, h a uling, and disP0 sa leos t s for was t ewat 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 TabIe s ) the capitaI and 0 & M cost S they cite d wer e reasonably similar to reviewers' estimates.

This problem is so pervasive and the variations are so pron0 uncedthat therei s noneedt0 supply examp' e s • Reference is made, however, to subcategory P, Alaskan hand-butchered salmon. Apparently DPRA has had the same22

- 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.
The natureof thes e Inc0nsistenciesappear s toeast 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 considered 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 oftreatme"t heiiities •
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 Page V1-6, ItCost 0 f Iand has been excIude d from the totaI 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 Puerto RI can firm us ing a. barge is citedashaving purchased i t for aninitIa J Inve stmen 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 Iiary 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.

The above disCu55ion pertains primar i 

### 'y toe0 st 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 particuIar probIems for a I I bargingoperat ions• (The 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 pote n t j aIdeerea5e In res0 u r**~** e uti lization wf I I remaIn essentia I IY the same I and wi I 1 be greater than estImated by DPRA.

2. On pages VI-8 to VI-20, DPRA displays treatment cost data obtained from the E.C. Jordan report. The d a tagIv 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 IInks**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 CIrcuIt Court.

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
stmnary.
The "sizing error D incorrect assumptions. 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 Ia r g e r 0 r smaI Ier s i ze firm t ha. tis 5 j g n i f Icant Iy mor 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
extent 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 supplied 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. In 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 error. Sinc e the val i d i t y 0 f the i nformat 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.) Whi Ie such rate s werenot- 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
c0uId remembe r h a v i n g given current financiaI d a t a inthe- 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 February 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 probIem wh0 s e impact i s toov e r state the a biiit y 0 f the s a I mon 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. Sinc e then, mos teos t s h a v e continuedt0 escaIate wh i te seaf'Qod prices have sllrnped or dropped sharply. No one was found who bel ieved that a return to 1978 conditions would
o ccur soon 0 r prev a i I• Theresui tis that i n terms 0 f thei 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. Industry representatives could not generalize their experience. Most ofthei r cooment s rei ated tothe resi d u aI 0 f s aIesand 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 anunreasona bIe 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 tate profit S • 5 ince t his a 1so 0 v e r s tatestaxe s , correction of this problem will increase cash flow. However, the eventuaI impact on the firms wi I I depend on whether or not 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 primerateas sum i ngas does DPRA t hat therei s a 10% i n fIation.) Further, anin t eres teos t 0 f 0 nIy 4% 0 f s aIe 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 factsare known to Ienders and investorsin 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 penci Is of the corpora.te staff. If there is anything that can be generalized from my discus s Ions 0 v e r the yea.r s wj t h man .lgementand 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 concernIn g the numbe r 0 f ptan t sin the par ticuIa 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 cIted In 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
close• The Ia c k 0 f c Ia r i tyin DPRA 's disc 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 ypica I Iyamaj 0 r sour ceof supply for the non-d irec 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 impacts.

c. The number of pIants in the AI askan data (Tables 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.

In 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. Ins0 d0 i ng I howeve r , they used essentially the same data that EPA had found earlier to be II insuffleient. 1I It appears 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-FidaIgo Anacortes plant. industry 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. And• 0 ur best informat ion 1sthat thereareonIy three piants satisfying that constraint. Does this mean thatSLMMRY - 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 AWASHINGTON 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 0rgan izat ion•. .•. •. .•. ••. . . . . . •. . .•. . . •. •. . •. . . . . . . •. . . •. •.••. 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 erab meat mea1•.•. ••••.•. . . . . . •. . . . . . . •. . . . . . •. . •. •. ••. .•••••• 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......................... 4-18Chapter 

### 5.0 5. I 

### 5.2 Chapter 

### 6.0 6. I 

### 6. 1(a) 

### 6. I (b) 

### 6.2 6.3 

### 6.4

i ,-. Bibliography 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 va1ve 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 protein ll 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 PreliminaryScreening ofUtilization/Disposal Alternatives for Crab ProcessingWastes 1.0 Introduction 1.1 Scope and function Locatednear the eastern edge of the Aleutian Islands, DutchHarbor is the home for seafood plants that annually processover 100 million poundsof crab. This paperconsidersvarious alternatives for utilization and/or disposal of viscera, shell, and meat residuals of those crabprocessing operations. Theprimary focus will beeconomic, although some issues oftechnical feasibility will beconsidered. 

### t
The information provided attemptstoberesponsive, within the constraintsofavailable time, toquestions raised by theEnvironmental Protection Agency and by DutchHarbor processors.2 However, the time availablehas required that theprecision of several cost estimatesand the investigationof some alternatives be limited. Thus, the analysis should beconsidered primarily as a preliminary screening ofutilization and disposal alternatives for seafood wastesat DutchHarbor.
The limited available time also has made it necessary toassume that thereader will bereasonably acquainted with DutchHarbor and theessentialsof processing king and tanner crab. Timepermitting, laterversions will attempt to be useful to a wider audience.
1.2 Organization Chapter 2 presents information that is basic toan analysisofDutchHarbor's seafood wastes. These planning parameters are summarized in thechapterasa "referenceguide" to analysis in subsequent chaptersand for the ease of access they might providetoothers' efforts. Chapter 3 summarizessubsequent material on utilization (Chapter4), waste collection (Chapter 5), and disposal (Chapter 6). It also analyzes the impacts and benefitsof alternatives discussed in those chapters as well as an alternative that may achieve environmental objectiveswithout utilization or barging of wastes.

The approximately five million pounds of shrimp processed annually at DutchHarbor are not considered separatelyhere, as they would not significantly impact thecosts or conclusions in thisreport. 2Although requested in Decembei, 1977 by thePacific Seafood Processor's Association,

prior commitmentsmade it impossible to begin work before ApriI, 1978.

1-11.3 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 tobe 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 neededof protein extraction processes, including the potential impact of crab wastes on human allergies. 7. Information is needed on the extentto whichracemization constitutes a problem for protein extractedwith 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 becamethe planning parameters (constraints) for theevaluationof the alternativesconsidered here. These parametersare listed in thischapter as a referenceguide. I. Recoverable wastesfrom a crabprocessing plant are estimated at these approxi

### mate percentagesof live weight: (From Seagran, 1958 and processor data.)

2. Meat line Tissue protein Shell TOTAL Section line TissueProtein Shell TOTAL King Crab 22% 33% 55%

8% 

### 10% 18% Dutch Harbor

- RawCrab/ProductionWaste* (in millions ofpounds) 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 ofvarious fish mealsare shown in Figure 4.1. 4. The number of gallons ofdiesel fuel required per ton of fish meal dried to 90% solids at indicatedrates of efficiencyare shown in Figure4.2.

2-1

### 5. There is one daily flight (Reeve Aleutian Airlines) toDutch Harbor from Anchorage. If the plane is unable to land, passengers arereturned to Cold Bay and put on board the next day's flight toDutch Harbor. Industry sources indicated experiencerates of 20-30% probability of spending the night in Cold Bay. The airfarefrom Anchorage to Dutch Harbor is $177. Airfare from Seattle to Anchorage is $119. (Airfare from Seattle to Kodiak is $126.)
6. DutchHarbor is 570 miles west of Kodiak and Kodiak is roughly 2,000 miles north of Seattle. Dutch is served by Sea-Landcontainerized vessels. Although regularly scheduled everythreeweeks (as part of a run to Adak), therehas been a vessel intoDutchevery two weeks or better this year. This is a substantial improvement over late 1977, when there apparently wereproblems with breakdowns. Sea-Land'svessel, Aleutian Developer, has the capacity to handle 61 refrigerated vans and has a 96-van total. Sea-Land indicates theywill expand their service in 1979. Industry sources indicatedthere have been prior years in which indicatedexpansions in servicedid not materialize. In addition toproduct moved by Sea

..Land and by floating processing vessels delivering to Kodiak or Seattle, DutchHarbor product also goes out bulk-loaded (handstowed) on various refrigerated vessels. The cost ofextra handling and product damage makes bulk handling a less-preferred method. During crab season, littlecargoother than crab is carriedon these bulk-loaded vessels. 7. The cost per hundred weight of fish meal (assuming over 28,000 pounds per van) shipped from DutchHarbor toSeattle is $3.85. 8. At present, there is a ferry operatingbetweenUnalaska and Amaknak Islands. Plans are apparentlyunderway 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 crabcapacity is roughly two-thirds of king crab capacity. 10. A t present there are seven firms and fourteen plants processing crab in the DutchHarbor area. Threeplantsare locatedon Unalaska Island (two in Unalaska and one in Captain'sBay) and three plantsare located in Dutch Harbor at the north endof 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.

2-2II. With the exception of the land under mostof theprocessingplants, Amaknak Island is owned by a NativeAmerican 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.



