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## APPENDIX D

SOCIOECONOMIC IMPACT ANALYSIS FOR REVISED PROPOSED AMEN DMENTS TO RULE 4570 (CONFINED ANIMAL FACILITIES)

October 21, 2010

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Due to revisions from the June 17, 2010 pr oposed rule, the cost of compliance has
been reevaluated as described in Appendix C of this Staff R eport. The revised costs for compliance in 2012 are shown in Table 1A below.

Table 1A – Revised Costs CAF Type Annual Cost ($/yr) Large Dairy CAF $29,843,565 Medium Dairy CAF $31,468,645 Total for all Dairy CAFs $61,312,210 Poultry CAF $274,000

Total Annual Costs $61,586,210

Since the revised costs are similar to those which were calculated in the report posted on September 21, 2010, the revised im pact to industry has been calculated and reflected in the attached Socioeconomic Impact Analysis by Applied Development
Economics.

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# SOCIOECONOMIC IMPACT ANALYSIS PROPOSED AMENDMENTS TO RULE 4570 (CONFINED ANIMAL FACILITIES)

FINAL DRAFT

OCTOBER 1, 2010

Prepared for 

### San Joaquin Valley Air Pollution Control District

Prepared by 

### Applied Development Economics
100 Pringle Avenue, Suite 560  Walnut Creek, California 94596  (925) 934-8712

2150 River Plaza Drive, Suite 168  Sacramento, CA 95833  (916) 923-1562
www.adeusa.com

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Appendix D: Socioeconomic Analysis October 21, 2010



# TABLE OF CONTENTS

Executive Summary

............................................................................................................................... .7

1. Introduction ........................................................................................................................................9

2. Description of Proposed Amendments to Rule 4570 (Confined Animal Facilities) ................11

3. Methodology .......................................................................................................................................13

4. Impacted Industries Subject to Proposed Amendments to Rule 4570 (Confined Animal Facilities)

............................................................................................................................... .15

4.1 Regional Demographic and Economic Trends ................................................................15

4.2 Description of Affected Industries ....................................................................................19

5. Socioeconomic Impact Analysis of Proposed Amendments to Rule 4570 (Confined Animal Facilities) .............................................................................................................23

5.1 Annual Compliance Cost Estimates ..................................................................................23

5.2 Business reponses to Compliance Costs ...........................................................................23

5.3 Impacts on Affected Industries ..........................................................................................24

Appendix 1.Approaches To Estimating Net Profits .........................................................................28

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# EXECUTIVE SUMMARY

The San Joaquin Valley Pollution Control District (“District”) is considering amending Rule 4570 (Confined Animal Facilities) against a ba ckdrop of steep economic decline particularly for the dairy industry. Latest available data in the San Joaquin valley region show a precipitous decline in dairy employment between third quarter 2008 and third quarter 2009. Dairy employment dropped from 15,212 to 14,534 jobs, a loss of 678 jobs that represents an annual decline of 4.5 percent. Over the same period, poultry dropped by 0.1 percent, whereas cattle increased by 0.5 percent.

The value of dairy production in the San Joaquin Valley region on a per unit basis decreased annually from $16.78 per hundredweight to $16. 60 per hundredweight, for an annual decline of 0.3 percent. This downward trend acceler ated even more in 2008 and through 2009. Although official data on aggregate value is not yet available, the California Department of Food and Agriculture reports that the annual average for 2009 price in hundredweight was 32 percent below the 2008 average, or $11.29 for the San Joaquin Valley region. Thus, aggregate value in 2009 is an estimated $3,704 ,700,000, which amounts to a reduction in $2.1

billion in value between 2008 and 2009.

The socioeconomic impact analysis concludes by saying that, while poultry is not significantly impacted by the proposed amendments, a portion of the dairy industry is affected significantly. For dairies with 500 to 999 milk cows, total annual costs stemming from the proposed amendments to Rule 4570 represent 88.9 percent of affected sources aggregate net profits, or $31,468,645 in aggregate annual compliance costs versus $35,400,605 in aggregate annual net profits. Dairies with over 1,000 cows are also significantly affected by the proposed amendments to Rule 4507. As the report shows, annual costs stemming from th e new measure amount to 20.9 percent of net profits. The report also shows that affected establishments in the poultry category are not significantly impacted by the proposed amendments.

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# 1. INTRODUCTION

This socioeconomic report describes the socioeconomic impacts of the proposed amendments to Rule 4570 (Confined Animal Facilities). Following this introduction, the socioeconomic report summarizes the proposed amendments (Section 2) and describes the methodology for the socioeconomic analysis (Section 3). In Section 4, the socioeconomic report describes the economic characteristics of specific industries affected by the proposed amendments to Rule 4570. The sixth section analyzes the socioeconomic impacts of compliance costs on the affected sources and the regional economy. Figure 1 below is a map of the eight-county region that compri ses the San Joaquin Valley Air Basin. As indicated in the map, Kern County is not completely in the District.

