ECONOMIC IMPACT ANALYSIS FOR METHYL BROMIDE ALLOCATION IN THE UNITED STATES Revised Draft Report December 2, 2003 Prepared for Hodayah Finman Global Programs Division U. S. Environmental Protection Agency 1200 Pennsylvania Avenue, NW ( 6205J) Washington, DC 20460 Prepared by ICF Consulting 1725 Eye Street NW, Suite 1000 Washington, DC 20006 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 i  Table of Contents Executive Summary ES 1 1. Introduction 1 1.1 History of Methyl Bromide Use and Phaseout 1 1.2 EPA's Statutory Authority 1 1.2.1 Critical Use Exemption Application Process 2 1.2.2 Nominations Process 3 1.3 Purpose and Structure of the Report 4 2. Regulated Community 5 2.1 Producers and Importers 5 2.2 Fruit and Vegetable Growers 5 2.2.1 Bell Pepper 6 2.2.2 Cucurbits 7 2.2.3 Eggplant 10 2.2.4 Strawberries 11 2.2.5 Strawberry Nurseries 13 2.2.6 Sweet Potato 15 2.2.7 Tomato 17 2.3 Orchards, Nurseries and Other Growers 19 2.3.1 Forest Seedlings 19 2.3.2 Ginger 21 2.3.3 Tobacco Nursery Transplant Trays 23 2.3.4 Orchard Nurseries 24 2.3.5 Orchard Replant 26 2.3.6 Turfgrass/ Sod 29 2.4 Post Harvest Commodity Fumigation and Structural Fumigation 30 2.4.1 Commodity Storage 30 2.4.2 Food Processing 32 2.5 Quarantine and Preshipment 33 3. Baseline for the Allocation Rule Economic Impact Analysis 35 3.1 Background of Phaseout RIA 35 3.1.1 Phaseout RIA: Approaches to Calculating Cost 36 3.1.2 Phaseout RIA: Approach to Calculating Benefits 36 3.1.3 Original Costs and Benefits Determined in the Phaseout RIA 37 3.2 Methodology and Inputs Used to Update the Phaseout Model 39 3.2.1 Fruit and vegetable growers 39 3.2.2 Perennial Crops 40 3.2.3 Post harvest and Structural 40 3.2.4 Nurseries 40 3.3 Benefits 40 3.4 Updated Phaseout Rule 40 3.5 Results 43 4. Economic Options Discussion 44 4.1 Overview of Phaseout Assumptions and Allocation Options 44 4.2 Definition of Terms 46 4.3 Option 1: Producer/ Importer Cap and Trade Allowance System with Market Distribution of Methyl Bromide 47 4.3.1 Overview of QPS System 47 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ii  4.3.2 Description of Model Components 48 4.4 Option 2: Producer/ Importer Cap and Trade Allowance System with End User Permit Trading 50 4.4.1 Overview of the Canadian System 50 4.4.2 Description of Model Components 50 4.5 Option 3: Producer/ Importer Cap and Trade Allowance System with End User Permit Auction and Trading 53 4.5.1 Overview of Auction Systems in Practice 54 4.5.2 Description of Model Components 54 4.6 Potential Cost Savings to Industry through Permit Trading 56 5. Incremental Costs Associated with Allocation Options 60 5.1 Comparison of Updated Baseline Phaseout and Allocation Rule Phaseout 60 5.1.1 Framework for Modeling Cost 61 5.1.2 Results of the Cost Analysis for Allocation of Methyl Bromide CUE 65 5.1.3 Assumptions and Caveats 67 5.2 Economic Efficiency Across the Regulatory Options 68 5.2.1 Introduction 69 5.2.2 The Method of Allocation: Three Broad Options 70 5.2.3 Factors Affecting Consumption by End Users Under the Three Broad Options 72 5.2.4 Limits on Purchases or Trading: Universal vs. Sector Specific Allocation and Trading 80 5.2.5 Comparison of EIA and Other Compliance Cost Savings Estimates 82 5.2.6 Summary: Efficiency, Costs, and Limitations of the Analysis 84 5.3 Economic Impacts and Equity Issues Across the Regulatory Options 86 5.3.1 Economic Impacts: Non Social Cost Transfers 86 5.3.2 Economic Impacts Across Sectors 90 5.3.3 Equity Effects: Small Farmers in Affected Sectors 93 6. Private Administrative and Transaction Costs 95 6.1 Private Administrative Activities   Option 1 95 6.1.1 Rule Familiarization 96 6.1.2 General Inventories 98 6.1.3 Annual and Quarterly Reporting 