1



### PESTICIDE REGISTRATION (PR) NOTICE 201 6

- X

( M a y 2016 )

Draft Document for Public Review

– The Environmental Protection Agency ( EPA ) is releasing this draft document solely for the purpose of public review and comment. This draft document is not now, and has not yet been, formally disseminated by EPA. This document is not being used for current Agency determinations. Plea se submit comments
to Docket ID # EPA

- HQ

- OPP

- 201 5

- 0814 at www.regulations.gov

. NOTICE TO MANUFACTURERS, PRODUCERS, FORMULATORS, AND

REGISTRANTS OF PESTICIDE PRODUCTS

NOTICE TO: Manufacturers, Producers, Formulato rs, and Registrants of Pesticide

Products and Devices ; U.S. and State Departments of Agriculture; Commodity and Grower Groups, Growers

ATTENTION: Persons Responsible for Initial and Continuing Registration of Pesticide

Product s

SUBJECT: Determination of Minor Use u nder Federal Insecticide, Fungicide, and

Rodenticide Act ( FIFRA ) Section 2(ll)

I. PURPOSE AND APPLICAB ILITY

Th is PR Notice is to clarify and revise the EPA’s interpretation of “minor use” under FIFRA section 2(ll) as it applies to the registration of pesticides. Section 2(ll)(1) of FIFRA defines a minor use of a pesticide as a use on a crop grown on 300,000 acres or less in the United States. Section 2(ll)(2) of FIFRA defines a minor use of a pesticide as one that la cks sufficient economic incentive to seek or maintain a registration in addition to meeting one of four other criteria regarding the value of the use. To date, EPA’s interpretation of an economic minor use in s ection 2(ll)(2) has been shaped by guidance
p rovided in PR Notice 97

- 2 ( PRN 97

- 2 ) 1

. Given the importance of minor use status to be eligible for many types of registration incentives, EPA is clarifying and updating its interpretation of how economi c minor use status under FIFRA s ec tion 2(ll)(2) can be determined. The revised policy will ultimate ly benefit growers and other pesticide users by providing more safe and effective tools to control pest problem s

. This PRN describes the revised approach to interpreting economic minor use based on the concept of the registration of a pesticide as an investment. The registrant incurs costs associated with applying for a registration while the registration once granted allows the

1 See Appendix A or http://www.epa.gov/PR_Notices/pr97

- 2.pdf2

pesticide product to be sold, generating a stream of revenue in the future. This approach provides several measures by which EPA can assess whether there are sufficient incentives for the registration of a pesticide use. These measures include the net present value of returns, the benefit

- cost ratio, and the internal ra te of return , each of which provides insight into the magnitude of the incentive to register or maintain the registration of a pesticide

. In developing the methodology, EPA consulted with the Office of Pest Management Policy and the Office of the Chief Ec onomist of the U.S. Department of Agriculture (USDA).

This PR Notice revises the method and criteria used by EPA for evaluating “sufficient

e conomic incentive” under FIFRA s ec tion 2(ll) (2) . It also clarifies that minor use under FIFRA s ec tion 2(ll)(1) is based on acreage reported in the USDA Census of Agriculture. This PRN supersedes Section 5 of PRN 97

- 2 with respect to minor uses.

Designation as a minor use is intended to identify situations where registrants of potentially useful pesticide products may not apply for registration because the potential returns are low

. Based on discussions with stakeholders (see Section III.C, below) concerning the approach defined in P RN 97

- 2 , EPA applied the methodology to two recent requests for minor use designation in order to qualify for exclusive use over data submitted to support a new registration after the original exclusive use period expired. These two analyses, “Minor Use Determination of Fluridone on Cotton under FIFRA 2(ll)(2)” and “M inor Use Determination of Deltamethrin as a Mosquito Adulticide under FIFRA 2(ll)(2)” are available in this docket. Based on these examples

, the Agency conclude d that evaluating whether a registrant has insufficient economic incentive using the standard i n PRN 97

- 2 d oes not consider all r elevant factors which affect the incentive s of a registrant to apply to register a minor use

. If the current practice is not revised, use of that outdated approach could prevent applicants from obtaining the incentives fo r registration that should be available to them . In turn, this could limit the availability of pesticides to control certain pests, because the uses do not create sufficient financial incentive for applicants to seek and then maintain registration. There fore, EPA believes it is important to revise the method used to determine when a potential minor use does not present a sufficient economic incentive for the registrant to pursue.

The revised method applies to agricultural uses for crops grown on more than 300,000

acres

. Such uses may be related to livestock protection, and non

- agricultural uses of pesticides such as commercial and residential pest control, public health, and other uses where an estimate of acres grown is not appropriate. Further, the approach can be applied
to biopesticides and antimicrobials

, whereas the criteria in PRN 97

- 2 only applied to conventional pesticides.