FIGURE 1
MAP OF SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT



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# 2. DESCRIPTION OF PROPOSED AMENDMENTS TO RULE 4570 (CONFINED ANIMAL FACILITIES)

Confined animal facilities (CAF) are used in the raising of livestock for the purpose of providing dairy products, meat, and eggs. Due to the different methods of confinement and associated manure management, there is no typ ical CAF. The design and operation of a CAF varies depending on animal type, regional climatic conditions, business practices, and preferences of the operators.

Rule 4570 limits VOC emissions from large CA Fs through management practices. This rule covers each aspect of CAF operations – from food to housing to manure management to land application. Operators must choose a certa in number of management practices from a limited menu of control measures for each operation. 1 

### When Rule 4570 was adopted in 2006, the limited research available at the time pointed to solid/liquid manure handling as being the highest largest source of VOC emissi ons at a dairy. District staff has recently reviewed available dairy emission studies. In contrast to earlier research, the current information indicates that silage piles and placing feed in the feed bunkers are a larger portion of the total dairy emissions than solid/ liquid manure handling. The District is in the process of finalizing a revised dairy emission factor to reflect the new information. 2



### In addition to dairies, the proposed amendments to Rule 4570 will affect beef feedlots, other cattle facilities, poultry facilities, and swine fa cilities. For purposes of the socioeconomic analysis, the District has determined that da iries and poultry facilities will be affected significantly enough to warrant a socioeconomic impact analysis. For more detail on the proposed amendments to Rule 4570, see the District staff report.

1 The current rule can be accessed on-line at http://www.valleyair .org/rules/currntrules/r4570.pdf

2 The draft emission factor and supporting staff report are availa ble on the District’s website www.valleyair.org./workshops /public_workshops_idx.htm



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# 3. METHODOLOGY

The socioeconomic analysis involves the use of information provided directly by affected sources, as well as secondary data used to describe the industries affected by the proposed amendments to Rule 4570. The approach is briefly described below.

Applied Development Economics (ADE) began the analysis by preparing a statistical description of the industry groups of which th e affected sources are a part, analyzing data on the number of jobs, sales levels, the typical pr ofit ratios, and other economic indicators for each industry.

This report relies heavily on the most current da ta available from a variety of sources, such as the 2007 Agricultural Census and the State of California’s Agricultural Commissioners’ Annual Reports. In addition, the report re lies on data from Employment Development Department (EDD) Labor Market Information Di vision, as well as publications from the California Department of Food and Agriculture. For purposes of estimating profits, ADE reviewed industry-specific financial ratios issued by the Dun and Bradstreet and RMA.

With the above information, ADE was able to es timate net after tax profit ratios for sources affected by the proposed amendments to Rule 4570. ADE calculated ratios of profit per dollar of revenue for affected industries. The result of the socioeconomic analysis shows what proportion of profits the compliance cost s represent. With respect to calculating revenues and net profits specifically for purpos es of comparing profits against costs, the socioeconomic impact analysis focuses only on reve nues and net profits generated by entities affected by the proposed amendments, not revenues and net profits generated by all establishments in affected industries. Based on assumed thresholds of significance, ADE discusses in the report whether the affected sour ces are likely to reduce jobs as a means of recouping the cost stemming from the proposed amendments or as a result of reducing business operations. To the extent that such job losses appear likely, the indirect multiplier effects of the jobs losses are estimated using a regional IMPLAN input-output model.

When analyzing the socioeconomic impacts of the recommendations for specific crop categories, ADE works closely within the pa rameters of accepted methodologies discussed in a 1995 California Air Resources Board report called “Development of a Methodology to Assess the Economic Impact Required by SB 513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural an d Resources Economics, Contract No. 93-314, August, 1995). The author of this report revi ewed a methodology to assess the impact that California Environmental Protection Agency prop osed regulations would have on the ability of California businesses to compete. The California Air Resources Board (ARB) has incorporated the methodologies described in this report in its own assessment of socioeconomic impacts of rules generated by ARB. One methodology relates to determining

a level above or below which a rule and its asso ciated costs is deemed to have significant

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impacts. When analyzing the degree to which its rules are significant or insignificant, ARB employs a threshold of significance that ADE follows. For more information, see Appendix

1.

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# 4. IMPACTED INDUSTRIES SUBJECT TO PROPOSED
AMENDMENTS TO RULE 4570

This section of the socioeconomic analysis describes demographic and economic trends in the San Joaquin Valley region. The first part of this section compares the San Joaquin Valley region against California as a whole, and provides a context for understanding demographic and economic changes that occurred within the San Joaquin Valley region between 2000 and 2008. Starting with sub-section 5.2, the second pa rt of this section narrows the focus of the socioeconomic analysis to industries affected by the proposed amendments. The second part of this section describes the economic characteristics of potentially impacted industries that might be subject to proposed amendments to Rule 4570.