98 6.1.4 Allowance Trading 98 6.1.5 Self Certification 99 6.1.6 Total Private Administrative Costs: Option 1 100 6.2 Private Administrative Activities   Option 2 100 6.2.1 Submission of Baseline Information 102 6.2.2 Annual and Quarterly Permit Tracking 102 6.2.3 Tracking System Verification Reports 103 6.2.4 Trade Tracking System Familiarization 103 6.2.5 Allowance Trading 103 6.2.6 Total Private Administrative Costs: Option 2 104 6.2.7 Comparison of Total Private Administrative Costs: Options 1 and 2 104 6.3 Participation in Permit Trading System ( Option 2) 105 6.3.1 Market Evaluation Costs 106 6.3.2 Transaction Costs 106 7. Public Administrative Costs 109 7.1 Public Administrative Activities   Option 1 110 7.1.1 Write/ Revise Reporting Forms and Guidance 110 7.1.2 Annual and Quarterly Report Processing 112 7.1.3 Determination of Historic Production 113 7.1.4 Distribution of Allowances 113 7.1.5 Reporting to Parties to the Montreal Protocol 113 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 iii  7.1.6 Total Cost of Public Administrative Activities: Option 1 114 7.2 Public Administrative Activities   Option 2 114 7.2.1 Write Information Requests for Additional CUE 116 7.2.2 Allocate Permits 116 7.2.3 Develop and Maintain a Permit Tracking System 117 7.2.4 Process Annual Verification Reports for Tracking System 117 7.2.5 Total Costs of Public Administrative Activities: Option 2 118 7.2.6 Comparison of Total Costs of Public Administrative Activities: Options 1 and 2 118 8. Benefits Analysis 120 9. Cost Comparison: Options and Method of Allocation 121 9.1 Incremental Costs of Allocation Options 121 9.2 Administrative Costs 122 9.3 Total Costs 123 9.4 Cost Comparison 124 9.5 Efficiency and Equity 125 9.6 Industry Total Cost Savings: Summary 126 10. References 128 Appendix A: Summary of Cost Information in CUE Applications 139 1. Fruit and Vegetable Growers 140 2. Tree Nurseries and Other Growers 147 3. Post Harvest Commodity Fumigation and Structural Fumigation 151 Appendix B: Inputs and Methodology for the Cost Analysis 152 1. General Methodology 152 1.1 Step 1. Develop crop input data 152 1.2 Step 2. Determine cost and yield differences for substitutes 158 1.3 Step 3. Determine market shares for each region, crop, substitute, and year 161 1.4 Step 4. Calculate cost change, by crop and region, for Approach 1 167 1.5 Step 5. Calculate Approach 2 cost change for each crop 168 2. Nurseries 171 3. Post Harvest 172 Appendix C: Marketable Permit Designs for the Methyl Bromide Critical Use Exemption Request in the United States 175 Appendix D: Number of Entities that Applied for CUE 194 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 1  ECONOMIC IMPACT ANALYSIS FOR METHYL BROMIDE ALLOCATION IN THE UNITED STATES Executive Summary This Economic Impact Analysis ( EIA) provides an analysis of the costs of regulating the distribution of critical use exemption ( CUE) methyl bromide allocated to the United States by the Parties to the Montreal Protocol. This analysis presents the impacts associated with the proposed continued use of methyl bromide through the implementation of the CUE process under two allocation options ( each with two allocation methods) and briefly analyzes a third auction option, and compares these results to the current schedule ( i. e., a complete phaseout in 2005). The sections that follow provide a brief overview on the background of the methyl bromide phaseout and the regulated community, a description of the baseline phaseout analysis and a comparison to the allocation analysis used for this report, an overview of the allocation options, and a description of the costs and overall cost savings to industry participants for the two options.

