## SAN JOAQUIN VALLEY UNIFIED AIR POLLUTION CONTROL DISTRICT

Appendix D: Socioeconomic Analysis for Rule 4694 December 15, 2005

D

– 1 Final Staff Report with Appendices

For Revised Proposed Rule 4694 

# APPENDIX D

Socioeconomic Analysis for

Rule 4694 (Wine Fermentation and Storage Tanks)

December 15, 2005

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# SOCIOECONOMIC ANALYS IS

FOR RULE 4694:

WINE FERMENTATION AN D STORAGE TANKS

DECEMBER 15, 2005

Prepared for



## San Joaquin Valley Unified Air Pollution Control District

1990 E. Gettysburg Avenue
Fresno, CA 93726

Prepared by



## Applied Development Economics 2029 University Avenue • Berkeley, California 94704 • (510) 548

- 5912 1029 J Street, Suite 310 • Sacramento, California 95814 • (916) 4 41

- 0323
www.adeusa.com

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# CONTENTS

1. Executive Summary

................................ ................................ 1

2. Introduction

................................ ................................ ........... 2

3. Description Of New Rule 4694

................................ .............. 3

4. Methodolgy

................................ ................................ ............ 5

5. Impacted Industries Subject To New Rule 4694 (Wine
Fermentation And Stora

ge Tanks)

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

5.1 Regional Demographic And Economic Trends

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

5.2 Description Of Affected Industries

............................... 10

6. Socioeconomic Impacts

................................ ....................... 22

6.1 Compliance Cost Estimates

................................ ........... 23

6.2 Business Responses To Comp liance Costs

..................... 23

6.3 Impacts On Affected Industries

................................ .... 25

6.4 Impact On Small Businesses

................................ .......... 29



# FIGURE

1 San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) Air Basin

................................ ........................ 2

2. Index of Trends in Exports By T op Twenty

- Five Leading Wine Producing Countries: 1993

- 2003 (1993 = 100%)

........ 12

3. Index of United States Wine Import Trends: 1993

- 2003 (1993 = 100%)

................................ ................................ .... 14



# TABLES

1 

## Population Growth: San Joaquin Valley Region, 1993

- 2003

.. 8

2 

## Employment Profile Of The San Joaquin Valley Region

1998

– 2003

................................ ................................ ......... 10

3 Trends In Exports By Top Twenty

- Five Leading Wine Producing Countries 1993

- 2003 ($2003)

.............................. 12

4 United States Wine Imp ort Trends: 1993

- 2003 ($2003)

......... 14

5 US Trends in Wineries, 1993

- 2003 ($2003)

.......................... 16

6 US Trends in Wineries, 1993

- 2003: Average V alue and
Value

- Added ($2003)

................................ .......................... 16

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## 7 Trends in Wine Grape Production San Joaquin Valley Region 1998

- 2003

................................ ............................. 18

8 Trends in Crushed W

ine Grapes San Joaquin Valley Region

1998

- 2003

................................ ................................ ......... 19

9 Employment Profile Of The San Joaquin Valley Region:

Wineries 1998

– 2003

................................ .......................... 20

10 Economic Trends: Wineries: The San Joaquin Valley Region

................................ ................................ ................. 20

11 Comparison of Employment in Affected Sources (Wineries) Versus the Region and State

............................... 21

12 Net Profit Ratios: Wineries: Dun and Bradstreet and CCH, Incorporated: 1992

- 2002

................................ ..................... 21

13 Economic Characteristics, 2003: Wineries: The San Joaquin Valley Region

................................ ......................... 22

14 Socioeconomic Impact Analysis: Wineries

........................... 23

15 Socioeconomic Impact Analysis: Wineries

........................... 25

16 Socioeconomic Impact Analysis: Wineries

........................... 27

### 1 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 1. EXECUTIVE SUMMARY

The San Joaquin Valley Unified Air Pollution Control District (“District”) seeks to adopt Draft Rule 4694 to meet certain

Unite d States Environmental Protection Agency (US EPA) mandates and timelines with regards to improved air quality in the region. This section of the report summarizes the findings of the socioeconomic analysis of Rule 4694.

The analysis indicates that there are approximately 15 wineries that could be potentially subject to Draft Rule 4694. These sources employ an estimated 5,000 workers, or less than one percent of all workers in the eight

- county region. These sources generate an estimated $1.96 billion per year in revenues, from which $137.78 million in net profit is earned annually.

The socioeconomic impact analysis investigates the business response to annual costs associated with the new rule in three scenarios. District staff estimated annual compliance costs that range from $3.6 million to $7.2 million in the Scenario I (“Low Range”), to $14.4 million to $18.1 million in the Scenario II (“Mid Range”). Affected stakeholders submitted their estimates on the annual cost to comply with Draft Rule

4694. Aff ected stakeholders estimate that annual compliance costs will range between $36.2 million and $45.2 million. For the purposes of analysis, this range is referred to as the Scenario III (“High Range”).

The socioeconomic impact analysis shows that total a nnual compliance costs represent between 2.6 percent to 32.8 percent of net profits of affected sources, depending on the compliance cost scenario. Annual compliance costs associated with the District’s Scenario II (“Mid Range”) and

stakeholders’ Scenario

III (“High Range”) exceed the threshold of significance, resulting in direct employment impacts ranging from two to 96 jobs. The analysis also examines whether small businesses are disproportionately impacted by the draft rule and concludes that these so urces are not disproportionately impacted.

### 2 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 2. INTRODUCTION

This report describes the socioeconomic impacts of Draft Rule 4694 (Wine Fermentation and Storage Tanks). Following this introduction, the report summarizes the proposed amendments and describes the methodology for the socioeconomic analysis. In Section 5, the report describes the economic characteristics of sources affected by Draft Rule 4694. The sixth section analyzes the socioeconomic impacts of compliance costs on the affected sources and the regional economy. This report is based on the version of Draft Rule 4694 that was published on June 9, 2005 in preparation for the June 28, 2005 public workshop.

The report is prepared pursuant to the provisions of AB2051 (Section 40728.5 of the Califor nia Health and Safety Code), which requires an assessment of socioeconomic impacts of proposed air quality rules. The findings in this report can

assist District staff in understanding the socioeconomic impacts of New Rule 4694, and can assist staff in pre paring a refined version of the rule. A final draft report will be presented at a workshop conducted by District staff in October 2005. Figure 1 is a map of the eight

- county region that comprises the San

Joaquin Valley Air Basin. As indicated in the map, K ern County is not completely in the District.