II. EFFECTIVE DATE

Effective immediately upon issuance of final policy

.3

III. BACKGROUND

Section 3 1 of FIFRA requires EPA to “assure coordination of minor use issues through the establishment of a minor use program within the Office of Pesticide Programs (OPP) .” OPP is responsible for “coordinating the development of minor use programs and policies...” The Food Quality Protection Act (FQPA) of 1996 amended FIFRA and added the definition of a minor use. The amended FIFRA s ection 2(ll) now defines a

“ minor use ” as “ the use of a pesticide on an animal, on a commercial agricultural crop or site, or for the protection of public health where: (1) the total United States acreage for the crop is less than 300,000 acres... or (2) ...the use does not provide sufficient economic incentive to support the initial registration or continuing registration of a pesticide for such u se and

– (A) there are insufficient efficacious alternative registered pesticides available for the use; (B) the alternatives to the pesticide use pose greater risks to the environment or human health; (C) the minor use pesticide plays or will play a si gnificant part in managing pest resistance; or ; (D) the minor use pesticide plays or will play a significant part in an integrated pest management program. ”

A “ minor use ” is defined under FIFRA s ection 2(ll) as meeting either of two criteria. The first definition under FIFRA s ection 2(ll)(1) specifies a numeric threshold of 300,000 acres or less in the United States. The second definition under FIFRA s ection 2(ll)(2) requires a finding of insufficient economic incentive to support a registration. PR N 9 7

- 2 provided guidance for a use to be designated as a n economic minor use under FIFRA

s ection 2(ll)(2)

. The standard defined in PRN 97

- 2 is that a use was minor under FIFRA 2(ll)(2) if gross revenues at full market potential did not cover the costs of reg istration. Section B explains why this revision of that guidance better reflect s economic incentives and appl ies to a wider variety of pesticide use sites.

A. Applications of Minor Use Status in Registration of Pesticides

FIFRA provides certain incentives for the registration of products that are important to
growers ( e.g., products which aid with resistance management, etc. ) or to the environment ( e.g., products which have lower risk to human health or the environment) but which may have low expected retur ns for the registrant . Such uses may be important to growers but without the economic incentive to seek or maintain registrations an applicant may not apply for these uses

.

T he most common reason registrant s request EPA to determine a pesticide use t o be minor is to receive increased data protection rights :

 Extension of exclusive use of data [FIFRA s ection 3(c)(1)(F)(ii)]

– For each 3 minor use registrations of a pesticide (within a specified time period), a registrant can receive one additional year of exclusive use data rights. The registrant can4 gain up to 3 additional years of exclusive use by register ing 9 minor uses. To be eligible, each minor use must meet one of 4 biological criteria : (I) there are insufficient efficacious alternative registered pesticides available for the

use; (II) the alternatives to the pesticide use pose greater risks to the environment or human health; (III) the minor use pesticide plays or will play a significant part in managing pest resistance; or; (IV) the minor use pesticide plays or will play a signif icant part in an integrated pest management program.
These criteria are the same as those specified in FIFRA s ection 2(ll) (A

- D)

.  Exclusive use of data to add a minor use to an existing registration after the initial exclusive us e period has expired [FIF RA section 3(c)(1)(F)(vi)]

– A registrant can request (at the time of application for the minor use) exclusive use protection of data submitted solely for the registration of a new minor use after the initial data exclusivity period has expired.

In gener al, e xclusive use protection of data limit s competition for a period of time

, providing the registrant more assurance of future revenue to recoup the costs of registering the use, and thereby encouraging applicants to apply for these types of minor

uses.

B. Rationale for Revising Pesticide Registration Notice 97

- 2

The current guidance for defining minor use

, PRN 97

- 2

, listed crops exceeding the 300,000 acre threshold and specified that a n applicant c ould demonstrate a lack of economic incentive for a registration by showing that the costs of data generation exceed gross revenue from sales at full market potential for that use

. (Appendix A contains the full text of the section of PRN 97

- 2. ) F or the following three reasons, EPA has decided to revise th e policy on determining minor use

. First, PRN 97

- 2 is outdated regarding the crops that would meet the definition of a minor use under FIFRA section 2 (ll)(1). Cropping patterns change over time and th e list of crops grown on more than 300,000 acres prov ide in PRN 97

- 2 is no longer accurate.

