ECONOMIC ANALYSIS OF THE CHANGE IN DATA REQUIREMENTS RULE

FOR CONVENTIONAL PESTICIDES

Prepared by:

BIOLOGICAL AND ECONOMIC ANALYSIS DIVISION

OFFICE OF PESTICIDE PROGRAMS

U.S. Environmental Protection Agency 1200 Pennsylvania Ave, NW Washington, DC 20640

June 15, 2007TABLE OF CONTENTS

1 E XECUTIVE S UMMARY

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

2 P ROBLEM S TATEMENT

....................................................................................................... 4 2.1 Overview of Pesticide Usage, Exposure, Effects and Regulation ................................. 4

2.2 Nature of Market Failures Inherent from Pesticide Producer and User Behavior... 5

3 A NALYSIS OF O PTIONS C ONSIDERED FOR THE P ROPOSED R ULE

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

3.1 Selected Option: Decision Criteria Determination of Data Requirement...... 6

3.2 Low-Cost Option: Codification of Current Practice ........................................ 8

3.3 High-Cost Option: Requirement of th e Additional Required Data 100% of

the Time ......................................................................................................................

........... 8

4 E CONOMIC A NALYSIS OF THE P ROPOSED C HANGES IN THE D ATA R EQUIREMENTS R ULE

FOR C ONVENTIONAL P ESTICIDES

.................................................................................................. 9

4.1 Background for Final Rule .................................................................................. 9

4.2 Reason for the Final Rule..................................................................................... 9

4.3 Overview of the Costs of the Final Rule ........................................................... 10

4.4 Statutory Authority ............................................................................................ 12 The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA)

...................... 12 The Federal Food, Drug and Cosmetic Act (FFDCA)

.......................................... 12 The Food Quality Protection Act (FQPA)

............................................................ 13

4.5 Description of Data Requirements .................................................................... 13 Data Requirements by Data Category (data discipline)

........................................ 13 Data Requirements by Type of Registration Action

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

4.6 Description of Final Regulation......................................................................... 15

4.7 Profile of the Regulated Community ................................................................ 17

4.7.1 Registrant Population

............................................................................. 17

4 .7.2 Registrant Financial Data

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

5 E CONOMIC I MPACTS ON P ESTICIDE R EGISTRANTS D UE TO C HANGES IN D ATA
R EQUIREMENTS

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

5.1 Unit Test Costs (Step 1) ...................................................................................... 24

5.2 Data Requirements Per Registration Action (Step 2)...................................... 24

5.3 Incremental Costs and Impact Per Registration Action (Step 3)................... 25

5.4 Industry-Wide Impacts (Step 4) ........................................................................ 27

5.5 Average Annual Cost per Firm (Step 5) ........................................................... 27

6 S MALL B USINESS I MPACTS (S TEP 6)................................................................................ 27

6.1 Regulatory Overview.......................................................................................... 27

6.2 Categorization of Small Businesses ................................................................... 27

6.2.1 Estimation of the Number of Small Businesses

.................................... 28

6.2.2 Sales and Employees

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

6.3 Small Business Impact........................................................................................ 30

7 L IMITATIONS OF A NALYSIS

.............................................................................................. 32

8 E STIMATION OF THE B URDEN OF THE D ATA C OLLECTION

............................................ 33

9 E STIMATION OF A GENCY B URDEN

.................................................................................. 35

R EFERENCES

............................................................................................................................... .. 37LIST OF TABLES and CHARTS

Table 4.1: Data Categories and Descriptions

........................................................................... 14 Table 4.2: Types of Registrati on Actions and Descriptions

.................................................... 14 Table 4.3: Average Number of Registration Actions per Year

.............................................. 18 Table 4.4: Summary of Data Sets Used in Econom ic Profile of Entities Affected by the Part

158 Rule

............................................................................................................................... . 19 Table 4.5: Primary Industry Sectors Represented in the PRATS Data Set

.......................... 20 Table 4.6: Primary Industry Sectors Represented in the PPIS Data Set

.............................. 20 Chart 5.1 Methodology Flowchart

......................................................................................... 23 Table 5.1: Cost of Newly imposed Test re quirements for Non-Food Active Ingredient

...... 26 Table 6.1: Companies in the PRATS Sample by SBA Size.

.................................................... 28

Table 6.2 : Average Sales and Employees

B PRATS Data Set

.................................................. 29 Table 6.3: Average Sales and Employees

B PPIS Data Set

...................................................... 29 Table 6.4: Number of Entities in Sample per SBA Category from PRATS Sample

............ 30 Table 6.5: Number of Entities in Sample per SBA Category and PPIS Sample

................... 30 Table 6.6: Estimated Small Business Impacts

.......................................................................... 31 Table 8.1: Estimate for Type A Activities Annual Registrant Burden/Cost Estimates for Type A Activities for the Registration Divi sion (RD): New Active Ingredients and New

Uses

............................................................................................................................... ........ 35 Table 8.2: Estimate for Type C Activities Annual Registrant Burden/Cost Estimates for Type C Activities for the Registra tion Division (RD): Reduced Risk

........................... 35

Appendix A Test Cost Data Used To Ca lculate Data Requirement Costs For Part 158

Rule Appendix B Options and Sensitivity Analysis Appendix C Agency Impacts Appendix D Industry Profile Appendix E Pesticide Registration Action Tracking System (PRATS) Action Codes Appendix F Analysis for Final Rule1 1 E XECUTIVE S UMMARY

The U.S. Environmental Protection Agency (EPA) proposed to update and revise the data requirements for the registration of conventional pesticide products listed in part 158 of Title 40 of the Code of Federal Regulations (CFR) on March 11, 2005 (70 FR 12275). EPA received public comments on the proposed rule and is now issuing the final rule. This document evaluates the potential benefits and costs expected to result from the revisions presented in the

final rule.

Federal law requires that before selling or distributing a pesticide in the United States, a person or company must obtain registration, or licen se, from the EPA. Before registering a new pesticide or new use for a registered pesticide, EPA must first ensure that the pesticide, when used according to label directions, can be used with a reasonable certainty of no harm to human health and without posing unreasonable risks to the environment. Where pesticides may be used on food or feed crops, EPA also sets tolerances (maximum pesticide residue levels) for the amount of the pesticide that can legally remain in or on foods. To make such determinations, EPA requires applicants to provide EPA with the data and other necessary information.

Since the data requirements in 40 CFR part 158 were first codified in 1984, information needed to support the registration of a pesticide chemical has evolved as the general scientific understanding of the potential hazards posed by pesticides has grown. Over the years, updated data requirements were developed by EPA using a process that involved public participation and extensive involvement by the scientific community, including peer review by the FIFRA Scientific Advisory Panel (SAP). Most of the da ta requirements contained in this rule have been applied on a case-by-case basis to support individual applications, or imposed via Data Call-In (DCI) on all registrants of similar products. Although the data requirements imposed have progressed as scientific understanding and concerns have evolved, the codified data requirements in part 158 have not been updated to keep pace.

This rule involves changes to the codified data requirements that pertain to product chemistry, toxicology, residue chemistry, applicator exposure, post-application exposure, nontarget terrestrial and aquatic organisms, nontarget plant protection, and environmental fate. Coupled with updating the data requirements in part 158, EPA is adding a few new data requirements, reformatting the presentation of the requirements in part 158, and making a few revisions to its general procedures and policies associated with data submission.

Codifying existing data requirements which are currently applied on a case-by-case basis allows the pesticide industry, along with other partners in the regulated community, to attain a better understanding and better prepare for the pesticide registration process. In addition, the proposed revisions to part 158 are expected to increase EPA’s ability to meet statutory requirements; make more informed regulatory a nd licensing decisions; enhance efficiencies in the licensing and decision-making process; improve understanding and expectations with regard to the data needed for pesticide registrations; improve the availability of more complete and reliable data; improve the Agency’s ability to prepare good quality risk assessments; enhance the consideration of risk mitigation measures; and provide better protection to humans and the environment. These improvements in EPA’s abilities will benefit a large number of parties,2 including the regulated industry, pesticide users, the general public, other federal, state, and foreign governments, and others who are affected by or interested in pesticide use or regulation.

To evaluate the potential annual cost to the conventional pesticide industry under three options, the Agency examined the historical information of actual pesticide registration actions between 1996 and 2002. This included information regarding the type and frequency of the various possible pesticide registration actions, the related applicability of the various data requirements to those actions, and information about the applicants involved in those actions. This information formed the basis for the analysis presented in this document, i.e., to estimate the potential annual impacts on industry assuming an average annual number of future pesticide registration actions in addition to the type and fr equency of future pesticide registration actions.

EPA identified a total of 120 individual firms involved in one or more of the 986 total pesticide registration actions that occurred between 1996 and 2002. EPA estimated an annual average of 141 pesticide registration actions, and created an economic profile of the affected industry using a large random sample of 1,000 pesticide registrants.

In the Economic Analysis (EA) for the proposed rule, the following three options were analyzed:

Proposed approach: Decision criteria determination of data requirement: The estimated annual cost under this approach was about $51 million.

Low-cost option: Codification of Current Practice : The estimated annual cost under this alternate approach was about $48 million.

High-cost option: Require Data 100% of the Time: The estimated annual cost under this alternate approach was about $69 million.

This final rule is similar to the proposed rule except that some data requirements will no longer be commonly required. The estimated annual cost of this final rule will be less than the estimated annual cost of the proposed rule. The changes from the proposed rule are as follows:

• Elimination of Chronic Oral Toxicity Data Requirement – Non-Rodent (One-Year Dog) (Guideline 870.4100). This data requirement was required as part of the baseline. The cost of the test is approximately $950,000 and was recently required on an average of almost 18 times per year for the entire industry. Since this data requirement will no longer be required, a savings of almost $16.6 million is expected per year.

• Elimination of Special Data Requirements. Three special toxicity data requirements, expected to be required about 1% of the time, will no longer be required. This reduces the cost of the rule by $304,000 per year. The data requirements are:

o Scheduled Controlled Operant Behavior (Guideline 870.6500)

o Peripheral Nerve Function (Guideline 870.6850)

o Neurophysiology: Sensory Evoked Potentials (Guideline 870.6855)

• Revision of some of the Test Notes Asso ciated with the Ecological Effects Data3 Requirements. Since these revisions to the test notes will slightly reduce the percent of time these tests may be required, the costs in the final rule will be slightly less than the proposed rule; however, these costs were not re-estimated for the final rule because of the expected minimal impact.

• Restructure of Subparts. Based on some public comments, EPA in the final rule is restructuring the subparts to be more user-friendly. EPA reasons that the users most in need of clarity are the infrequent, generally lower-volume-producing applicants, whose data requirements are in many cases limited to end-use product data of various types. This restructuring does not change the cost of this rule to industry. The benefits to the lower-volume-producing applicants would be more qualitative than quantitative.

• Simplification of Data Requirement Tables. Some of the major use patterns have been collapsed under a larger major use pattern for ease of use. For example, the major use patterns in the Toxicology Data Requirements table consist of Food and Nonfood. The discussion in §158.500(b) explains that the general use patterns of terrestrial food crop, terrestrial feed crop, aquatic food, greenhouse food crop, and indoor food have been placed under the major use pattern “Food.” The “Nonfood” use patterns include products

classified under terrestrial nonfood crop, aquatic nonfood, greenhouse nonfood crop, forestry, residential outdoor and indoor, a nd indoor nonfood. Therefore, only two major use patterns appear in the data requirement table for Toxicology. Similar adjustments have been made to other disciplines as appropriate. These changes do not affect the cost of this rule to industry.

• The agency will adopt alternative approaches of testing as they became available. As discussed in the preamble, the proposal from Agricultural Chemical Safety Assessment (ACSA) is consistent with EPA's direction and goals to develop a more efficient and reliable testing paradigm. EPA will update part 158 data requirements as new science develops and is peer reviewed. In the meantime, EPA will work with registrants to explore alternative testing strategies on a case-by-case basis. It is difficult to estimate the cost of alternative studies without protocols. However, as discussed in the preamble, there are case studies underway that will provide more information on expected costs and potential cost savings.

As a result of these changes, the estimated annual incremental cost of the final rule is expected to be about $33.6 million for the industry. The elimination of the toxicity tests as described above reduces the cost of the rule by almost $17 million. This cost reduction would also apply to the high cost option.

The low cost option (Codification of Current Pr actice) is no longer the lowest cost option under the final rule, because current practice includes data requirements being eliminated in the final rule. This option remains the same in both the proposed and final rules.

The analysis of the potential impact of the proposed rule on small businesses suggested4 that the proposed rule would not have had a significant impact on a substantial number of small entities because only 1.6% of the potentially impacted firms were expected to experience a cost increase representing 3% or more of gross sales. Only 2.4 % were likely to experience a cost increase representing 1% or more of gross sales (See Section 4). Since the expected incremental costs of the final rule are about 33% less than what was estimated for the proposed rule, the potential impacts on small businesses would be less than what was estimated for the proposed rule. The small business impacts for the final rule were not re-estimated since they were not significant under the proposed rule and will therefore be slightly less significant under the final

rule.

Using the currently codified requirements as the baseline for estimating the potential impact of the final rule, the total annual impact to the pesticide industry is estimated to be about $33.6 million. Of this estimated total annual impact, about $28.6 million per year represents the cost of new data requirements that were imposed over the years but were not codified in the existing CFR, and about $5 million represents the cost of modified, reduced, or expanded existing data requirements (i.e., data requirements for certain tests and use patterns in the CFR that are changing from conditionally required (CR) to required (R)). These data requirements have become more regularly required as they have been applied to an increasing number of registrations. As a result, about $2.1 million that is attributable to newly imposed requirements is included in the total cost estimate. The costs of the newly imposed requirements represent the increase in costs over current practices and therefore provide the estimated practical impact of this final rule to the pesticide industry.

Since the likely impact of this final rule on businesses overall is expected to be small, the Agency believes that a deleterious effect on the availability of pesticides to users is unlikely. On balance, the Agency believes that the costs of the rule are justified by the benefits from the enhanced protection of human health and the environment.

2 P ROBLEM S TATEMENT

2.1 Overview of Pesticide Usage, Exposure, Effects and Regulation

Pesticides are biological poisons, intended to kill or repel biological entities. The mode of action is seldom entirely specific as to the time, place and target of the chemical activity. Pesticides are often acutely toxic to animals, plants and other lower life forms and at the same time are likely to be acutely, if not chronically, toxi c to at least some part of the non-target biota (flora and fauna of a region). The long-term e ffects of chronic exposure of human, animal and other living organisms to pesticides are uncertain. There are many possibilities for chemical/toxicological interactions between pesticides and living organisms, particularly those resulting from long-term, low-dosage exposure.