Background Under the Montreal Protocol on Substances that Deplete the Ozone Layer, the United States is required to reduce all pre plant and post harvest baseline methyl bromide produced and consumed in 2003 by 70 percent of 1991 consumption levels and phaseout use completely by 2005, apart from allowable exemptions. The Montreal Protocol allows for: unlimited Quarantine and Pre Shipment ( QPS)

uses of methyl bromide; small amounts of methyl bromide for emergency use provisions after 2005; and limited critical use exemptions ( CUE) after 2005 in order to prevent significant market disruptions. Under Decision IX/ 6, the Montreal Protocol provision for critical use exemptions permits countries to request exemptions for methyl bromide end uses where no " technically and economically feasible" alternatives have been demonstrated and where the absence of methyl bromide would create a significant market disruption ( EPA 2003a).

In the United States, legal authority for the methyl bromide phaseout is provided under Title VI of the Clean Air Act ( CAA) Amendments. Thus, the United States must implement the critical use exemption based on CAA regulations as well as international decisions that determine the amount of additional methyl bromide allowed for critical uses. EPA began formulating the CUE application process beginning in early 2001, and received 56 applications from consortia and individual growers in September 2002 requesting methyl bromide for critical use exemption in both pre plant and post harvest end uses.

Following a thorough analysis of 52 of the applications, 1 in February 2003 the U. S. Government submitted the 2003 Nomination for a Critical Use Exemption for Methyl Bromide from the United States to the Parties to the Montreal Protocol. This nomination package described the criteria used to determine the 1 The remaining four applications were not processed due to insufficient or incomplete information. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 2  need for critical use exemption and the amount of methyl bromide requested for each of sixteen sectors nominated.

The United States requested a total of 9,920,965 kilograms of methyl bromide for 2005 and 9,445,360 kilograms of methyl bromide for 2006 to meet critical use exemption needs for sixteen sectors.

Cucurbits, peppers, strawberries, and tomatoes accounted for nearly 77 percent of the nominated total in 2005. The Parties are in the process of reviewing CUE nominations from all countries, and the amount awarded to each country will be authorized based on technical and economic merit. Following a decision by the Parties regarding the amount of CUE methyl bromide granted to the United States, EPA will be responsible for creating an exemption to the phaseout for critical uses. The amount that the United States will receive is uncertain at this time, but it will be critical to have an Allocation Rule in place when the amount is finalized. Thus, this analysis evaluating the costs of different allocation systems has been carried out under the assumption that the U. S. would receive the full amount nominated, among other assumptions described in greater detail in the full EIA.

Regulated Community A number of industry sectors are affected by the methyl bromide phaseout and are evaluated in this analysis. These include methyl bromide producers and importers, pre plant users, and post harvest users. Because the U. S. is one of the largest worldwide producers of methyl bromide, U. S. production,

led by Great Lakes Chemical Corporation and Ethyl Corporation, is impacted by the phaseout. The two major methyl bromide importers in the U. S. are Ameribrom, a subsidiary of the Dead Sea Bromine Group,

and TriCal, a certified applicator in California. Pre harvest or pre plant users of methyl bromide represent growers of fruits and vegetables, which are some of the largest industry sectors impacted by the methyl bromide phaseout. The U. S. Nomination included seven types of fruit and vegetable growers: bell pepper, cucurbit, eggplant, strawberry, strawberry nursery, sweet potato, and tomato, as well as orchards,

nurseries, and other growers ( i. e., forest seedlings, ginger, tobacco nursery transplant trays, orchard nurseries, orchard replant, and turfgrass/ sod). Post harvest uses of methyl bromide include structural fumigation of commodity storage and food processing applications. The QPS applications of methyl bromide are exempted from the phaseout under the Montreal Protocol, and there are already regulations in place governing distribution of methyl bromide for QPS. Thus, QPS applicators are not considered in this analysis.