FIGURE 1 San Joaquin Valley Unified Air Pollution Control District (SJVUAPCD) Air Basin

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### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 3. DESCRIPTION OF NE W RULE 4694

The San Joaquin Valley Unified Air Pollution Control District’s (District) 2003 PM10 Plan and the 2002 and 2005 Rate and Progress Plan (ROP) identify the need to address VOC emissions from wine fermentation and wine aging processes occurring in the San Joaquin Valley Air Basin (SJVAB). These plans estimate that ethanol emissions from

wineries averaged 7.0 tons per day (TPD) in 1999 (2003 PM10 Plan) and project that those emissions will be 8.5 TPD in 2005. Draft Rule 4694 (Wine Fermentation and Storage Tanks) focuses on developing a control measure to reduce

VOC emissions from tanks used in wi ne fermentation and storage. For this rule making process, the District is primarily interested in the wine fermentation step, which is typically a batch process.

Seventy percent of the State of California’s wine production occurs within the San Joaquin V alley Air Basin (SJVAB). 1



## The majority of wine production in the SJVAB occurs at large wineries, with annual wine production capacities of about tens of millions of gallons. In 2002, 18 wineries had annual permitted production volumes ranging from 5 millio n to greater than 50 million gallons. 2 

## These wineries accounted for 95 percent of the District’s emissions from wine fermentation. Of the 109 wineries operating in the SJVAB in 2002, 58 percent of the wineries had annual production
volumes of less than 2,0

00 gallons and 70 percent of the wineries had annual production volumes of less than 200,000 gallons.

Wine fermentation is seasonal, corresponding to the grape harvest. In the SJVAB, fermentation typically occurs over a

90

- to 120

- day period, resulting in

seasonal daily averages of 8.8 to 6.6 TPD, respectively. In 2002, 75 percent of annual fermentation emissions occurred during September and October. This period coincides with when the SJVAB experiences the greatest exceedance of National Ambient Air

1 

### U.S. Department of the T reasury, Alcohol and Tobacco Tax Bureau, 2002 Alcohol Production Statistics

2 

### California Department of Alcoholic Beverage Control, Licenses Database, 2002

### 4 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## Qu ality Standards (NAAQS) for one

- hour ozone, in both frequency and magnitude. Based on data from the Air Resources Board (ARB), total annual VOC emissions from

wine fermentation within the SJVAB are estimated to be 788

tons for 2002.

District staff estimat

es that implementation of Draft Rule 4694 will result in 578 tons of VOC emissions being subject to control requirements. Draft VOC control requirements would require operators to install and operated VOC control systems achieving at least 86 percent capt ure and control efficiency. Thus, the achievable VOC emission reductions are estimated to be 497 tons annually, or 1.4 TPD. This is a 63 percent reduction in total wine fermentation emissions. As presented in the Extreme Ozone Attainment Demonstration

P lan, October 2004, the 2008 planning baseline emissions from wineries is 2.1 TPD, and planned emission reductions for Rule 4694 are 0.7 TPD, for a planned emission reduction of 33 percent.

Because of processing differences, emissions from white wine

fermen tation are less than emissions from red wine
fermentation. Thus, District staff has estimated the cost effectiveness of controlling each type of wine separately. Average cost effectiveness of controlling VOC emissions
from red wine is estimated at $27,00 0 per ton. Average cost effectiveness of controlling the same emissions from white wine is estimated at $82,000 per ton.

Emissions estimates prepared by Sonoma Technology, Inc, a District consultant, show annual working losses from all bulk

wine stored in the SJVAB, in 2002, ranged from three to ten tons. Therefore, District staff considers use of pressure

- relief valves, and temperature control to constitute reasonable available control technology (RACT) for bulk wine storage

tanks.

### 5 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 4. METHODOLGY

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 provisions of Draft Rule

4694. The approach is briefly

described below.

Applie d Development Economics (ADE) began the analysis by preparing a statistical description of the industry groups of

which the affected sources are a part , analyzing data on the number of jobs, sales levels, the typical profit ratios and other

economic indica

tors for each industry.

This report relies heavily on the most current data available from a variety of sources, such as the 2002 Economic Census, 1997 Economic Census, Minnesota IMPLAN Group and the State of California’s Employment Development Department

(EDD) Labor Market Information Division. For purposes of estimating profits, ADE relied on Dun and Bradstreet and CCH, Incorporated.

With the above information, ADE was able to estimate net after tax profit ratios for sources affected by the draft rule. 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 costs represent. Based on assumed thresholds of significance, ADE discusses in the repor

t whether the affected sources are likely to reduce jobs as a means of recouping the cost of rule compliance or as a result of reducing business operations. To the extent that such job losses appear likely, the indirect multiplier effects of the jobs losse s are estimated using a regional IMPLAN input

- output model.

When analyzing the socioeconomic impacts of proposed new rules and amendments, ADE works closely within the parameters of accepted methodologies discussed in a 1995

California Air Resources Board report called “Development of a Methodology to Assess the Economic Impact Required by SB513/AB969” (by Peter Berck, PhD, UC Berkeley Department of Agricultural and Resources Economics,

Contract No. 93

- 314, August, 1995). The author of this

### 6 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## report reviewed

a methodology to assess the impact that California Environmental Protection Agency proposed regulations would have on the ability of California businesses to compete. The California Air Resources Board (ARB) has incorporated the methodologies described i n 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 associated costs is deemed to have significant impacts. When analyzing the degree t o which its rules are significant or insignificant, ARB employs a threshold of significance that ADE follows. Berck reviewed the threshold in his analysis and wrote, “The Air Resources Board’s (ARB) use of a 10 percent change in
[Return on Equity] ROE (i. e. a change in ROE from 10 percent to a ROE of 9 percent) as a threshold for a finding of no significant, adverse impact on either competitiveness or jobs seems reasonable or even conservative.”

### 7 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 5. IMPACTED INDUSTRI ES SUBJECT TO NEW RU LE

46 94 (WINE FERMENTATIO N AND STORAGE TANKS)

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 wh ole, and provides a context for understanding demographic and economic changes that occurred within the San Joaquin Valley region between 1998 and 2003. Starting with sub

section 5.2, the second part of this section narrows the focus

of the socioeconomic a nalysis to industries affected by Draft Rule 4694. The second part of this section describes the

economic characteristics of potentially impacted industries that might be subject to Ru le 4694.

In this report, the San Joaquin Valley region is defined as

Fr esno, Kern, Kings, Madera, Merced, San Joaquin, Stanislaus and Tulare counties. Data for Kern County in Tables 1 and 2 are for all of Kern County, although Kern County is only partially in the San Joaquin Valley Air Basin. Starting with
Table 3, data for K ern County are for the part of Kern County that is in the San Joaquin Valley Air Basin.