## 4.1 REGIONAL DEMOGRAPHIC AND ECONOMIC TRENDS

R EGIONAL 

## D EMOGRAPHIC 

## T RENDS


### The eight-county San Joaquin Valley region’s population increased by 19.7 percent between 2000 and 2008, or approximately 2.3 percent annually, from 3.3 million in 2000 to 3.6 million in 2008. In the last four years, the regi on grew at a slower rate of 1.6 percent per year

between 2004 and 2008. While the State of Ca lifornia’s population increased by 12 percent (or approximately 1.5 percent annually) between 2000 and 2008, all the counties in the region experienced faster rates of growth than Califor nia over the same period, as Table 1 shows. While, by many standards, Madera County c ontinues to be a small county– at 150,887 residents according to the Department of Fina nce–it still experienced an annual growth rate of 2.6 percent between 2000 and 2008. Between 2004 and 2008, this county continued to grow annually but at a slightly lesser rate of 1.8 percent. In the same four-year 2004-2008 period, Kern, Merced, and San Joaquin Counties experienced rapid growth, growing annually by2.1 percent, 1.6 percent, and 1.3 percent respectively, as Table 1 below shows. As demonstrated in the following section on regional economic trends, the demographic changes that occurred in the San Joaquin Valley region during the 1990s and into the new century significantly influenced the economy of this eight-county region.

TABLE 1 SAN JOAQUIN VALLEY REGION POPULATION TRENDS, 2000-2008

2000 2004 2008 00-04 04-08 00-08
State 33,873,086 36,676,931 38,049, 462 2.0% 0.9% 1.5% Region 3,302,800 3,718,660 3,956,003 3.0% 1.6% 2.3%
Fresno 799,407 881,324 931,098 2.5% 1.4% 1.9%
Kern 661,653 753,698 817,517 3.3% 2.1% 2.7% Kings 129,461 145,426 154,434 2.9% 1.5% 2.2%
Madera 123,109 140,297 150,887 3.3% 1.8% 2.6%
Merced 210,554 239,659 255,250 3.3% 1.6% 2.4% San Joaquin 563,598 652,248 685, 660 3.7% 1.3% 2.5%
Stanislaus 446,997 503,157 525, 903 3.0% 1.1% 2.1%
Tulare 368,021 402,851 435,254 2.3% 2.0% 2.1% Source: ADE, Inc., based on California Department of Finance



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Appendix D: Socioeconomic Analysis October 21, 2010



## R EGIONAL 

## E CONOMIC 

## T RENDS


### Economic development practitioners and planners have traditionally divided economies into two broad industrial categories—the economic base and local support industries. Economic

base industries are the drivers of local and re gional economies in that these industries draw income into a local economy by selling products outside of the local economy, much like the export industries of a national economy. Accr ued earnings then circulate throughout the local area in the form of wages and salaries; investments; purchases of fixed assets, goods, and services; and generation of more jobs and wealth.

The economic base is typically comprised of in dustries within the manufacturing, mineralsresource extraction, and agricultural sectors. There are also the “local support industries” such as retail or service sectors, the progress of which is a function of the economic base and demographic changes, and more so the latter than the former. As population increases in a given area, demand for services–such as realtors, teachers, and healthcare–increases, as does demand for basic retail items like groceries, gas for commuting, or clothing at the local apparel shops.

Agriculture is the economic base of the San Joa quin Valley region by virtue of the amount of goods this sector produces and exports throughout the nation and the globe. Slightly less than 14 percent of all workers in the region are employed by industries within agriculture, as Table 2 shows. In 2000, approximately 17 percen t of all workers worked in agriculture. In other words, in relative terms, agriculture as a share of total employment dropped between 2000 and 2008, pointing to a trend in diversif ication of the region’s economy. To be sure, agriculture is still the sector with the most wo rkers, at 178,522 in 2008, and many jobs in other industries such as manufacturing, wholesale, and warehouse transportation depend on agriculture. Underscoring the importance of this sector, agricultural employment grew in absolute terms between 2004 and 2008, from 16 9,556 to 178,522, an annual rate of growth of 1.3 percent between 2004 and 2008.

Between 2004 and 2008, local support industries gained in prominence within the San Joaquin Valley region. Service-rendering industries employed the most workers as a proportion of total employment in the region. Service-rendering industries comprise 67 percent of all jobs, including public sector positions. In other words, 887,415 jobs out of a total of 1,317,365 jobs are in service-rendering industries. Excluding the public sector, service-rendering jobs account for 49 percent of all jobs in 2006. In 2000, service-rendering industries (excluding the public sector) represented 46 percent of all jobs, indicating that the transition toward a services economy has b een accelerating since the year 2000.