Overall production and harvested production in 2001 for the pre plant and post harvest commodities within this regulated community are provided in Exhibit ES. 1. A summary of the area fumigated with methyl bromide, the number of farms/ orchards/ nurseries, and average farm/ orchard/ nursery size represented by the CUE applicants by sector, where provided, is presented in Exhibit ES. 2 for pre plant uses and in Exhibit ES. 3 for post harvest uses. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 3  CUE applicants, the U. S. Department of Agriculture ( USDA), and university researchers have invested a significant amount of time and resources into research on methyl bromide alternatives. For many crops, regulations or climatic conditions may limit the ability of growers to use alternatives to methyl bromide. After a thorough review of the applications and research results and an analysis of the technical and economic feasibility of alternatives by crop, the U. S. determined that the commodities and the corresponding states ( listed in the Exhibits ES. 2 and ES. 3) have a critical need for methyl bromide.

Exhibit ES. 1. Production by Commodities within MeBr Regulated Community in 2001 Commodity Production ( metric tons) Harvested Hectares Top Producing States Bell Pepper 728,572 22,671 CA, FL, GA, NJ, NC Cucurbit 487,892 22,016 FL, GA, MI, CA, NC Eggplant 61,417 2,146 FL, CA, GA, NJ Strawberry 749,467 18,609 CA, FL, OR, NC, PA Sweet Potato 663,934 38,204 NC, LA, MS, CA, AL Tomato 1,611,469 50,284 FL, CA, FA, SC, GA Forest Seedlings  a NAV OR, CA, MI, PA, OH Ginger b 6,532 130 HI Tobacco 447,069 174,956 NC, KY, TN, SC, GA Orchard Crops 3,025,628 428,700 CA Stone Fruit 1,731,082 100,083 CA Table Grapes 632,304 36,828 CA Almonds 385,552 212,468 CA Walnuts 276,690 79,321 CA a production of approximately 200 to 300 million bareroot seedlings. b 2001/ 2002 growing season year. Notes: This table does not include production or harvested hectares from strawberry nurseries, forest seedlings, and turfgrass/ sod. NAV = Not available. Source: Bell Pepper, Cucurbit, Strawberry, Tobacco from NASS 2003d. Eggplant, Sweet Potato, Tomato, Orchard Crops from 2003a. Ginger from NASS 2003b. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 4  Exhibit ES. 2. Summary of Critical Use Exemption Applications for Pre Plant Methyl Bromide Uses Commodity States Represented in Applications Total Area Fumigated with Methyl Bromide ( hectares) Average Farm/ Nursery/ Orchard Size ( hectares) Estimated Number of Farms/ Nurseries/ Orchards Represented Bell Pepper FL, GA, CA, AL, AR, NC, SC, TN, VA 12,754 111 160 Cucurbit AL, AR, NC, SC, TN, VA, GA, MI 8,306 89 454 Eggplant FL, GA 9,067 121 > 79 Strawberry CA, FL, AL, AR, GA, NC, SC, TN, VA 21,257 38.5 1,494 Strawberry Nurseries CA, NC, TN 1,423 69 19 Sweet Potato CA 1,214 40 78 Tomato FL, AL, AR, NC, SC, TN, VA, GA, MI, CA 34,180 NAV > 349 Forest Seedlings South: AL, AR, GA, FL, LA, MS, NC, OK, SC, TN, TX, VA; West: CA, ID, KS, NE, OR, UT, WA; North: IL, IN, KY, MD, MI, MO, NJ, OH, PA, WV, WI 1,239 NAV 120 Ginger HI 21 2 7 Tobacco NC 7 30 NAV Orchard Nurseries CA, WA 895 24 16 Orchard Replant CA 4,925 53 143 Turfgrass/ Sod all states 1,598 174 16 Notes: NAV = Not available. Number of farms/ nurseries/ orchards is not additive because double cropped farms in Georgia ( 79) are counted under peppers, cucurbits, eggplant, and tomatoes.