Each year, large quantities of pesticides are released into the environment. In 2001, an estimated 4.97 billion pounds of active ingredient (AI) were used in the United States (USEPA5 2001a). Of this, 1.2 billion pounds AI were used predominately as conventional pesticides in agricultural, industrial, commercial, government and house and garden uses. The remaining pounds of AI comprise other chemicals such as specialty biocides, chlorine/hypochlorites, and wood preservatives.

Agricultural uses of pesticides account for about 76 percent of the total conventional pesticide use in the U.S.; this amounted to 675 million pounds AI in 2001. The industrial/commercial/governmental sector is the second-ranked user of pesticides in the U.S., accounting for about 13 percent of the total use of conventional active ingredients (111 million pounds in 2001) (USEPA 2001a). There are an estimated 422,000 total commercial applicators in the U.S. (USEPA 2001a). Pesticides are used on a majority of the 2.2 million commercial farms in the U.S. Pesticide use in agriculture may result in residues in feed and food products produced on farms, leading to human exposure to pesticides through the food supply. Pesticide use can also lead to groundwater contamination, or direct exposure to humans and the

environment. Groundwater is vulnerable to cont amination by pesticides from ordinary usage, leaks, spills and disposal. Groundwater is used for drinking water by nearly half of the U.S. population. In some rural areas, it is the only source of drinking water (USEPA 1999c). Farm use also potentially exposes applicators and farm families to pesticides. Farm field workers, numbering 8.8 million in the U.S. in 2002, may be subject to a high degree of exposure to pesticides, primarily through dermal contact with residues on plant surfaces (USDA 2003).

Home and garden usage of pesticides equals about 7 percent of total conventional pesticide usage on an active ingredient basis, amounting to 78 million pounds in 2001 (USEPA 2001a). People who use pesticides are directly exposed, primarily through dermal contact or

inhalation.

2.2 Nature of Market Failures Inherent from Pesticide Producer and User Behavior

Economic theory suggests that regulatory intervention is justified in the presence of market failures. For example, in the case of pesticide residues on food, the two most salient sources of failure are externalities and asymmetric information. Externalities arise because some of the costs (e.g. groundwater contamination and environmental damage) associated with pesticide residues are external to those benefiting from the pesticides (pesticide producers and users, and consumers of food). The asymmetric information problem arises because consumers cannot easily determine the level of pesticide residue on food. Even if the level were readily apparent, the nature of the risks posed by these residues is not well understood.

3 A NALYSIS OF O PTIONS C ONSIDERED FOR THE P ROPOSED R ULE

Executive Order 12866 directs agencies initiating rulemaking activities to conduct a regulatory impact analysis and submit it to the Office of Management and Budget (OMB) prior to publication of the proposed rule. The executive order calls for EPA to characterize the costs and benefits of the proposed option and compare them with the costs and benefits of other options. The proposed option should be the one that maximizes net social benefits. The purpose6 of this section of the report is to integrate the results of the impact analysis into a benefit/cost framework and to report on the analysis required by Executive Order 12866.

This economic analysis is conducted pursuant to EPA’s guidance on conducting regulatory economic analyses (USEPA 1999b; USEPA 2000).

EPA considered alternative options in requiring data requirements before arriving at the Agency’s preferred option in the proposed rule. The proposed option and two alternative options are summarized and compared below. The pros and cons of each of the two alternatives relative to the proposed approach are also discussed below. The goal was to arrive at a structure and process for data requirements so that EPA receives sufficient data to inform the decision for any registration action, while minimizing the impacts on pesticide registrants. These impacts include the direct cost of generating the data as well as less tangible costs brought about by uncertainty in registration requirements. The three options are as follows.

3.1 Selected Option: Decision Criteri a Determination of Data Requirement

Benefits

The Agency is updating its regulations by codifying current data requirements that are not currently codified in part 158 of Title 40 of the Code of Federal Regulations (CFR), but which are intended to provide EPA with data and other information necessary to register a conventional pesticide chemical. EPA regulates pesticides under FIFRA (Federal Insecticide, Fungicide, and Rodenticide Act) and FFDCA (F ederal Food, Drug and Cosmetic Act). FIFRA requires that an applicant or registrant demonstrates to the Agency’s satisfaction that, among other things, the pesticide product, when used in accordance with label instructions, will not cause “unreasonable adverse affects” to humans or the environment. FFDCA requires a “reasonable certainty of no harm” from pesticide residues in food. Reducing these adverse effects reduces the externalities of pesticide use on the environment and the effects of asymmetrical information on consumers of food. Requiring additional data enhances EPA’s ability to make sound regulatory decisions; prevents the registration of pesticide products that may have unreasonable adverse externalities on the environment; and protects consumers of food from unreasonable risks. Besides updating data requirements, EPA is adding a few new studies, increasing the frequency of a few existing studies , reformatting part 158, and revising the general procedures and policies associated with data s ubmission. By codifying these data requirements, which are currently applied on a case-by-case basis, and adding a few additional new requirements (such as immunotoxicity testing), the pesticide industry, along with other partners in the regulated community, gain a better understanding of the date requirements that are likely to be required and are better prepared for the pesticide registration process.

In essence, the data requirements identify the questions that the registrant will need to answer regarding the safety of a pesticide product before the Agency can register the product. The data requirements address both components of a risk assessment, i.e., what hazards the pesticide presents, and what level of exposure to the pesticide. The answer to one question may inform the kind of information needed in other questions. For example, a pesticide that is7 persistent and toxicologically potent may require more extensive exposure and environmental fate data to help establish an acceptable level of exposure. If there is negligible exposure, then there may be less need for extensive hazard data since any conceivable risk would be low.

Until 1984, data requirements were based on longstanding requirements initially put in place when pesticides were regulated by U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA). However, because virtually all of EPA’s decisions relating to the registration of pesticides or the establishment of tolerances depend on EPA evaluation of scientific studies, the Agency has throughout the years developed standardized data requirements and test guidelines, and established evaluation procedures and peer review processes to ensure the quality and consistency of scientific studies.

Since the data requirements in part 158 were first codified in 1984, information needed to support the registration of a pesticide chemical has evolved as the general scientific understanding of the potential hazards posed by pesticides has grown. Over the years, updated data requirements were developed by EPA using a process that involved public participation and extensive involvement by the scientific community, including peer review by the FIFRA Scientific Advisory Panel (SAP). Most of the data requirements being codified under this proposed approach have been applied on a case-by-case basis to support individual applications, or imposed via Data Call-In (DCI) notices on all registrants of similar products. Although the data requirements imposed have progressed as scientific understanding and concerns have evolved, the codified data requirements have not been updated to keep pace.

Costs

One potential impact of higher data costs for registering a pesticide is that fewer products may be registered in a given time period as more time and money may be required to develop the data to support a registration. Additionally, the types of products that are developed, and for what uses, may be affected. Higher costs may encourage registrants to effectively raise the threshold for potential revenue expected from a pesticide use before they would pursue its registration, which may mean that research into pesticides for “minor uses” (e.g., crops with small acreage or very specific pests) may be reduced. The Agency, in conjunction with USDA, has a program called IR-4, which promotes research and development in these areas through various incentive measures, including support for data generation to ensure that pesticides are available to growers of minor crops.

Another effect of raising the costs of regulation is higher prices, which decreases consumer surplus. The amount of the cost that pesticide producers can pass on to pesticide users depends on the price elasticity of the demand for pesticide products. If there were good alternative pesticides or means of pest control, the pesticide producer would not be able to pass much of the higher costs to pesticide users. If there are no good substitutes, the pesticide producer would be able to pass on most of the costs to pesticide users.

The estimated incremental costs of this option for conventional pesticides are about $51 million. A detailed analysis is shown in Appendix F.8 3.2 Low-Cost Option: Codification of Current Practice

Benefits

This approach reflects codifying the Agency’s current practice. The data required under the current practice relies on the data requirements in the current Part 158 as modified by current policies and practices, including DCIs. Entities seeking registration of a pesticide have to submit applications based on requirements in the current CFR and then wait for the Agency to determine the additional required data not codified in the current CFR for each pesticide registration action on a case-by-case basis. EPA considers all of the possible tests used to support pesticide registrations, and only requires thos e tests that would appear to add significant information and value to the decision, while ensuring that the registration meets or exceeds statutory safety standards.

Like the selected option, this option would be more efficient in terms of process than no new rule at all, because most of the data requirements would be known in advance, thus saving delays in generating data. In terms of data requirements, this option is similar to the selected approach except it does not include a few new requirements, such as immunotoxicity testing, which the Agency has not currently imposed. EPA believes that the newly imposed requirements (that are in the selected option, but not in this low-cost option) are needed to make informed decisions on pesticide registration; are worth their cost; and would reduce the

externalities to the environment and risks to consumers of food.

Costs

The estimated cost of this approach to industry (additional data requirements compared to what is required in the current CFR) is about $48 million. A detailed analysis is shown in Appendix F.

3.3 High-Cost Option: Requirement of the Additional Required Data 100% of the

Time

Benefits

Another alternative approach analyzed by the Agency would be to require all data requirements marked “R” 100 percent of the time for any new requirement. “Required” in the selected and low cost options means the data requirement is required unless certain conditions are met, so the frequency could be less than 100% since it might not apply to all pesticides that trigger those conditions. This approach would result in higher costs to pesticide registrants and to the Agency than the selected approach, but would ensure availability of this information.

This option may reduce the adverse externalities of pesticides and unknown risks to consumers of food slightly more than the select ed approach. However, the benefits of this additional data are speculative, because if certain conditions are met, then this additional data9 (over and above what the selected option requires) would help inform registration decisions very little. Furthermore, if the higher cost of registering pesticides results in fewer products being registered, overall risk to humans and the environment may not increase since newer products are often safer than the older pesticides they may replace or partly replace.

Costs

EPA believes that the cost of requiring the data 100% of time for all registrations would be too high to warrant the modest benefits of marginally valuable information. Additionally, EPA expects that registrants would request waiv ers of many tests under this approach, resulting in inefficiency and uncertainty similar to that described under the case-by-case approach of the current practice. EPA believes that this high cost approach would raise the cost of registering a pesticide substantially, resulting in fewer products being registered for minor uses, which already have a relative shortage of pest control options due to the limited market incentive to registrants.

The estimated cost of this approach is $69 million. A detailed analysis is shown in Appendix B.

4 E CONOMIC A NALYSIS OF THE C HANGES IN THE D ATA R EQUIREMENTS IN THE F INAL
R ULE FOR C ONVENTIONAL P ESTICIDES

4.1 Background for Final Rule

This rule is one in a series of revisions aimed at updating EPA’s regulations governing pesticide data requirements. The regulations governing data requirements have not been comprehensively revised since 1984. This rule pertains to the data requirements for conventional pesticides, i.e. pesticides that are not classified as antimicrobial (including wood preservatives) or biopesticides. EPA is revising the data requirements for conventional pesticides in the fields of toxicology, residue chemistry, applicator exposure, post-application exposure, non-target terrestrial and aquatic organisms, non-target plant protection, environmental fate and product chemistry.

4.2 Reason for the Rule

The data requirements specified in Part 158 of 40 CFR are intended to provide EPA with data necessary for the registration of pesticide products, including conventional pesticide chemicals. Since the data requirements set out in Part 158 were first published in 1984, information needed to support the registration of a pesticide chemical has expanded or has been refined as experience with pesticides and the science underlying the data requirements has advanced. As a result of the Food Quality Protection Act (FQPA) of 1996, EPA must now address additional human health risk issues associated with the use of pesticides, such as aggregate and cumulative risks. Additional data are required to perform these assessments.

The revised data requirements are expected to improve EPA’s ability to make timely decisions about the likely human health and environmental effects of pesticide products. These10 revised data requirements are intended to help EPA better protect people (including sensitive populations), wildlife, and the environment. Coupled with revising data requirements, EPA is reformatting the tables and revising some general procedures and policies associated with data submission. EPA believes that the changes to these regulations will provide the pesticide industry and other partners in the regulated community a better understanding of the requirements and allow them to better prepare for the pesticide registration process, thus reducing delays.

4.3 Overview of the Costs of the Final Rule

The direct costs of the rule affect the pesticide registrant community. EPA estimated the likely expenditures to be incurred by regulated entities, which may be an acceptable first-order approximation of the true cost given the magnitude of the rule.

The primary impact of the rule on the regulated community is the increase in registration costs associated with developing and submitting required data, and the burden on EPA to process and review this data. Over the years EPA has imposed new data requirements on a case-by-case basis that are not codified in the current CFR. Over time, as they have been applied to an increasing number of registration actions, these data requirements have become more regularly required to meet specific needs and are now being c odified in this rule. The costs of these newly codified data requirements represent most of the cost of the rule (about $28.6 million per year). In addition, the data requirements for certain tests and use patterns in the CFR are changing from conditionally required (CR) to required (R). These changes would increase the frequency at which certain tests are required. The incremental costs of these changes are part of the cost of the rule (about $21.6 million per year). However, these increased requirements are offset by a test that will no longer be required ($9.5 million). Therefore, the net increased requirements are $12.1 million. These impacts are explained in more detail in Sections 3 and 4.

This analysis estimates the annual cost only, because all years have the same expected (average) annual cost. There are no large costs in the beginning followed by smaller future costs. Furthermore, since the benefits of rule could not be quantified, it was not necessary to compare costs and benefits in a common denominator such as present value or annualized costs to account for different time frames. Since the costs are the same each year, the annualized value of the present value of the costs over a period of year s at any interest rate is equal to the constant

annual costs.

The total estimated annual incremental cost of increased data requirements for registering pesticide products is projected to be about $33.6 million to the conventional pesticide industry. This estimate is based on an examination of registration actions from 1996-2002. During this period 120 firms would have incurred average increased data costs of approximately $280,000 per firm per year if the rule had been promulgated.

An analysis of the impact of the rule on small businesses suggests that the rule will not have a significant impact on a substantial number of small entities; out of an estimated 1373 small firms potentially affected by the rule, only about 23 firms were expected to experience a11 cost increase representing 3% or more of gross sales. Only 2.4 %, approximately 35 firms out of about 1373 small conventional pesticide firms, is expected to experience a cost increase representing 1% or more of gross sales (see Section 6). Since the expected incremental costs of the final rule are about 20% less than what was estimated for the final rule, the potential impacts

on small businesses would be less than what was estimated for the final rule. The small business impacts for the final rule were not re-estimated since they were not significant under the proposed rule and will be less significant under the final rule.

These estimates are based on an analysis of registration costs and do not include reregistration because by the time this rule is promulgated, it is anticipated that virtually all requirements for reregistration will have been met.

In general, the revised data requirements in Part 158 could apply to new pesticides submitted for registration, to new uses of currently registered pesticides, and to existing chemicals whose data are subject to Agency review to determine if they continue to meet registration standards. For these existing chemicals, Part 158 data requirements are potentially relevant to three review programs.