Employment increases in service-rendering in dustries are consistent with regional population growth. In the region, local support industri es of public/private education and health services increased annually by 2.3 percent and 3.4 percent between 2004 and 2008.

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D-17 Final Staff Report with Appendices For Revised Proposed Amendments to Rule 4570 

### Construction and financial services are two other local support industries that grew in accordance with the region’s population surge; ho wever, with the downturn in the national economy, these industries’ rates of growth have lowered dramatically. Employment in construction grew by a 1.2 percent per yea r between 2000 and 2004. Between 2004 and 2008, construction continued to grow but by a slower rate of 0.9 percent per year. Likewise, financial services grew annually by 4.4 percen t between 2000 and 2004, but grew annually by a lesser rate of 1.2 percent between 2004 and 2008.

Close examination of Table 2 shows that the region experienced modest growth in manufacturing, as employment in this sector grew annually by 1.2 percent between 2004 and 2008, reversing an annual rate of decline of one percent between 2000 and 2004. What was a regional bright spot between 2000 and 2004, transportation and warehousing experienced negative 1.1 percent declines between 2004 and 2008, as compared to the 1.7 percent annual growth in the previous fo ur-year 2000-2004 period.SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICTAppendix D: Socioeconomic AnalysisOctober 21, 2010D-18Final Staff Report with Appendices ForRevised Proposed Amendments to Rule 4570TABLE 2ECONOMIC TRENDS: SAN JOAQUIN VALLEY, 2000-2008EmploymentDistributionEmployment:Annual PercentChange2000200420082008NAICSEstab.EmploymentAverage PayEstab.EmploymentAverage PayEstab.EmploymentAverage PayRegionCalifornia00-0404-08ALL82,7421,200,118$33,71292,2311,209,849$40,577100,4141,317,365$39,543100.00%100.00%0.20%2.15%Ag, Natural Resources1110,339199,37018,8348,646169,556$23,3547,371178,522$21,71413.60%2.50%-3.97%1.30%Utilities212128,86263,4942138,340$81,30918510,512$82,6270.80%0.00%-1.51%5.96%Mining221334,04869,8971795,071$86,0651695,618$81,2960.40%0.40%5.79%2.59%Construction235,75258,11640,4596,07469,065$46,8706,70572,312$44,7165.50%5.70%4.41%1.16%Manufacturing31-332,780114,74641,0332,779110,002$48,7352,662115,153$43,3528.70%9.30%-1.05%1.15%Wholesale422,74535,88447,1512,72237,124$53,0533,02745,299$46,5103.40%4.60%0.85%5.10%Retail44-458,937127,05027,3758,941132,956$31,3498,882143,910$25,89210.90%10.80%1.14%2.00%Transport Warehousing48-492,24036,07538,4832,23738,554$44,9621,95736,514$40,1662.80%2.70%1.68%-1.35%Information5163315,36146,82769214,257$53,69562515,328$47,4171.20%3.00%-1.85%1.83%Finance and Insurance522,79528,44348,0423,04630,690$59,5303,37332,027$50,1122.40%4.00%1.92%1.07%Real Estate532,48314,39026,4082,60715,932$34,1442,78415,897$32,6331.20%1.80%2.58%-0.05%Prof Technical Services544,07927,75744,6484,50131,812$52,4674,83936,411$46,7732.80%6.80%3.47%3.43%Mgmt. of Companies5532619,05654,82731613,988$60,04528810,551$55,3230.80%1.30%-7.44%-6.81%Admn and Waste Services562,70351,26423,7042,76848,182$28,9862,94758,761$27,1654.50%6.40%-1.54%5.09%Private Educational Serv.614237,42925,5534809,298$29,53249710,781$27,4070.80%1.70%5.77%3.77%Health Services626,01598,99238,5266,526110,647$47,8676,983126,598$44,0589.60%8.80%2.82%3.42%Arts, Entertainment, Rec7156211,74218,41362110,244$20,19264111,172$17,3050.80%1.60%-3.35%2.19%Food & Accommodations724,79974,93812,9694,94278,805$15,8315,31290,404$14,0206.90%8.30%1.27%3.49%Other Services8121,52241,29422,35630,39047,370$25,73135,62952,505$21,6064.00%4.60%3.49%2.61%Unclassified9985199$38,0331,7692,534$26,8360.20%0.30%Local Govt.58469,87044,80843760,768$56,30747768,469$51,0515.20%5.20%-3.43%3.03%Local Govt., Education1,228101,25841,3381,487109,087$48,3041,792118,716$78,7189.00%5.90%1.88%2.14%State, ALL1,10625,71248,2781,16628,463$56,5151,07831,639$51,2222.40%2.90%2.57%2.68%Federal, ALL34628,46156,29037629,439$66,39542427,732$58,9452.10%1.60%0.85%-1.48%Source: ADE, Inc., based on California Employment Development Department, LMID

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## 4.2 DESCRIPTION OF AFFECTED INDUSTRIES

Whereas the previous section described the larger economic context within which the District is contemplating the impacts of the proposed amendments to Rule 4570, this section analyzes trends of industries directly affected by the proposed amendments. The amendments affect a narrow set of industries, all of which fall under the broad agricultural industry category of “animal production.”