### 2-3Figure 2.1

ARCTIC SEA



### USSR

BERING SEA

I(?A.L EllTJA N ISLAND

### 5



## " ALASKA 

# , I 

# I I 

## CANADA 

# I I ANCHORAGE 

### I



## ... o &KODIAK



### #,. GUl.f Of Al.ASKA 

# .- 

# B *

### ~

# .::-r., p'

.. '"

. DUTCH HARBOR

NOR TH PACIF1 C 0 CEA 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


### 2-53.0 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 considersthe impacts and benefits of the several alternatives. Section 

### 3.4 concludesthe chapter with examination of an alternative to screening, barging, and utilization that may achieve environmental objectiveswithout unnecessarily burdening the processors.
3.i Screening and utilization alternatives The costsof building and operating screens at Dutch Harbor will vary significantly between firms and will ultimatelydepend on whether wastes are transported to a community collection site (developed for that purpose) or are dumped intobarges adjacent to processor docks. Available information indicates it is reasonable to anticipate that thetotal cost to industryof installing screenswould start at approximately $1 million.'
When the amortized costof these installations (10 years at a pre-tax cost of capital of 20% reflects risks and opportunitycostsof DutchHarbor capita\) is added to anticipated operatingcosts (estimatedat $30,000 per installation), the total annual cost to industryof screens is estimated at approximately $450,000. If thiscost is avoidable (that is, environmental objectivescould be achieved without screens), then, with the possible exception of extractedprotein, there is no apparent economically feasible use for crabwastethat has been identifiedby this study.
I f the cost of screens is consideredtobeunavoidable, then they are treatedas a sunk cost for purposes of analyzing economic feasibility. As such, they are not included as an offset topotential revenues from waste utilization. However, when this is done, with the one possible exception already noted, there still is no apparent economic use for DutchHarbor crab waste.
Theattraction of extracted protein is that it might yield a high percentageprotein product while at the sametime stabilizing the shell stock. The basic technology of protein extraction was originally demonstrated in 1970. Sincethat time, some pilot plant data on material balances and processefficiencyhave apparentlybeen developed for evaluationby potential

This initic! investment might be lower if a community dewatering operation is feasible. This is discussed in Section 5.1.


### 3-1users. However, four questions regarding the feasibility of the process remain unanswered in this study. I. What protein efficiencyratios 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 theopportunity 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 thecollection and disposal of seafood wastes at Dutch Harbor. While each alternative has specific costs and each firm's costsunder 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.

3-2Although there are a variety of factors that could cause the total to increase significantly, it appears that screening and barging will increase DutchHarbor's annual processing costs at least $1,093,000.
Oneof the significant risks of waste utilization (as opposed towaste disposal) is that the plant will be "sized" incorrectly. If it is too large, then there is a problem of inefficiency and increased costs perunit. If it is too small, then utilization will not have avoided the substantial minimum costs ofbarge disposal. Thus, thedegree 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 shortageof 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 significantbottomfish industry in theAleutians arecorrespondingly reduced. Apparently, thequalityof bottomfish in the area make it likely that such an industry could develop. However, it will requireseparate and different equipment from what is now used for crabprocessing. Thus, economic considerationsmay make it preferable to screen and barge in order not toreduce theavailable land andthereby thepotential for utilization of theboftomfish resource.
3.3 Impacts and benefits of disposal by screening and barging For the industry as a whole, it should be anticipatedthat the increased cost ofprocessing due to waste disposal will bepassed on toconsumers in the form ofprice increases. Whether the costsof 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 specificto 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 collectioncosts and most ofthe disposal costs are not sensitive on the down sideto reduced waste levels. Thus, every timea firm closes or opts out of Dutch Harbor, theburden on the remaining firms will increase correspondingly. At the extreme, there is a point at which it would becheaper 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. Theresulting cost differential might then beexploited in an area such as marketing in order to change thecompetitivestructure of the industry.
The benefits of screeningand disposal are more difficult to identify than thecost impacts. So far as could be determined, thepresent 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 theenvironment. Nor are there aesthetic impacts to thecasual observer or apparent human health or safety impacts. Given these conditions, thebenefits of screening and barging in terms of theobjectives of theenvironmental legislation are primarilyrealized from the increased productivityfrom the water and theocean floor that are no longer impactedby crab shell. Assuming that all of Dutch Harbor's annual 25 million pounds of crab wastes could be distributed tocover I1.5 acres to thedepth of onefoot and would take four years to decompose,2 crab wastes (using a yearlyrotation of disposal sites) would take approximately 46 acres out of production. Such a hypothetical areawould beapproximately .035 of the ocean floor out toone-halfmileon thewest sideof Amaknak Island. If grinding increasesthe separation of shell and meat wastes, then it is reasonable toexpect that dispersion in the water column might yield considerably less coverage than the .035 indicatedhere. (While substantiated information on shell decomposition is notably lacking, observed actual coverage of theocean bottom on the west side of Amaknak Island is apparently less than five acres and not the46 acres considered here.) Contrasting the annual expenditureof $1,093,000 per year for screening and barging with the46 acres that are returned toproduction gives an annual cost per acreof $23,760. Ccpitalized to reflect the present value of this annual outlay, itappears that a decision to use screening and barging imputes a productive value of $118,750 to eachrecovered

2This assumes SO pounds of ground crab shell per cubic foot--an approximatefigure derived

from two independent examinations of crab wasteweight.



### 3-4acre 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 carriedaway by tidal currents), then thevalue 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 spaceper 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 andwithin one-half mile ofthe 7000-yard shoreline on the west sideof Amaknak Island beween Arch Rock andUlakta Headhave an annual productivevalueof $31,000,000 and a capitalizedvalueof $154,000,000. Thus, it is appropriate tocomparethevalue of theannual harvest from all fisheries in the area (Bristol Bay and theeasternhalf of theAleutian Islands) with the total number of near-shore acres of oceanbottom in thearea. If the market value is generously estimated at $400,000,000 and theBristol Bay and Aleutian shoreline is estimatedat7,000 miles, then it appears that the arearestored toproduction on the west sideof Amaknak Island would have an approximateproductivevalueof $8000. (Assuming that all value in the fishery is dependenton thezone within one-half mileof the shoreline.)
These figures indicatethat screening and barging would restore toproduction an area with a productive capacity that is apparently less than $10,000 annually. Thecost of doing so is apparently in excessof $1,000,000 annually.
In the terminologyof managerial economics, the above situation is conservatively referred to as suboptimization. To those unfamiliar with the term, it means that achievement of a secondary objectivehas been permittedtooperate without consideration of the cost impact on theprimaryobjective.
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 assumedcastof capital and reflects industry'scost

of capital for what is essentially an investment in increased productivityfrom the fishery. A rate of 8% might alsobe appropriate if the castof capital is the**re~urn** expected from public recreational projects. However, it gives a valueper acre of ocean floor restored to production of $290,668.


### 3-5processors without appreciably contributing to theachievementof the nation's environmental objectives. This section is an attempt to develop an alternative. 3.4(a} Theprincipal assumption The environmental problem with accumulations of crab wostes is that crab shell apparently biodegrades over a period of years andhas thepotential to form wastepiles. Butchering wastes and unpicked meat apparently do not pose an environmental problem. For crab processing, screens areprimarilyuseful for their ability torecover butchering waste and small pieces of shell in the waste flows. However, most of the shell conbe recovered without using tangential screens.
When crab is butchered, the carapacecan berecoveredbefore it goes into thewaste stream by flipping it into a tote. At least onefirm, elsewhere, presently uses this method to separateshell and butchering wastes. For a section line, the remaining shell (with the possible exception oftails) goes out as product. In a meat line, theshell coming from the picking areas might be removed from wastewater flows with coarse mesh screens. Placement of these screens in thewasteflumes would attempt torecover the shell before it becomes entangled with butchering waste. Ifthat is not possible, the screen might be placedat a point before theprocessing water goes intothe sump. A suitable mesh size might allow butchering wastetopass but retain shell fragments without clogging. These fragments could then be "pitch-forked" intototes. Without the need toretain the soft tissue portions, thewater content ofthe wastes (as well as thehopper capacity required to store it) can be significantlyreduced.
Theprincipal assumption of this shell-recoverymethod is that the remaining wastes can be finely ground andreturned (pumped) to theocean without adversely impacting thedesired environmental objectives. Sometestingwould be necessary to determine theengineering characteristicsofthe system capableof achieving the principal assumption. 3.4(b} The alternative If shell waste collected in totescanbecompacted and baled, then the "bales" might be loaded onto the decks of crab vessels that haveoff-loaded live.crabs Rather than barging the wastes, it may be feasible to send the.crabshells back tosea on thevessels that brought them in. The crab vessels could winch them overboardor use thecrabpot "launchers."



### 3-6Given the density of the material, a 400-500 pound bale apparently would beroughly 2'x2'x2'. Although definitive testshave notbeen run todeterminetheability of such a crab baletohold 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 squarebundle is of a size that could be put into a reinforced paper bag or carton.
Thereare several apparent advantages of such a system: I. Thecost of a baling unit is about the same as that of tangential screens (uninstalled). 2. Thebaling operation would require a relatively small areaand few**in~plant** changes. This would reducethecompetitive impact of wastedisposal on spaceshort firms. 3. Individual plants (with theexception of a short feeder/conveyor into thebaler) would not need the elevatedstructure, storagehoppers, pumps, loading docks and/or conveyorsof a screencollection system. 4. The costof a communitycollection site, building, storage hoppers, and barge loading system would be avoided. 5. Each firm would bear only its own costsof disposal. Such costsand the firm's ability tooperatewould notbe dependent on actions by other firms. 6. The cost of leasing and operating a tug and barge would be avoided. 7. The system would notceasefunctioning 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 crabto ports or plants where it is not necessary. 2. Vessels may not wait until they arenorth of Ulakta Head tooff-load thecrab bales. 3. Processors may attempt togain new boats in their fleets by offering a Unorecycle" option and solving the wasteproblem in someother manner.