# 5.1 REGIONAL DEMOGRA PHIC AND

ECONOMIC TRENDS

R EGIONAL 

# D EMOGRAPHIC 

# T RENDS


## The San Joaquin Valley region experienced tremendous population growth during the 1990s. Many c ame to this area because of affordable housing. As a result, population increased significantly. The eight

- county region’s population increased by 22 percent (or approximately 2.0 percent annually), from 2.9 million in 1993 to 3.6 million in 2003.

While th e State of California’s population increased by 15 percent (or approximately 1 percent annually), all the counties in the region experienced faster rates of growth, and two counties grew at rates that were triple the State’s growth rate,

as Table 1 shows. While by many standards Madera County continues to be a small county

– at 135,262 residents

### 8 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## according to the Department of Finance

– it still experienced a 35 percent growth in population during the last decade (or three percent annually). Kings County also g rew by three percent per year. As demonstrated in the following section on regional economic trends, the demographic changes that occurred in the San Joaquin Valley region during the 1990s significantly influenced the economy of this eight

- county region.

T ABLE 1 Population Growth: San Joaquin Valley Region, 1993

- 2003

1993 1998 2003 Distribution,

2003 Annual

% Chng

93

- 98 Annual

% Chng

98

- 03 Annual

% Chng

93

- 03

California 31,303,452 32,670,019 36,144,267 1% 2% 1%
SJV Region 2,959 ,911 3,192,439 3,615,696 10% 2% 3% 2%

Fresno 722,608 781,936 862,642 24% 2% 2% 2%

Kern 593,087 637,227 724,883 20% 1% 3% 2%
Kings 109,648 120,957 141,434 4% 2% 3% 3%

Madera 100,297 114,137 135,262 4% 3% 3% 3%

Merced 191,883 20 3,181 232,141 6% 1% 3% 2%
San Joaquin 507,170 546,852 630,577 17% 2% 3% 2%

Stanislaus 400,417 428,272 491,929 14% 1% 3% 2%

Tulare 334,801 359,877 396,828 11% 1% 2% 2%



### Source: Applied Development Economics, based on California Department of Finance



# 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 loca l and regional

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. Accrued earnings then circulate throughout the local area in

the for m of wages and salaries, investments, purchases of fixed assets, and goods and services, generating more jobs

and wealth.

The economic base is typically comprised of industries within the manufacturing, minerals

- resource extraction, and agricultural secto

rs. 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

### 9 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## population increases in a given area, demand f or 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 Joaquin Valley region by virtue o

f the amount of goods this sector produces and exports throughout the nation and the globe. Fourteen percent of all workers in the region are employed by industries within agriculture, as Table 2 shows. However, in 1998 the proportion of workers in agricul ture was 18 percent.
In fact, over the five

- year period between 1998 and 2003, employment in agriculture declined by three percent per year, or by 15 percent over five years.

Between 1998 and 2003, local support industries gained in prominence within the S an Joaquin Valley region. Service

rendering industries employed the most workers as a proportion of total employment in the region. As Table 2 shows, excluding wholesale, retail and transportation, service

rendering industries comprise the largest employme nt sector in the region, at 647,100 or 53 percent of all jobs. With retail, transportation and wholesale, services accounts for slightly over 70 percent of all jobs. In 1998, service

- rendering industries represented 50 percent of all jobs, and when

includi ng retail, wholesale and transportation in the mix, 67

percent.

Increases in employment in service

- rendering industries are consistent with regional population growth. In the region, local support industries of construction, education and health,

financi al activities, and government increased annually by six percent, four percent, three percent and three percent respectively between 1998 and 2003.

[This space is intentionally blank]

### 10 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## TABLE 2 Employment Profile Of The San Joaquin Valley Region 1998

– 2003

MAJOR SECTORS San Joaquin Valley Region Employment

1998 San Joaquin

Valley Region Employment

2003 San Joaquin

Valley Region Employment
Distribution,

2003 Annual

Percent Change

1998 to 2003 California

Employment
Distribution,

2003 Annual

Percent

Cha nge
1998 to 2003 Agriculture 204,200 174,900 14%

- 3% 3%

- 2%
Resources, Mining and Construction 57,400 78,100 6% 6% 5% 5%
Manufacturing 114,300 110,300 9%

- 1% 10%

- 4%

Wholesale 34,400 39,000 3% 3% 4% 1%

Retail 121,400 133,200 11% 2% 11% 2%
Transporta tion/Warehousing/Utilities 37,600 45,700 4% 4% 3%

- 1%

Information 15,000 14,200 1%

- 1% 3%

- 0.5%

Financial Activities 40,400 46,600 4% 3% 6% 3%

Professional and Business Services 88,000 95,100 8% 2% 14% 1%

Educational and Health Services 101,500 122,200 10% 4% 10% 3%
Leisure, Hospitality and Other Srvs 112,500 116,400 9% 1% 13% 2%

Government 221,200 252,600 21% 3% 16% 2%

Total Employment 1,147,900 1,228,300 100% 1% 100% 1%



### Source: Applied Development Economics, based on data from California Employme nt Development Department LMID



## The emergence of local support industries in the San Joaquin Valley region mirrors and leads statewide trends, as Table 2 shows. In the region, construction, health

- education, and government increased annually by six percen t, four percent and three percent, whereas, statewide, these industries grew by five percent, three percent and two percent per year between 1998 and 2003. In short, while agriculture remains the leading edge of the economy, the San Joaquin Valley region’ s economy has become more diverse, with the growth occurring within population

- driven local support industries rather than the export

- focused economic base industries of manufacturing and agriculture.



# 5.2 DESCRIPTION OF AFFE CTED INDUSTRIES


## The analysis bel

ow discusses global, national, state and regional trends with respect to wineries. For purposes of context, the discussion below starts with broad global and national trends, then moves to state and regional trends.