Exhibit ES. 3. Summary of Critical Use Exemption Applications for Post Harvest Methyl Bromide Uses Applicant States Represented in Applications Total Area Fumigated with Methyl Bromide ( cubic feet) Average Facility Size ( cubic feet) Estimated Number of Facilities Represented Commodity Storage: Beans, Dried Fruit, Pistachios, Walnuts, Ham CA, VA NAV 550,000 121 Food Processing all states 322,600,000 4,300,000 124 Note: NAV = Not available.

Baseline for the Allocation Rule Economic Impact Analysis In October 2000, an analysis of the economic impacts of the 2005 methyl bromide phaseout was conducted. This Revised Draft Regulatory Impact Analysis for a Methyl Bromide Phaseout in the United States ( ICF 2000b), hereafter referred to as the Phaseout RIA, estimated the costs and benefits of a complete phaseout in 2001 and 2005 based on the schedule set for non Article 5 countries by the Parties to the Montreal Protocol 2 and outlined in the Phaseout Rule ( Federal Register 2000). The Phaseout RIA 2 This methyl bromide phaseout structure, based on a 1991 baseline, consisted of a 25 percent reduction in 1999, a 50 percent reduction in 2001, a 70 percent reduction in 2003, and a complete phaseout as of January 1, 2005 ( except for quarantine, critical and emergency use exemptions) ( EPA 1999b). *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 5  modeled the cost impacts based on a complete characterization of the methyl bromide market in the U. S.;

published literature and expert opinion regarding methyl bromide alternatives; substitute market share percentage allocations by sector for each year of the phaseout; and benefits impacts based on EPA's ozone depleting substance substitute benefits model called the Atmospheric Health Effects Framework ( AHEF). The cost model developed for the Phaseout RIA was updated for this analysis, hereafter referred to as the Allocation EIA, to recalculate the costs and benefits based on continued availability of methyl bromide through the CUE process.

The Phaseout RIA cost analysis performed in 2000 applied existing data on methyl bromide uses and substitutes to the key methyl bromide markets to bound the possible cost impacts on producers and consumers of crops and commodities. The costs of meeting methyl bromide phaseout reduction targets were computed using two different approaches: impact on producers only ( Approach 1), and impact on producers and consumers ( Approach 2). Approach 1 assumes that sufficient additional commodity quantities would be supplied to prevent the prices of the various commodities from increasing in order to provide a lower bound for the social cost of the phaseout. Approach 2 provides an upper bound estimate of the total social welfare cost of the phaseout, using demand flexibility to derive an estimate of the change in price.

For each sector ( crop or other end use and geographical area), the cost model calculates the compliance or control cost of the phaseout based on changes in consumer and producer surpluses. In turn, these surplus changes result from end users switching to substitutes for methyl bromide, which can be more costly and may be associated with yield changes, and from higher prices that may occur in the output ( i. e., end use) markets. The analysis captured both low and high scenarios disaggregated by crop,

region, and interim reduction year, based on the range of substitute costs relative to methyl bromide. Low and high cost scenarios were provided based on a range of low to high methyl bromide substitute costs.

The benefits of the phaseout were estimated based on health effects resulting from past and future changes in stratospheric ozone concentrations associated with methyl bromide emissions.