### 3-7

### 4. Theflmemory" of crabshell might cause thebales tospring apart. One processor, attempting to reduce dumping costs(charged on a volume basis in the U.S.) reported that strapsaround thebales did not work, as the crabshell between the straps tended to spring free. 5. Limited deck spacewould 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 departureof wastes. Thus, a processor would need a storage area sufficientto hold processing wastes from at least two vessels. 6. Crabwastes on thedocks andthedeck can beextremelyslippery as well as difficult toremove. Waxed cartons would probably benecessarytocontain the wastes. 7. If there is a significantdelaybetweenvessel departuress 

### the plant would need an alternative system toavoid the inevitableodor problems.



### 3-84.0 Examination of UtilizationAlternatives The analytical efforts in this studyfocused primarily on crab waste utilization methods that might serve as alternatives tobarging and deep-water disposal. Thereason 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 theprimaryproblem, how toavoid the burden of tug and bargeoperations.
The discussion in thischapterdoes consider, however, eachofthe utilization alternatives that came to light during thecourse ofthe investigation. Methods of utilizing combined tissue and shell wastes areconsidered first. Then, alternative uses oftissue waste are considered separatelyfrom uses of shell wastes.
4.1 Combined tissue and shell wasteutilization

- "fish meal" Fish meal is a generic term useful in casual conversation. However, if market demand, product availability, and meal prices are tobeconsidered, the terminology of fish meal becomes specificand technical. Commoditybrokers and feed mills determineprices basedon unitsof 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 madefrom herring, bottomfish, tuna, shrimp, crab, or somecombination of these or other marine species. In turn, thesereflect the efficienciesof transportation and handling of protein versusnon-protein fractions of the meal. (See Figure4.1) As onebroker commented, "If you can provideus with a fish meal that runs over 60% protein, we can find a home for it." However, he alsonoted that sincethe decline in the availability of Peruvian anchovy meal, theprotein balance in mealshas been achieved with methionine and lysine supplements. This has caused a general reduction of interest in fish meals.
Theapparentpremium of fish meals is herring. Highly prized historically for its nutritive values, the price is still supported in some areasby a requirement that herring meal be a specific (ltforced") portion of some feed blends.' At up to $6.50 a proteinunit and 'Nith 70% protein content, British Columbian herring meal has recently sold as high as $455 a ton.

Herring was thepremium 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 sellsat $3.50-4.50 a protein unit, ar less than $200 per ton.
In thehierarchy of fish meals, crab meal is theapparentbottomrung--just below shrimp meal. At 30-32% protein for crab meal the deliveredprice ($3.30-3.60 a protein unit) has fluctuated recently between $100-120 per ton. Sales commissions and inland transpartation typically reducethenet to seller by $15-20 perton. Sources indicated that shrimp and crab meal are "not theworld's best incomeproducers." "Crabmeal is a miserable market." "Fish meal is I% 

### of the selling problem you encounterwith shrimp and crabmeal." "My customersnever want to see it again. They try it once anddon't come back." "The moreweproducethe morewe lose on it.n "We only makeit intomeal to get rid of it.If There are several apparentreasons 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% canbecrabmeal. It is not used in other feeds because of thehigh percentageof calciumcarbonate and because a considerable portion of theprotein (apparently over 1/2) is firmly bound in theshell andnot readily available to monogastrics. 2. With poultry feeds reportedas no longer sodependent on calciumcarbonate, the low value per protein unit alsoreflects thediscount applied to thecost of transporting the non-protein portion ofthe meal. Meal users, particularly in poultry feeds, pay for a high-protein product that is cost-effectivein terms of protein per ton oftransported feed, transported waste, and metabolicenergy consumed in itsutilization. 3. One feed mill complained ofuncertain deliveries (reflecting Alaskan shipping problems), odor problems as a poultry feed, and high variation from load to load in the proteinpercentage. Soy bean, cottonseed, and meat meals are fairly consistent in quality, are available year-round, and are theprimary feed constituents. While a large mill would be able tobalancetheir feed blend to compensate for theproteinvariations, they have found thepriceofcrab meal toohigh for the available protein-particularly when they have tocut it out of thebags. Onefeed miII found it neededa delivered costof $67 per ton tojustify itsuse. At this price, theuse is still limited to poultryfeeds 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 priceat 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 allergyreactions ("respiratory problems") to the dust.2 While meal with oil added receives $5 more per ton, a mill that adds oil toreduce dust problems in its plant in response toOSHA directives reports it does not cover itscost of doing so--in spite of the fact that it has low-cost oil availablefrom othermeal operations. Around 10 gallons of oiIareused per ton ofcrab meal and oiIcostsaround $1.40per gallon or 20¢ a pound. Thedustproblemswill particularlyaffect theeconomic feasibility of a reductionplant operatingentirelyon crab and/or shrimpwaste, as is thecasewith Dutch Harbor. In addition toplantf 

### transportation, and feed mill problems, anotheraspect of the dust is consideredbelow. 5. If crab meal, in thequantitiesavailableat Dutch Harbor, is to find a market, then it must beavailable year-round. Feed mills preferto stabilizetheir blends as much aspossible and particularlywill not switch readily to a low-protein meal. This means that anAlaskan plant (producing intermittentlyover a ninemonth period) would haveto "warehouse" meal or absorb a demurragecost of $40 a day ($2.00 to2.67 per ton) on containervans. In theSeattlearea warehouses typicallyhave notbeen willing toaccept bagged crabmeal. If they wereto do so, they apparently would not allow it tobe stored near boxes or cartons. For bulk storage, theproblem is that grain terminals areunwilling to contaminatetheir lines or tanks with the material when theclean-upcost is so great in relation to thevolume handled. However, the material would probably bebagged, since feed mills who might use someof the meal have said they would not use a volume sufficient tojustifycommitting any oftheir bulk storage bins tocrab meal. In short, it appearsthat a separatewarehouse for Dutch Harbor crabmeal would need tobebuilt, probably in Seattle.
At the present time, reduction plants in Kodiak, Seward, andPetersburg producecrab meal. For the most part, a specialized market is able toabsorb the meal as it is produced. With DutchHarbor's recoverable wastesat approximately 25 million pounds per year, the Alaskan production of crabmeal would essentiallytriple with a DutchHarbor reduction plant. Given thepresentdifficulty of selling shellfish meal, it is reasonable to assume

2

### See Orford, 1976 and p. 44, Higgins, 1978 for a discussion of this problem. 

### 4-4that theprice per ton would decline sharply and that thePacificNorthwest 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 thecost of producing an Alaskan shellfish meal is much greater than the anticipatedrevenue. A contrary finding requires that inefficiency or insufficient volume of existing unitsbedemonstrated.
In terms of technical efficiency, the meal plantsat Seward and Petersburg represent thebest in Norwegian technology. Norwegian equipmentcan be found in fish meal plants throughout theworld and on board many processingvessels.3 As to sufficiencyof volume, oneoftheplantsapparently does not have thevolume toachieve break-even operations. The otherplant is operating profitably with the exception of crabmeal production. One plant reported that revenue from oil (extractedfrom such species as herring and salmon) wasresponsible for a significantportion ofnet revenue. Crab is a "dry" speciesand this sourceof revenuewould not be available at Dutch Harbor.
The technical efficiencyof the Kodiak plant is more difficult to assess. Apparently, the firm, having had its share of false startsand growing pains, is fair gamefor the commentsof outsideobservers. Yet, after spending over three-quarter million dollars (t971- 72) on its first meal line and enduring somecash flow problems, the firm is now operating profitably (since 1976) with tailored equipment (in-house design) costingmuch less. In spite of this, there is no anticipation that crabmeal operations, which are a major portion of Kodiak wastes, will becomeprofitable. At present, Kodiak processors pay a service fee for theprocessing of their wastes. This fee averages 

### $40-50 per ton of dried meal. This fee would increase in response toprice declines resulting from increased supplies ofDutch Harbor crab meal.
If technical efficiency and adequatevolume are not sufficientconditions for profitable crab meal operationselsewhere, can the potential cost problems for Dutch Harbor be identified? To an extent, they can: I. As a process, the production of crabor shrimp meal is quite simple. After screening and any supplemental dewatering, the waste is dried, ground, and bagged orblown into containervans. Crab's low oil contentdoes not need
3Engineers from the two primaryNorwegian manufacturers wereon a Seattle! Alaska "four in early May. The details of the Dutch Harbor situation werereviewedwith them and the discussion here reflects the information obtained from them as regards drying costs. 