Reregistration (mandated in 1988) and tolerance reassessment (mandated in 1996) are well underway. Data requirements under those programs have largely been imposed on registrants of existing chemicals, and the data have been submitted. EPA anticipates that by the time this rule is promulgated, few of the data requirements will be imposed for existing chemicals. Only those requirements that are “new” or “newly codified” (e.g., developmental neurotoxicity, immunotoxicity, sediment testing) have not been broadly required and may be imposed in the future. Data requirements for existing chemicals are imposed under the Agency’s DCI program.

In those rare cases when such data will be needed for the remaining reregistration or tolerance reassessment after promulgation of this rule, EPA will articulate the specific burden and costs associated with each DCI in support of the appropriate Information Collection Request (ICR) approvals under the Paperwork Reduction Act (PRA). Since the approval process for the PRA requires that EPA characterize the information collection burdens and costs incurred by registrants to comply with a DCI, a complete estimate of the burden and costs for the DCIs will be provided at that time. EPA believes that the public process associated with the PRA approval for the ICRs is a reasonable way to account for the data costs without double-counting the burden. Accordingly, in this rule EPA has not included the potential burden or costs of the data requirements on registrants of registered chemicals.

A third program, registration review, mandated in 1996, requires that EPA establish a program for the periodic review of existing chemicals (the goal is every 15 years). Any data requirements to be levied under that program will also be imposed under a DCI. EPA has promulgated procedures for the registration re view program. Once promulgated, the expanded data requirements in this part 158 rule are expected to apply to all chemicals subject to registration review (i.e., all existing chemicals), depending on the conditions expressed in both final rules (this Part 158 revision and the future registration review rule).12 4.4 Statutory Authority

Two primary statutes provide EPA with the authority to regulate pesticides: the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and the Federal Food, Drug and Cosmetic Act (FFDCA). The Food Quality Protection Act (FQPA) amended FIFRA and FFDCA in 1996.

The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA)

As the standard for registration of a pesticide, FIFRA sec. 3(c)(5) requires that a pesticide, when used in accordance with widespread and commonly recognized practices, will not generally cause unreasonable adverse effects on the environment. FIFRA sec. 2(bb) defines "unreasonable adverse effects on the environment" as "(1) any unreasonable risk to man or the environment, taking into account the economic, social, and environmental costs and benefits of the use of any pesticide, or (2) a human dietary risk from residues that result from a use of a pesticide in or on any food inconsistent with the standard under section 408 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 346a)." This standard also applies to the reregistration of existing pesticide products under FIFRA section 4, and Agency approval of any experimental use of unregistered pesticides under FIFRA section 5.

FIFRA is a licensing statute, under which regul atory decisions on the registrability of an individual product are based upon data specific to th e product and its uses. EPA is authorized to require the submission of data it needs to make the registration decision in the context of any individual application for registration, amended registration, or reregistration. EPA may also impose a data requirement after registration in order to maintain the registration, using specific DCI authority of FIFRA sec. 3(c)(2)(B).

In order for the Agency to make registration decisions, FIFRA sec. 3(c)(2) gives EPA broad authority, before and after registration, to require specific testing by registrants and applicants and submission of the resulting data to the Agency (7 U.S.C. §§ 136a-c). Part 158 of 40 CFR sets forth general requirements for data submission. On a case-by-case basis, EPA has exercised authority to require data in addition to that specified in Part 158. Registrants and applicants are under a continuing obligation to provide EPA with adequate information about their products to demonstrate that the products meet the statutory standard for registration.

The Federal Food, Drug and Cosmetic Act (FFDCA)

In addition to the requirements of FIFRA, FFDCA sec. 408 requires that any pesticide whose use may result, directly or indirectly, in residues on food (including animal feed), must have a tolerance (maximum legal residue level) or an exemption from tolerance. A tolerance or tolerance exemption is needed for residues of all ingredients in a pesticide product, both active and inert, as well as any transformation products (i.e., metabolites and/or degradates) of the pesticide chemical. A food that bears residues not covered by a tolerance or tolerance exemption is considered adulterated under FFDCA, may not be shipped in interstate commerce and is subject to seizure.13 The Food Quality Protection Act (FQPA)

On August 3, 1996, FQPA was enacted, ame nding both FIFRA and FFDCA. The new standard for establishing a tolerance or exemp tion under FFDCA sec. 408(b) is that pesticide residues must conform to a ”reasonable certainty of no harm" standard with respect to the general population, and to infants and children specifically. To determine whether a tolerance meets this standard, EPA must take into account aggregate exposure to the pesticide chemical residue, (dietary, non-dietary, and non-occupational exposure), cumulative risks from multiple related chemicals with a common mode of action, and other factors enum erated in section FFDCA sec. 408(b)(2)(C) for infants and children and in FFDCA section 408(b)(2)(D).

FFDCA section 408(b)(2)(A)(ii) calls for additional scientific analyses that have not been a routine part of the Agency’s risk assessment procedures, such as evaluating multiple pathway aggregate exposures from dietary and non-dietar y sources. Although this provision is primarily directed at food use pesticides, the Agency may apply a similar approach to actions involving non-dietary use pesticides that may pose significant risks to infants and children.

4.5 Description of Data Requirements

The data requirements for pesticide registration are organized by data category or discipline. The specific data required within each data category depends primarily on the pesticide exposure

and toxic characteristics.

Data Requirements by Data Category (data discipline)

When an applicant applies for registration of a conventional pesticide product, the applicant must submit data in support of that registration application. The following seven categories of data may be required (Table 4.1), depending on the type of product being registered. Tests are generally performed on the active ingredient, but may also be necessary to test contaminants or degradates.14 Table 4.1: Data Categories and Descriptions

Data Category Description Toxicology Tests of acute, subchronic, and chroni c toxicity and other human health concerns, such as carcinogenicity may be required to determine whether the product may pose

a hazard to humans. Human Exposure Because people may be exposed to the product both during application of the product and after application, information about possible oral, dermal, and inhalation exposure as well as informati on on how the product is used are required for registration. Residue Chemistry To determine whether the chemical may be found in plants, livestock, and fish that may be used for food, a variety of information is required, including a proposed

tolerance in food. Product Chemistry Tests of product identity and com position, delineation of methods of analysis, and tests of physical and chemical properties are required to characterize the product. Ecological Effects Tests of the eff ects of the active ingredient or a typical pesticide product on aquatic and terrestrial vertebrates, invertebrate s, and plants are required to determine whether the product poses an ecological risk to organisms that may come in contact with the product. Environmental Fate Information on a pesticide’s trans port and dissipation in water, air, and soil may be required to determine whether the components of the product persist in the environment and where it is likely to concentrate. Non-target Plant Protection Testing of a pesticide’s e ffects on non-target terrestrial and aquatic plant species may be required on plants of concern, in cluding crop plants or non-target plants such as endangered plants, or plants important to fish and wildlife for food and

cover.

Data Requirements by Type of Registration Action

Data requirements are generally levied as a result of a potential registration action. They usually differ depending on the type of regi stration being sought (e.g., whether the product contains an active ingredient not previously registered or whether the pesticide is identical to or substantially similar to an existing product). The types of registration that generally trigger data requirements are grouped in the following categories (Table 4.2):

Table 4.2: Types of Registration Actions and Descriptions

Type of Registration Description New active ingredient An application for regist ration of a new product that contains an active ingredient that is not included in any currently registered product. Major New Use An application for a new product that includes the addition of a use pattern that is not currently registered for one or more active ingredient(s) contained in the product. The proposed use pattern is significantly different from any use pattern registered for an existing use. Major New Use Amendment An amendment of a registration of a product that includes the addition of a use pattern that is not currently registered for one or more active ingredient(s) contained in the product. The proposed use pattern is significantly different from any pattern registered for an existing use.15 4.6 Description of the Final Regulation

There are organizational changes to Part 158 in the final rule. Organizational changes include expanding the number of subparts. Curren tly Part 158 is divided into four subparts:

1. Subpart A, General Provisions; 2. Subpart B, How to Use Data Tables; 3. Subpart C, Product Chemistry Data Requirements; and 4. Subpart D, Data Requirements Tables.

EPA’s proposed rule structured the subparts of part 158 to match the original sequence of guidelines. A number of commenters found this structure confusing and one commenter submitted an alternative structure. EPA agreed with the commenters that the current structure is not ideal for the average registrant who is seeking to determine which data requirements apply to his product. Accordingly, EPA is restructuring the subparts to be more user-friendly. Each subpart will address an individual scientific discipline or data type.

EPA has placed those data requirements applicable to the bulk of applications (new end-use product and me-too products) towards the beginning of part 158. The structure of part 158 in the final rule proceeds from product chemistry to product performance to hazard/toxicity requirements of all types (human health, ecological toxicity); then exposure data requirements of all types (pre- and post-application human exposures, exposures to residues in food); and environmental fate, which overlaps human exposure through drinking water, ecological exposure, and spray drift. EPA has reserved subparts among these various for other data types that might arise. EPA has consolidated subparts addressing related topics: plant protection data requirements have been incorporated into new s ubpart G (ecological effects data requirements) as have terrestrial and aquatic nontarget organism data requirements.

In this rule, EPA has new and revised data requirements that encompass three categories of requirements:

1. “New requirements,” never before imposed on any registrant. 2. “Newly codified requirements,” which have been applied on a case-by-case basis, but are

not contained in the CFR. 3. Revisions to “existing requirements.”

Types of Revisions

Some of these changes are clarifications or housekeeping changes without cost or burden, others have the effect of increasing or decreasi ng the burden of the data requirement. The types of changes may be broadly categorized as follows:

Potentially substantive changes

• Addition of a requirement. For example, EPA is conditionally requiring the16 developmental neurotoxicity study and requiring the immunotoxicity study.

• Elimination of a requirement , sometimes with substitution of a new requirement. For example, EPA is eliminating the requirement for the non-rodent chronic study (one year dog study) and the seed germination study. By contrast, the existing requirement for a battery of mutagenicity studies is being eliminated in favor of a specific set of mutagenicity studies.

• Change to the number or type of species that must be tested . For example, EPA is requiring acute avian toxicity testing on a passerine species in some instances and is requiring that certain toxicity studies be conducted routinely with two species instead

of one.

• A change in the conditional nature of the test requirement . For example, EPA is changing a number of requirements from conditionally required to fully required, or vice versa. In some cases, this is a minor change in the frequency (and burden) of the requirement. In other cases, the change may represent a substantial increase in frequency of requirement.

• A change to the use patterns to which a data requirement applies . For example, EPA decided to consolidate the various aquatic nonfood use patterns into one Aquatic nonfood use, thus reducing the number of aquatic nonfood use patterns to one. This decision was the result of public comments indicating some confusion. The elimination of the Indoor medical use pattern and the several aquatic nonfood use patterns reduced the final number of use patterns. Thus, the final number of major use patterns will be 12, rather than the 15 in the proposed rule.

• A change to the test substance to be used . Typical test substances include the technical grade of active ingredient (TGAI), the manufacturing use product (MP), the end use product (EP), or a typical end use product (TEP). For example, EPA is requiring primary eye and primary dermal irritation and dermal sensitization testing using the TGAI in addition to the EP.

• A clarification in the test notes . For example, EPA is adding a test note that requires analytical methods for residue chemistry and environmental fate to be validated by an independent laboratory.

Technical changes having no substantive effect

Technical changes include: relocating a data requirement from one discipline to another; changing the title of a data requirement; subdividing an existing data requirement to create two separate data requirements; and merging two data requirements into a single data requirement. These technical changes would not increase or decrease the burden of the data requirement.17 4.7 Profile of the Regulated Community

The market structure of the basic pesticide production industry can be described as a moderately to highly concentrated oligopoly, with only about 20 basic producers of common U.S. pesticides. Relatively few firms produce the bulk of pesticide products, and a few products tend to dominate national, regional, and local markets for individual site/pest combinations. Individual firms tend to significantly influence supply and prices in the markets in which they compete. A detailed profile for the conventional pesticide industry, including information on product classes for firms registering conventional pesticides is presented in Appendix D, Exhibit D-1 through D-12.

General Pesticide Industry Description

Pesticides are important products that play a significant role in many aspects of the economy. They are used by diverse economic sectors such as agriculture, industry, and residential. Pesticides reduce or eliminate undesirable weeds, insects, animals, fungi, and bacteria and are used to preserve wood and regulate plant growth. All of these pesticide uses produce desirable outcomes such as increased agricultural productivity and improved human health. However, due to their nature, their use also implies some environmental and health risks (USEPA 1999c).

Pesticide products themselves fall into several categories: conventional pesticides, specialty and niche pesticides, and antimicrobial pesticides. Conventional pesticides are those products that are commonly available to users as herbicides (weed killers), insecticides (“bug“ killers), and fungicides (fungus killers), as well as some special classifications such as fumigants used to sterilize soil to remove pathogens. The vast majority of pesticides used in the U.S. fall into the category of conventional pesticides. The final rule only applies to conventional pesticides.

4.7.1 Registrant Population

EPA uses the Pesticide Regulatory Action Tracking System (PRATS) to track and manage registration activities. Each registration action is assigned a code that defines the specific type of registration action. The PRATS da tabase provides a list of pesticide registration actions submitted by each applicant or registrant, including the dates the application was received by EPA and when the Agency responded to each application. For this analysis, the Agency used a subset of the PRATS data base with registration action codes relevant to Part 158 submitted for conventional chemicals from 1996 through 2002. The action codes relevant to Part 158 are shown in Table 4.3 below. The PRATS data set in this analysis includes 986 registration actions associated with 120 entities. The average number of registration actions per year is 141

as shown below in Table 4.3.18 Table 4.3: Average Number of Re gistration Actions per Year

Action

Code Description of Registration Action Average Number of Actions per Year 1

100 Application for Registration - New Chemical, Food or Feed 12 2

115 Application for Registration - New Chemical, Non-Food or Non-Feed Use 5 2

175 Application for Registration - Old Chemical, New Use: Non-Food or NonFeed Use 26

180 Application for Registration - Old Chemical, New Use: Food or Feed Use 7

315 Amendment - New Use: Non-Food or Non-Feed 14

330 Amendment - Old Chemical: New Use: Food or Feed 77

Total Actions per year 141

Source: PRATS 1996-2002.

1 Based upon the number of pesticide manufacturers subject to product registration action codes of interest from January 1, 1996 to December 31, 2002, in PRATS.

2 For these actions, only the first action per active ingredient was counted in the PRATS data, since test results for these actions can be reused for registrations with the same active ingredient. For the purpose of the individual company analysis, it was assumed that the first company to invoke one of these actions bore the entire cost of fulfilling the data requirements even if other companies later invoked the same action with the same active ingredient.