Comparison of Updated Baseline Phaseout and Allocation Rule Phaseout The methodological framework of the model used for the analysis of the Phaseout Rule was kept intact to calculate costs for the Allocation EIA, but certain updates were made to conduct a direct comparison between the economic impacts of the Phaseout Rule, used as the baseline for this analysis,

and the Allocation Rule ( presented in this analysis). The changes include the following:

  added sectors not included in the previous analysis ( i. e., ginger, sweet potatoes, and forest seedlings);   updated methyl bromide substitute yield data where improvements were reported;   improved cost estimates by calculating cumulative perennial acreage treated with substitutes on an annual basis;   considered costs to the post harvest and structural impacts sectors in the same analysis as costs to pre harvest methyl bromide users; and *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 6    assumed a decrease in methyl bromide consumption in nurseries prior to 2005 because perennials may no longer need methyl bromide.

The cost analysis for the Allocation Rule uses existing data on methyl bromide uses and substitutes for the key markets to bound the possible cost impacts on producers and consumers. Alternatives to methyl bromide were identified through a review of existing documentation. From the identified alternatives,

substitute costs and yield impacts were derived. The target market shares for each substitute were calculated by taking the substitute with the overall least cost ( taking into account both price and effectiveness) up to its maximum market applicability, followed by the next least cost option, until all required methyl bromide reductions had been accomplished for each year.

For each sector, incremental costs were modeled to develop estimated changes in producer and consumer surplus resulting from the stepwise implementation of replacement options. Each cost scenario was broken down by crop, and each crop was disaggregated by region except for nursery, forest seedlings, and post harvest sectors, which were presented on a national basis. Finally, the cost of the Allocation Rule was calculated as the difference between the cost estimates ( relative to continued use of methyl bromide) of the baseline methyl bromide phaseout in 2005 and the Allocation Rule schedule.

Exhibit ES. 4 displays annualized and net present value costs for Approach 1 and Approach 2 of the Allocation Rule schedule relative to the 2005 phaseout baseline, based on the summation of reduced or increased producer surplus changes over region, crop, year, and scenario. Exhibit ES. 5 presents cost savings based on Approach 1, high scenario by crop.

Exhibit ES. 4. Estimated Compliance Cost Savings for the Allocation Rule Schedule ( 1999   2150) ( 1997$) Cost ( 1997$) Low High Approach 1 Discount Rate: 3 percent NPV 415 million 617 million Annualized 13 million 19 million Discount Rate: 7 percent NPV 249 million 383 million Annualized 17 million 27 million Approach 2 Discount Rate: 3 percent NPV 416 million 618 million Annualized 13 million 19 million Discount Rate: 7 percent NPV 250 million 384 million Annualized 17 million 27 million *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 7  Exhibit ES. 5. CUE Compliance Cost Savings Based on Approach 1, High Scenario ( 1997$) 3 Percent Discount 7 Percent Discount Annualized NPV Annualized NPV Eggplant 98,430 3,120,068 144,303 2,059,398 Forest Seedlings ( 17,534) ( 555,813) ( 25,728) ( 367,173) Ginger 48,533 1,538,423 71,205 1,016,191 Lettuce 0 0 0 0 Nursery 1,432,451 45,406,507 2,101,821 29,995,786 Pepper 380,278 12,054,217 552,216 7,880,858 Strawberry 7,570,791 239,982,490 11,067,925 157,954,059 Sweet Potato 203,376 6,446,696 292,064 4,168,148 Tomato 5,581,986 176,940,408 8,145,142 116,242,041 Cucurbits 222,801 7,062,436 317,649 4,533,271 Orchards 3,228,038 102,323,863 3,120,442 44,532,875 Post Harvest 702,005 22,252,492 1,030,045 14,700,118 Total 19,451,154 616,571,788 26,817,084 382,715,573 Note: Positive numbers indicate cost savings from the 2005 phaseout. Negative numbers ( in parentheses) indicate increased costs associated with continued methyl bromide use. Increased costs result when methyl bromide substitutes are less expensive than methyl bromide use and thus, continued methyl bromide use leads to higher costs.