Global Trends In April 2005, the United

State Department of Agriculture reported that the global wine trade “continued to be very

### 11 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## robust during 2004.” 3



## The USDA reports that US wine producers’ competitors are primarily from Europe, as well as

from other areas such as Australia. While multilat eral rules

enforcing organizations such as the World Trade Organization (WTO) are in place to promote free trade, as the USDA hints in its April 2005 report, not all global trade is free or fair. The USDA notes that many foreign governments assist their r

espective wine industries through a variety of export promotion programs. 4



## Table 3 below tracks trends of the 25 leading world exporters of wine. Underscoring the USDA’s observation on the robustness of the global wine trade, Table 3 shows that the

amount of wine produced for export had increased by 2.2 million metric tons between 1993 and 2003, going from 4.6

million to 6.8 million metric tons. Table 3 also includes the amount of wine exported by the US, which in 2003, exported
329,330 metric tons of win e, significantly above the amount exported ten years before. It should be noted that almost 90 percent of all US wine exports come from California, including from San Joaquin Valley wineries such as Gallo and Canandaigua. Table 3 also includes value of wi ne on a per metric ton basis. This table shows that the 2003 value of wine on a per metric ton basis ($2,470) was practically the same as the value in 1993 ($2,439). Figure 2 illustrates how the value of wine exports on a per metric ton basis had

declin ed and or remained stagnant as global export increased.

3 

### USDA. Foreign Agricultural Service. International Strategic Marketing Group. “World Wine Situation and Outlook” (April 2005) page 3

4 

### USDA. Foreign Agricultural Service. International Strategic Marketing Group. “World Wine Situation and Outlook” (April 2005) page 9

### 12 

### For Revised Proposed Rule 4694 

## TABLE 3 Trends In Exports By Top Twenty

- Five Leading Wine Producing Countries

1993

- 2003 ($2003)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Total Global Exports (Metric Tons) 4,597,768 5,106,543 5,216,724 5,106,315 5,672,498 6,202,903 6,082,371 5,808,339 6,234 ,000 6,325,919 6,819,542 US Global Exports (Metric Tons) 115,382 117,791 132,874 161,471 204,049 252,013 262,397 276,943 284,356 266,239 329,330 Tot Global Exports (Value \ Metric Ton) $2,439 $2,365 $2,573 $2,835 $2,643 $2,651 $2,676 $2,397 $2,117 $2,278 $2,470



### Source: Applied Development Economics, based on United Nations. Food and Agricultural Organization (http://www.fao.org/es/ess/toptrade/trade.asp)

Figure 2. Index of Trends in Exports By Top Twenty

- Five Leading Wine Producing Countries: 1993

- 2003 (1993 = 100%)

135% 136% 148%

109%

87% 101% 285%

80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 190% 200% 210% 220% 230% 240% 250% 260% 270% 280% 290% 300%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003



### Total Global Exports (Metric Ton)

Global Exports Value per Metric Ton

US Exports (Metric Ton)

### 13 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## Table 4 shows the amount of wine imported into the United

States over the ten

- year period stretching from 1993 to 2003. In 1993, US consumers purchased 235,809 metric tons of imported wine, and starting from that year, the amount of imported wine increased steadily every year, to the point that the US imported 608,245 metric tons of wine by 2003. Figure 3 illustrates data found in Table 4, and it shows how the value of imported wine on a per metric ton basis had

declined s ignificantly between 1993 and 2003. As Figure 3 shows, the amount of wine imported in 2003 was 258 percent of the amount imported in 1993. Over that same period, the value of imported wine on a per metric ton basis declined significantly. At $5,604, the 2003 per metric ton value of imported wine was 86 percent of the 1993 value, or $6,488. Data on wine imports into the US market come from the United Nation’s Food and Agriculture Organization, and it supports a general observation of the USDA on the qual ity of wine imports. “While French wine remains popular, market

share has been lost to lower

- priced wines from other countries,” reports the USDA. 5 

## Because Central Valley wineries for the most part produce low

- end ($8.00 and under per 750 ml bottle) to mid

- priced wines ($8.00 to $14.99 per 750 ml bottle), Central Valley wineries are directly affected by recent trends in wine imports, particularly with respect to importation of low

- end wines. MKF Research reported that
over the last decade, “California w ines have lost eight points of market share to imports

– chiefly, but not solely, Australian imports. The lost market share occurred almost entirely for wines under $10.00 per 750ml bottle and, particularly, those under $8.00 per bottle.” 6

5 

### USDA. Foreign Agricultural Service. International Strategic Marketing Group. “World Wine Situation and Outlook” (April 2005) page 7

6 

### MKF Research. “Socioeconomic assessment of Proposed Rule 4694: Wine Fermentation and Storage Rule” (July 2005) page 9

### 14 

### For Revised Proposed Rule 4694 

## TABLE 4 United States Wine Import Trends: 1993

- 2003 ($2003)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Total Global Imports into US (Metric Tons) 235,809 261,812 275,331 347,244 445,150 400,425 407,234 447,940 468,794 552,140 608,245

Total Glo bal Imports into US (Value \ Metric Ton) $6,488 $6,084 $6,207 $5,755 $5,169 $6,047 $6,706 $5,863 $5,307 $5,005 $5,604



### Source: Applied Development Economics, based on United Nations. Food and Agricultural Organization (http://www.fao.org/es/ess/toptrade/trad e.asp)

Figure 3. Index of United States Wine Import Trends: 1993

- 2003 (1993 = 100%)

170% 199% 258%

93%

82% 86%

70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 190% 200% 210% 220% 230% 240% 250% 260%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 

### Total Global Imports into US (Metric Ton)
Total Global Imports into US (Value per Metric Ton)

### 15 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## National Trends

Table 5 includes data for wineries in the United States as a

whole over the ten

- year period stretching from 1993 to 2003. In that time period, industry employment grew by five percent per year. Between 1998 and 2003, winery employment grew by two percent annually. It is worth noting that between 1998 and 2003, employment in wineries in the eight

- county San Joaquin Valley region grew annually b y six percent as discussed below. As an indication of activity in the winery industry in the nation as a whole, winery plants were operating anywhere between 70 and 80 percent of capacity between 1995 and 2000. Manufacturing and food processing plants ac ross the nation were operating at approximately 75 percent capacity between 1995 and 2000. Prior to 1995, wineries were operating at no more than 57 percent capacity.
In short, over the 1990s the number of wineries in the nation
increased, and these wine

ries were operating at higher capacities with more workers than ever before. The surge in national and global interest in high quality wines produced in the US, particularly California’s Wine Country, and the touted

beneficial health attributes of wine dr inking perhaps in no small way contributed to the success of this industry in the

1990s.