4.7.2 Registrant Financial Data

Since the PRATS database contains historical data, it is a sound indicator of the types of entities that undertook registration actions. However, the PRATS population may not be representative of the entities that will undertake registration actions in the future since it only captures entities that have made requests during the sample time period. Other entities may, of course, do so in the future. Therefore, EPA al so compiled a profile of a larger population of entities, some of which conceivably will undertake registration actions in the future, from the Pesticide Products Information System (PPIS).

PPIS contains information on all pesticide products registered in the United States: registrant names and addresses; chemical ingr edients; toxicity categories; product names; distributor brand names; site/pest uses; pesticid al types; formulation codes; and registration

status. PPIS does not contain informa tion on specific registration actions.

Neither PRATS nor PPIS contains information on the size or financial characteristics of the entities. Therefore, it was necessary to collect data on the size or financial characteristics from an additional source. EPA used the Dun and Bradstreet (D&B) Market Spectrum database to

obtain firm size and financial data for EPA’s anal ysis of the impacts of the rule on individual entities. D&B is a comprehensive source of financial information on entities, including firm locations, sales, and primary business classifications under North American Industrial Classification System code (NAICS).19 In order to link entities in the PRATS and PPIS data sets with the D&B database, EPA identified each entity’s Data Universal Numbering System (DUNS) number. The D&B DUNS Number is a unique identifier for a business and links it to the corporate family structure.

EPA used the DUNS number for each firm to query the D&B database to retrieve the ultimate parent firm name, as well as the ultimate parent firm’s annual sales, total employees, and primary NAICS code. The ultimate parent firm is defined as a corporation that owns more than 50 percent of another corporation. The parent firm, in turn, may also be a subsidiary of another corporation. All financial information in this profile is summarized at the domestic ultimate parent firm level; the domestic ultimate parent is the highest level within the firm’s structure in the United States. EPA evaluated the impacts of the rule at this corporate level to capture the annual sales of each firm. EPA identified 120 entities by using seven years of PRATS data (Table 4.4). EPA was then able to identify 81% of the parent firms of these 120 entities. Ninety-five of these parent entities provided D&B with revenue information, but one small and one large entity reported the number of employees but no revenue data to D&B. Twenty three companies did not have sufficient D&B financial data.

Using the PPIS data, a set of 1,804 unique pesticide registrants were identified as having one or more FIFRA Section 3 or FIFRA Section 24(c) pesticide registrations. For Small Business Administration (SBA)-defined small businesses, a random sample of 1,000 unique pesticide registrants was used to develop the economic profile. Of the 1,000 unique parent companies, 57% were identified having sufficient financial information at the global DUNS number level to be included in the analysis.

The PRATS data has a smaller number of firms because only those firms that would have experienced an incremental impact if the rule had been in effect during the sample period 1996- 2002 were selected. The PPIS data includes all conventional pesticide firms.

Table 4.4: Summary of Data Sets Used in Economic Profile of Entities Affect ed by the Part 158 Rule

Data

Set Entities in Sample % of Entities With

Ultimate Parent

Firm Identified Entities Without

Sufficient D&B

Financial Data Ultimate Parent

Entities With

Revenue

Information Entities With Employment

Information But

No Revenue Data

PRATS 120 81% 23 95 2

PPIS 1804 57% N/A 565 N/A

Source: Dun & Bradstreet 2002.

D&B reports the 6-digit NAICS code for each firm. The less refined 3-digit NAICS code, which is derived from the 6-digit code, is more useful in summarizing the types of businesses included in the data set. Table 4.5 shows that 51 percent (46 entities) of the parent entities from the PRATS data set are primarily identified as Chemical Manufacturing (NAICS 325). Some subsectors represented in this population are:

• pesticide and other agricultural chemical manufacturing (325320);20 • pharmaceutical preparation manufacturing (325412); and

• all other basic inorganic chemical manufacturing (325199).

Table 4.5: Primary Industry Sectors Represented in the PRATS Data Set

NAICS Code 1 Sector Description Number of Parent Companies 2

325 Chemical Manufacturing 46

424 Merchant Wholesalers, Nondurable Goods 27

423 Merchant Wholesalers, Durable Goods 4
339 Miscellaneous Manufacturing 2

531 Real Estate 2

541 Professional, Scientific and Technical Services 2
561 Administrative and Support Services 2

711 Performing Arts, Spectator Sports and Related Industries 2

Others 4

Source: USEPA 2003, Dun & Bradstreet 2003.

1 Government entities are excluded from the analysis.

2 Seven parent companies reported data without a NAICS code to Dun & Bradstreet (D&B) and 23 companies were not found in D&B, yielding a total of 30 companies without a NAICS code. EPA assumed the seven companies with

D&B data but no NAICS code were associated with NAICS code 325320 - Pesticide and Other Agricultural Chemical Manufacturing for the analysis.

Table 4.6 provides the same information for the PPIS sample. Here 107 entities, or 30 percent, are primarily identified as Chemical Manufacturing (NAICS 325).

Table 4.6: Primary Industry Sectors Represented in the PPIS Data Set

NAICS Code Sector Description Number of Parent Entities

325 Chemical Manufacturing 107

422 Wholesale Trade - Nondurable goods 45

311 Food Manufacturing 12

561 Administrative and Support Services 10

541 Professional, Scientific and Technical Services 8

421 Wholesale Trade - Durable goods 5

333 Machinery Manufacturing 4

Other 27
133 parent firms did not report a NAICS code to Dun & Bradstreet.

Source: USEPA 2001b, Dun & Bradstreet 2002.

Revenues

Market data indicate that sales of conventional pesticide active ingredients total over $11 billion per year (USEPA 1999a). Extrapolating this to the population of conventional pesticide firms producing AIs (20) and adjusting for the number of identified suppliers, results in average sales of $579 million. In other words, each of the major pesticide producers has an average of approximately 5 percent of the estimated industry total annual sales. Market data also indicate21 that the core number of conventional active ingredients is about 891. Therefore, each active ingredient generates an average revenue of $12 million.

Since 1992 the pesticide industry has undergone a period of consolidation. Many firms have merged or been purchased, decreasing the number of firms producing active ingredients. This has affected the concentration of active ingredient producers as a few large competitors are emerging in each sector. For example, the herbicides market had a concentration of 45 percent (market share held by top three competitors) in 1999, and it is estimated that the concentration will continue to increase. (Frost & Sullivan 2000).

Consolidation of the Industries By Mergers and Acquisitions

Conventional pesticide producers have experienced a period of consolidation in the past few years, as several major producers of active ingredients have either merged or been acquired. The following is a list of the mergers and acquisitions.

$ Novartis merged with Astra Zeneca

$ AgrEvo and Rhone Poulenc merged to form Aventis

$ Monsanto acquired DeKalb

$ Dupont acquired Pioneer Hi-Bred Seed Company

$ Zeneca merged with Astra

$ BASF acquired American Cyanamid

5 E CONOMIC I MPACTS ON P ESTICIDE R EGISTRANTS D UE TO C HANGES IN D ATA
R EQUIREMENTS

Summary of Findings

To simplify and clarify the process of applyi ng for a pesticide registration, EPA is revising part of its regulations pertaining to data requirements for the registration of conventional pesticide products. As discussed in Section 2, the Agency is revising the data requirements thatpertain to product chemistry, toxicology, residue chemistry, applicator exposure, postapplication exposure, non-target terrestrial and aquatic organisms, non-target plant protection, and environmental fate. Some new data require ments, not currently codified in Part 158, are being added and some are being dropped. In addition, conditions under which studies are required are being updated, i.e., major use patterns are being revised; test substances are being revised; and other changes have been made to the conditions under which certain studies are required.

The total cost of changes in data requirements for the conventional pesticide industry is estimated to be approximately $33.6 million per year in 2003 dollars for the selected option in

the final rule.

Overview of Methodology22 The data requirements for Part 158 were compared to the baseline, the data requirements currently codified in 40 CFR Part 158. These comparisons were conducted for each type of registration action. A registration action is either the registration of a pesticide product or an amendment to an existing registration. When a registrant submits an application to register or amend a product, EPA assigns an action code, which identifies the type of registration action. The incremental costs of each type of registration action due to the changes were then multiplied by the number of each type of registration action, in order to estimate the expected total industry impact and the impacts per firm. This analysis was done in the following six steps: Step 1. Determine the unit test costs of each data requirement Step 2. Determine the data requirements per registration action Step 3. Determine the incremental costs per registration action Step 4. Determine the incremental industry-wide impacts Step 5. Determine the incremental impact per firm Step 6. Determine the incremental impact per small firm as a percent of sales

Chart 5.1 is a flow chart describing the methodology. The unit test costs (Step 1) are multiplied by the data requirements (Step 2) for both the baseline and final rule to estimate the test costs per registration action (Step 3). The incremental test costs per registration action are the difference in the test costs per registration action between the baseline and the rule. The incremental costs per registration action are multiplied by the number of registration actions for the industry to get the industry-wide incremental impacts (Step 4) and the number of registration actions by each firm to get the distribution of incremental impacts per firm (Step 5). The incremental costs per small firm are divided by the entity’s sales revenue to get the distribution of incremental impacts per small firm as a percen t of sales revenue (Step 6 - SBREFA analysis - Section 6).December 7, 2004 23 Chart 5.1 Methodology Flowchart 

# STEP


# 1

2



# 3 Test Costs per Registration Action

Baseline Unit Test
Costs

Annual # of Registration
Actions Industry-wide

Incremetal Cost



### Annual # of Registration Actions by Firm Distribution of
Incremental Costs by Firm



### Distribution of

Incremental
Costs as a %
of Sales/Firm Sales Revenue by Small Firm 

# 4

5 Test Requirements by Registration Action

Baseline

Test Costs per Registration Action Proposed Rule

Test Costs per Registration Action

Incremental Costs



# 5

6 Exhibit 2-1. Methodology Flowchart

Test Requirements by

Registration Action Proposed RuleDecember 7, 2004 24 5.1 Unit Test Costs (Step 1)

In order to provide the data required for a registration, registrants must submit or cite test results or other information to satisfy the data requirements. The test costs are the costs of complying with the specific data requirements, which depend on the type of product and use

pattern.

EPA contacted a number of laboratories to obtai n cost data for different data requirements conducted by testing labs. Laboratories were asked to identify the method, range, analytical, and fixed cost for each data requirement based on a set of predetermined protocols. If for any test the component costs were not available, the laboratories were asked to provide a total cost. Knowing that the laboratory costs could vary c onsiderably based on the study protocol chosen by the laboratory, we established two protocols, a hi gh cost protocol and a low cost protocol, for each test in order to bracket the costs. To establish the protocols, we initially identified the various study design options for each test based on the Office of Pesticide Prevention and Toxic Substances (OPPTS) guidelines.

The Agency collected low and high cost estimates from actual testing laboratories for each data requirement. For each data requirement, the Agency averaged the low cost estimates and high cost estimates provided by the various laborat ories (see Appendix A: Test Cost Data Used to Calculate Data Requirement Costs for Part 158) . The estimated low costs of complying with individual tests range from $2,000 (product use information and description of human activity) to $1,000,000 (field testing for non-aquatic non-target organisms). The estimated high costs of conducting individual tests range from $3,180 (honey bee acute contact LD 50 ) to an estimated $2,000,000 (groundwater monitoring and field tes ting for aquatic non-target organisms).

5.2 Data Requirements Per Registration Action (Step 2)

A registration action is a decision on an applica tion from a registrant to register a product containing a new active ingredient or another type of new product, to add new uses to existing products, or to amend existing products. The data required for a registration action depends on several factors as described in Section 2. In this section data requirements are summarized in terms of the following variables:

A. Data Category (Data Discipline) B. Major Use Pattern C. Type of Registration Action

A. Data Category

The data requirements (as described in detail in Section 2.6) of Part 158 are organized into the following six data categories or disciplines:

Toxicology Human Exposure Residue ChemistryDecember 7, 2004 25 Product Chemistry Ecological Effects

Environmental Fate

B. Use Pattern

Within each of the six data requirement categories listed above, a number of individual tests may be necessary. One of the factors that determine whether a particular test will be required for a product is how the product will be used, known as the pesticide’s major use pattern. Twelve major use patterns will replace the nine use patterns found in the current CFR.

C. Type of Registration Action

The specific data required depend partly on th e type of registration action. The following types of registration actions are affected by the rule:

New active ingredient Major new use

Substantive amendment

Registration actions are tracked in an EPA database called PRATS (Pesticide Registration Action Tracking System). Each registration acti on is assigned an action code that defines the specific type of registration action. Appendix E contains a list of PRATS action codes relevant to this analysis. For each general type of registration action listed above, there are several specific types of registration actions identified by action codes, which define specific data requirements more exactly than the general type registration action.

There are two ways to satisfy data requirements: data may be newly developed for a registration action, or data previously submitted for an existing product may be cited for a new registration action. This analysis considers only the costs of developing and submitting new

data.

5.3 Incremental Costs and Impact Per Registration Action (Step 3)

The incremental costs are the differences in test costs between the baseline test costs, i.e., the tests described in current Part 158, and the cost of tests as required under the rule.

Changes Included in Estimating Incremental Costs:

Newly imposed: The cost of new tests and increased frequency of data requirements not currently imposed are shown in Appendix A as “Newly Imposed.” They are a subset of the newly codified new tests and expanded major use patterns. A sample of the newly imposed studies for non-food pesticides are shown below in Table 5.1.

Newly codified new tests: Test requirements th at are not currently codified in 40 CFR Part 158 are not included in the baseline, even though they may be currently imposed in practice on aDecember 7, 2004 26 case-by-case basis. Therefore, the incremental costs include the cost of all tests in the rule that

are not now codified in the CFR.

Table 5.1: Cost of Newly imposed Test re quirements for Non-Food Active Ingredient

Guideline # Newly Imposed Test Requirements for Non-Food Active Ingredient Test Cost % of Time Test is Required Average

Test Cost
850.2100 Avian Oral Toxicity $10,100 100% $10,100

835.4100 Aerobic Soil $94,375 1% $944
835.6200 Aquatic field $267,250 1% $2,673
870.7800 Immunotoxicity $54,648 100% $54,648
870.3700 Developmental Toxicity $76,844 25% $19,211

Subtotal $87,576

Newly codified expanded major use pattern: In some cases, the rule increases the frequency of data required in the tests currently in 40 CFR Part 158. Examples include:

Data not currently required will be required in the rule for certain use patterns. Data currently conditionally required would be routinely required by the rule for certain use site categories. Some current footnotes specifying when data are required have been changed in a manner that expands the application of the data requirement.

Estimation of Incremental Costs

EPA is retaining its current system of identifying the applicability of data requirements in the data tables. Because of the variety of chemicals and use patterns, and because EPA must retain flexibility to tailor data requirements to its needs, it uses only qualitative descriptors in the tables. These are used for convenience to make the table format feasible, but serve only as a general indication of the applicability of a data requirement. In all cases, the registrant must consult with EPA with respect to the test notes referred to in the table to determine the actual applicability of the data requirement. The table descriptors NR (not required), R (required), and CR (conditionally required) could be considered as indicators along a spectrum of likelihood of requirement (0% to 100%) for that data requirement.