### 4-5the cooking or oiI extraction cycle that requires the more complex equipment and greater technical proficiency of making meal from herring or salmon wastes. Thus, the processand 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 wiII cost $77 to ship from Dutch Harbor to Seattle. This is a least-cost estimate using Sea-Land containerizedvans. Any other shipments would be break-bulk (bags or cartons). Even if dust is not a problem, there would tend tobe space availableon 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 torefer to the product as crab shell meal.4) Thebalance 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 areneeded toevaporateonepound of water and fourteen pounds of steam can beproduced from onepound of fuel oil.
Ta 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 Onereduction 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 linewastes will haveup to 15-20% solids. This results from the fGct that moisture content of tissueorotein is 84%.end there typically is a substantial amount of cIinging water -from pro'cessing operatIons. 5Assumes 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 

## 25

# J**.--.~-**

# ..---..--- To evaporate 1 pound of water: 1133 B.T.U.s

## 200 

## 300 '/IJO 

# Seo bOO Gallons of diesel fuel required per ton of product dried to 90% solids at indicated rates of efficiency

### A fuel requirement similar to the Norwegian estimatecan be developed with an alternative approach. The waste is assumed tobe 22.5% solids. 6,000 xl**~150** 

### 6,900,000 18,570 62

### 900%000 18,570

7.1 = 

### 371.57 7.1 $0.48 0.48 x 52.3
66% 25.12

.66 '-

=

=

=

=

= 

### Pounds of water toberemoved STUs needed toevaporateonepound of water starting at 350 

### F. STUs needed toevaporate 6,000 pounds of water STUs in onepound of diesel oil 371.57 pounds ofdiesel fuel toproduce6,900,000 STUs pounds in onegallon ofdiesel fuel 52.3 gallons of diesel fuel requiredtoevaporate 6,000 pounds of water price(net ofroad taxes)ofdiesel fuel in DutchHarbor, Alaska. $25.12

# = cost of fuel toevaporate 6,000 pounds of water assuming 100% thermal efficiency assumed operatingefficiencyof steam boiler and dryer $38.06 =

### cost of fuel under assumed operatingconditions
These figures are least-cost estimates of fuel expenditures. For planning purposes a thermal efficiencyof 50% is considered tobe a conservativeestimate of obtainable performance. Figure4.2 charts fuel requirements atvarious moisture and efficiency levels. Using assumed ratesof solids of 10-12% for section line waste and 15-20% for meat Hne wastes, thepercentof solids in king crabwastes at Dutch Harbor is estimated at 15% and tannercrabwastes is 12%. Unless there is a means of mechanically dewatering the waste without Jiquifying and losing theviscera and soft tissue, fuel costs(60% thermal efficiency) during king crab season would be $69 perton ofdried(90%) meal and $89 perton of meal during tanner crabseason.
4.1 (a) Summary of revenue, fuel, and transportation costs for a Dutch Harbor crab meal plant If a delivered priceof $120 per ton is assumed, thefish meal plantcould anticipate revenue of approximately$100 after sellingcommissions (up to 5%on low-value meals) and ground transportation (around $15) in the PacificNorthwest area. With fuel ($77) and transportation



### 4-8($77) costs of $154 a ton (assuming 60% king crab meal and40% tanner crab), a Dutch Harbor fish meal plant producing 3,125 tons per year could anticipatean annual loss (before costs ofoperation 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 perton figure citedbyone feed mill as the price at which they would use crab meal, an additional loss of approximately $159,000 would occur. If someof the Dutch Harbor production is not sold, this loss would increase. Thus, total potential losses, considering only fuel and transportation costsfor a Dutch Harbor fish meal plant, arebetween $169,000 and $328,000 per year. If, in addition, least-cost estimatesof 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 perday) are considered, "direct operatingcostsll of $I,000 per operating dayor $200,000 per year ($64 per ton) are incurred.
Plantmaintenance, repairs, truck expenses, and general and administrative expenses including manager's salary, officesupplies, travel, legal and accounting, and telephone could beexpected to add "other expenses!! of $100,000 per operating year or $32 per ton. Costsper Ton of Crab Meal (3,125 ton annual production) Fuel* Direct operatingcosts Otherexpenses Transportation $77 64 32 77 $250 *Fuel could be less if dewateringresultsprimarilyin shell waste.
Under the optimistic assumption that the entireDutchHarbor production could besold 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 areincluded, the investment in assets (including
6Comparablefish meal plants (requiring cooking andoil recovery) will probablycost

significantly more than theconservativeestimatehere 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 valueof the inftial investmentmay beassumed to declineby 10-20% per yera.) 

### 4-9$100,000 'l'/orking capital) would require a pre-tax return of $160,000 at a pre-taxcost ofcapital of 20%7 It also is appropriate to include in this discussion the costsof collecting the wastes for processiQg. As discussed in a subsequent section on screeningcosts, this is between $400,000 and 500,000.
When operating, capital, and screeningcostsare combined, theannual pre-taxcost of a crab meal operation startsat $1.2 million. If there are insufficientcrab meal markets in the Pacific Northwest, this figure would rise accordingly. And, not included in the cost is the land rent.
Given the uncertainties andcostsof a crab meal plant, it appears that a lower-cost alternative might beto incinerate thecrabwastes. 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 transportingofcrabmeal and would certainly involve much less in theway of assets at risk. While it is consideredhere as an unconscionable waste of fuel and of nutrients that could be returned to the ocean, theeconomics of incineration appear better than the economicsofcrab meal.
4.2 Physical separationof shell and protein waste Combined, the only apparentuse of crab shell, butchering waste, and unpicked meat is as crab meal. The economics of that product wereconsidered in Section 4.1.
This section considersthepossibility of separateutilization of shell and "tissue." Inherent in this technique is therequirement that therebe a compatibleutilization and/or disposal of both waste components. Sincethis study assumes that wastewater problems concerningDutchHarbor crab wastes are a problem of shell wasterather than tissue waste, the primaryfocus will be on shell waste utilization. The utilizationoftissue protein is considered as a possible revenueoffset to the utilizationand/or disposal of shell. However, if someform oftissue utilization does notprovetobe feasible, it is assumed that thebutchering wastes and unrecovered meat couldbereturned without adverse impact to the ocean on the west sideofAmaknak 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 conservativeestimate 

### cost of capitol. (MARIBUS--Assumption fill states; The minimumbefore-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 capital investment per year.) 4-10sing, drying, and transporting over 3 pounds of material toobtain 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 poultrycan assimilate it to an extent if the crab meal is not more than 10-15% (depending onpoultry species) of the feed. Forthisreason, crab meal is used only in poultryfeeds. However, even its use in poultry feeds is limited, since it is not suitable for high energyfeeds. And, as a sourceof calcium carbonate, it cannot compete with limestone selling at $12 a ton.
These facts, developed in Section4.1, raise a question of whether it would beeconomicallyfeasible tophysically separatethe tissue protein (butcheringwaste and unpicked meat) from the waste shell, for use in a crab meat meal.
The answer to theproblem ofphysically separating the unpicked meat from the shell is one that hasbeen soughtby industry for some time. Various techniques arealready employed. However, should a successful system be developed, itsprobable use would be in theproduction ofhuman 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 itsuse in the production ofa crabmeat meal is trivial by comparison. Thus, crab meat meal probably would becomposedof butchering wastes--gills and viscera. If thecollectible (non-liquid) wastescould be obtaineddirectly, without any clinging liquids or process water diluting them, they would beapproximately 16.6% solid (Seagran, 1958). A drying operation capable of 60% thermal efficiencywould require 126.61 gallons or $60.77 of diesel at DutchHarbor prices. When fuel costsarecombined with freight costs of $77 toSeattle, they total $137.77. Butcheringwastes have a protein content (dried) of approximately48%. Thus, crab meat meal might sell (net of salescommissions and inland transportation) for $200 a ton.9 After fuel and freight, thiswould produce revenueof $62 per tonor $38,500. (Dutch Harbor butchering wastes would be around 9 million pounds wet, 620 tonsdry.) This amount ofrevenuewould not covereven the annual depreciation chargeon a fish meal plant.

B"Crab meat sells at wholesaleprices 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¢. 9Although containing only 50% more protein than crab meal (48% versus 32%), crab meat

mea! would bea better qualityprotein, would have a broader market, and 'Nould receive a higher price per protein unit.