[ This space is intentionally blank ]

### 16 

### For Revised Proposed Rule 4694 

## TABLE 6 US Trends in Wineries, 1993

- 2003: Average Value and Value

- Added ($2003)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Annual Change

1993

- 2003 Value Added ($ millions) $3,119.9 $2,872.4 $2,948.9 $3,670.3 $3,979.7 $4,162.7 $3,641.5 $4,418.4 $4,863.2 $4,513.3 $4,519.8 4% Value Added per production worker ($ millions) $0.47 $0.44 $0.39 $0.49 $0.46 $0.44 $0.39 $0.42 $0.44 $0.46 $0.44

- 1%



### Source: Applied Development Economics, based on Gale Group and US Bureau of Labor Statistics 

## TABLE 5
US Trends in Wineries, 1993

- 2003 ($2003)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Annual Chang e
1993

- 2003

Establishments 559 565 584 656 687 727 788 856 1125 902 933 5%
Employment 14,100 13,700 15,300 17,000 18,200 20,300 20,800 21,900 23,800 21,900 22,600 5% Payroll ($ millions) $642.5 $621.1 $690.3 $752.8 $841.0 $897.0 $895.7 $892.8 $931.7 $868.1 $870.3 3%

Average Wage $45,568 $45,339 $45,116 $44,280 $46,210 $44,188 $43,064 $40,767 $39,146 $39,639 $38,509

- 2%

Production workers 6,600 6,600 7,500 7,500 8,600 9,400 9,400 10,400 11,100 9,900 10,200 4%
Production as % of Tot. Employment 47% 4 8% 49% 44% 47% 46% 45% 47% 47% 45% 45%
Production Worker Hours (millions) 12.8 12.9 15.1 15.9 15.8 18.1 16.9 18.1 19.9 18.4 18.9 4%

Production Hours Per Production Worker 1,939 1,955 2,013 2,120 1,837 1,926 1,798 1,740 1,793 1,859 1,853

- 0.5%
Winery Pl ant Capacity Utilization Rate 56% 57% 75% 73% 80% 71% 72% 70% 63% 61% 62% 67%
Value Added ($ millions) $3,119.9 $2,872.4 $2,948.9 $3,670.3 $3,979.7 $4,162.7 $3,641.5 $4,418.4 $4,863.2 $4,513.3 $4,519.8 4%
Value of Shipment ($ millions) $6,647.5 $6,107.4 $6,463.5 $7,118.0 $7,797.9 $8,386.6 $8,073.9 $8,368.6 $8,726.4 $8,098.6 $8,110.3 2%



### Source: Applied Development Economics, based on Gale Group ["Manufacturing and Distribution USA: Industry Analyses, Statistics and Leading Companies: Volume 1 (Third Editi on: Joyce Piwowarski, Editor) 2005], US Bureau of the Census ["Survey of Plant Capacity"], and US Bureau of Labor Statistics

### 17 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## Since the onset of the economic recession that began in summer 2000 and stretched into 2003, winery plant capacity decreased to appr

oximately 63 percent. Even as they operated at lower capacities, US wineries were as efficient as they were in the 1990s, particularly with regard to value

added production. Value

- added is a measure of manufacturing productivity that is derived by subtra cting the cost of materials, supplies, containers, fuel, purchased electricity, and contract work from the value of shipments.

While in inflation

- adjusted dollars value

- added production per winery production worker in 2003 was less than what it

was in 199

3, it was only slightly less.

State and Regional Trends The following discussion examines state and regional trends with respect to wineries and wine grape growers. Table 7 below identifies broad trends in wine grape production in the eight

- county San Joa

quin Valley region. As the table shows, wine grape harvested acreage had declined annually by a slight

– 0.2 percent between 1998 and 2003, going from 312,042 to 308,462 harvested acres. In terms of tonnage, the amount of wine grapes produced also decline d slightly in the region, going from 2.64 million to 2.58 million tons. However, on value per acre or value per ton bases, grape growers in the region had received significantly less in 2003 than what they
received in 1998. Between 1998 and 2003, the val ue per ton of wine grapes had declined annually by 12 percent, going

from $379 to $205 in inflation

- adjusted dollars. In addition, wine grapes produced in the region received a lower price than grapes produced in California as a whole, as Table 5

shows. At $530 per ton in 2003, the value of wine grapes produced in California was more than double that of wine grapes produced in the San Joaquin Valley region.

### 18 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## TABLE 7 Trends in Wine Grape Production San Joaquin Valley Region

1998

- 2003

San Joaquin

Val ley Region

1998 San Joaquin

Valley Region

2003 Annual

Percent Change 1998

to 2003 California

1998 California

2003 Annual

Percent Change 1998

to 2003

Harvested Acres 312,042 308,462

- 0.2% 488,832 545,425 2.2%

Production (tons) 2,639,416 2,584,234

- 0.4% 3, 407,177 3,451,150 0.3%
Value (inflation

- adjusted) $1,001,016,213 $528,865,900

- 12% $2,270,066,799 $1,828,077,900

- 4%

Value per acre $3,208 $1,715

- 12% $4,644 $3,352

- 6%

Value per ton $379 $205

- 12% $666 $530

- 4%



### Source: Applied Development Economics, b ased on California Agricultural Commissioners and US Bureau of Labor Statistics



## Table 8 identifies trends in the amount and value of wine grapes that were crushed in the San Joaquin Valley region by wineries and other related beverage makers in the regio n. While the overall tonnage of crushed grapes had increased annually by a slight 0.5 percent between 1998 and 2003, the amount of crushed red wine grapes had grown significantly at almost three percent per year over this five

- year period. At

the same ti me, the per ton value of crushed red wine grapes decreased annually by 13 percent, going from $518 to $265 in

inflation

- adjusted dollars between 1998 and 2003 in the eight

county region. For the state as a whole, the annual decrease

in value of crushed re

d wine grapes was significantly less, dropping at an annual rate of one percent per year, or from $643 to $608. In short, while grape growers in the region produced slightly less wine grapes between 1998 and 2003 on harvested acreage and per ton bases in response perhaps to the dramatic decrease in values during that time period, the amount of grapes that eventually were crushed had increased, particularly with regard to red wine grapes, as Table 8

demonstrates.