Table 3 below presents data on select agricultur al livestock industries in the San Joaquin Valley region. These are dairy cattle and milk production, and poultry and eggs. Employment increased by five percent a year in cattle between 2004 and 2008, and by 4.5 percent a year in dairies over the same period. Poultry declined by over five percent a year

between 2004 and 2008.

TABLE 3. SELECT LIVESTOCK TRENDS: SAN JOAQUIN VALLEY, 2000-2008

2000 2004 2008 Employment
Annual Percent Change

NAICS Estab. Emp. Avg. Wage Estab. Emp. Avg. Wage Estab. Emp. Avg. Wage 00-04 04-08

Select Livestock 1,181 11,177 $27,362 1,267 14,510 $28,520 1,034 16,578 $29, 683 6.7% 3.4% Dairy Cattle and Milk
Production 11212 1,028 9,539 $27,369 1,140 12,634 $28,550 920 15, 087 $29,730 7.3% 4.5%
Poultry and Egg Production 1123 153 1, 638 $25,930 127 1,876 $26,672 114 1, 491 $27,710 3.4% -5.6%

Source: ADE, Inc., based on California EDD LMID and Agricultural Bulletin



### While the table above indicates positive gro wth between 2004 and 2008 for dairy, this industry in particular has been hard-hit by the economic downturn that began in 2007 and accelerated even more in 2008. The table below shows that between first quarter 2008 and third quarter 2009, employment in the dair y industry dropped by 246 jobs, whereas employment in poultry increased over the same time. More interestingly, on a same quarter comparison, dairy employment declined preci pitously between third quarter 2008 and third quarter 2009, from 15,212 to 14,534 jobs, a loss of 678 jobs that represents an annual decline of 4.5 percent. Over the same period, poultry dropped by 0.1 percent.

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TABLE 4. QUARTERLY EMPLOYMENT TRENDS, 2007-
2008
Dairy Poultry

2008 Q1 - 2009 Q3 Quarterly
% Change -0.2% 4.0% Change -246 339

2009 3rd Qtr 14,534 1,424

2009 2nd Qtr 14,836 1,411

2009 1st Qtr 14,604 1,377

2008 4th Qtr 15,118 1,012

2008 3rd Qtr 15,212 1,425

2008 2nd Qtr 15,223 1,367

2008 1st Qtr 14,780 1,085

Source: ADE, Inc., based on CA EDD LMID



### The table below shows additional trends for industries affected by the proposed confined animal facilities measure. In aggregate, th e value of dairy production in the San Joaquin Valley region increased annually by 4.3 percen t between 2000 and 2008, from $4,902,777,600 to $5,812,241,000. However, on a per unit basi s, value actually decreased annually, from $16.78 per hundredweight to $16.60 per hundred weight, for an annual decline of 0.3 percent. This downward trend accelerated even more in 2008 and through 2009. Although official data on aggregate value is not yet available, the California Department of Food and Agriculture reports that the annual average fo r 2009 price in hundredweight was 32 percent below the 2008 average, or $11.29 for the San Joaquin Valley region. Thus, aggregate value in 2009 is an estimated $3,704,700,000, which represents a $2.1 billion reduction in value

between 2008 and 2009.

TABLE 5. TRENDS IN SELECT LIVESTOCK: SAN JOAQUIN VALLEY REGION,
2000 – 2008

2000 2004 2008 Annual % Chg
00-04 Annual % Chg
04-08 Dairy Trends Value ($2008) $3,373,618,469 $4,902, 777,635 $5,812,241,000 9.8% 4.3% Production (cwt) 236,129,817 292,249,472 350,151,264 5.5% 4.6% Value ($2008) per Cwt $14.29 $16.78 $16.60 4.1% -0.3%

Chicken Broilers (Value $2008) $309,129,290 $476,469, 500 $510,462,000 11.4% 1.7% Chicken eggs (Value $2008) $85, 037,249 $175,406,244 $278,988, 000 19.8% 12.3%

Source: ADE, Inc., based on California Agricultural Commissioners' Annual Report



### The table above also shows regional poultry trends. Data in the table are only for chickens, particularly layers and broilers. Data for chic kens are expressed in aggregate terms only.

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While the aggregate value of broiler chickens increased by 11.4 percent annually between 2000 and 2004, the rate of increase has slowed down dramatically over the 2004-2008 period, growing by a more tepid 1.7 percent per year. Overall, chicken broilers represent a $510,462,000 industry in the region, while e ggs in aggregate are valued at $278,988,000.