Allocation Options Based on the criteria indicated by the Montreal Protocol, the United States requested 39 percent of 1991 U. S.

baseline consumption for 2005 and 37 percent for 2006 for CUE purposes from the Parties to the Montreal Protocol. This EIA assumes that methyl bromide quantities consumed in the United States in 2005 and 2006 will be equal to the quantities requested in the U. S. nomination, and that beyond 2006,

consumption of methyl bromide for critical use will continue at 37 percent of baseline through 2010. Use then drops by 5 percent annually for 7 years through 2017, with a final drop of 2 percent and subsequent consumption of 0 percent in 2018 and beyond. These assumptions are used strictly for analytical purposes and do not represent an attempt by EPA to predict the actual course of a methyl bromide phaseout.

Exhibit ES. 6 summarizes this phaseout schedule.

Three primary options for methyl bromide allocation were considered for the Allocation Rule:

  Option 1: Producer/ Importer Cap and Trade Allowance with Market Distribution of Methyl Bromide;   Option 2: Producer/ Importer Cap and Trade Allowance with End User Permit Trading; and   Option 3: Producer/ Importer Cap and Trade Allowance with End User Permit Auction and Trading [ initially considered as an option but not analyzed in depth in this document]. Exhibit ES. 6. Assumed Phaseout Schedule for U. S. Methyl Bromide Critical Use Exemption Year Percent consumption of 1991 baseline 2005 39 2006 37 2007 37 2008 37 2009 37 2010 37 2011 32 2012 27 2013 22 2014 17 2015 12 2016 7 2017 2 2018 0 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 8  Under all options, methyl bromide would be capped and allowances would be allocated to producers and importers based on their historic levels of production or import. Trading of allowances between producers and importers would be allowed. Under Options 2 and 3 additional regulations would be required to distribute rights of critical use methyl bromide to approved users. Under Option 2, EPA would provide permits to end users using a reconstructed baseline of historic methyl bromide consumption. These permits could then be traded, either within or across sectors.

The most readily identifiable difference in the economic efficiency of the regulatory options is whether trading is universal or sector specific. Between the universal and sector specific trading and allocations, the universal option is clearly lower cost from the perspective of economic efficiency, because the universal option allows more entities to trade, and thus is more likely to capture the potential gains from trade among agricultural entities with varying methyl bromide substitution costs. Because participation in the regulatory system is essentially voluntary ( end users can opt to use substitutes and not obtain methyl bromide), the efficiency of the regulatory options will depend on which end users choose to participate and how consumption of methyl bromide is distributed among these end users. A number of the factors affecting the efficiency of market outcomes under the regulatory options will depend on the design of the option   whether it facilitates trades, how great information requirements are,

program predictability, transaction costs and size, and other features affecting participation, distribution,

and ease of trading.

Costs Associated with Allocation Options Under the Allocation Rule, the increased use of methyl bromide in excess of the original phaseout schedule results in cost savings ( negative costs) for the industry as a whole. Total costs include incremental costs of the allocation options and public and private administrative costs and are estimated for the time period 2005 to 2018 ( costs are presented at discount rates of 3 and 7 percent) in 1997 dollars. Additionally, transaction costs and factors could cause variations in economic efficiency and equity between the two options. It is important to note that this analysis only addresses costs of the Allocation Rule to industry. Overall costs to society are not evaluated.