4-11

### The discussion above assumes a crabmeat meal operation under unrealistic conditions. Even assuming that butchering wastesdonot come in contact with processing water, they are still immersed in thecrab'sbody fluids. Such fluids are nearly doublethe volume of butchering wastes and would cling to the wastes. A system that kept the wastes separate frornprocess water would probably keep them associated with thebody fluids. Or, if the wastes come in contact with the processing water, they would includea significant quantity ofclinging water.
Theserelationships aresupported by the experienceof Alaskan fish meal plants. In one area, wastes from section lines (high in viscerarelativeto shell) tend tobe 10-12% solids. However, screenedwastesat Kodiak haverun as littleas 2-3% solids. With theshell removed, it appearsreasonabletoassume that undertypical operatingconditions the wastewill have Jess than 10% solids.
Becauseof thefragile nature of crabbutchering wastes, using a press or centrifugewould apparently liquify a good partof what is available. Thus, a crab meat meal operation at Dutch Harbor would operate with a trivial amount ofraw material or would have to pay at least $J 

### [0 for fuel per ton of meal produced. Adding freight chargesof $77 per ton would net approximately $13 per ton on revenueof $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 beconservativelyestimated in thehundreds of thousands of dollars.
A crab meat meal operation has two major deficiencies. It does not eliminate theneed for daily bargingof shell wasteor provide revenue from utilizationthat could beused tooffset the costs ofdisposal. 4.2(b) Shell waste Road material Preliminary results ofa concurrent studyby Brown & 

### Caldwell (engineeringconsultants studying dispersal techniques for DutchHarbor's crabwastes) indicated the possibility that fine grinding of thewaste might result in a differential settling rate between shell and protein wastes. This raised thepossibility that shell fragments could be "scrubbed" of tissue protein and perhaps be used as an "oyster shell" typeof road material in the Dutch Harbor area. It also raised the possibility that the shell waste could be stabilized sufficiently topermit disposal on other than a daily basis.
Effortsby a graduate studentworking with the University of Washington Department

4-12

### of Food Scienceand Technology attempted to confirm therelationship. Using tanner crab shell, heobserved the differenfial settling ratebut found that partof the protein was carried along with the falling 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 theroad becomes dusty in summer, the dust will contain theallergenic propertiesofcrabmeal. These problems were consideredtobe sufficient reason not topursue the ideafurther. Later sections, however, will consider alternative methods of stabilizing theshellfish wasteasa meansof avoiding thedaily costs ofdisposal.
Source material for chitin/chitosan Thephysical separation of shell and tissuealsowas considered as a possible means for segregating shell waste for use in theproduction of chitosan. Hadtheseparationtechnique worked, however, the method probably would nothavebeenuseful. Food, Chemical and ResearchLaboratories, operatorsofthe chitosonpilotplant located in theSeattle area, found that a filtration step in thechitoson productionprocess los1 the "fInes," pieces of material less than 

### 1/8" in size. Given thisproblem, fine grinding would notbe complementary to a process involving use ofcrab shell in a 

### chitin operation.
Other aspects of thepotential use of crab shell in chitin/chitosan production will be considered in Section4.4.
4.3 Chemical separationof shell andtissueprotein 4.3(a) HCI-pepsin/enzyme Two methodsof recovering protein from butcheringwastes andunpicked meat involve enzymatic processes. The first, employing hydrochloric acid and pepsin, was developed by scientists at the Universityof Washington. It is not considered in detail here because there is no apparent way, short ofchartering a tug and barge, to ship the acid toAlaska. (HCI is not Q 

### permittedtariffitem on common carriers.) It is reasonable toanticipate that the costof such an operationcould easily overwhelm the potential revenues. A further indicator of theeconomics of an HCI/pepsin process is that although it

### has been demonstrated tobetechnicallyfeasible, firms with a greaterpotential than those at Dutch Harbor (in terms ofutilizing such a process) are presentlywaiting to invest until the economics improve.



### 4-13

### Another method for enzyme recovery of protein is under development at the Oregon StateUniversityAstoria SeafoodLab. Utilizingenzymes in the viscera of dungeness crab, it has a processtimeof approximately I hour. The technology has not been attempted on king or tanner crab and is apparentlya proprietaryprocess. In addition toquestions concerning the method of concentrating therecovered protein (in light ofthe costfigures for drying developed here in Section 4.2), there is alsosomequestion as totheefficacy ofvisceral enzymes that have been leached with process waterbeforebeing used in the protein recoveryprocess. Sincetheprocessis proprietary and still at a developmental stage, no further effortswere made to evaluate theeconomic feasibility.
Another importantconsideration in thefeasibility ofthesetwoprocesses is theshell waste. Apparently, neither is capableof stabilizing theshell waste in a manner that would eliminatetheneedfor daily barging. 4.3(b) Chemical separationoftissueprotein, firmly-bound protein, and shell (Chitin/calciumcarbonatecomplexasresidual) Proteinextraction "Pollution Abatement and By-Product Recovery in Shellfish andFisheries Processing" was published in June 1971 by the U.S. Environmental Protection Agency in itsWater Pollution Control Research Series(12130 FJQ 

### 06/7I). The report (CRESA) was ajoint venture ofFood, Chemical and Research Laboratories (Seattle) and Engineering-Science ofAlaska. In thereport, a proteinextraction process developed by theSeattlefirm (FCRL) is discussed in somedetail. The process is of particular interestherefor several reasons: I. It utilizeschemical reagents, sodium hydroxide and sulphuric acid, thatcan be shipped toDutch Harbor. (Although theprocess in thereport useshydrochloric acid, sulphuric acidcan alsobeusedfor precipitationof theprotein.) 2. Theprocess, by chemically treating and extractingprotein from theentire waste load, stabilizes the shell waste. This eliminates theneed toutilizeor dispose of shell wasteon a daily basis. 3. The residual of theprocess is a complex of calcium carbonateandchitin. As such, it has a potential use in theproduction ofchitosan. And, with the proteinremoved, itschancesof being shippedeconomicallyarecorrespondingly greater. This is discussed in greaterdetail in Section4.4.



### 4-14

### Essentially, theFCRL processofprotein extraction utilizes sodium hydroxide tosolubilize the tissueproteiD in theunrecovered meat, viscera, and gills and thefirmly-bound protein in the shell. This solution of sodium proteinate is precipitated with sulphuric acid, decanted, washed toremove solt and then (by filtration orcentrifuge)concentratedto increasetheratio of solids to water. Finally, the material is dried. (The relativeimportanceof theconcentration stepcan beseen in Figure 4.2. In it, changes in fuel consumption are shown at varying levels of solids.)
This processproduces a productcontaining 90% protein and comparing "favorablywith casein in total essential amino acidcontent. Thepercentagesof arginineand isoleucine are significantly higher for the shellfish proteins while casein shows higher values for valineand leucine. Feeding testshave been conducted on ratsusing both the shrimp and crabwasteproteins. Both show markeddeficiency in sulphur-containing amino acids which can becorrectedby supplementationwith either cystineor methionine. Otherwise the shellfish wasteproteins werefound tobeequal tocasein in nutritional value and there were no toxic effectsnoted.1I 

### (CRESA, 1971, p. 34)
Theabove discussion glosses over a fairly sophisticatedchemical process, particularly when put into thecontextof DutchHarbor andthe traditional treatment of seafood and seafood wastes. Further, thecomparison ofthenutritional value ofextractedprotein with caseinraises some speculative issues. Atpresent, casein made from milk products and imported primarilyfrom such countries as Australia, can bepurchasedon the West Coast at 60¢ a pound as an industrial chemical and at 64-65¢ a pound asanimal or human foodstuff. On the other hand, a fish meal containing90% protein might be expected to sell at 35-40¢ perpound. It 

### is a matter of speculation as towhether extracted fish protein would sell in thecasein or in thefish meal market.
In attempting to develop information on potential marketability, various contactswere made. Several ofthe people contactedwere concerned about an issuethat is fundamental to the economic feasibility of an extractionprocess in which sodium hydroxide is used to solubilizetheprotein. It was their opinion that sodium hydroxide would causethe racemization ofthe amino acids. That is, insteadofcontinuing as opticallyactive compounds, part of the amino acids would becomeoptically inactive forms of the samecom.. pounds and thus unavailable as protein for humans and single-stomached animals. The extentof racemization was estimated by them at 50%.
If their assessment is correct, then it appearsreasonable tobelievethat theextracted



### 4-15

### protein (45% available) would sell for around 10¢ per pound--unless it could be sold as an industrial chemical with propertiessimilartocasein. That is, capableofbeing used in glues, inks, andpaper finishing.
The issues raisedabove are technical and must beconsidered in a forum other than an analysis ofeconomic feasibility. However, until they areresolved, theeconomic feasibilityof such a process mustbeconsidered tobe highly speculative.
It is possible, however, todevelop somepreliminarycost figures for a protein extractionprocessat Dutch Harbor. Given that somewaste might beheld over a day,sucha plantwould operatebetween 200 and 240 days per year (90 days on king craband 150 dayson tannercrab) and would need (at presentcapacity, production rates and product mix) thecapacitytoprocess 400-500,000pounds ofwet wasteperday. An operatingyeorof 200 days is used here. Assuming that 37,500 pounds of waste(dry weight) are processed in an averageday will provide a minimum operatingcost figure. Data indicatesthat 45% ofthewaste from king craboperations(lf3 meat, 2f3 

### sections) is protein and that protein recovery is S5%. Dailyproduction would be 14,344poundsofprotein and 15,940 pounds of product. Using processrequirementsprovided by FCRL:

Chemicals !\IaOH @ 15% of protein

## =21521bsfday @34.4¢ =$740fday H2S04 49/40

### x 2152

## =2636 Ibs/day@ 19.2¢

# = S06/day 

### Dailychemical costs

# = Labor 3 men per 10-hour shift @$60 ea/2 shift day

### = Heat Extraction: 15% slurry

## =250,000pounds TemcPeraturerise (Fo)

# =

# 6 400

- 320 

# =10SoF lOS x 250,000

## =27 x 10 BTU @48¢ 

### per 132,203 BTU = 

### DAILY COSTS

$1,246

360

98 Protein drying: 20% slurry4 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 toSeattle @ 

### 77/ton Salescommissions (2V:z%)

4-16 

### 75 614 140 

### $2,996 {

### Sold as a fish meal with 

### 90% protein, the product has beenprojected(seeFigure

### 4.1) to sell at approximately 

### $700 net per ton. This would producerevenueof 

### $5,579 per day and leave 

### $2,583 per day or 

### $516,600 per year tocover screeningcosts,depreciation, capital costs, repairsand maintenance, electricity, truck, plant manager's salary, and general and administrativeexpenses including administrative salaries, insurance, legal and accounting, telephone, travel, and patent fees.
Basedon a review of plant and equipmentfrom a varietyofsources, it appearsdoubtful that a plantof sufficientcapacitycould bebuilt at DutchHarbor for tess than

### $1 million. And, thereare indications this figure may be considerablygreater. Investment in a waste collection systemcanbeexpected toadd roughly another

### $1 million. A 

### $2,000,000 investment amortized over 

### 10 years at a pre-taxcostof capital of 

### 20% toreflecttheminimum inherent risks, would require a cash flow of 

### $477,046 per year.

### 10 Roughly estimated, the overhead itemsenumerated abovecould readily add another 

### $100,000 in expenses. Still not included arethe land rentor the annual costof storing and bargingthe shell waste. Nor do thefigures reflect operatingcontingencies, inefficienciesresulting from variations in productflow, and a plantthat must be sized at 

### 700% of averagetanner wastes-dueto lower dailytanner production and the lower waste levels per pound of tanner crabprocessed.
Offset against these expenses are the foregone costsofthe leastexpensive alternative method of crab waste disposal. Collection and disposal costs are discussed in Chapters 5 and 6.
This section has identified annual costsof 

### $1,176,246 and annual revenues of 

### $1,120,000 (1,600 tons) for a DutchHarbor proteinextraction plant whose plant is sold in the fish meal market. These figures indicatethat theeconomic feasibility of such a project will be determined by thequestion of whetherproteinextracted with sodium hydroxide can besold at casein prices.
Ifracemization has significantlyreduced theavailable protein, it should beanticipated that total revenue in the fish meal market will be around 

### $325,000. This is 

### $800,000 less than a conservativeestimateofexpenses and thealternative appears infeasible.
Ifracemization has not altered the efficiencyrating of theextracted protein, then two outcomes are possible. Sold in thefish meal market (seefigures 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% asappropriatefor this type of investment. 4-17

### economic feasibility of the project is not demonstrated but may become an acceptable disposal alternative depending on theforegone costsof alternativedisposal methods. Sold in the casein market, however, theprotein could bring $1.9 to 2.0 million in revenues againstpreliminaryexpense estimatesof $1.2 million. These possibilities warrantstudy of theproteinefficiencyratings oftheextractedprotein, the technical feasibility and costsoftheprocessunder operatingconditions, and the future availability ofraw material.
Such a study might alsoresolve a problem identified in this effort. For an investorconcernedwith evaluatingeconomic feasibility, thereis a troubling question regarding protein extraction processes. This is thefact that most available information has comefrom their developers. To date, there is no evidenceof an independentreview of the technical and/or operational aspects of theprocesses. Until suchreview isundertaken, an invest· mentbasedon available informationcannot beconsidered asprudent.
Shellwastes Oneofthebenefitsof a proteinextraction processthat removes tissueproteinattached to the shell as well as the protein contained in the shelf is tha1 the shell waste is essentially stabilized. For purposesofchitin recovery, it canbe kept moist for three months without a reduction in thequality of the chitinrecovered (see Section4.3). Further, the shell apparentlycould be stockpiled without developing an offensive odor. In the absenceof a market for the shell, this would permit theprocessors toavoid thecost ofdailybargingofshell wastes. Instead, the shell wastecould bebarged in a one or two week operation at theend, oftheprocessing season-when the cost might beconsid. erably less than during thewinter months.
Another conceivable useof thechitin/calcium carbonateresidual would beasroad material. While theabsenceof protein reduces theallergenic danger that is apparentlypresent in ground crab wastes, thegeneral dustiness of theproduct might stiII make it

### undesirable. Another factor that could be a problem in wetordryweather is that crabshell is known tobe fairly abrasive. While apparentlynot abrasive enough tohave industrial potential (Mendenhall, 1971), there is thepotential for damage to the moving parts of wheeled vehicles and other exposed machinery in theDutchHarbor area.
4.4 Alaskan crab shell asa chitin source In theprevious section, the nature of theproblem and the scarcityof definitivedata require that rough approximations beused to estimate theamountof tissue protein and firmly-bound protein in crab waste. If present, the errors in such estimateswould affect
4-18

### primarily the economies of scale. That is, iftheproteincontent is lower than estimated, the primary factor impacted would be theextentof investment in plant andequipment (materials handling) relative to thevolume of salable product. In termsof total operating costsused in a preliminary examination of economic feasibility, such errorscanbetolerated.
In considering theeconomics of crabwasteasa sourceofchitin, however, accurate estimates of waste composition are essential to the analysisofeconomic feasibility. Since chitosan production requires low-cost hydrochloric acid (CRESA, 1971 &MARlBUS) not available in Alaska, Alaskan shell would need tobedriedand shipped toa processing center. For purposes of thisanalysis, such a center is assumed to be in the Continental UnitedStates.
The impact oftransportation anddrying costson the costperpound ofavailablechitin can be seen in thefollowing chart. I t 

### assumes drying cost of $100 per ton and transportation costs toSeattleof $77 per ton. (The cost ofevaporating a tonofwater is less than thecost of shipping it toSeattle.)
Chitin as % of dryraw material 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Costper pound F.O.B. Seattle of chitin available for processing $1.77 into chitosan 89¢ 59¢ 49¢ 35¢ 30¢ 25¢ 22¢ 20¢ 18¢
Therange of 5-50% in theabove table is not arbitrary. It 

### reflects thedivergenceof available opinion as to thechitin contentof the chitin/ash residual that might result from a proteinextraction processon king crab waste. (See Seagran, 1958, p. 18, and SeattleTimes Magazine, April 30, 1978, page 8.) If thegenerous assumption is made that otherforms of crab wastecan bedewatered to 75% moisture before drying, the table can alsobeused tofind theF.O.B. Seattlecost of chitin in any form of dried crab waste from DutchHarbor, so long as thepercentofchitin in the mixture is known.
When combined with estimates of processcosts and product pricesdeveloped in the 1\t\ARI8US 

### study, data suggest that even if 

### the more optimistic estimates of chitin content (15-20% in crab meal) arecorrect, Alaskan crabwastes might be economic as a chitin sourceonly in the form of deproteinized shell. (SeeTables 3.10 t03.13 and Figure 3.3, MARlBUS.) Sincedeproteinization is an optional step in chitosan recovery (so that deproteinized shell has no significant advantageover other forms of shell waste), it appears

4-19

### thatAlaskan crab shell will notbeused in theproduction ofchitosanunless the protein extraction process is economically feasible on itsown merits.
Low chitin content in crab waste affectstheeventual costof the processed chitosan in two ways. First as indicated in the discussion above, it can raisethe cost of theraw material alonetothe level of selling prices for someof theapplicationsofthefinished product. (See MARlBUS, pages viii-ix.) Second, since a low chitincontent means a high calcium carbonatecontent, the costofdemineralization with hydrochloric acid, a major expense in the chitosan process, is correspondingly higher.
There is another problem with theuseofdeproteinized shell from Alaska as a source ofchitin. Industrial firms whohaveevaluated theeconomicfeasibility ofchitosan production have indicated that proteinrecovery is considered tobe an important aspect of the material balance(ofchemicals) and a significant portion of anticipatedrevenues from a shell-utilizationoperation. Thus, even if deproteinizedshell could be provided at no cost, there is no assurancetherewould be 

### any chitosanproducers interested in it.
This problem with deproteinized shell is particularly true ofAlaskan shell. Compared with most other sourcesavailable to a firm that may decide toventure intotheproduction ofchitosan, Alaskan crabshell has a higher mineral and a lower chitincontent. As such, it 

### is a high cost sourceofchitin that probably will not be "mined"until the lowercostsupplies areutilized. Nor will it bemined until somedefinitive data is developed on the chitin, protein, and moisturecontentofvarious portionsofcrabwaste. Without such information, investment in a chitosan operation basedon Alaskan crabwaste would be imprudent.