The two tables below profile each affected industry in greater detail. The table immediately below shows that there are 1,331 dairies in the San Joaquin Valley region, and in total, these dairies retain 2,271,484 cows, of which 1,57 4,300 are milk cows and the balance support

stock. 3 

### Milk cow data comes from the California Department of Food and Agriculture’s (CDFA) annual “Dairy Statistics” publication. Aggregate value in the table below is based on a five-year value per hundredweight average for the dairy industry. On average, the region’s dairy industry generates $4,914,390,500 in revenues a year, although it is important

to note that the estimated amount for 2009 al one ($3,704,700,000) falls below this annual average, underscoring the difficulties faced by the industry in the recent downturn in the

economy.

TABLE 6. PROFILE: SAN JOAQUIN VALLEY DAIRY INDUSTRY

Size Categories Dairies Milk Cow Herd, plus

support

stock Value Est. Net Profit

1,331 2,271,484 $4,914,390,451 $186,255,398

< 500 milk cows 423 146,623 $255,449, 957 $9,681,553

500 -999 milk cows 475 472,732 $925,321, 184 $35,069,673

1,000 to 2,499 319 751, 076 $1,617,163, 503 $61,290,497

2,500 or more 114 901, 053 $2,116,455, 807 $80,213,675
Source: ADE, Inc., based on US Agricultural Census 2007, California Department of Food and Agriculture (CDFA) and Dun & Bradstreet and Risk Management Association



### Tables 7 is similar to the table above, but is for poultry. Aggregate value data are based on 2003-2008 averages from the California Agriculture Commissioners’ Annual reports.

3 It is worth noting that Table 3 identi fies 920 dairies in the eight-county region. The discrepancy between the
EDD-based Table 3 and CDFA-based Table 6 is due to the fact that the California Employment Development Department (EDD) and the US Bureau of Labor Statistics place a business in only one industrial category, also known as the “primary industry” in which a business is engaged. Thus, the CDFA is capturing a number of dairies that may also be engaged in other agricultural activities that the EDD/BLS is using for purposes of record keeping. The CDFA data is the appropriate data set for purposes of analyzing dairy industry trends.



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Appendix D: Socioeconomic Analysis October 21, 2010

TABLE 7. PROFILE: SAN JOAQUIN VALLEY POULTRY INDUSTRY

Size categories Farms Number pf Layers &
Broilers Value Net Profits

998 236,326,826 $1,114, 287,555 $42,390,309

< 100,000 chickens 864 1,085,876 $17,484, 302 $332,925

100,000 to 199,999 19 3, 326,713 $38,398,086 $823,861

200,000 to 399,999 16 5,722, 128 $83,183,900 $1,685,110

400,000 to 499,999 11 3,970, 147 $13,749,790 $1,017,484

500,000 to 650,000 14 6,341, 214 $22,189,440 $1,642,019

650,000 or more 35 196,934, 663 $783,194,777 $52,392,083 Source: ADE, Inc., based on US Agricultural Census 2007, California Agricultural Commissioners' Annual Report, and Dun & Bradstreet and Risk Management Association



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Appendix D: Socioeconomic Analysis October 21, 2010



# 5. SOCIOECONOMIC IMPACT ANALYSIS OF
PROPOSED AMENDMENTS TO RULE 4570 (CONFINED ANIMAL FACILITIES)

This section of the report compares the econom ic characteristics of affected industries against compliance costs. The first part of this section discusses compliance costs. Compliance cost figures come from the Di strict. Section 5.2 discusses general business responses to compliance costs. Section 5.3 an alyzes the socioeconomic impacts of the proposed amendments to Rule 4570.



## 5.1 ANNUAL COMPLIANCE COST ESTIMATES

The table below identifies total annual compliance cost for industries affected by the proposed amendments to Rule 4570. Data co me from the San Joaquin valley Unified Air Pollution Control District. Although the amendments affect “beef cattle feedlots” and “swine”, District staff has determined that these industries are not significantly affected and thus are not included in the socioeconomic impact analysis.

TABLE 8. ANNUAL COSTS: SAN
JOAQUIN VALLEY UNIFIED AIR
POLLUTION CONTROL
DISTRICT

Dairy $61,312,210

Medium CAF $31,468,645 Large CAF $29,843,565
Poultry $274,000

Source: SJVUAPCD



## 5.2 BUSINESS REPONSES TO COMPLIANCE COSTS

Industry stakeholders and dairy operators in particular have expressed concern about their ability to afford costs stemming from the proposed amendments to Rule 4570. The downturn in the economy has affected the dairy industry in the San Joaquin Valley region. Many indicate that, given the nature of regu latory framework governing milk prices, dairy operators cannot simply pass costs to retaile rs and consumers generally. The discussion below assumes that businesses significantly impacted by the proposed amendments will make up the annual compliance costs with a corresponding reduction in their respective workforce, which is consistent with the dairy employment trends data presented above. In particular, this section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implementation of proposed amendments

to Rule 4570.