Second

, the method in PRN 97

- 2 does not accurately measure economic incentive to register pesticides. Gross revenue will overstate the registrant’s true return on the cost of registration while reliance on a single y ear of sales will understate the total stream of revenues. The direction of bias is unknown. Most importantly, it does not account for the difference in timing between costs of registration and future returns. In 2012, OPP conducted a n analysis, “Minor Use Determination of Fluridone on Cotton under FIFRA 2(ll)(2),” available in this docket comparing several methods for evaluating economic minor use in consultation with USDA . With respect to the method in PRN 97

- 2, the analysis showed that gross revenues at full market potential greatly exceeded registration
costs for a particular use . However, the net present value ( NPV ) measures of returns to5

investment

, consider ing reasonable estimates of net revenue over a five to ten year time horizon, indicated that registration of the use was only marginally profitable

. The pesticide in th is case represented specifically the type of registration that FIFRA section 2(ll)( 2) was designed to encourage : a registration for a biologically important use (in this case, a pest which had developed resistance to all other alternatives) that did not provide sufficient return for an applicant to incur the registration costs

. A second example, “Minor Use Determination of Deltamethrin as a Mosquito Adulticide under FIFRA 2(ll)(2),” also available in this docket, applies to a pesticide use that cannot be measured in acres of a crop.

Third

, PRN 97

- 2 applies only to registration actions on conventional pesticides. The notice specifically states that it does not apply t o registrations of biopesticides and antimicrobials ( e.g. , disinfectants)

. T he method described in this PRN may be used to evaluate the registration incentive for all types of products registered by each of OPP ’s registering divisions.

C. Stakeholder Input

During the development of this PR Notice, EPA discussed the new approach with stakeholders, including registrants and USDA

, which helped to inform its decision to employ the net present value method for determining economic minor use. EPA first consulte d with USDA about the draft method in February 2012. In May 2012, EPA presented a draft method at a meeting of the Pesticide Program Dialogue Committee ( PPDC ) ( http://www.epa.gov/pesticide

- advisory

- committees

- and

- regulatory

partners/pesticide

- program

- dialogue

- committee

- materials ). In June 2012, EPA met with registrants to learn more about factors that affect registration decisions.

More recently, EPA presented a draft of the PR Notice to USDA’s Office of Pest Management Policy (OPMP) for review and presented the method to members of the PRIA Coalition at the PRIA 3 Quarterly Stakeholder meeting in March 2014. Discussion with private sector stakeholders and USDA provided important insight into how registration decisions are made by pesticide producers, and indicated that the propo sed EPA approach is appropriate.

IV. GUIDANCE

A. Minor Use under FIFRA 2(ll)(1)

For minor uses defined under FIFRA s ection 2(ll)(1), EPA will rely on the most recent Census of Agriculture

, conducted every five years by the USDA ’s National Agricultural Statistic s Service (NASS )

, to determine if the crop is cultivated on less than 300,000

acres

. Th is supersedes th e list of agricultural crops grown on more than 300,000 acres in PR Notice 97

- 2 , which is no longer accurate

. Upon consultation with the USDA , EPA agreed that the Census of Agriculture is the best source of information to determine the acreage of crops grown in the U.S. USDA and EPA also considered the annual Crop Production Summary reports but determined that6

the Census provided more complete data. The Crop Production publications rely on a sampling of states. Although the states sampled typically comprise at least 90 percent of the production area, it will undercount the number of acres in most crops. USDA and EPA also considered whether to aver age reported acreage, whether across multiple Census or multiple Crop Production reports, as reliance on a single year (observation) can be problematic. However, USDA and EPA agreed that reliance on the most recent Census provides an accurate accounting o f crop acreage and the most simple and transparent source of information.

The Census is publicly available at http://www.agcensus.usda.gov/

.

B. Minor Use under FIFRA 2(ll)(2)

1. Economic Theory and Methodology

Under FIFRA section 2(ll)(2), a minor use is defined as one that “does not provide sufficient economic incentive to support the . . . registration.” EPA interprets this to mean that the registrant would not obtain sufficient revenues from sales of the pes ticide to justify the cost of regist ration

. Registration costs are incurred before a pesticide may be marketed while revenues accrue over a period of time. This makes the registration decision similar to an investment decision in which there are initial costs followed by periodic payments. Like many investments, the magnitude of future payments is subject to uncertainty.

To account for the difference in the timing of costs and revenue, economists typically calculate the net present value (NPV) in which i nvestment costs are subtracted from the sum of discounted future revenue 2

. Discounting is appropriate because people (and firms) value money now more than the same amount of money at some future time.