The unit test costs of new tests are multiplied by the percentage of times each test is likely to be required for a particular action on a yearly basis. The Agency determined the percentages by using The Office of Pesticide Programs (OPP) database which contains the listing of all registration test data submitted to the Agency. This database was analyzed and EPA scientists used their expert judgment to estimate the percent of time the tests are likely to be required for the rule and the baseline. (See Exhibits B.1 through B.6 of Appendix B).

In cases where the frequency of a data requirement would change under the rule, the incremental cost of a registration action is estimated by multiplying the change in frequency (percent of time data requirement is required) by the unit test cost.December 7, 2004 27 5.4 Industry-Wide Impacts (Step 4)

In order to calculate the impact of the rule on the whole industry, the incremental costs for each type of registration action (Step 3) is multiplied by the average number of registration actions per year (shown in the row below the action codes in Exhibits B.1 - B.6). In order to estimate the number of times each newly codified test is likely to be required per year, the percentage of each type of registration action is multiplied by the average annual number of the type of registration action. These amounts are summed for all registration actions and multiplied by the unit test costs as shown in the right hand columns in Exhibits B.1 - B.6. The total annual industry incremental impact based on an average of 141 registration actions per year is estimated to be about $33.6 million. The average incremental impact per registration action is about $289,000.

5.5 Average Annual Cost per Firm (Step 5)

According to the PRATS database, 120 firms would have experienced incremental impacts from the rule during the 7-year period, 1996-2002. A total annual impact of $33.6 million represents an average impact per firm of $280,000.

6 S MALL B USINESS I MPACTS (S TEP 6)

This section describes the method for defining and identifying the small entities affected by the rule, followed by an analysis of the number and percentage of entities incurring economic impacts. The incremental costs of registration actions for each small conventional pesticide firm is estimated and compared to its annual sales revenue to determine the incremental impact as a percent of sales revenue.

6.1 Regulatory Overview The Regulatory Flexibility Act (RFA) of 1980 and its 1996 amendment, the Small Business Regulatory Enforcement Fairness Act (SBREFA), requi re that special consideration be given to the effects of the regulations on small business entities. The regulations require that a determination be made as to whether the regulation will have a significant impact on a substantial number of small entities (USEPA 1999b). EPA measured the economic impact by the annual compliance costs as a percentage of sales to assess the small business impacts.

6.2 Categorization of Small Businesses The Small Business Act authorizes the Small Business Administration (SBA) to establish

the definition of a small business. The SBA has set size standards under the North American Industrial Classification System (NAICS), us ing various thresholds on employee number and revenue amount, which vary by NAICS code. In determining the size of a firm, the SBA applies its standards to the parent level of a business entity. 1 The SBA also bases its determinations on

1 Specifically, the SBA treats a firm that has a substantia l portion of its assets and/or liabilities shared with a predecessor entity as part of that predecessor entity.December 7, 2004 28 the primary industry of the firm. In this analysis, the firm’s primary NAICS code is assumed to be its primary industry, and the definition of small business is determined by the SBA based on maximum number of employees or sales for small businesses in each industry sector, as defined by a 6-digit NAICS code. For example, entities defined as Pesticide and Other Agricultural Chemical Manufacturing (325320) are considered small if they employ 500 or fewer people; Pharmaceutical Preparation Manufacturing (325412) entities are small if they employ 750 or fewer people. Other entities are defined by sale s. For example, Testing Laboratories (541380) are considered small entities if they have annual sales of $5.0 million or less.

6.2.1 Estimation of the Number of Small Businesses

As discussed in Section 4.7, EPA used the following databases to estimate the number of businesses registering pesticides:

PRATS, which tracks registration actions. PPIS, which includes all registered pesticide products and their registrants. Dunn & Bradstreet (D&B), which includes financial and firm size data on many firms.

The PRATS sample includes 120 firms that would have incurred incremental costs as a result of the rule had it been in place from 1996-2002. Of these, 97 ultimate parent entities were identified. Twenty-three firms had insufficient D&B financial data to be classified by SBA size definitions. (One small and one large firm had employee data but not revenue data in D&B.) Table 6.1 shows the size distribution of the 97 parent entities in the PRATS sample. Of these 97 parent companies, 51% are small and 49% are large.

Table 6.1: Companies in the PRATS Sample by SBA Size.

Size 2 Number of Parent Companies Percentage of Parent Companies

Small 49 50.52%

Large 48 49.48%

Total 97 100.00%

Source: USEPA 2003, Dun & Bradstreet 2003.

1 Twenty-three companies did not have sufficient Dun & Brad street (D&B) financial data to be classified by SBA

size definitions.

2 Size definitions vary according to the SBA small bus iness definition associated with each NAICS code.

The PPIS database was queried in Fall 2002 for all companies having one or more FIFRA Section 3 or FIFRA Section 24(c) (state) pestic ide registrations. Companies with unique EPA company numbers in the PPIS database were consolidated based on the following criteria: (1) matching EPA company numbers with Dun & Bradstreet DUNS and ultimate parent DUNS numbers; (2) results of recent mergers and acquisitions; (3) matching company names associated with unique EPA company numbers; and (4) recommendations by EPA to be consolidated based on nearly identical name matching and/or prior knowledge. As a result, 1,804 unique companies represent the total universe of conventional pesticide registrants.

An attempt was made to match all 1,804 unique pesticide registrants with company information (total revenue and number of employees) from the Dun & Bradstreet (D&B)December 7, 2004 29 database. We assume D&B company information is available for all relatively large companies. However, D&B company information is not easily collected or readily available for relatively small companies.

A D&B data analysis of the 1,804 pesticide registrants identified 146 SBA-defined large pesticide registrants. This was done in two ways. First, 116 companies were successfully identified as “large” through cross-referencing D&B company numbers and associated company information with EPA company numbers from the 1,804 companies identified in the PPIS database. Second, the remaining companies were manually reviewed and we determined 30 additional companies met the SBA definition as large. The average revenue and employee numbers were determined for the 146 large pesticide registrants based on the company information reported in the D&B database.

The remaining 1,658 pesticide registrants were considered small companies (1,804 - 146). The average revenue and employee number for small pesticide registrants was determined from a random sample because sufficient D&B company information was not available for many small registrants. A random sample of 1,000 companies was taken from the original PPIS registrant data set and matched with company information (total revenue and number of employees) queried from the D&B database. Sufficient D& B company information was available for 565 of the 1,000 sample companies for classifying companies as “small” or “large” according to SBA standards. Of the 565 sample companies classified, 449 met the SBA definition for “small.” The average revenue and employee number for these 449 companies is assumed to be representative for all small pesticide registrants.

6.2.2 Sales and Employees

Tables 6.2 and 6.3 show the average sales and average number of employees for parent entities in the PRATS and PPIS databases. The average sales for small parent entities in the PRATS data set is $24.3 million and the average sales for large parent entities is $9 billion. The average number of employees for small parent entities is 87, and the average number of employees for large parent entities is 33,274. The average sales for small parent entities in the PPIS data set is $8.8 million; the average sales for large parent entities is $5 billion. In PPIS data, the average number of employees for small parent entities is 39, and the average number of employees for large parent entities is 18,681.

Table 6.2 : Average Sales and Employees B PRATS Data Set

Sales Employees

Size Number of Parent Companies with Data 1 Average Sales Number of Parent Companies with Data Average Number of Employees

Small 48 $24,293,120 49 87
Large 47 $9,074,010,059 48 33,274

Source: USEPA 2003, Dun & Bradstreet 2003.

1 One small and one large company reported employee data but no revenue data to D&B.

Table 6.3: Average Sales and Employees B PPIS Data SetDecember 7, 2004 30 Size Number of Parent Companies Average Sales Average Number of Employees

Small 1658 $8,840,000 39

Large 146 $5,041,690,000 18,681

Source: USEPA 2001b, Dun & Bradstreet 2002

Tables 6.4 and 6.5 show the distribution of annual revenues and employees by SBA

threshold level from PRATS and PPIS.

Table 6.4: Number of Entities in Samp le per SBA Category from PRATS Sample

SBA Threshold Criteria for Defining

Small Businesses Number of Sample Firms Percentage of Sample Firms

100 or fewer employees 35 36%

500 or fewer employees 54 56%

750 or fewer employees 57 59%

1000 or fewer employees 59 61%

1,500 or fewer employees 60 62%

$4.0 million or less in revenue 20 21%

$5.0 million or less in revenue 21 22%

$6.0 million or less in revenue 21 22%

$7.0 million or less in revenue 22 23%

$12.0 million or less in revenue 28 29%

$18.5 million or less in revenue 32 34%

$20.0 million or less in revenue 33 35%

Table 6.5: Number of Entities in Samp le per SBA Category and PPIS Sample

SBA Threshold Criteria for Defining

Small Businesses Number of Sample Firms Percentage of Sample Firms

100 or fewer employees 409 72%

500 or fewer employees 477 84%

750 or fewer employees 486 86%

1000 or fewer employees 492 87%

1,500 or fewer employees 501 89%

$4.0 million or less in revenue 299 53%

$5.0 million or less in revenue 314 56%

$6.0 million or less in revenue 329 58%

$7.0 million or less in revenue 349 62%

$12.0 million or less in revenue 380 67%

$18.5 million or less in revenue 399 71%

$20.0 million or less in revenue 404 72%

6.3 Small Business ImpactDecember 7, 2004 31 As discussed above, the historical data suggest that the 120 entities in the PRATS sample are most likely to incur costs under the rule over a given 7-year period. However, the number of small entities that are potentially subject to the regulation is actually much larger. In fact, any firm that might register or hold a registration for a conventional pesticide could be subject to the final rule. Therefore, the number of small entities subject to the final rule is equal to the number of small entities in our PPIS sample. In order to determine the number of small entities that will have compliance costs over a given cost-revenue threshold, it is necessary to consider all small entities subject to the regulation, even those that are expected to incur no additional cost. The overall PPIS data set includes 1804 entities. For those entities that the Agency was able to determine a size, 79 percent were small businesses. Assuming that 79 percent of all the PPIS entities are small, EPA estimated the number of regulated small entities to be 1434.

The Agency then looked at the number of entities that would have incurred costs under the rule had it been in place from 1996-2002. The PRATS data set includes 120 entities. For those entities for which a size could be determined, 50.5 percent were small. Assuming that 50.5 percent of all the PRATS entities are small, EPA estimated the number of regulated small entities that would have incurred additional costs to be 61. From the 49 small parent entities in our cost analysis (where we had both firm size and revenue information) the Agency projected the distribution of impacts to the 61 small firms. Most of small entities (1373) are not expected

to incur additional costs as a result of the final rule (1434 PPIS small entities - 61 PRATS small entities). The results of the analysis by percent impact are provided in Table 6.6.

Table 6.6: Estimated Small Business Impacts

Number of Small Companies Percentage of Small Companies

Measure Mean

Lab Cost Low Lab

Cost High Lab

Cost Mean

Lab Cost Low Lab

Cost High Lab

Cost

Compliance Costs = 0 % of

Revenue 1,373 1,373 1,373 95.7% 95.7% 95.7%

Compliance Costs >0% of

Revenue 61 61 61 4.3% 4.3% 4.3%

Compliance Costs >1% of

Revenue 35 32 34 2.4% 2.2% 2.4%

Compliance Costs >3% of

Revenue 23 20 24 1.6% 1.4% 1.7%

In summary, the above table shows that for the mean lab cost:

61 small entities (4.3%) are likely to experience an impact greater than zero.

35 small entities (2.4%) of the 1373 small conventional entities that are subject to the proposed rule are likely to experience an economic impact of 1% or more of gross sales and,

23 small entities (1.6%) are likely to experience an economic impact of 3% or more of grossDecember 7, 2004 32 sales.

7 L IMITATIONS OF A NALYSIS

The major costs of this rule are associated w ith the increased cost of generating data in support of pesticide registration. Several variables contribute to the uncertainty and complexity of estimating costs.

Unit Test Costs

Costs for tests related to data requirements were gathered from a limited survey of commercial labs because few laboratories conduct such tests (see Appendix A, Test Cost Data Used to Calculate Data Requirement Costs for Part 158 Rule ). For a number of data requirements there is a wide range of cost estimates. Although the Agency is not in a position to know the particular underlying reasons for this range, it believes the wide range of cost estimatesis based on laboratory economic considerations and particular experiences with the studies. Inhouse labs used by many companies were not surveyed; their costs might be expected to be lower than that of an independent laboratory.

Frequency of Various Tests Being Required

There is flexibility built into complying with Part 158 data requirements. Agency experience has shown that pesticides and their uses vary widely. Individual chemical, toxicological, and exposure profiles may suggest qu ite different risk potentials. To the extent practicable, the Agency has tried to guide users of data requirement tables to the applicable data requirements by including major use patterns and test notes; however the utility of this guidance is limited. Ultimately, in certain cases, there is no substitute for registrant consultation with the Agency so that appropriate “alternate” approaches or data can be considered for situations that are not explicitly covered by the data requirement tables.

It is very difficult to predict the extent to which a registrant may be able to satisfy a data requirement through a waiver request, bridging of ex isting data, or development of new data that adequately responds to the data requirement without performing a “guideline study.” In estimating costs of newly codified data requirements, the Agency has relied upon the scientific judgment of experienced staff to produce reasonable estimates of how often we expect to receive newly generated guideline studies to satisfy the data requirements.

Number of Future Requested Registration Actions

Future registration actions may not closely reflect the past seven years of actions that the Agency used as a baseline for its estimate to predict future actions. This could be due to a number of factors including unforeseen change s in markets or scientific knowledge.

Other limitations include:December 7, 2004 33 • Industry Structure. The analysis was based on 2002 financial data, but currently there is a trend for large companies to take over smaller companies. For example, several large companies have purchased others and become vertically integrated, leaving a few large companies.

• Sales Data. About 449 of the 1,000 randomly sampled entities in the conventional pesticide industry could be classified as large or small entities with sales data. Therefore, the analysis was based on this sample and projected to the industry. However, EPA cannot determine whether or to what extent this sample is truly representative of the total population of conventional pesticide entities.