### 19 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## TABLE 8 Trends in Crushed Wine Grapes

S an Joaquin Valley Region

1998

- 2003

San Joaquin Valley Region

1998 San Joaquin

Valley Region

2003 Annual

Percent Change

1998 to 2003 California

1998 California

2003 Annual

Percent Change

1998 to 2003 Crushed Wine Grapes (ton) 1,648,067 1,693,638 0.5% 2,147,788 2,314,113 1.5%

red wine grapes 874,640 997,241 2.7% 1,142,409 1,348,861 3.4%
white wine grapes 773,427 696,397

- 2% 1,005,379 965,252

- 1%

Crushed Wine Grapes (value) $736,375,514 $412,930,358

- 11% $1,545,362,093 $1,234,894,082

- 4%

red w ine grapes $453,083,513 $264,705,384

- 10% $902,017,166 $820,916,805

- 2%
white wine grapes $283,292,001 $148,224,974

- 12% $643,344,927 $413,977,278

- 8%

Crushed Wine Grapes (val \ ton) $446.81 $243.81

- 11% $719.51 $533.64

- 6%

red wine grapes $518.02 $26 5.44

- 13% $642.91 $608.60

- 1%

white wine grapes $366.28 $212.85

- 10% $521.04 $428.88

- 4%



### Source: Applied Development Economics, based on California Department of Food and Agriculture (Grape Crush Reports) and US Bureau of

Labor Statistics



## Table 9 bel ow identifies employment trends in grape production, food processing and wineries in the eight

- county region and California as a whole. Between 1998 and 2003, employment in wineries increased by six percent per year, exceeding total employment growth rate s for the region as a whole and for food processing in particular. The six percent annual growth rate is somewhat consistent with the trajectory of change described in Table 8, which shows that the amount of red wine grapes crushed in the region increased by almost three percent per year between 1998

- 2003. Table 9 also shows employment on grape farms. Employment on these farms declined by four percent a year, a trajectory of change that is somewhat consistent with negative trajectory in wine grape produc

tion in terms of harvested acreage and tonnage

for the 1998

- 2003 period.

### 20 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## TABLE 9 Employment Profile Of The San Joaquin Valley Region: Wineries

1998

– 2003

San Joaquin Valley Region Employment

1998 San Joaquin

Valley Region Employment

2003 San Joaquin

Valley Region Employment
Distribution,

2003 Annual

Percent Change

1998

- 2003 California

Employment

1998 California

Employment

2003 California

Employment
Distribution,

2003 Annual

Percent Change

1998

- 2003

MAJOR SECTORS

INDUSTRIES

All Industrie s 1,147,900 1,228,300 1% 14,002,300 14,785,200 1%

Agriculture 204,200 174,900 14%

- 3% 406,200 375,000 3%

- 2%
Grapes 25,610 21,173 2%

- 4% 37,917 34,950 0.2%

- 2%

Manufacturing 114,300 110,300 9%

- 0.7% 1,857,200 1,544,900 10%

- 4%

Food proc

essing 45,700 47,000 4% 0.6% 158,400 156,000 1%

- 0.3%

Wineries 4,716 6,366 0.5% 6% 21,465 21,129 0.1%

- 3.2%



### Source: Applied Development Economics, based on California Agricultural Bulletin, California EDD

- LMID, and IMPLAN



## Table 10 includes additional information on wineries in the region and state. An estimated 135 wineries operate in the eight

- county region, which represents an annual increase of 13 percent between 1998 and 2003. These wineries generate

an estimated $2.08 billion in reven ues. In the state as a whole, there were approximately 790 wineries in 2003, meaning that 17 percent of all wineries are in the eight

- county region.

TABLE 10 Economic Trends: Wineries: The San Joaquin Valley Region

San Joaquin Valley Region Californi a

1998 2003 Annual Change 1998 2003 Annual Change

Establishments 74 135 13% 461 790 11%
Employment 4,716 6,366 6% 18,821 22,825 4%
Average Wages $43,678 $42,342

- 1% $41,677 $43,632 1%
Shipment Value (Rev) $1,684,925,528 $2,089,486,182 4% $6,125,433,6 00 $7,274,939,100 3%



### Sources: Applied Development Economics, based on CA EDD (establishments and employment and aggregate payroll), US Census 1997 (employment, wages, shipment value), Dun and Bradstreet, and Gale Group



## Table 11 compares employment in re gional wineries against the state as a whole. Among other things, this table shows that 28 percent of all winery employees work in wineries operating in the eight

- county region.

### 21 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## TABLE 11
Comparison of Employment in Affected Sources (Wineries) Versus th e Region and State

SJVAB Employment

2003 Affected Industries

as % of Total

California Employment (n = 14,785,200) Affected Industries
as % of Total Regional Employment (n = 1,228,300) Affected Industries
as % of Same

Industries in

California (n = 2 2,825)

SJVAB Wineries 6,366 0.04% 0.5% 28%

Sources: Applied Development Economics, based on CA EDD, IMPLAN, and US Census 1997



## Table 12 tracks net profit ratios for wineries from 1992 to 2002. Data comes from two sources, including Dun and

Bradstreet and the CCH, Incorporated. Dun and Bradstreet tracks a wide variety of business and financial indicators, including after tax net profit, and these indicators are based on performance of a representative sample of establishments from across the country in a particular industry at the four

digit Standard Industrial Classification (SIC) level. CCH, Incorporated also tracks a wide variety of business and financial indicators, but its findings are based on a significantly greater number of establishments. Bo th sources track information on annual bases, allowing us to calculate a weighted average after tax net profit ratio for wineries that

smoothens out the affects of economics booms and

recessions.

TABLE 12

Net Profit Ratios: Wineries: Dun and Bradstreet and CCH, Incorporated: 1992

- 2002

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 ten

- yr

avg CCH (avg) 6.5% 9.1% 8.7% 7.7% 10.3% 4.4% 10.1% 4.7% 6.7% 5.7% 3.3% 7.0%
Dun and Bradstreet (avg) 5.4% 1.9% 2.2% 3.5% 8.0% 6.0% 9.8% 9.6% 10.5% 7.8% 6.6% 6.5%

Dun and Bradstreet

- CCH (weighted avg) 6.5% 8.4% 8.1% 7.4% 10.1% 4.5% 10.1% 4.9% 6.9% 5.7% 3.4% 7.0%

Source: Applied Development Economics, based on Dun and Bradstreet, "Industry Norms and Key Business Ratios" (1993

- 2004) and CCH, Inc., "Almanac of Business and Industrial Financial Ratios" (1993

- 2005)



## Table 13 applies the ten

- year weighted average after tax net profit ratio for wineries (seven percent) to revenue estimates, particularly for the 15 wineries in the region that will be

### 22 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## directly affect ed by the draft rule. The 15 wineries generate
an estimated $1.96 billion in revenues, or the bulk of revenues generated by all wineries operating in the eight

county region. In addition, the table includes estimates on after tax net profits, or $137.78 million.

TABLE 13
Economic Characteristics, 2003: Wineries: The San

Joaquin Valley Region

Establishments Employment Revenues Net Profit

SJVAB wineries 135 6,366 $2,089,486,182 $138,208,463

Affected wineries 15 5,032 $1,967,741,853 $137,781,376

So urces: Applied Development Economics, based on CA EDD, IMPLAN, US Census 1997, Gale Group, Dun and Bradstreet and CH, Inc.