The NPV of the investment ( in registration ) is calcul ated as:



### NPV = ∑ [ NetRev t



### ( 1 + r ) t 

### ] T

t = 1 

### − C 0

where,

Net Rev t = Net revenue (revenue from sales minus cost of production ) at time t C 0 = Initial cash investment (registration costs)

r = Discount rate

t = Time of the cash flow ( e.g. , one year) T = Time at the end of analysis

2 See Chapter 6 of the EPA Guidelines for Preparing Economic Analyses : http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/E E

- 0568

- 50.pdf/$file/EE

- 0568

- 50.pdf7

This approach lends itself to several measures and potential ways of determining whether registration of a pesticide product provides sufficient returns including the calculated NPV, the benefit

- cost ratio, and the internal rate of return (IRR). All of the measures can be useful to characterize the value of the investment

. The NPV provides an estimate of the absolute magnitude of value. The benefit

- cost ratio, which can be calculated as B C ⁄ = NPV

C 0 + 1 , p rovides some context to the absolute value by comparing it to the magnitude of investment and can be helpful to determine how uncertainty in the future revenue stream influences the likelihood of an overall positive outcome

. Both of these measures require a predetermined discount rate ( r ), which can strongly influence the result; the higher the discount rate, the lower the NPV or benefit

- cost ratio. T he IRR , in contrast, measures the return on the investment as an annual average percentage growth; it is c alculated as the discount rate that results in NPV = 0. This measure can be useful to compare the value of the registration investment to other potential investment opportunities based on the rate of return over time

.
The cost of applying for registration can be viewed as an investment toward the eventual marketing of a registered product

. Applying for r egistration is the final step in the process of developing and marketing a pesticide. The costs of applying for registration include the costs of generat ing data that EPA requires for registration , the registration fees, and the cost of paperwork burden from the registration process. In terms of “economic incentive,” the main question to answer is whether the investment in registration of a particular use is worthwhile to the registrant, that is, whether future returns from sales are sufficiently high to justify the cost of obtaining/maintaining a registration.

To estimate the NPV and the benefit

- cost ratio, EPA is proposing to use a discount rate of

seven percent. This is the rate suggested in the EPA guidelines 3 for economic analysis, based on OMB’s estimate s 4 . It reflects the rate of return or opportunity cost of private capital, which is the relevant measure for private sector investment, in contrast to a three percent discount used to repre sent the social cost of resources.

2. Application and Data Needs

This section describes how to conduct a quantitative analysis to estimate NPV , B/C, and IRR and is organized around four primary components: the cost of registration ( C 0 )

, the
net revenues from sales of the pesticide ( Net Rev t ), the discount rate ( r ), and the time horizon ( T

)

. More detailed instructions for how an applicant should request the economic

3 See the EPA Guidelines for Preparing Economic Analyses : http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE

- 0568

- 50.pdf/$file /EE

- 0568

- 50.pdf

4 See the OMB Circular A

- 4: https://www.whitehouse.gov/omb/circulars_a004_a

- 4/8

minor use designation and what information to submit are provided in Section V of this
not ice.

In general, EPA is balancing the need for a rigorous and informative analysis with one that is simple and transparent. Simplicity is desirable because these uses, at least
p u r ported ly, offer low incentives to registrants; a burdensome process to demonstrate the fact would simply be an added deterrent to registration. Transparency is needed so that stakeholders can review all decisions and help to ensure regulatory consistency. To t hi s end , the analysis will rely on several simplifying assumptions and set parameters, about which EPA seeks comments. The analysis will depend largely on publicly available data and, as necessary, third

- party proprietary data such as reputable market sur veys.
EPA will consider qualitative information, described below, to select appropriate parameters of the analysis. In addition, EPA will consider other, qualitative factors that the registrant considers relevant on a case

- by

- case basis to make a final de termination as to whether the use meets the definition of minor use under FIFRA section 2(ll)(2).

D ata needs for an NPV analysis include at least the following:

 costs of data generated for registration  registration fee s (i.e., PRIA fees)  anticipated revenues from the proposed use (e.g., expected acres or sites treated, application rate, price per unit, etc.)

Examples of a dditional qualitative data which may be useful to the analysis are:

 information about the likelihood of pest resistance developing  information about the life of the investment (e.g., basis for expecting fast resistance development, new competing technologies, etc.)  firm

- specific information with documentation about the targeted IRR for investments

The quantitative analysis will be ba sed on publicly available data and/or third

- party proprietary data available to EPA

, but EPA will rely on applicants to submit sufficient information about the use for the A gency to conduct an appropriate analysis and make a final determination . This section outlines how these data will be applied to the net present value a nalysis

.

a) Cost of Registration (C 0 )

For this analysis , the initial cash investment ( C 0 ) is the cost of registration which includes: 1) the cost of generating data necessary to show the product can be used safely for the proposed use

, 2) the fee for applying for registration (i.e., PRIA fees) , and 3) the
cost s to prepare and submit the application.

T he data require d for registration are listed in the C ode of Federal Regulati ons (40 CFR9

Part 158) and requirements may be refined (and additional data may be required) in consultation with EPA during the registration process . Only those incremental data required to support the purported minor use should be included in the analysi s. T hus, t he context of registration of the purported minor use should be defined since some data, such as basic toxicity data, may support multiple uses. If the use in question is one of many, such basic data should not be claimed to be part of the cost of registering an additional use. EPA maintains a database of test costs for most studies listed in the CFR. The test costs are obtained by EPA from independent laboratories and the averages of the costs are publicly available and should be used f or the purpose of estimating the cost of generating the data required for regis tering the purported minor use. The use of this cost information will ensure consistency and transparency.