4-20

### 5.0 Systems for Collection of Shellfish Waste The previous chapter considered the utilization of crab waste as an alternativeto the present system of grinding and pumping of seafood wastes at Dutch Harbor. This chapter will consider alternative systems for the collection of therecoverable waste material.
The economicsofcollecting shellfish wastes at DutchHarbor ultimately are dependent on the economics of utilization and disposal. If thepreceding chapterhad identified a potential use for shellfish wastecapableof profitableoperation on a small scale, then it would be appropriatefor eachseafood processing firm toconsider collecting their own wastes and to individually exploit such anopportunity. Asidefrom capital requirements, their abilitytodo so would depend primarilyon the availabilityof land.
Since most DutchHarbor firms are already constrainedby limited land availablefor crab processing operations, it is reasonable toassume they would have tobepresented with an equally attractiveopportunity beforetheywould use land for wasteprocessing. Such utilization could mean theforfeiting of an ability toexpand in a firm's primary area of operations, seafood processing. And, with thepossibility increasing that the next decade may seethedevelopment of bottomfishoperations in the DutchHarbor area, expansion considerationsareparticularlysignificant.
The analysis in Chapter4 of utilization alternatives for DutchHarbor wastes indicated that if

### economic opportunities for such wastesdoexist, the economies of scaledictate that the wastebeprocessed on a combined basis. Chapter 6 finds that theeconomics of disposal also favor a community system.
5.1 A communitysystem for dewatering processing wastes This section will consider thepossibilitythat processing firms at DutchHarbor might pump their wastes to a common location. For the mostpart, theyalready havethe necessaryequipment in theirpresentdischarge systems. With the exception of PacificPearl on Captain's Bay, NEFCO, andSea-Alaska, the firms are locatedcloseenoughtoone another that there might betheopportunityfor a jointventure. Whether NEFCO and Sea-Alaskawould find it 

### economic to participate in the venture would depend on the cost of turning their pipes and extending them toward a common location. Feasibilityof a jointventure will ultimately depend on the availability of land. Most potential sites apparently are ownedby a single Native Americanorganization. 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 tohow 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 beachieved with a single operation. While there is littlereason tobelievethat the total number of screens could be significantlyreduced, savings in building costs, hoppers, conveyors, loading areas, and labor could be substantial.
If a 6 

### ft. tangential screen isabletocleanapproximately600 gallons of wastewater per minute, then a firm using upto 1.5 million gallons per 20-hour processing day will apparently need two screens. Each screen sellsfor less than $10,000. However, capital costs for screen installation developed in an analysis ofPhase II Wastewater Guidelines for Alaskan processing plants, found that installation costsfor equipmentcapableof screening400 to 800 gallons per minute stiII had significanteconomies of scale. That is, total costsof screening 800 gallons were approximately only 50% greater than screening 400 gallons. WhiIe it was obvious from thedata that economiesof scale werebeing lost with increasing size, it did not appear from extrapolating the data that theywould disappear while the flow rates were below 5,000 gallons per minute. (Appendix to Petitioner'S Brief, Figure4, p. A315.)
Theanalysis ofAlaskan screeningcosts(updating EPA's 1971 estimates with 1975 prices) found that a screen installation for 600 gallons per minutecan beexpected tocost around $100,000. In the samegraph (Figure4 citedabove), therewas also a revision oftheEPA figures toreflect (I) 

### engineering assumptions basedon some.of the particularneeds and observed practicesof Alaska as well as (2) revised shipping costsand (3) a 1.5 factor on Alaskan construction rates. When thesefactors were included, thepricewent to $140,000. With a 2.5 factor, thepricegoes to$220,000. While therehas been insufficient time for this studytodeterminetheapplicability toDutch Harbor ofthese prior estimates ofAlaskan screen costs, the figures do indicatethegeneral magnitude of thedollars involved.
Even assuming that individual firms operating in DutchHarbor combined thewaste flows from their various plants for purposes of screening (rather than each plant of each firm individually screening its wastes), it appears likely that thecost of constructing screening operations (at seven Dutch Harbor operations) couldcost $1 million. However, if a system

5-2could be designed that would assure individual firms that their ability toprocesswould not beendangered by "breakdowns" at a community wastecollection site, it might be capable of significant savings in capitol, land rent, and operatingexpenses. Although theoverall historyof communitywater, electricity, and sewage systems indicates the general feasibility of cooperativeefforts, this study does recognize the perceivedrisk to individual firms ofrelying on systems beyond their control--particularlywhen outfall lines carrying crab waste plug soreadily. However, an engineering studyofthepotential savingsand risks of a community system does appear tobewarranted. If such a study found theavailabilityof land is not the problem assumed in thisreport, then, rather than screening, a "settling tonk" approach to wasterecovery (as used in municipal wastewater systems) might befeasible.
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 varyconsiderablyamong thefirms.
Theprimary design and cost determinantsof screening systemswill apparently depend on whether recovered wastes are transported to a commonsiteon the island for utilization or disposal, or are disposed ofby being barged from the individual plants. In turn, the feasibility and cost of barging from individual plants will depend on whether each plant has itsown bargeor it is possible to bring a community bargealongsideon 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 bebarged and dumped, will bea primarydeterminant of the economic feasibility of the alternatives discussed here. However, even if land could beobtained for a community collection site, the inability to obtain the use of a dock, at which thewastecould be putonto a barge, could force the use of individual barges. In this event, until a communitydock is built, some firms would have toradicallychange their operatingprocedures. Given the wide variations in the size of processor docks, the impact could significantlyalter the competitive position of DutchHarbor 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 theplant and "outthe back door" (perhaps using available spaceon shore) or whether 

### it must use limited dock area for barges, hoppers and/or conveyors. Without an engineering study specific toeach firm, it is not possible toknow the Dutch Harbor costs of a screening system that would barge wastes directly from each plant. 

### 5-36.0 Tug and BargeDisposal This chapter assumes that if ocean dumping is used for waste disposal, only onetug will benecessary to serve all processors. Thereason will become apparent when thecosts of operating a tug are considered. It also is assumed that it will benecessary tocover the barge. Good sanitation practices require that seafood wastes becovered outdoors. The alternative would probably bethecreationof a public nuisance in the form of birds, flies, and rodents.
6.1 Dump scows There aresome problems inherent in the "barging" of DutchHarbor's seafoodwastes. The first problem is that a bargewith built-upsides would be a continuing sourceof viscera and rice meat leakingonto thesurface watersof lliuliuk Harbor. Second, wind and swell conditions would make it difficult tounload at sea. Thus, becauseof their ability toretain wet wastesand to self-empty, this study assumes that dump scows will bethe "barging" component of screening and barging. And, because of therequirement that seafood wastes be covered1 a pocketscow with sliding doors would beused rather than a split or scissorsbarge (in which the holding binsopen like clamshell scoops) that would need tobeuncovered at seabefore dumping.
6.1(a) A community dump scow operating from a community dock Oneof the primaryneedsof a communityscow operation is regular access toa dock that itselfhas access tohoppers and/orconveyorsused 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 thepresent siteof theTheresaLee, NEFCO's leased operating site) theresolution of this problem will be a matter of negotiation between those who have such resources and those who need them. In theabsence 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, PacificPearl (Captain'sBay) and Pan Alaska {Unalaska} would need toarrange for separatepickup on Unalaska Island.
The greatest waste volume at Dutch Harbor would be during king crabseason. At these times, recoverable wastescould 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 bargecould readily make more than one tripper day and theprocessors would themselves plan excess hopper capacity to storewastebetween 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, onecould be leased (insured) for around $8,000 a month including the time tohaul 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 DutchHarbor operations.
Owners of dump scows in theSeattlearea indicatedthat if arrangements aremade 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 toon-going and/or construction projects. Availability during any given year is not assured.
6.1(b) A communityscow operating from processor docks If, instead of operatingfrom a community dock, the scow picks up wastes from thedocks of the individual processors, the problems andcostsofcreating a communitydock might be avoided. However, for theprocessors it would mean that a "flow-through" of wastes would not bepossible and that wastes would have tobe conveyed and/or stored in the dock area. The cost of this as well as the logistical problems of scheduling dump scows and crabbersfor the samedock space, are theproper domain of an engineering study. From the information available to thisreport, it appears that a disposal operationcollecting wastes from processors' docks would be a significant logistical burden for several ofthe processors.
6.2 Tugs The size (and cost) of a tug would dependon the sizeof the dump scow that mustbe 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 primarydifference 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 spacewere not available, thevessel and barge could tieup at a buoy dropped in thebay. (Permission for a buoy must be obtained from the District Engineers.) For around $2,000 per day, a tug would beon call 24hours per day, 7 days a week. The tug would take about II days to get toDutch 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 wiII begin in earlyJanuary and continue until late Mayor earlyJune. Assuming travel timeup 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 theopportunity to take advantage ofbreaks in theweather} the tug cost would be $568,000.
6.3 Costsof tug and bargedisposal With tugexpenses of $568,000 and scow expensesof$76,000, thecostsof barging crab wastes from DutchHarbor can beestimated at a minimum of $643,000. If morethan onebargeor a largerbarge is necessary, thecosts would rise. However, there is no apparentreason tobelieve that a reduction in the waste load (such as through utilization) would appreciablyreducethe tug andbargecosts. That is, theestimatedratesare not sensitiveon thedown side towaste loads. One factor that might reducebarging costs is a shorter season due to increases in thecrabfleet working against a quota. However, shorter seasons are more likely for king crabthan for tanner crab, where both bairdi and opilio are now being harvested.
6.4 The safetyvalveconcept The need for a "safetyvalve" becomesapparent when the nature ofthe tug andbarge contract is considered. It is not a performancecontract. Rather, it is a contract to perform when the weather permits. And, theperson who legally decides when theweather permits, is the master of the tug.
At thebeginning of this study, informed opinion was that no one would befool enough to commit their lives andequipmenttotherisk of a barging operation in the DutchHarbor area.' Such opinions miss thepoint. When men andequipment arereimbursed whether they work ornot, and whether they work is their own decision, then therisk of bad weather is primarily on the person requiring performance. The master of the tug bears another risk, therisk of being penalizedfor operating under conditionswhen he should have stayed "in port." The two risks are notoffsetting. Indeed, the severityof penaltytothe master tends to increase the risk to the processors of non-performance. It 