# 6. SOCIOECONOMIC IMP ACTS

### 23 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## This section of the report compares the economic characteristics of affected industries aga inst the compliance costs. The first part of this section discusses annual compliance costs. Section 6.2 discusses general business responses to compliance costs. Section 6.3 analyzes the socioeconomic impacts of Draft Rule 4694.



# 6.1 COMPLIANCE COST ESTI MATES

Table 14 below identifies annual costs associated with Draft Rule 4696. The District cost estimates are based in part on data provided by representatives from certain industries and in part on District analysis. Annual costs are organized into

three scenarios, each of which contain a low

- end and high

end value. The three annual compliance cost scenarios are listed in the following manner: “Lower Range”, “Mid

- range” and “High Range.” Representatives from certain industries submitted compliance costs that formed the basis of the “High Range” annual cost compliance estimates.

TABLE 14 Socioeconomic Impact Analysis: Wineries

Compliance Cost

Source Total Annual

Compliance Costs Scenario I (Low Range) SJVUAPCD $3,620,000

$7,240,000

Scenario II (Mid Range) SJVUAPCD $14,480,000

$18,100,000
Scenario III (High Range) Industry $36,200,000

$45,250,000



### Source: Applied Development Economics, based on San Joaquin Valley Unified Air Pollution Control District and Industry



# 6.2 BUSINESS R ESPONSES TO COMPLIAN CE

COSTS

Industries impacted by the draft rule may respond in a variety of ways when faced with new regulatory costs. These responses may range from simply absorbing the costs and accepting a lower rate of return, to shutting down the

a ffected business operation altogether and, where practical,

shift from lower

- value to higher

- value product and or crop. Affected sources may also seek to renew efforts to increase productivity and reduce costs elsewhere in their operation in

### 24 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## order to recou

p the regulatory costs and maintain profit

levels.

On behalf of affected stakeholders, MKF Research produced an analysis of Draft Rule 4694. Among other things, the MKF Research analysis indicates that in response to costs

associated with the draft rule , affected stakeholders may do any one of the following:

ß Abandon red wine fermentation in the eight

- county San Joaquin Valley region, substituting low cost imported bulk wine for local grapes, but maintaining white win fermentation, red and white bottling and administration facilities in the region

ß Shift red wine crushing and fermentation facilities to neighboring state or other regions, in effect trucking grapes from the eight

- county region to facilities outside of the region

ß Close entirely some or all win ery facilities in the eight

county region in favor of imported bottled bulk wines or developing winemaking capacity in other regions

or states

The MKF Research reports that much of the wine produced in the eight

- county region is for the lower

- and mid

- pric ed segment (i.e. below $8.99 a bottle) of the bottled wine market. According to MKF Research, the draft rule will result in a cost that, if and when applied on a per bottle basis, places Central Valley wines at a competitive disadvantage against

lower and mid

- priced wines produced elsewhere. Citing the Eichlay report, MKF Research reports that, “[T]he cost per 9L case across all wineries of installing and operating the proposed technology will average $0.80 to the winery, or $0.07 per 750ml bottle equival ent.” Given differences in wineries, the MKF Research goes on to conclude, “Thus, the direct cost of implementing this technology will range from about $.50 per case for the lower priced wines to about $1.50 per case for higher priced wines.” Because a cas e contains 12 bottles, the $.50 and $1.50 per case figures amount to $0.04 per bottle and $0.13 per bottle (rounded). “The wine markets segments affected by this rule are highly competitive and subject to extensive discounting, inhibiting the ability of a ny producer to successfully put through price increases,” writes

MKF Research.

### 25 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 6.3 IMPACTS ON AFFECTED INDUSTRIES

This section of the report analyzes estimated after tax net profits of affected industries against anticipated costs associated with implemen

tation of the draft rule. The estimated annual compliance costs used in this analysis were provided to ADE by District staff and stakeholders. Table 15 below compares the total annual compliance costs by the three scenarios against net profits, and it in cludes figures on annual compliance cost as a proportion of net profits. In the Scenario I (“Low Range”), the annual cost of compliance represents 2.6 to 5.3 percent of net profit, which places this result below the threshold of significance used for the purposes of evaluating the point above which a rule is said to have significant impacts. In the Scenario II (“Mid Range”), the annual cost of compliance could represent 10.5 to 13.1 percent of net profits, placing this cost scenario slightly above the sig nificance threshold. Scenario III (“High Range”) annual cost compliance figures place the cost of the draft rule at 26.3 to 32.8 percent of net profits. It is worth noting that the maximum impact of 32.8 percent of net profit figure is

somewhat consisten

t with one of the findings of MKF Research, which employed a different methodology in arriving at what it believes is the maximum impact of the draft rule, or 31.0 percent of profits.

TABLE 15 Socioeconomic Impact Analysis: Wineries

Scenario Complia nce

Cost Source Total Annual

Compliance

Costs Estimated

Net Profits Annual Cost as

Percent of

Affected

Wineries' Profit Amount Above

Threshold of Significance Direct Winery

Employment Impacts Potential Direct

Employment Impacts As

Percent of

Affected Sourc es Employment Scenario I (Low Range) SJVUAPCD $3,620,000 $137,781,376 2.6%

-- below sig

-- $7,240,000 $137,781,376 5.3%

-- below sig

--

Scenario II (Mid Range) SJVUAPCD $14,480,000 $137,781,376 10.5% $701,862 2 0.04%

### 26 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 $18,100,000 $137,781,376 13.1% $4,321,862 13 0.3%

Scenario III (High Range) Industry $36,200,000 $137,781,376 26.3% $22,421,862 68 1%

$45,250,000 $137,781,376 32.8% $31,471,862 96 2%



### Source: Applied Development Economics, based on San Joaquin Valley Un ified Air Pollution Control District and Industry



## Table 15 also includes direct employment impacts associated with the amount of impacts on profits above the threshold of significance. Employment losses by affected stakeholders as

a result of Scenario I I costs range between two and 13 workers, while direct impacts associated with Scenario III range between 68 and 96 workers.

Because of the way in which one business in one industry interacts through buyer and supplier relations with businesses

in the sa me or other industries, we also need to understand the indirect and what are called induced impacts associated with the draft rule. Using the I MPLAN Impro Professional
input

- output model, the consultant estimated the multiplier impacts associated with the cost of compliance above the threshold of significance, looking particularly at two measures

– employment and industry output. These measures are

defined as follows:

n Employment

indicates the number of jobs lost given the level of compliance cost. This e mployment total includes

self

- employment.

n Industry output

represents the sum of all economic activity lost by wineries and ancillary activities. This activity includes all commodity inputs, labor income, property income, and other value added components.