PRIA fees are determined by the type of action (e.g., registration of a new, conventional active ingredient ( a.i. ) on a terrestrial food crop) . A full list of PRIA fees is available at http://www.epa.gov/opp00001/fees/

. Finally, the cost of preparing and submitting the application is estimated in the Information Collection Request ( New or Amended Registration

, EPA ICR Number 0 277 .16

. If the registration is associated with other actions, only a portion of the preparation and submission costs should be included.

The costs for research into chemical compounds and development of particular pesticides (R&D) are not included in this analysis for both theoretical and practical reasons. Such costs are difficult to document accurately and there is no practical way to allocate R& D costs to a particular pesticide

. Further, the minor use definition is not chemical

- specific, but refers to the use(s) of a registered active ingredient. Finally , R&D expenses are ‘sunk’ costs, i.e. , costs already incurred , and, theoretically and empiri cally, costs incurred in the past are not relevant to today’s decisions.

b) Net Revenues (Net Rev t )

The returns to an investment in a pesticide registration are the net revenues from sales of the pesticide for the registered use. Annual net revenues will be total sales (the unit price of the chemical times units sold) less the costs of producing and distributing the pesticide each year , which may include variable and fixed costs

.



### NetRev t 

### = P

t 

### ∙ q t 

### − c ( q t 

### )

− γ t

Where NetRev t is net revenue in time t, P t is the price of the pesticide per unit, q t is the quantity sold, c ( q t ) is the cost of manufacturing and distributing the pesticide and depends on the quantity sold, and γ t are other costs that do not depend on the amount sold such as the registration main tenance fee, legal fees, and advertising costs.

Considering net revenue differs from the current approach, which only considers gross revenue. Estimating net revenue over time is more appropriate , because it better reflects the returns to the registrant , but does add to the complexity and uncertainty of the analysis since these costs may not be observable. EPA is proposing to use several10

simplifying assumptions to develop quantitative estimates and to use qualitative factors to interpret the results.

Gr oss revenue, or total sales, is calculated as P t times q t . Quantity ( q t ) c ould be estimated differently depending on the type of use. In the case of agricultural pesticides, total sales could be estimated as the cost per acre for a treatment (cost per po und times the application rate in lbs per acre) multiplied by the acres treated

. Both application rate and acres treated are likely to depend on the pest being targeted. Suggested application rates are typically provided on pesticide labels and would be public knowledge. Market survey d ata may be available to registrants and EPA to make and verify estimates of acres treated . For non

- agricultural pesticides, estimates of sales might use another unit of measurement such as volume or row

- foot, depending on the standard application rate

. For example, there might be an important use of a pesticide for postharvest pest control ( e.g. , control of pests in flour mills) that cannot be designated as a minor use through the acreage definition. However, information on volume treated or even the number of mills treated per year c ould be used to estimate sales. In the analyses conducted by EPA , the Agency estimated future sales of a pesticide using estimates of the acreage infested by its target pest and the suggeste d application rate and data on existing sales of ground

- applied insecticides for mosquito control

. To estimate quantity , EPA will expect the applicant to identify the target pest(s), appropriate application rate(s), and a description of the extent of the pest problem ( e.g. , it s range and/or life stage) to provide some basis for estimat ing

use or projected use of the pesticide.

The price of a pesticide ( P t ) or cost per acre may be readily and publicly available

, especially in cases where the pesticide is cu rrently on the market, which would typically be the case for registrants seeking either extension of exclusive use over data or a new exclusive use period

. A pplicants may need to provide EPA with pricing data, such as

w eb

- based distributor price lists, to establish the typical or average sale price. Pricing information for a new use ( i.e. , new exclusive use period) may have confidentiality claims , but when this applies to pesticides already on the market, current sales price would be appropriate. For a n ew active ingredient , applicants could provide a proposed sale price of the product or identify alternative products used to control the target pest with which they will compete in order to establish a range for a reasonable sales price

.