• Cost Incidence. Because data limitations made it difficult to determine precisely when and who bears the costs, several assumptions were made as listed below. Two of these assumptions, which average costs, tend to spread the costs to a greater number of entities at a lower cost per firm. Not allowing for data cost sharing has the opposite effect of limiting the

distribution of costs. EPA was not able to determine whether the net effect of these assumptions results in cost estimates that are overly concentrated or too diffuse.

a. Data Cost Sharing. The analysis assumed that the registrants initiating registration actions would pay the full costs of the data required by these actions. Since many other registrants may pay to be able to cite data, the costs of data may be distributed more widely, resulting in a larger number of entities incurring smaller costs than

estimated above.

b. Annual Average Costs. EPA averaged the costs over a 7 year period (1996-2002). Therefore, in any given year there are likely to be fewer entities bearing higher costs than what was estimated because it is unlikely that a specific entity will be introducing a new chemical every year.

c. Average Data Requirement Costs. Much of the data are not required for all registration actions. EPA estimated the average data requirement cost per registration action by multiplying the data requirement cost times the percent of time the data are likely to be required. In reality, specific registration actions which require most of the data may be more expensive, while others requiring less data may be less expensive than the estimated averages.

In spite of these limitations, EPA concludes that there would not be a substantial number of small entities that would be significantly affected as a result of the rule. The analysis shows a very low impact. Since the likely impact on small businesses is small, the Agency believes that the final rule will not have a deleterious effect on the availability of pesticides to users. On balance, the Agency believes that the costs of the rule are justified by the benefits from enhanced protection of human health and the environment.

8 E STIMATION OF THE B URDEN OF THE D ATA C OLLECTIONDecember 7, 2004 34 The reporting and record keeping burden associated with the rule is approximately 35,123 hours, and the burden cost is estimated to be $3,041,816 per year. These burdens are covered in the existing FIFRA Section 3 (Registration) ICR (Information Collection Request). The cost is shared by all respondents. This cost is an upper-bound estimate. The Agency has already captured the burden for most of the data requirements it currently imposes (except for about 5 data requirements) through ICRs for the DCIs (Data Call-In). The calculation of the burden

hours is shown in Table 8.1 below. Under FIFRA S ection 3 registration, registrants or applicants submit information in three categories:

• Type A activities involve a registrant or applicant assembling and submitting an application for registration of a new active ingredient (AI) or a major new use for a currently registered active ingredient. Typically for new AIs, an application must be submitted for at least two new products: the manufacturing use product (either imported or made in the U.S.) that may be formulated into an end use product and at least one end-use product (that bears the directions for the intended end use).

• Type B activities involve a registrant or applicant assembling and submitting an application for registration of a new or amended product that contains an active ingredient currently registered for the same use pattern. Often, the formulation of this product is identical or substantially similar to that of a currently registered end-use product. This is called “me-too” registration. In this case, the applicant only needs to cite data from the registered product. There are actually many cases where an applicant can cite data from one or more studies for another product (selective method) or cite all data supporting a particular active ingredient (called the “cite-all” method) to support a new product.

• Type C activities involve registration of new c onventional AI or uses that may qualify as a “reduced risk” chemicals and/or organophosphate replacements, which are given expedited processing. An applicant must prepare an application that includes specific information, as described in PR notice 97-3 and/or PR 98-7, to explain why the new AI or use may have a lower toxicity, exposure, or profile than currently-registered products for the same commodity.

In this rule only Type A and Type C activities are affected. Since Type B activities are metoo activities, the applicant only needs to cite data from another source to support the new registration; Type B activities are not affected by this final rule.December 7, 2004 35 Table 8.1: Estimate for Type A Activities Annual Regist rant Burden/Cost Estimates for Type A Activities for the Registration Division (RD): Ne w Active Ingredients and New Uses

Burden Hours (per year) Total

Collection Activities Management $121/hr. Technical $81/hr Clerical $37/hr Hours Costs $

Read Instructions 19.44 0 0 19.44 $2,352

Plan activities 4.32 0 0 4.32 $ 523

Gather/create information 0 129.60 0 129.6 $10,498
Compile and review 4 8.64 0 12.96 $1,223
Complete paperwork 0 0 32.40 32.40 $1,199

Store/maintain data 0 0 10.80 10.08 $ 400

TOTAL 28.08 138.24 43.20 209.52 $16,194

ANNUAL BURDEN: 209.52 hours x 141 new active and new uses = 29,542 Hours

ANNUAL COSTS: (a) Management: 28 hours x $121 x 141 new active and new uses = $ 477,708 (b) Technical: 138 hours x $81 x 141 new active and new uses = $1,576,098 (c) Clerical: 43 hours x $37 x 141 new active and new uses = $ 224,331 Total = $ 2,590,963

Table 8.2: Estimate for Type C Activities Annual Regist rant Burden/Cost Estimates for Type C Activities for the Registration Division (RD): Reduced Risk Burden Hours (per year) Total Collection Activity Management $121 Technical $81 Clerical $37 Hours Cost

Read instructions 23.76 0 0 23.76 $2,875

Gather Information 0 397.44 0 397.44 $32,193
Process, Compile and Review Information 86.4 86.4 0 172.8 $17,453
Record and Report Information 0 0 77.76 77.76 $2,877

Store, File and Maintain Information 0 0 25.92 25.92 $959
TOTAL 110.16 483.84 103.68 697.68 $56,357

ANNUAL BURDEN: 697.68 hours x 8 new reduced risk = 5,581 Hours

ANNUAL COSTS: (a) Management: 110.16 hours x $121 x 8 new reduced risk = $ 106,634.88 (b) Technical: 483.84 hours x $81 x 8 new reduced risk = $ 313,528.32 (c) Clerical: 103.68 hours x $37 x 8 new reduced risk = $ 30,689.28 Total = $ 450,852.48
Total burden hours are: 29,542 + 5,581 = 35,123. Total burden cost is: $2, 590,963 + 450,852.48 = $3,041,815.

9 E STIMATION OF A GENCY B URDEN

EPA would incur costs primarily in reviewing the additional data required in the Part 158 rule. EPA estimates the total annual cost to the Agency of reviewing the additional data to be approximately $1.5 million. The analysis is based on:December 7, 2004 36 The average time spent reviewing the data (based on EPA experience). The average hourly labor cost (based upon typical contractor costs and wage rate plus overhead for an employee at GS -13, Step 5).

This cost is multiplied by the average annual number of additional times each test is likely to be required to estimate the total incremental annual EPA cost of reviewing data from each requirement. The number of times a test is likely to be required annually was estimated in Section 3, where the average annual number of registration actions was multiplied by the percentage of time each test is likely to be required. See Appendix C for Agency impacts.December 7, 2004 37 R EFERENCES

Dun & Bradstreet. 2002. Spectrum Database.

Dun & Bradstreet. 2003. Spectrum Database.

Frost & Sullivan. 2000. U.S. Crop Protection Chemical Markets.

USDA. 2003. Agricultural Statistics.

USEPA. 1998. 40 CFR Part 158.

USEPA. 1999a. Pesticide Industry Sales and Usage Report 1998 & 1999.

USEPA. 1999b. Revised Interim Guidance for EPA Rule Writers: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement Act. March 1999.

USEPA. 1999c. Safe Drinking Water Act, Section 1429, Groundwater Report to Congress,

October 1999. EPA-816-R-99-016. Available at http://www.epa.gov/ogwdw000/gwr/finalgw.pdf.

USEPA. 2000. Guidelines for Preparing Economic Analyses.

USEPA. 2001a. Pesticides Industry Sales and Usage Report, 2000 and 2001 Market Estimates.

USEPA. 2001b. Pesticide Products Information System (PPIS).

USEPA. 2001c. Pesticide Regulatory Action Tracking System (PRATS).

USEPA. 2003. Pesticide Regulatory Action Tracking System (PRATS).December 7, 2004 38

APPENDIX A: TEST COST DATA USED TO CALCULATE DATA REQUIREMENTS COSTS 1

FOR PART 158 RULE

Guideline

Number 2 Number

of Labs 3 Data Requirement Average Cost Average

Low Cost Average High

Cost

73-3 1 Whole sediment - acute toxicity to pore water, fish and invertebrates $37,500 $25,000 $50,000

74-1 2 Whole sediment - chronic toxicity,

freshwater and marine

invertebrates $51,350 $34,700 $68,000

830.6313 8 Stability to normal and elevated temperatures, metals, and metal

ions $6,400 $5,557 $7,244

830.7050 8 UV/Visible light absorption $2,022 $1,972 $2,072

830.7520 3 Particle size, fiber length, and

diameter distribution $1,333 $1,333 $1,333

830.7550,

830.7560,

830.7570 8 Partition coefficient (n-octanol/water) $5,792 $5,372 $6,212

835.2120 5 Hydrolysis $25,230 $20,560 $29,900

835.2370 1 Photodegradation in air $110,000 $100,000 $120,000

835.2410 6 Photodegradation on soil $42,350 $39,517 $45,183

835.4100 4 Aerobic soil metabolism $94,375 $90,125 $98,625

835.4300 4 Aerobic aquatic metabolism $44,475 $41,600 $47,350

835.4400 4 Anaerobic aquatic metabolism $80,900 $75,275 $86,525

835.6100 3 Terrestrial field dissipation $317,767 $269,467 $366,067December 7, 2004 39

APPENDIX A: TEST COST DATA USED TO CALCULATE DATA REQUIREMENTS COSTS 1

FOR PART 158 RULE

Guideline

Number 2 Number

of Labs 3 Data Requirement Average Cost Average

Low Cost Average High

Cost

835.6200 2 Field dissipation studies for aquatic uses and aquatic impact

uses $267,250 $180,500 $354,000

835.6300 2 Forestry field dissipation $275,500 $188,500 $362,500

835.7100 2 Groundwater monitoring $1,225,000 $450,000 $2,000,00

0

850.1025

850.1035

850.1045

850.1055

850.1075 4 Acute LC50/EC50 estuarine and marine organisms $16,969 $7,538 $26,400

850.1300 4 Fish early stage life and aquatic

invertebrates $118,063 $73,325 $162,800

850.1350 3 Mysid chronic toxicity $36,333 $31,667 $41,000

850.1400 5 Fish early-life stage (freshwater) $37,279 $33,179 $41,379

850.1950 2 Field testing in aquatic non-target organisms $512,500 $375,000 $650,000

850.2100 1 Avian single-dose oral LD50 $10,100 $6,400 $13,800

850.2200 3 Avian dietary $6,480 $6,313 $6,647

850.2300 1 Avian reproduction test $168,250 $121,000 $215,500

850.2500 1 Simulated or actual field testing $650,000 $600,000 $700,000

850.3020 4 Honeybee acute contact LD50 $3,175 $3,175 $3,175

850.3040 2 Field testing for pollinators $30,000 $21,250 $38,750December 7, 2004 40

APPENDIX A: TEST COST DATA USED TO CALCULATE DATA REQUIREMENTS COSTS 1

FOR PART 158 RULE

Guideline

Number 2 Number

of Labs 3 Data Requirement Average Cost Average

Low Cost Average High

Cost

850.4100 4 Seedling emergence Tier I $14,625 $13,625 $15,625

850.4150 4 Vegetative vigor Tier I $15,875 $14,875 $16,875

850.4225 4 Seedling emergence Tier II $20,375 $18,750 $22,000

850.4250 4 Vegetative vigor Tier II $24,500 $22,500 $26,500

850.4400a 4 Aquatic plant toxicology Tier I $35,155 $30,784 $39,525

850.4400b 4 Aquatic plant toxicology Tier II $35,155 $30,784 $39,525

860.1300 3 Nature of the residue in animals $105,833 $93,333 $118,333

860.1340 5 Residue analytical method $62,850 $51,700 $74,000

860.1460 2 Magnitude of Residue - food handling $205,000 $180,000 $230,000

870.1735 4 Whole sediment - acute invertebrates, fresh water $20,250 $18,200 $22,300

870.1740 4 Whole sediment - acute invertebrates, marine $20,625 $18,575 $22,675

870.3200 8 21/28-day dermal $83,240 $81,798 $84,681

870.3250 8 90-Day dermal $137,094 $136,074 $138,114

870.3700 6 Prenatal developmental toxicity -

rats $76,844 $76,651 $77,037

870.3800 6 Reproduction and fertility effects $378,479 $375,725 $381,233

870.6100 4 28 - day neurotoxicity $79,375 $78,125 $80,625December 7, 2004 41

APPENDIX A: TEST COST DATA USED TO CALCULATE DATA REQUIREMENTS COSTS 1

FOR PART 158 RULE

Guideline

Number 2 Number

of Labs 3 Data Requirement Average Cost Average

Low Cost Average High

Cost

870.6200a 6 Acute neurotoxicity - rat $89,596 $87,513 $91,680

870.6200b 6 Chronic 90-day neurotoxicity - rat $184,039 $181,668 $186,410

870.6300 5 Developmental neurotoxicity $406,904 $396,672 $417,135

870.6500 2 Scheduled controlled operant

behavior $164,000 $164,000 $164,000

870.6850 1 Peripheral nerve function $110,000 $110,000 $110,000

870.6855 1 Neurophysiology: sensory evoked potentials $110,000 $110,000 $110,000

870.7800 2 Immunotoxicity $56,648 $55,564 $57,731

875.1100 7 Dermal outdoor exposure $167,857 $143,571 $192,143

875.1200 7 Dermal indoor exposure $126,429 $102,143 $150,714

875.1300 7 Inhalation outdoor exposure $164,286 $143,571 $185,000

875.1400 7 Inhalation indoor exposure $126,429 $102,143 $150,714

875.1500 7 Biological monitoring $188,393 $157,500 $219,286

875.1600 0 Applicator exposure data reporting

and calculations $7,500 $5,000 $10,000

875.1700 0 Product use information $3,000 $2,000 $4,000

875.2100 5 Dislodgeable foliar residue and

turf transferable $55,100 $54,100 $56,100

875.2200 4 Soil residue dissipation $83,125 $81,250 $85,000

875.2300 4 Indoor surface residue dissipation $35,000 $32,000 $38,000December 7, 2004 42

APPENDIX A: TEST COST DATA USED TO CALCULATE DATA REQUIREMENTS COSTS 1

FOR PART 158 RULE

Guideline

Number 2 Number

of Labs 3 Data Requirement Average Cost Average

Low Cost Average High

Cost

875.2400 5 Dermal exposure $125,500 $118,000 $133,000

875.2500 5 Inhalation exposure $73,000 $65,000 $81,000

875.2600 6 Biological monitoring $166,875 $142,083 $191,667

875.2700 0 Product use information $3,000 $2,000 $4,000

875.2800 0 Description of human activity $3,000 $2,000 $4,000

875.2900 0 Post application exposure data reporting and calculations $3,000 $2,000 $4,000

875.3000 3 Non-dietary ingestion exposure $75,000 $66,667 $83,333

1 Only guidelines with non-zero action code probabilities ar e included (i.e., only those that affect the cost of the new Part 158 data requirements).

2 A letter attached the end of a guideline number denotes a guideline which may have several different implementations, each with its own set of probabilities and costs (e.g. neurotoxicity testing could be performed on both rats and rabbits under the same OPPTS guideline). Therefore, in some instances each specific application of an OPPTS guideline is given a unique identifier for the analysis.