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Appendix D: Socioeconomic Analysis October 21, 2010



## 5.3 IMPACTS ON AFFECTED INDUSTRIES

The table below shows that affected establishments in “poultry” categories are not significantly impacted by the proposed amendments. However, a portion of the dairy industry in the region will be significantly im pacted. For dairies with 500 to 999 milk cows, total annual costs stemming from the proposed amendments to Rule 4570 represent almost 90 percent of affected sources aggregate net profits, or $31,468,645 in aggregate annual compliance costs versus $35,400,605 in estimated aggregate annual net profits. Dairies with over 1,000 cows are also significantly affected by the proposed amendments to Rule 4507. As the table shows, annual costs stemming from the new measure amount to almost 21 percent of net profits.

TABLE 9. SOCIOECONOMIC IMPACT ANALYSIS

Industry Farm Size Categories Ag gregate Revenues Net Profits Costs Cost-toNet
Profits

Dairies 500 to 999 milk & support cows $934,052,890 $35,400,605 $31,468,645 88.9% > 1000 milk & support cows $3, 764,135,343 $142,660,730 $29,843,565 20.9% Poultry 400,000 to 499,999 $13, 749,790 $1,017,484 $76,140 7.5%

500,000 to 650,000 $22,189,440 $1,642,019 $121,613 7.4%

650,000 or more $783,194,777 $52,392,083 $76,247 0.15%

Source: ADE, Inc. (note: dairies’ revenues include $12.7 million in subsidies [source: Environmental Working Group])



### The table above also shows that poultry facilities with anywhere between 400,000 and 650,000 birds are not affected significantly by the rule. In total, there are 18 facilities in the region with this many broilers, and in aggregate they will bear $274,000 in annual costs (facilities with 400,000 to 499,999 birds will be ar $76,100, while those with 500,000 to 650,000 will bear $121,600). For these facilit ies, cost-to-net profit ratios are less than significant, at approximately seven percent respectively.

Table 10 below shows the direct and indirect employment impacts stemming from the $61,312,210 in annual costs on dairies, wher e costs are significant. The annual costs translate into a direct loss of 330 jobs at dair y facilities impacted by the amendments to the rule. The loss of 330 dairy workers amounts to approximately two percent of total number of dairy workers in the eight-county region.

As affected establishments bear $61,312,210 in annual costs, in addition to reducing their respective workforce, these establishment reduce purchases from local and regional suppliers. This reduction in local purchases is estimated at $23,820,360, resulting in an

indirect loss of 194 workers. The 330 work ers who were directly and the 194 who were indirectly affected by the proposed amendments, in turn, reduce their respective spending at

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Appendix D: Socioeconomic Analysis October 21, 2010

local retail and services establishments, inducing yet another round of job losses (80). In total, the proposed amendments to Rule 4507 re sult in the loss of 605 full-time jobs in the region.

TABLE 10. DIRECT AND INDIRECT IMPACTS RESULTING FROM
PROPOSED AMENDMENTS TO RULE 4507

Direct Impacts Indirect/Induced Impacts Induced Impacts Total Impacts Industry Output $61,312,210 $23,820,360 $9,393,100 $94,525,670
Employment 330 194 80 605

Source: ADE, Inc.



### In addition to analyzing the employment impacts of the proposed amendments to Rule 4570, state legislation requires that the socioeconomic analysis assess whether small businesses are disproportionately affected by air quality rules. This section of the report analyzes impacts to small businesses from the vantage point of how th e State of California defines small businesses, beginning with a brief summary on how the state government defines small businesses for the purposes of qualifying certain businesses for various programs. This section concludes with a discussion as to whether the affected industries include small businesses, and assesses whether those small businesses are disproportionately impacted by the new rules.

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Appendix D: Socioeconomic Analysis October 21, 2010



## D EFINITION 

## O F 

## A S MALL 

## B USINESS


### For purposes of qualifying small businesses fo r bid preferences on state contracts and other benefits, the State of California defines small businesses in the following manner 4 

### . To be eligible for small business certification, a business:

 

### Must be independently owned and operated;

 

### Cannot be dominant in its field of operation;

 

### Must have its principal office located in California

 

### Must have its owners (or officers in the case of a corporation) domiciled in California;

and

 

### Together with its affiliates, be either:

− 

### A business with 100 or fewer employees, and an average gross receipts of $10 million or less over the previous tax years, or

− 

### A manufacturer with 100 or fewer employees

On average, dairies with 500 to 999 milk co ws generate $1.9 million in revenues a year, meaning these businesses are more than likely small businesses. These dairies typically employ an estimated 12 workers a year. Thus, the proposed amendments to Rule 4570 could disproportionately impact small business dair ies with 500 to 999 milk cows. Dairies with 1,000 to 2,499 milk cows generate $5.1 million and employ, on average, 23 workers per facility. These, too, are small businesses. Dairies with more than 2,500 milk cows, on average, generate $18.6 million a yea r and thus are not small businesses.