T he costs of pesticide manufacturing and distribution, c ( q t ) + γ
, are also likely to be subject to confidentiality claims. Moreover, costs may be difficult for applicants or registrants to estimate and would be nearly impossible for EPA to verify. Rather than ask applicants and registrants to submit data on production costs, EPA is proposing that all cases be evaluated using values for costs that range from 60 to 85 percent of gross

revenue

. Q ualitative information can be used to characterize which end of the range is likely

. For example , if the potential minor use accounts for a large proportion of total sales of an active ingredient relative to existing uses , the marginal cost of production is likely to be the higher percentage of revenue (85 percent) b ecause it represents a larger movement along the marginal cost (supply) curve

. Qualitative c onsiderations include aspects that increase the unit production cost

, c ( q t ), such as particularly costly raw materials

, or that affect fixed costs

, γ, for example, the development of a new distribution channel associated with the potential minor use

.11

EPA welcomes comments and suggestions on the appropriate parameters to use as well as other factors that can be considered qualitatively.

c) Discount Rate and Time of Inv estment
The discount rate used in the analysis will affect the net present value of the investment; a higher discount rate will yield a lower present value of future cash flows. EPA’s Guidelines for Preparing Economic Analyses recommend using seven percen t to represent the opportunity cost of private capital

. For simplicity and consistency, EPA suggests that seven percent be used for the calculation of NPV and the B/C ratio.

Theoretically, the time frame of the investment, T , is the life of the pesticide. The useful life could be short, if for example, the target pests develop resistance or competing products are registered. In general, data protection lasts about 10 years. Moreover, the longer the time frame, the greater the uncertainty over important values such as future sales. EPA suggests conducting the analysis using time horizons of five and 10 years. As with the costs of production and marketing, q ualitative information can be provided to show that an emphasis be placed on one end of the range when results are interpreted.

3. EMU Determination

Typically, a positive NPV indicates that an investment is worthwhile because it means that the present value ( i.e., the discounted value) of future revenue is greater than the cost of registration . The benefit

- cost ratio is a similar measure which shows the benefits as a proportion of the costs, where NPV shows only the amount of total net present value. If the benefit

- cost ratio is greater than one, an investment is considere d worthwhile. Calculating the internal rate of return (IRR) gives the discount rate that will make the present value of future cash flows exactly equal to the initial cash investment (NPV = 0 and B/C = 1) . The IRR for a particular use can be compared to IRRs of other registered uses to provide another measure of the incentive to register a chemical for a particular

use

. In general, if a use of a pesticide has a negative NPV, a B/C ratio < 1, and IRR that is lower than average for a particular sector, it w ill be considered to have in sufficient economic incentive to pursue registration. EPA is not setting a firm threshold, however, since registrants have competing uses for capital, and other market uncertainty may require a potential investment in registrat ion to reach a higher threshold. EPA currently has limited examples from which to set thresholds and would appreciate any feedback from stakeholders regarding the establishment of thresholds. At this time, EPA plans to consider all three measures, using a range of plausible assumptions based on the qualitative factors identified in this section ( e.g. , additional investments costs, factors influencing costs of production and distribution) to make a determination of ‘minor use’

on a case

- by

- case basis. Typ ically, a positive but small NPV and a B/C slightly > 1 c ould still be considered evidence that there is insufficient economic incentive to pursue or maintain a registration.12 4. Biological Criteria

In addition to lacking sufficient economic incentive, a pes ticide use must meet one of the four criteria at FIFRA s ection 2(ll)(2)(A

- D) to be considered an economic minor use:

(A) there are insufficient efficacious alternative registered pesticides available for the

use; (B) the alternatives to the pesticide use pose greater risks to the environment or human health; (C) the minor use pesticide plays or will play a significant part in managing pest resistance; or (D) the minor use pesticide plays or will play a significant part in an integrated pest management pr

ogram.
While the evaluation of whether there is sufficient economic incentive to register a minor use is a relatively new initiative, EPA has a history of evaluating the value of the pesticide to the user , society, and the environment . The same criteria are evaluated to determine if the minor uses for which the pesticide is registered help to qualify the registrant for an extension of the period of exclusive use over the data (See FIFRA section 3(c)(1)(F)(ii)). To determine whether a use meets one the three agronomic criteria (criteria A, C, or D), OPP reviews information submitted by the registrant ( e.g. , comparative efficacy, role in resistance management, or integrated pest management)

. The information is verified by consulting cr op profiles and pest management strategic plans (often developed by USDA or university extensions) , if available

. OPP also consults technical literature in scientific,
peer

- reviewed publications, extension service literature from land

- grant universities, and publications by various USDA offices including Agricultural Research Service (ARS) and USDA Animal Plant Health and Inspection Service (APHIS). Criterion B is evaluated in similar manner to evaluating whether a pesticide qualifies for ‘reduced risk’

s tatus.

V. IMPLEMENTATION

A. Process

The process as to when an a pplicant should submit a request for minor use designation will depend on why the designation is being sought

. For example, if an applicant seeks to extend the period of exclusive use over data und er FIFRA section 3(c)(1)(F)(ii)

, it must list the sites that meet the criteria, including the criterion that the site be a minor use 5

. For crops that meet the acreage definition of minor use, the applicant should cite the most recent Census of Agriculture. If the applicant wishes to claim an ‘ economic ’ minor use for one of the listed sites

, it should also include the information t o subst antiate that claim

.