### is this dilemma that underlies the safetyvalve concept.
Weather in the DutchHarbor area could make tug and bargeoperations inoperable for

The power of DutchHarbor'S winds and "williwaws" are aptly described (page 19) in "TheThousand-Mile War ••. World War I r 

### in Alaska andthe Aleutians." 

### 6-3several days at a time. The passage out of the north endof 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 precludeexiting to the south.
Winds in that general areaof the Aleutians areover 28 knots 19% of the time in November and February, with waves over 20 feet 20% ofthe time in Februaryand over 8 feet 40- 50% of the time in October. (U.S. Navy••• ClimateAtlas) It appears that contingency planning at the least would require enough storageor barge capacityto hold five days of processing waste. Whether to opt for a large scow ($1,500,000 for 4,000 pound capacity) or a seriesof smaller ones is a problem in balancingthecostsandrisks of docking and towing a large scow against the greater flexibility buthigher costsper yard ofcapacity of a fleet of smaller scowsor on-shore storagecontainers.
In eithercase, theproblem is that even a five-day capacity might not preventthe closing ofprocessingoperations under extremeweatherconditions at DutchHarbor.
Given thecost ofthe excess waste capacitynecessary to prevent operating shutdowns due to weather, it becomes apparent that a "safetyvalve" other than excesscapacity is necessary and reasonable. The safetyvalve concept assumes that only one scow would be used in a Dutch Harbor disposal operation. The ultimatesizeof the scow would be a function of weather and wave conditionsbalanced against operatingcharacteristics, dock capacities, risks todocks, and maritimeregulations for tug andbargeoperations. However, once this balance is obtained, should weather conditionsprevent ocean operations, processors would bepermitted(after scow and reservecapacity is filled) togrind and pumptheir wastes {rather than ceasing operations} until the weather again permits ocean disposal. The safetyvalve 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 equipmentavailability discussed earlier,contingency planning may dictate that a community scowbe purchased. While this will require a significantcapital outlay, a dump scow is multiple-purpose equipment. Thus, if at some time in the future it becomes feasible to utilizerather than dump seafood waste, there will probably be a resale market for the scow.
The limited availability of scows, however, poses a problem greaterthan thecost of purchase. Nor can it be solvedby insuring thecraft. The problem is that if thedump



### 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 beobtained at a reasonable price, it would not compensateprocessing 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 safetyvalve of a grind and pump operation would be appropriate.



### 6-5

### BIBLIOGRAPHY Agreement for All Alaska BetweenNorthwestTowboat 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. TheBering Sea Tanner Crab Resource: U.S. Production Capacity and Marketing. Alaska Sea GrantReport No. 77-5. Anderson, P.J. and F.G. Gaffney. 1977. "Shrimp of the Gulf of Alaska." Alaska Seas and Coasts5:3. University of Alaska. Appendix to Petitioner's Brief, On Petition for Review of Action of theAdministrator of theEnvironmental Protection Agency. Association of Pacific Fisheries, et

### 01. vs. Environmental ProtectionAgency. United StatesCourt of Appeals for the Ninth Circuit. No. 75-2007. Area-Shellfish Monthly Report. 1976, 1977. Stateof Alaska Deportmentof Fish and Game. Burchard, Boyd. 1973. "Crabsmay yet giveus their all." SeaUleTimes, 12 December:G2. Cityof Unalaska and Stateof Alaska, Division ofEconomic Enterprise. 1975. Unalaska••• An Alaskan Community Profile. CRESA, under contract toTheEnvironmental ProtectionAgency. 1971. Pollution Abatement and By-Product Recovery in Shellfish andFisheries Processing. Water Pollution Control Research Series. No. 12130 FJQ 

### 06/71. 86 p. Cumulative Shellfish Catch Report. Preliminary Data 1977, 1978. StateofAlaska, 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. Officeof Water andHazardous Materials. U.S. Environmental Protection Agency. DevelopmentDocument for Effluent Limitations Guidelines and Standardsof Performancefor theCatfish, Crab, ShrimpCandTuna Segments of the Conned and Preserved Seafood Processing IndustryPoint Source ategor>',. EPA44071-74-0200. U.S. Government Printing Office, Washington, D.C. 389 p. . Environmental ProtectionAgency: Officeof Enforcement. 1974. Evaluation ofWaste Disposal Practices of Alaska SeafoodProcessors. Notional Field InvestigationsCenter. EPA-330!2-75-001, Denver, Colorado. 335 p. 

### "Forecast of Some Alaska Salmon Returns." 1978. PacificFisheries Review. TheFishermen's News 34:2,19-30. GClrfield, Brian. 1969. TheThousand-Mile War..• 

### World "Var ! ! 

### in Alaska and theAleutians. Doubleday &

### Co., Inc., New York. 351 p. . Goodwin, R.F. 1974. Washington Sea Grant: TheFirst Five Years••.An Evaluation of Selected Projects. Division of MarineResources, University of Washington. WSGPM 74-1. 31 p.

B-1Hattis, D. and A.E. Murray. 1977. Industrial Prospects for Chitin and Protein from Shellfish Wastes

... A Report on the First Marine Industries Business Strategy ProgramMarine

. 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, DuaneW. 1978. Investigations of Seven Disposal Locations Used by Seafood Processors at Dutch Harbor Alaska•.. October 1976 Se tember 1977. Environmental Protection AgencySurve.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 UniversityExtension. 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, seeHattis, D. and A.E. Murray. Mendenhall, Vivian. 1971. Utilization and Disposal of Crab and ShrimpWastes. 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/PreliminaryFishery Management Plan King and Tanner CrabFisheries of the Eastern Bering Sea. Alaska. 8 p. National Marine Fisheries Service. 1976. PreliminaryFishery 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-2I

I I 

# l North PacificFishery Management Council. 1976. Fishery Management Plan for King Crab. Alaska. 131 p. Oceanographic Commission of Washington. 1973. "Pilot plantcould develop intonew industry for converting waste shells into chitin and chitosan." PacificNorthwest Sea 6:1. Orford, Robert R. 1976. Epidemiological and Immunological Studies in Workers Exposed to King Crab. Master Public Health Thesis. Seattle, Washington: Universityof Washington. 54 p. Pariser, E.R. and S. Bock. 1972. Chitin and Chitin Derivatives•.• An AnnotatedBibliography ofSelected 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. Universityof 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 (Paralithodescamtschatica,Tilesius) From Kadiak Island, Alaska. Stateof Alaska DepartmentofFish and Game Informational Leaflet 46. Seagran,Harry L. 1958. "ContributiontotheChemistryof the King Crab (Paralithodes camtschatica)." Commercial FisheriesReview 20(1I): 15-22. StateofAlaska. Dept. of Environmental Conservation. 1978. Alaska's Draft Water QualityStandards, Title 18. Chapter70. 42 p. StateofAlaska. Dept. ofEnvironmental Conservation. 1978. Public Noticeof Proposed Changes in the Regulations of the Alaska Departmentof Environmental Conservation. Stewart, R.K. and D.R. Tangarone. 1977. Water Quality Investigation Related to Seafood Processin Wastewater Dischar es at DutchHarbor Alaska•••October 1975 October 1976. nvironmental ProtectionAgency Surveillance and Analysis Division, Seattle, Washington, Region X. Working PaperNo. EPA-910-8-77-100. Texas A&M University. 1977. "TheContinuing Promise of Chitin." Sea Grant70's, 7( 15):4,5. "U.S. BeringSea Crab CatchesRise." 1978. PacificFisheries Review. The Fishermen's News 34:2, 87-91. U.S. Navy Marine Climate Atlas oftheWorld. 1977. Vol. 2. North PacificOcean. Naval Oceanography and Meteorology. vanHaagen, R., ed. 1972. Total Utilization Concept.•. Fishand Shellfish Processing 'Hestes. Report of a Workshop. Seattle, Washington, April 18, 1972. WSG-WO 

## 72-'. p. "Where Crab Is King." 1965. PacificFisherman Maga:?:ine 63:7. Miller FreemanPublications.

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# (**(~**

UNITEDSTATES 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 toyou, the following: 1. The updated study: Market Feasibility Study of Seafood Waste Reduction in Alaska, November, 

## 1980. Acopy 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 basis 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 ityoperations 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 ofwaste 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 contractua1 

### 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 Fish and Game. As wi11 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-remote ll 

### 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 Xin 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