The multiplier impacts for these measures come from the Type II multipliers. These multipliers include the direct, indirect, and induced impacts. These multiplier descriptions

are summarized below.

n Direct impacts represent the jobs losses and other

econ omic impacts that are directly related to costs associated by wineries as a result of implementation of

the draft rule.

n Indirect impacts

represent the jobs and other economic effects that will potentially be lost elsewhere in the eight

county region as a

result of the direct impacts on wineries

### 27 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## resulting from the draft rule. These indirect impacts result from supplier purchases.

n Induced impacts represent the economic losses associated with reductions in household purchases tied to direct and indirect emp

loyment losses in the region. These induced impacts most typically occur in retail and

other local

- serving industry categories such as personal
services, education, and health care.

Table 16 shows the direct, indirect and induced impacts

associated with a nnual cost of compliance resulting from Draft Rule 4694. The lower value of Scenario II impact is
$701,862, which could result in the loss of 2.1 full

- time equivalent (FTE) positions. As a result of this lower value Scenario II direct impact to wineries, businesses that are involved in buyer

- supplier relations with wineries could experience an indirect impact to the tune of $294,793, resulting in a loss of 2.7 FTE. The direct and indirect loss of 2.1 and 2.7 jobs, in turn, could result in the loss of spe nding at a variety of stores, such as retail and personal services
establishment, in the amount of $162,637. As a result of this reduction in consumer spending, an additional 1.8 jobs could be lost. As a result of annual compliance costs associated

with the lower value of Scenario II, total economic impact amounts to $1,159,292 and a potential loss of 6.6 FTEs.

TABLE 16 Socioeconomic Impact Analysis: Wineries

Scenario Direct Impacts Indirect Impacts Induced Impacts Total Impacts Scenario I (Low Rang e)

-- below sig

--

-- below sig

-- Scenario II (Mid Range) Industry Output Impacts $701,862 $294,793 $162,637 $1,159,292

Employment Impacts 2.1 2.7 1.8 6.6 Scenario II (Mid Range) Industry Output Impacts $4,321,862 $1,815,248 $999,772 $ 7,136,882
Employment Impacts 13.1 16.4 11.0 40.5
Scenario III (High Range) Industry Output Impacts $22,421,862 $9,417,522 $5,186,828 $37,026,212

Employment Impacts 68.1 85.1 56.9 210.1 Scenario III (High Range) Industry Output Impacts $31,471,862 $13,218,660 $7,280,356 $51,970,878

Employment Impacts 95.6 119.5 79.9 295.0



### Source: Applied Development Economics, based on San Joaquin Valley Unified Air Pollution Control District and Industry

### 28 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## The upper value of Scenario II impact is $4,321,862, wh ich

could result in the loss of 13.1 full

- time equivalent (FTE) positions. As a result of this upper value Scenario II direct impact to wineries, businesses that are involved in buyer

supplier relations with impacted wineries could experience an

indirect impact to the tune of $1,815,248, resulting in a loss

of 16.4 FTE. The direct and indirect loss of 13.1 and 16.4 jobs, in turn, could result in the loss of spending at a variety of stores, such as retail and personal services establishment,

in the amount of $999,772. As a result of this reduction in consumer spending, an additional 11.0 jobs could be lost. As a result of annual compliance costs associated with the upper value of Scenario II, total economic impact amounts to $7,136,882 and a potential los s of 40.5 FTEs.

The lower value of Scenario III impact is $22,421,862, which

will result in the loss of 68.1 full

- time equivalent (FTE) positions. As a result of this lower value Scenario III direct impact, businesses that are involved in buyer

- supplier

r elations with impacted wineries will experience an indirect impact to the tune of $9,417,522, resulting in a loss of 85.1 FTE. The direct and indirect loss of 68.1 and 85.1 jobs, in turn, will result in the loss of spending at a variety of stores,

such as retail and personal services establishment, in the
amount of $5,186,828. As a result of this reduction in consumer spending, an additional 56.9 jobs could be lost. As a result of annual compliance costs associated with the lower
value of Scenario III, t

otal economic impact amounts to $37,026,212 and potential loss of 210.1 FTEs.

The upper value of Scenario III impact is $31,471,862, which

could result in the loss of 95.6 full

- time equivalent (FTE) positions. As a result of this upper value Scenario III direct impact to wineries, businesses that are involved in buyer

supplier relations with wineries could experience an indirect impact to the tune of $13,218,660, resulting in a loss of 119.5 FTE. The direct and indirect loss of 95.6 and 119.5 jobs, in

tur n, could result in the loss of spending at a variety of stores, such as retail and personal services establishment, in the
amount of $7,280,356. As a result of this reduction in consumer spending, an additional 79.9 jobs could be lost. As

a result of ann

ual compliance costs associated with the upper value of Scenario III, total economic impact amounts to $51,970,878 and a potential loss of 295.0 FTEs.

### 29 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

# 6.4 IMPACT ON SMALL BUSINESSES

In addition to analyzing the employment impacts of Draft
Rule 4694, state

legislation requires that the socioeconomic analysis assess whether small businesses are disproportionately affected by air quality rules. This section begins by briefly summarizing how the state government defines small businesses for the purposes of qu alifying 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.



# D EFINIT ION 

# O F 

# A S MALL 

# B USINESS


## For purposes of qualifying small businesses for bid preferences on state contracts and other benefits, the State of California defines small businesses in the following manner 7



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

ß Must be independently owned and operated;

ß Cannot be dominant in its field of operation;

ß Must have its principal office located in California

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

ß 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

Due to limitations of the data set, it is difficult to ascert ain how many of the establishments are small businesses per the features identified directly above. It is possible to estimate how many affected establishments employ more than 100 workers, as well as to estimate the average revenues generated by affected

establishments of a given size. We cannot determine how many are independently owned or operated, or the location of their principal offices.

7 

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

### 30 

### Final Staff Report with Appendices For Revised Proposed Rule 4694 

## Using a variety of sources, including Dun and Bradstreet, Manufacturing and Distribution USA: Industry Analyses

, Statistics and Leading Companies, Google Maps, and Wine Business Monthly, we conclude that all of the affected
sources are not small businesses. Thus, Draft Rule 4694 does not disproportionately impact small business sources.