5 For information on exclusive use data protections, see http://www.epa.gov/sites/productio n/files/2014

- 04/documents/exclusive

- use

- questions.pdf

.13 B. Information to be Submitted

For a use that the applicant requests a designation of minor use under the acreage definition under FIFRA section 2(ll)(1), the applicant should cite the most recent Census of Agriculture to support their claim of minor use.

F or a use that the applicant requests a designation of economic minor use under FIFRA section 2(ll)(2)

, the applicant should include the following types of information in writing with the application.

 The type of registration action for the specific site/ use.  A list of the registration data requirements for the specific site/use.  Information to inform future sales, which might include the target pest(s), the application rate, the extent of the pest pro blem.  Information to inform the sales price of the pesticide, which might include the price of relevant competitors.  A narrative addressing at least one of the criteria described in FIFRA section

, 2(ll)(2)(A

- D). This summary should contain, at least, a br ief description of how the pesticide will be used including the target pest(s) and alternatives.

Applicants may also wish to include the following to improve EPA’s understanding of the incentives they face in producing and/or registering a pesticide for t he specific use,  A narrative describing any relevant factors that influence the cost of manufacturing and, therefore, the net revenue from product sales.  A narrative describing any relevant factors that influence the fixed costs of registering and marketi ng the pesticide.  A narrative describing any aspects of the market that might limit or enhance sales.  A narrative describing any other factors which affect the economic incentive to register this use.

C. Expected Impact of the Revised Method

EPA expects that revising the method and criteria for determining sufficient economic incentive will have a positive net impact on pesticide registrants

, users , a s well as providing better pest control options

. In some cases, t here may be a small burden to the applicant to provide additional information to the agency about the reasons that the proposed use lacks economic incentive or how it meets one of the biological criteria , but this burden is expected to be small since the information needed to conduct an analysis is readily available to the applicant. EPA plans to rely on simplifying assumptions for certain parameters (e.g., projected revenues, production costs) in order to reduce the burden

, maintain transparency , and provide a better method for determining economic sufficiency

. It is important to note that seeking minor use designation is not required as part of the registration process. It is an optional designation that will be sought as a matter of obtaining certain incentives associated with minor uses. EPA is issuing this PR Notice to14

clarify and revise the process for achieving such a designation in an effort to make the program incentives that are available for minor uses ( e.g. , exclusive use of data) more accessible to applicants

. The intent of this clarif ication and revision is to inform potential applicants of our new guidance that may result in more important, niche uses of pesticides being requeste d or maintained . The revised policy will ultimate ly benefit
growers and other pesticide users by providing more safe and effective tools to control pest problem s

. The revised method for determining sufficient economic incentive in no way affects EPA’s assessments of risks. Regardless of whether a use is considered minor or not, the FIFRA registration requirements must be met before a pesticide can be registered and these requirements are not being changed by this guidance

.

VI. SCOPE

This PR Notice provides guidance and clarification to pesticide applicants

. While the requirements in FIFRA and agency regulations are binding on EPA and applicants, this N otice is not binding on EPA personnel, pesticide registrants and applicant s , or the public. EPA may depart from the guidance where circumstances warrant and without prior notice. Likewise, p esticide applicants may assert that the guidance is not appropriate generally or not applicable to a specific pesticide or decision. Registrants and applicants may propose alternatives to the guidance provided in any application to the Agency.

VII. PAPERWORK R EDUCTION ACT NOTICE

Under the PRA, “burden” means the total time, effort or financial resources expended by persons to generate, maintain, retain or disclose or provide information to or for a Federal
agency. The information in this Notice is generally a revision and clarification of information already listed in PR Notice 97

- 2 and is not expected to impose any additional data generation or record

- keeping on the part of the registrant

. The registrant may incur additional burden from the following activiti es associated with this PR Notice: 1) reading and understanding this PR Notice, and 2) additional time to clarify the nature of the use and why it does not provide sufficient incentive to register. Reading and understanding this PR Notice is not expected to be a recurring burden for applicants . T he additional time that may be need ed in some cases to describe the basis for sufficient economic incentive is expected to occur as part of the s ection 3 registration process

. As stated above, the intent of this PR Notice is to reduce existing burden on applicants to make incentives in FIFRA for registering minor uses more accessible.

The information collection activities associated with the activities described in this PR Notice are already approved by the Offi ce of Management and Budget (OMB) under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. The corresponding Information Collection Request (ICR) document for the Application for New and Amended Pesticide Registra tion has been assigned EPA ICR Number 0 277 .16 and is approved OMB control number 2070

- 0060. The annual average reporting and recordkeeping burdens for a15

registration applicant respondent are estimated to range from 14 hours to 840 hours, depending upon the type of activity. Estimates for the annual applicant respondent burden for collection of information average 194 hours per application for “Type A” activities, which include new active ingredients and new uses and 14 hours per application for “Type B” activities, which include amendm ents and notifications. The burdens estimate for “Type C” reduced risk products, which are handled only by the Registration Division , is an average of 646 hours per product. However, reduced risk products require both “Type A” and “Type C” for a total of 840 hours for both applications.