3 Represents the number of unique laboratories that reported cost information for the OPPTS guideline of interest. For instances where two or more laboratory cost estimates were collected from a particular lab based on variability in study design, costs were not “doubl e-counted” and one average test cost per lab per OPPTS guideline was used. In instances where the number of labs reporting costs is zero, this is due to certain OPPTS guidelines where field or laboratory data are not required and documentation preparation usually is required. For these OPPTS guidelines, the costs were estimated using best professional judgment by SciReg, a multidisciplinary scientific, regulatory, and quality assurance consulting firm.December 7, 2004 43

APPENDIX B

OPTIONS AND SENSITIVITY ANALYSISDecember 7, 2004 44December 7, 2004 45December 7, 2004 46December 7, 2004 47December 7, 2004 48December 7, 2004 49December 7, 2004 50December 7, 2004 51December 7, 2004 52December 7, 2004 53December 7, 2004 54December 7, 2004 55December 7, 2004 56December 7, 2004 57December 7, 2004 58December 7, 2004 59 Appendix C Agency Impacts

Estimate of Annual Cost of Reviewing Data by EPA

Review hours/test

Guideline Data Requirement EPA Contractor Cost per

Test Average

number of

additional tests/year Annual

Cost

Toxicology Acute Testing

870.6200 Acute neurotoxicity - rat 30 30 $3,763 23.6 $88,813 Subchronic Testing

870.3200 21-day dermal 20 20 $2,509 1.7 $4,337

870.3250 90-day dermal 45 45 $5,645 2.7 $15,241

870.6100 28-day neurotoxicity -hen 20 20 $2,509 7.9 $19,856

870.6200 90-day neurotoxicity - rat 55 55 $6,899 29.8 $205,403 Developmental Toxicity and Reproduction

870.3700 Prenatal developmental toxicity - rat and rabbit, preferred 30 30 $3,763 6.2 $23,461

870.3800 Reproduction 20 20 $2,509 2.2 $5,645

870.6300 Developmental neurotoxicity 60 60 $7,527 20.8 $156,552 Special Testing 0 0 $0 0.0 $0

870.6500 Schedule controlled operant behavior 45 45 $5,645 0.8 $4,468

870.6850 Peripheral nerve function 45 45 $5,645 0.8 $4,468

870.6855 Neurophysiology: sensory evoked potentials 45 45 $5,645 0.8 $4,468

870.7800 Immunotoxicity 45 45 $5,645 13.9 $78,537 Total Toxicology $611,247

Applicator Exposure

875.1100 Dermal outdoor exposure 40 40 $5,018 9.7 $48,457

875.1200 Dermal indoor exposure 40 40 $5,018 9.7 $48,457

875.1300 Inhalation outdoor exposure 40 40 $5,018 9.7 $48,457

875.1400 Inhalation indoor exposure 40 40 $5,018 9.7 $48,457

875.1500 Biological monitoring 40 40 $5,018 1.4 $7,068

875.1600 Data reporting and calculations 2 0 $131 116.2 $15,205

875.1700 Product use information 2 0 $131 116.2 $15,205 Total Applicator Exposure $231,304

Post-Application Exposure

875.2100 Dislodeagable foliar residue and turf

transferable residues 40 40 $5,018 10.5 $52,829

875.2200 Soil residue dissipation 40 40 $5,018 9.5 $47,811

875.2300 Indoor surface residue dissipation*** 40 40 $5,018 16.7 $83,795

875.2400 Dermal exposure 40 40 $5,018 10.5 $52,829December 7, 2004 60 Review hours/test

Guideline Data Requirement EPA Contractor Cost per

Test Average

number of

additional tests/year Annual

Cost

875.2500 Inhalation exposure 40 40 $5,018 7.0 $35,339

875.2600 Biological monitoring*** 40 40 $5,018 1.4 $7,068

875.2700 Product use information*** 2 0 $131 116.2 $15,205

875.2800 Description of human activity*** 2 0 $131 116.2 $15,205

875.2900 Data reporting*** 2 0 $131 116.2 $15,205

875.3000 Nondietary ingestion Exposure*** 40 40 $5,018 3.0 $14,938 Total Post-Application Exposure $340,225

Terrestrial and Aquatic Non-target Organisms Avian and Mammalian Testing

850.2100 Avian oral LD 50 2 6 $491 18.7 $9,161

850.2200 Avian dietary 2 6 $491 -0.5 ($245)

850.2300 Avian reproduction 8 30 $2,324 8.3 $19,280

Aquatic Organism Testing

850.1025

850.1035

850.1045

850.1055

850.1075 Acute toxicity estuarine and marine organisms 2 6 $491 16.1 $7,927

Sediment Testing

Whole Sediment -Acute Invertebrates

870.1735 --freshwater 2 6 $491 9.5 $4,659

870.1740 --marine 2 6 $491 8.7 $4,251

Whole sediment

none -Chronic invertebrates 8 30 $2,324 7.4 $17,256

Insect Pollinator Testing

850.3020 Honeybee acute contact toxicity 2 6 $491 14.5 $7,103

850.3040 Field Testing for Pollinators 10 50 $3,654 0.8 $3,032 Total Terrestrial & Aquatic $82,688

Environmental Fate Degradation Studies-Laboratory

835.2120 Hydrolysis 14 45 $3,616 1.2 $4,341

835.2370 Photodegradation in air 14 45 $3,616 0.8 $2,832 Metabolism Studies-laboratory

835.4100 Aerobic soil 18 60 $4,778 0.3 $1,383

835.4400 Anaerobic aquatic 21 70 $5,574 13.6 $76,029

835.4300 Aerobic aquatic 21 70 $5,574 13.6 $76,029 Dissipation Studies - FieldDecember 7, 2004 61 Review hours/test

Guideline Data Requirement EPA Contractor Cost per

Test Average

number of

additional tests/year Annual

Cost

835.6100 Terrestrial 26 85 $6,801 1.4 $9,524

835.6200 Aquatic (sediment) 21 70 $5,574 1.4 $7,805

835.6300 Forestry 21 70 $5,574 (1.7) ($9,667)

Accumulation Studies

850.1950 In aquatic non-target organisms 21 70 $5,574 0.1 $739 Ground Water Monitoring

835.7100 Ground water monitoring 21 70 $5,574 0.8 $4,412

Total Environmental Fate $173,427

Non-target Plant Protection

Nontarget Area Phytoxicity Tier I

850.4100 Seedling emergence 10 20 $1,854 1.7 $3,232

850.4150 Vegetative vigor 10 20 $1,854 1.7 $3,232

850.4400a Aquatic plant growth 10 20 $1,854 1.7 $3,232 Nontarget Area Phytoxicity Tier II

850.4225 Seedling emergence 10 20 $1,854 0.5 $970

850.4250 Vegetative vigor 10 20 $1,854 0.5 $970

850.4400b Aquatic plant growth 10 20 $1,854 1.9 $3,555 Total Non-target Plant Protection $15,190

Residue Chemistry

860.1300 Nature of the residue in livestock 8 60 $4,124 22.0 $90,718

860.1340 Residue analytical methods 8 60 $4,124 26.3 $108,390

860.1460 Food handling 8 60 $4,124 29.0 $119,759 Total Residue Chemistry $318,867

Product Chemistry

830.7550

830.7560

830.7570 Partition Coefficient (n-octanol/water) 10 60 $4,254 14.0 $59,623

830.6313 Stability 10 60 $4,254 -14.9 ($63,330)

830.7050 UV/visible light absorption 10 60 $4,254 29.8 $126,660

830.7520 Particle size 10 60 $4,254 7.0 $29,963 Total Product Chemistry $152,916

Total All Tests $1,939,115

*Sums are not exact due to rounding off.Appendix − 62 Appendix D Industry Profile

This profile relies on a number of sources of information on the pesticide industry. The major sources include the following:

· EPA Office of Pesticide Programs (OPP) publications and estimates · Pesticide industry profiles prepared for prev ious regulatory analyses for EPA’s Offices of Pesticide Programs, Water, and Air · Industry profiles prepared by private research firms · Dunn & Bradstreet industry data · Research on specific companies using publicly available business databases accessed through the Internet · Searches of academic and industry literature

· Economic Census data from the U.S. Census Bureau · Other U.S. Department of Commerce sources

Use of Census Data

Whenever a data source contained complete information to illustrate a certain aspect of the pesticide industry, we chose to present that information. In other cases, the only source of

national level information was the U.S. Census Bureau’s Economic Census of Manufacturers.

There are inherent difficulties associated with using data from the Economic Census preformed by the U.S. Census Bureau to characterize certain industrial sectors contained in this profile.

The Census Bureau has recently revised its industry classification system and now uses “North American Industrial Classification System” (NAICS) codes to describe industrial sectors. Information in the 1997 Census is organized according to the NAICS. The NAICS replaces the Standard Industrial Classification (SIC) system that had been used in all earlier Census publications. NAICS assignment for an establishment is made according to one of 20 major

industrial sectors. These sectors are further divided into 96 subsectors, 313 industry groups, and 1,170 industries.

In some cases, the relevant Census data required for this economic profile was available at a sufficiently disaggregated level that it corresponds reasonably accurately to the establishments in the industrial sectors of interest here. In other cases, the Census categorization reflects a very large and diverse industry, of which the relevant sector may be a small part. Finally, many pesticide industry participants are classified in to entirely different Census industry categories because their primary product is not related to pesticides. In the latter cases, the Census data do not provide a precise representation of the characteristics of establishments of interest.

Exhibit D.1 provides descriptions of the NAICS categories used to present Census data for each sector examined in this profile. It also indicates whether NAICS-based data correspond to SIC-based data over time. The Census categories used for each of the major pesticide industryAppendix − 63 sectors included in this profile and their relative precision as a measure of the pesticide and

related industries are discussed in more detail below.

Exhibit D.1: Census Industry Classifications Used in Profile

Profile Sector NAICS/

SIC Description SIC - NAICS Correspondence

325199/

2869 All Other Basic Organic Chemical Manufacturing no Conventional Active Ingredient Producers and Formulators, Packagers, and Repackagers 325320/

2879 Pesticide and Other Agricultural Chemical Manufacturing yes

Source: U.S. Department of Commerce, 1992 and 1997.

EPA has incorporated data from several public sources in addition to using the Economic Census. For the most part, these sources continue to use the SIC system to organize and present

information. These data are noted as SIC-based data in the text. EPA uses time series data from these sources because of the consistent categorization of industry groups across time.

General Pesticide Industry Description

Pesticides are important products that play a significant role in many aspects of the economy. They are used by diverse economic sectors such as agriculture, industry, and residential. Pesticides reduce or eliminate undesirable weeds, insects, animals, fungi, and bacteria and are used to preserve wood and regulate plant growth. All of these pesticide uses produce desirable outcomes such as increased agricultural productivity and improved human health. However, due to their nature, their use also implies some environmental and health risks (U.S. EPA, 1999c).

Pesticide products themselves fall into several categories: conventional pesticides, specialty and niche pesticides, and antimicrobial pesticides. Conventional pesticides are those products that are commonly available to users including herbicides (weed killers), insecticides (“bug” killers), and fungicides (fungus killers), as well as some special classifications such as fumigants used to sterilize soil to remove pathogens. The vast majority of pesticides used in the U.S. fall into this category.

Pesticide production involves combining a more than one substance into a formulation. The main ingredient of a pesticide product is the active ingredient: the chemical that is toxic to the targeted pest. Some pesticide formulations contain more than one active ingredient, depending on their target or targets. These pesticide active ingredients, or active ingredients, cannot be applied in their basic form for reasons of safety and effectiveness. EPA regulates both active ingredients and formulations through a regist ration process. There are roughly 890 active ingredients registered with EPA, and nearly 18,000 registered formulations. Depending on theAppendix − 64 context or the data source, this profile will make a distinction between discussions of active ingredient and discussions of formulations.

Exhibit D.2 presents a summary of the number of regulated conventional pesticide products and

tolerances.

Exhibit D.2: Regulated Pesticide Products

Product Segment Number of Products

Active Ingredients with Active Registrations (Federal and State) 891

Active Ingredients with Food/Feed

Tolerances (September 1998) 523

Formulated Products with Federal Registrations (June 1998) 17,713

Tolerances in Place (September 1998) 9,783

Source: U.S. EPA, 1999c

The pesticide industry participants addressed in this profile include the entities that manufacture active ingredients, formulate, package, and repackage pesticides. These companies are presented in Exhibit D.3 below.

Exhibit D.3: Pesticide Industry Participants

Production Segment Number of Establishments

Major Basic Active Ingredient Producers 18

Other Active Ingredient Producers 100

Formulators - Major 150-200

Formulators - Other approx. 2000

Sources: EPA, 1999c

While all the economic sectors mentioned previously consume pesticide products, the agricultural sector is by far the largest conventional pesticide user. Figure D.4 provides a schematic of how pesticide products flow from manufacturer to agricultural end users. TheAppendix − 65 entities that manufacture active ingredients ship their products either in raw form or as formulated product. The majority of pesticides are shipped to distributors and dealers as formulations. A small portion of pesticides are shipped to independent formulators for further preparation. Distributors and dealers may receive the product in a packaged form ready for sale to agricultural end users or may repackage the product for final sale. Some pesticide products reach agricultural end users through production cooperatives.

Figure D.4: Structure of the U.S. Pesticide Industry (Agricultural Uses)

Source: SRI International, 1999.

Conventional Pesticide Market

The conventional pesticide market comprises the majority of the pesticide industry. There are four major types of conventional pesticide products:

· Herbicides

· Insecticides · Fungicides · Other, including plant growth regulators (PGRs), etc.

Herbicides, insecticides, and fungicides make up the largest portion of the conventional pesticide market. All pesticide products have certain characteristics that affect demand. These characteristics include the following:Appendix − 66 · Spectrum of control – the range of pests controlled

· Efficacy – the ability to control pests, and the application rates needed for control

· Ease of use – the ability to mix with other products, low equipment requirements, etc. · Toxicity (human and wildlife) – the degree to which toxicity determines limitations on

usage · Price – the cost of the pesticide input relative to its return in improved conditions such as crop yield

Over time, some of these basic product characteristics have changed. For example, more reduced risk (low toxicity) pesticides are now available (U.S. EPA, 1999c). In addition, low-use pesticide are available that require lower application rates to maintain efficacy.

Exhibit D.5 presents the U.S. pesticide sales at user level for 1997, as well as volume of active ingredients at user levels.

Exhibit D.5: U.S. Pesticide Sales at User Level

1997 Estimates

User expenditures Volume of Active Ingredient Pesticide

Class Millions ($) Percent Millions (lbs.) Percent

Herbicides 6,846 58 568 46

Insecticides 3,553 30 129 10

Fungicides 802 7 81 7

Other* 696 6 453 37

Total 11,897 100 1,231 100

* Includes sulfur and petroleum/other chemicals but does not cover industrial wood preservatives, specialty biocides and chlorine/ hypochlorites. Source: U.S. EPA, 1999c.