4 State of California. Department of General Services. “California Small Business Certification” (http: www.pd.dgs.ca.gov/smbus/sbcert.htm)



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# APPENDIX 1. APPROACHES TO ESTIMATING NET
PROFITS

When conducting the socioeconomic impact analysis, we turn to a variety of sources for estimating an after-tax net profit rate, whic h we then apply against revenues generated by affected sources and industries, to estimate di screte after-tax net profits. The table below includes raw data on sales and equity generated by economic sectors. Sales and equity data

below come from the US IRS. 5 

### That source also has enough information to calculate industry-specific after-tax net profits. Comparing the after-tax net profit amount against salesresults in a net profit rate, particularly a “return on sales” (“ROS”) rate. Comparing the aftertax net profit amount against industry equity resul ts in a net profit rate expressed as a “return on equity” (“ROE”) rate.

APPENDIX 1
EXAMPLE OF A BASELINE SOURCE AND DATA FOR ESTIMATING ROE AND ROS RATES:
US IRS STATEMENT OF INCOME TAX STATS

US IRS 2006 Sales ('000) Equity ('000) After-Tax Net Profits ('000) ROS ROE Agriculture, forestry, fishing and huntin g $127,728,942 $41,888,111 $7,665,137 6.0% 18.3% Mining $327,272,187 $301,618, 194 $54,567,732 16.7% 18.1%
Construction $1,582,459,140 $235, 900,066 $80,733, 939 5.1% 34.2% Manufacturing $6,939,924, 620 $3,472,835,947 $449,2 09,101 6.5% 12.9%
Wholesale trade $3,600,433,365 $792, 110,967 $106,408,47 9 3.0% 13.4%
Retail trade $3,486,0 05,061 $535,392,876 $100,3 22,818 2.9% 18.7% Transportation and warehousing $712,4 06,648 $169,869,060 $30, 825,843 4.3% 18.1%
Information $943,412,447 $1,398,5 29,600 $103,365,19 8 11.0% 7.4%
Finance and insurance $1, 893,916,912 $15,425,982,243 $598,760,121 31.6% 3.9% Real estate and rental and leasing $286, 352,886 $234,491,052 $33, 858,823 11.8% 14.4% Professional, scientific, and technical servic es $887,903,283 $241,059,08 7 $64,714,112 7.3% 26.8%
Health care and social assistance $37,263,167 $9,292,323 $34, 449,132 6.2% 64.5% Arts, entertainment, and recreation $558,081,916 $53,450,392 $7, 580,583 8.8% 37.0%
Accommodation and food services $85, 789,078 $20,471,164 $23,86 7,654 5.7% 19.9%
Other services $416,996,282 $119, 639,851 $10,126, 632 5.0% 30.8% Source: ADE, Inc. , based on US IRS, “SOI Tax Stats”



### When estimating amount of net profits generated by affected sources and industries in the region, we prefer to use the ROS method beca use while the US Census publishes equity data for industries at the national level, the Census publishes industry-specific revenue data at all levels, including county and region. While it is possible to estimate local and regional equity using the IRS’ national equity data, it is important to note that, relative to revenues, there is greater variability with respect to equity retained by establishments, even those in the same industries, as a number of factors contribute to equity. On the other hand, there is less variability when it comes to revenues, as similarly-sized establishments in similar industries in the same regions and/or across the nation, mo re or less, generate the same amount of revenues, with respect to firm-wide revenues an d revenues on per unit bases (i.e. revenues

5 US IRS, SOI Tax Stats ( //www.irs.gov/taxstats/art icle/0,,id=170542,00.html 

### )

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per worker). Thus, analysts can use national or state level revenue data when local and/or regional industry-specific revenue data are not available from the US Census. In a hypothetical situation, there could be two manu facturing plants in the same industries, both employing 20 workers, who, on average ge nerate $200,000 per worker. Thus, each hypothetical site generates $4 million. However, one plant leases its site and equipment, while the other owns the property on which it operates, as well the equipment, resulting in the latter having more equity relative to the former even though each generates similar revenues. Thus, while extra caution is warranted when using national-level equity data to estimate local and regional industries’ equity, for the most part, such is not the case when using national or state revenue data to estima te local and regional revenues, when such data is not readily available from the US Census. In the end, the discrete amount of net profits generated by an industry or source affected by a rule should be the same whether one multiplies a ROS rate against revenues or a ROE rate against equity.

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