A copy of the most recent version of EPA ICR # 2070

- 0060 is available under Docket ID No. EPA

- HQ

- OPP

- 2011

- 0886 which may be accessed at www.regulations.gov

.

VIII. FOR FURTHER INFORM ATION

If you have questions or need further information abo ut this notice, please contact Derek Berwald

, berwald.derek@epa.gov , 703

- 308

- 8115

.

Authority: 7 U.S.C. 136 et seq

.

Dated: ___________________

_______________________ ______________

Director, Office of Pesticide Programs

.16

APPENDIX A

– MINOR USE DEFINITION FROM PR NOTICE 97

- 2

Pesticide Registration (PR) Notice 97

- 2 (Dated April 18, 1997)

SUBJECT: New Chemical, New Use, EUP, Non

- Fast Track Amendments and Inert Ingredient Registration Priorities for Conventional Pesticides

VII. MINOR USE DEFINITION

For the purpose of addressing the Food Quality Protection Act in this PR notice, the legislation defines "minor use" to mean the use of a pesticide on an animal, on a commercial agricultural crop or site, or for the protection of public health where

-- (1) the total United States acreage for the crop is less than 300,000 acres, as determined by the Secretary of Agriculture; or
(2) the use does not provide sufficient e conomic incentive to support the initial registration or continuing registration of a pesticide for such use and

-- (A) there are insufficient efficacious alternative registered pesticides available for the use; or (B) the alternatives to the pesticide us e pose greater risks to the environment or human health; or
(C) the minor use pesticide plays or will play a significant part in managing pest resistance; or
(D) the minor use pesticide plays or will play a significant part in an integrated pest manageme nt program. The Food Quality Protection Act defines "minor use" of a pesticide on an animal, a commercial agricultural crop or site, or for public health purposes in two different ways. The first definition identifies minor use crops as those with less th an 300,000 total U.S. acres. The second definition requires an economic determination that a registrant does not have the market revenues or sufficient economic incentive to support pesticide registration for a use site.

MINOR USE CROPS A pesticide use on a crop with less than 300,000 acres of total U.S. production is a minor use. This definition applies to numerous fruits, vegetables, spices, and horticulture and nursery crops. As an alternative to listing all minor use crops, a list of crops with more th an 300,000 acres of U.S. production is provided below. Pesticide uses on commercial agricultural crops that do not appear on the list will automatically be considered minor uses. Because the first definition applies only to crop uses of less than 300,000 a cres, non

- crop uses or sites (such as animal uses, aquatic weed control, and rights

- of

- ways) are not evaluated under the first definition. Agricultural Crops Grown on More Than 300,000 Acres

Almonds Pecans Apples Popcorn Barley Potatoes Beans , dry Rice Beans, snap Rye Canola Sod Farms Corn (sweet & field) Sorghum Cotton Soybeans Cottonseed Sugarbeets Grapes Sugarcane Hay (alfalfa & other) Sunflower Oats Tobacco Oranges Tomatoes17 Peanuts Turf Wheat

MINOR USE ECONOMIC DEFINITION A pesticide use on an agricultural crop grown on more than 300,000 acres or on a non

agricultural site may qualify as a minor use, provided the registrant can demonstrate that the use does not provide sufficient economic incentive to s upport registration. For purposes of this PR notice this economic determination can be made by using the equation:
(a) costs > gross revenues for 1 year for the specific site.

where:
Costs = incremental costs to register the site which are the costs of the additional data requirements to register the specific site. If registration costs are shared by more than one registrant, the costs should represent the registrant's share of the data requirement.
Revenues = registrant's gross sales which are the addi tional sales projected at full market potential for the specific site. EPA, in consultation with USDA, will make this determination based on the following information provided by the registrant:
Registrants that choose to submit priorities based on the ec onomic definition for a minor use must provide the following:
1. A list of the registration data requirements and the estimated cost to generate the data for the specific site.
2. The Annual Domestic Sales or Revenues for the Specific Site: Provide the a ctual, annual value and quantity of domestic sales of the pesticide for the specific site. This value should be calculated as the average of the most recent 3 years. For the registration of a new site, annual revenues should be projected on the basis of f ull market potential.
3. A written summary addressing at least one of the criteria described in section VII(2)(A

- D). For a minor use priority that is determined to be a minor use as a result of the economic criteria specified above, the one year time fra me for completion of reviews does not begin until after the economic determination has been completed.