Herbicides, insecticides, and fungicides represent approximately 95 percent of U.S. pesticide sales, and 63 percent of the active ingredients used by the pesticide industry.

Pesticide products within each major category (i.e., herbicides, insecticides, fungicides) often tend to be developed to meet specific crop requirements. Each of these pesticide type/crop combinations, termed “use clusters,” can be thought of as a distinct market. U.S. EPA’s Office of Pesticide Programs has defined 57 use clusters, which were used as the basis for the marketAppendix − 67 analysis for two economic analyses of proposed effluent guidelines affecting the pesticide industry (U.S. EPA, 1993 and 1994).

Herbicides

Herbicides are largely used on crops for the purpose of controlling weeds. Weeds compete with crops for nutrients, space, water, and sunlight. Controlling weeds decreases the need for farm labor and improves crop quality. Demand for herbicides is greatly affected by the weather. A warm and wet spell can cause high growth of weeds, resulting in a greater demand for herbicides, whereas a dry and cold spell can lower demand considerably. The two major types

of herbicides are as follows:

· Pre-emergent herbicides – applied soil before the seed is planted, to resist the growth of

weeds · Post emergent herbicides – applied to weeds after germination

Herbicides are used on a variety of crops:

· Corn · Soybeans · Other crops (cotton, rice, pastures, small grains, and fruit and vegetables)

Herbicides have end uses in industries other than agriculture as well: the forestry, industrial, turf, nursery and ornamental, and home and garden industries use herbicides. Exhibit D.6 and Exhibit D.7 show the percentage of revenues by application for herbicide market. Corn and soybean crops represent the greatest users of herbicides. From 1996 to 1999 the mainstream crop users (corn and soybean) decreased expenditures on herbicides relative to other users by 6.5 percent of total annual herbicide use, with corn crop applications falling the most. Soybean planted acreage increased over this period by nearly 15 percent (USDA, 1999b). Corn planted acreage was relatively constant between 1996 and 1998, and fell by 3.4 percent in 1999 (USDA, 2000a). In contrast to the relative drop in herbicide expenditures on major crops, other crop and non-crop expenditures on herbicides increased, with the largest increase occurring between 1998 and 1999 (Frost & Sullivan, 2000).Appendix − 68 Exhibit D.6: Percent of U.S. Herbicide Sales by Year, 1996 - 1999

Source: Frost & Sullivan, 2000.

Exhibit D.7: Percent of U.S. Herbicide Sales by Year, 1996 - 1999

Year Corn Soybean Other Crop Non-crop Total

1996 31.9% 26.4% 29.1% 12.5% 100%

1997 31.8% 26.0% 29.1% 13.2% 100%

1998 31.7% 25.0% 29.6% 13.8% 100%

1999 27.7% 23.3% 33.0% 16.0% 100%

% Change

1996-1997 -4% -3% 4% 4%

Note: Values may not add to 100 due to rounding. Source: Frost & Sullivan, 2000.Appendix − 69 Insecticides

Insecticides are used to control insects that damage crops by killing the plant or spoiling the fruit. Chlorinated hydrocarbons, organophosphates, and carbamates are used the most, with organophosphates the most commonly used of the three groups (Frost & Sullivan, 2000).

Insecticide use is greatly influenced by weather and outbreaks of insects. A warm and wet spell can be conducive to insect growth, which causes an increase in the demand for insecticides. Another factor currently affecting the demand fo r insecticides is the introduction of genetically modified (GM) crops. Genetic modification may alter crops to make them more insect resistant, often by modifying the plant to produce toxins that repel or kill insect pests. This is a new technology and to date has been confined to a few row crops like corn, cotton, and soybeans. It is extremely difficult to make plants resistant to all types of insects. Thus, even some GM crops are still being treated with insecticides (Frost & Sullivan, 2000). There are also concerns about the likelihood of insects adapting to the genetically modified crops and overcoming the plants’

defenses.

The following are the main crop uses of insecticides:

· Corn

· Cotton · Other crops (including potatoes, vegetables, fruits, sugar beets, peanuts, and tobacco) · Non-crop uses (including turf, home and garden, professional care, public health, nursery, and ornamental) (Frost & Sullivan, 2000)

Exhibits D.8 and D.9 present the market use data for insecticide applications from 1996 to 1999 by percent of total annual use. Use of insecticides by the corn/corn soil category fell by three percent from 1998 to 1999 relative to other insecticide uses, fairly consistent with recent changes in cultivated acreage. While use of insecticides on cotton relative to other crops fell over all between 1996 and 1999, there was an upward trend from 1996 to 1998. Planted cotton acreage stayed nearly constant. Other crop and non-crop uses together accounted for over 65 percent of total insecticide use as of 1999. From 1996 to 1999, both sectors increased their use of insecticides relative to the other sectors, with the greatest increase occurring between 1998 to

1999.Appendix − 70 Exhibit D.8: Percent of U.S. Insecticide Sales by Year, 1996 - 1999

Source: Frost & Sullivan, 2000.

Exhibit D.9: Percent of U.S. Insecticide Sales by Year, 1996 - 1999

Year Corn/Soil Cotton Other Crop Non-crop Total

1996 24.8% 18.5% 25.7% 31.0% 100%

1997 22.0% 18.9% 26.5% 32.6% 100%

1998 19.8% 19.0% 26.9% 34.3% 100%

1999 16.8% 17.9% 28.2% 37.1% 100%

% Change

1996 - 1997 -8% -1% 2% 6%

Note: Values may not add to 100 due to rounding. Source: Frost & Sullivan, 2000.Appendix − 71 Fungicides

Fungicides control plant molds and diseases. The applications of fungicides are very diverse because any material is susceptible to a fungal attack. In agriculture, they are primarily used on specialty crops such as fruits and vegetables. Fungicides are used to retard or eliminate fungal infections that can produce toxicants.

Weather plays an important role in the fungicide market, as it does in both the herbicide and insecticide markets. Wet weather can cause an increase in fungal attacks on crops, boosting agricultural demand for fungicides. Some of the major uses of fungicides are as follows:

· Vegetables

· Potatoes · Fruits (including grapes and citrus) · Other crops (including corn, cotton, small grains, peanuts, rice, and tobacco) · Non-crop uses (including turf, nursery, and ornamental)

Exhibit D.10 and Exhibit D.11 present the market use data for fungicide applications from 1996 to 1999 by percent of total annual use.

Exhibit D.10: Percent of U.S. Fungicide Sales by Year, 1996 - 1999

Source: Frost & Sullivan, 2000.Appendix − 72 Exhibit D.11: Percent of U.S. Fungicide Sales by Year, 1996 - 1999

Year Vegetables Potatoes Fruits Other Crops Non Crop

Uses Total

1996 12.8% 8.6% 23.5% 36.7% 18.4% 100%

1997 12.8% 8.6% 23.4% 36.8% 18.4% 100%

1998 12.4% 9.0% 23.4% 36.6% 18.6% 100%

1999 12.6% 8.7% 23.2% 35.8% 19.7% 100%

% Change

1996 - 1997 -0.2% 0.1% -0.3% -0.9% 1.3%

Note: Values may not add to 100 due to rounding. Source: Frost & Sullivan, 2000.

Plant Growth Regulators

Plant growth regulators (PGRs) are used to increase yields and facilitate harvesting. PGRs have varied functions, depending on the crop. PGRs are used on fruits to inhibit rotting and maintain color and other aesthetic attributes during storage or transfer from field to market. Cotton is the largest source of demand for PGRs, representing approximately 40 percent of total PGR demand (Frost & Sullivan, 2000). Rice, tree fruits, peanuts, and potatoes are other major crop application sources of PGR demand. The majo r non-crop applications of PGRs are for turf and nursery and ornamental applications. Like all other pesticides, PGR demand is dependent upon weather conditions, with wet conditions promoting fungal growth (Frost & Sullivan, 2000).

Industry Structure

There are many different indicators of how an i ndustry is structured. One approach is to evaluate Census data on the concentration of the industry to evaluate whether there is a tendency toward concentrated market power. Another approach is to obtain information on market share for specific market participants. Finally, recent trends in market structure can be suggested by reviewing the ownership and market share patterns of major producers in an industry. This section presents the first and third of these approaches.

Concentration

The U.S. Census provides two measures to indicate the degree of concentration in an industry: the “m-firm concentration ratio” and the “Herfindahl-Hirschman (HH) Index.” The mfirm concentration ratio is simply the sum of the value of shipments of the largest “m” firms. A market is generally considered highly concentrated if the 4-firm concentration ratio is greater than 50 percent.Appendix − 73 The HH index is an alternative measure of concentration equal to the sum of the squares of the market shares for the 50 largest firms in the industry. The higher the index, the more concentrated the industry is at the top. The U.S. Justice Department uses 1,000 as a benchmark for the presence of market concentration, where any industry with a Herfindahl-Hirschman index less than 1,000 is considered to be unconcentrated.

Exhibit D.12 shows concentration ratios by SIC code for the three census years, 1982, 1987, and 1992 for conventional pesticides industries, and for the industries that include antimicrobial producers and inert manufacturers.

Exhibit D.12: Concentration Ratios by SIC* Code, 1982-1992

Percent of value of industry shipments shipped by the largest (in terms of shipment value) Year

4 Companies 8 Companies 20 Companies 50 Companies HerfindahlHirschman

Index

Conventional Active Ingredient Producers and FPRs

Industrial Organic Chemicals (SIC 2869)

1982 36 52 73 90 475

1987 31 48 68 86 376

1992 29 43 67 86 336

Pesticides and Other Agricultural Chemicals (SIC 2879)

1982 44 66 85 94 703

1987 49 69 88 94 789

1992 53 69 87 95 834

Source: U.S. Department of Commerce 1992 Economic Census.

*NAICS codes were not available then.

The concentration ratios presented in Exhibit D.12 show only moderate evidence of market

concentration in the relevant industries in 1992. Four-firm concentration ratios for all identified

SIC codes are below 53. The HH indices for all SIC codes are well below the benchmark of 1,000. However, two important SIC codes have become noticeably more concentrated: 2879 (Pesticides and Other Agricultural Chemicals) and 2842 (Polishes and Sanitation Goods). The remainder have increased only slightly, remained constant, or decreased in concentration. In the case of the SIC codes associated with active ingredient, antimicrobial, inert, and adjuvant products, it is important to note that the data represent the entire chemical industry, not just firms supplying to the pesticide industry.Appendix − 74 Increasing concentration in the agricultural chemicals industry is not entirely confirmed by comparison with earlier m-firm concentration ratios (U.S. EPA, 1993). The 1987 4-firm concentration ratio for Pesticide and Other Agricultural Chemicals overall was 49 percent, increasing from 34 percent in 1972, which is consistent with Exhibit D.12. On the other hand, the 1982 Census of Manufactures perm itted identification of concentration ratios at a more disaggregated level (5-digit SIC) (which are not directly comparable) and indicates concentration ratios decreasing since 1972/1977 for many subsectors of the pesticide formul ating industry. The 4-firm concentration ratios for synthetic organic pesticides (SIC 28694), herbicide prep arations (SIC 28796), fungicide preparations (SIC 28797), and household pesticidal preparations (SIC 28799) were all over 50 percent in 1982 and had been decreasing from 1972 through 1982.

Since 1992 the pesticide industry has undergone a period of consolidation. Many firms have merged or been purchased, decreasing the number of firms producing active ingred ients. This has affected the concentration of active ingredient producers in that each sector is shifting to a few large competitors in each sector. For example, the herbicides market had a concentration of 45 percent (market share held by top three competitors) in 1999, and it is estimated that the concentration will continue to increase. (Frost & Sullivan, 2000).

Consolidation Through Mergers and Acquisitions

Conventional pesticide producers have experienced a period of consolidation in the past few years, as several major producers of active ingredients have either merged or been acquired. The following is a list of the mergers and acquisitions that recently occurred or are underway.

Mergers and Acquisitions

· Novartis with Astra Zeneca (expected 2000)

· AgrEvo and Rhone Poulenc to form Aventis (1999)

· Monsanto acquired DeKalb (1998)

· Dupont bought Pioneer Hi-Bred seed company(1999)

· Zeneca with Astra (1999)

· BASF acquired American Cyanamid (2000)

There are several reasons why there has been a recent trend towards mergers and acquisitions in the pesticide industry. The market is very saturated and therefore there is little room for growth, other than through gaining market share. Top companies have been purchasing smaller companies, as well as merging with each other in order to gain market share. Another way to gain market share is to expand operations into other sectors of the pesticide industry, including generic production. Since chemical manuf acturing requires significant investment, it makes sense to align one company with another that already has the de sired technology, instead of attempting to break into that sector of the market through new investment. Finally the th reat of the introduction of genetically modified seeds is driving consolidation as well. There are two typical type s of merger occurring: either a chemical company and a seed/life science company or a research company and a generic manufacturer. The first is in response to the growing acceptance of genetically modified seeds, while the second alliance is intended to combat increased competition from generic manufacturers.Appendix − 75 Appendix E

Pesticide Registration Action Tr acking System (PRATS) Action Codes

A. Registration (OPP Registration Division use only)

100 - Application for Registration - New Chemical - Food or Feed

115 - Application for Registration - New Chemical - Non-Food or Non-Feed Use

117 - Proposed Test Protocol - New Chemical

160 - Application for Registration - Routine "M e-Too" (Use 165 if science review required)

165 - Application for Registration - Old Chemical (Minor changes, i.e, substantial change in percentage of active ingredients, inerts, etc.) Requires Science review.

170 - Application for Registration - Old Chemical - "Me-Too" with an Additional Use (Use 175 if Science review required)

175 - Application for Registration - Old Chem ical - New Use - Non-Food or Non-Feed - Requires Science review.

180 - Application for Registration - Old Chemical - First New Food or Feed Use

B. Amendments

305 - Amendment - Technical - Label Revision - Data Required (i.e., change in toxicity category, etc.) Use 320 if science review required.

310 - Amendment - Technical - Added "Me-Too" Use (Use 325 if science review required)

315 - Amendment - New Use - Non-Food or Non-Feed

320 - Amendment - Label revision - Data required - Requires science review.

325 - Amendment - Added "Me-too" use - Data required - requires science review.

330 - Amendment - Technical - New Use - Food or Feed (Use 370/371 if first food or feed use for chemical)

345 - Amendment - Technical - Formula Change - (Use 347 if review required.

347 - Amendment - Formula Change - Unregistered source of the active ingredient. (Requires Science review)Appendix − 76 370 - Amendment - New Use - First Food or Feed Use for Chemical

385 - Amendment - Special Packaging (Sect. 162.16)

390 - Amendment - Inert Substitution

392 - Amendment - Minor Formulation Change for End Use Product - (Acceleratred Review)

395 - Amendment - Inert Label Warning Statement