Incremental Costs Assuming that methyl bromide is allocated to its most valuable uses, costs will be identical for the two options considered under the Allocation Rule. Costs will differ, however, depending on whether allocation of methyl bromide is accomplished on a sector specific or universal basis, and on other factors that could affect how the markets operate to distribute transferable permits and methyl bromide, in ways not captured by the cost model. Exhibit ES. 7 presents total annualized and net present value costs compared to the Phaseout Rule for universal and sector specific allocation scenarios for the Approach 1 high scenario, which measures cost based on producer surplus alone and uses the higher range of substitute costs. Approach 1 was used since it is a conservatively high estimate of the cost of using substitutes for methyl bromide. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 9  Exhibit ES. 7. Annualized and Net Present Value Private Compliance Costs of the Allocation Rule for Approach 1, High Scenario ( 1997$) Annualized Costs Net Present Value Costs Discount Rate Sector Specific Allocation Illustrative Universal Allocation Sector Specific Allocation Illustrative Universal Allocation 3%  19.5 million  21.9 million  616.6 million  695.6 million 7%  26.8 million  31.3 million  382.7 million  446.8 million Note: This table does not include administrative costs.

Administrative Costs Both the private and public sectors will also incur administrative ( positive) costs associated with meeting requirements under the Allocation Rule. In addition to incremental costs related to yield impacts and higher substitution costs identified above for end users that do switch to methyl bromide substitutes under the Allocation Rule, the Allocation Rule will lead to administrative costs for private entities such as rule familiarization, reporting, and entering information into a tracking database. Furthermore, EPA will face public administrative costs of running the allocation program. Total administrative costs to the public and private sector under Options 1 and 2 are summarized in Exhibit ES. 8. It is assumed that administrative costs are the same for universal versus sector specific allocation.

Exhibit ES. 8. Net Present Value of Administrative Costs of the Allocation Rule for Both Sector Specific and Universal Allocations ( 1997$) Option 1 Option 2 Discount Rate Private Administrative Costs Public Administrative Costs Total Administrative Costs Private Administrative Costs Public Administrative Costs Total Administrative Costs 3% 30.6 million 0.4 million 31.0 million 89.8 million 29.9 million 119.7 million 7% 22.4 million 0.3 million 22.7 million 66.1 million 22.0 million 88.1 million The net present value of the total costs of the Allocation Rule, including incremental costs of the allocation options and public and private administrative costs, is summarized in Exhibits ES. 9 and ES. 10.

Total costs are calculated by adding total administrative costs and private compliance costs. In all cases,

private compliance costs savings outweigh the administrative costs associated with the Allocation Rule,

resulting in negative total costs.

Exhibit ES. 9. Net Present Value of Total Costs for Sector Specific Allocation ( 1997$) Option 1 Option 2 Discount Rate Total Administrative Costs Private Compliance Costs Total Costs Total Administrative Costs Private Compliance Costs Total Costs 3% 31.0 million  616.6 million  585.6 million 119.7 million  616.6 million  496.9 million 7% 22.7 million  382.7 million  360.0 million 88.1 million  382.7 million  294.6 million *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 10  Exhibit ES. 10. Net Present Value of Total Costs for Universal Allocation ( 1997$) Option 1 Option 2 Discount Rate Total Administrative Costs Private Compliance Costs Total Costs Total Administrative Costs Private Compliance Costs Total Costs 3% 31.0 million  695.6 million  664.6 million 119.7 million  695.6 million  575.9 million 7% 22.7 million  446.8 million  424.1 million 88.1 million  446.8 million  358.7 million Kim et al. Cost Analysis Kim et al. ( 2003) conducted an analysis comparing potential cost savings under sector specific versus universal allocation schemes, and on cost savings of methyl bromide allocation through trading versus command and control type systems. The analysis supports the phaseout model's projection that sector specific allocations are more costly to the overall regulated community than the universal allocation. The full analysis is provided in Appendix C of the Allocation EIA.

Kim et al.' s analysis found that, as predicted by economic theory, universal trading under Option 2 would offer more cost savings than sector specific trading. Kim et al. estimated that cost savings of the Allocation Rule under a sector specific trading system could be as high as $ 121.5 million, when compared to a high cost non trading command and control scenario ( all permits initially allocated to applicants with lower costs of methyl bromide substitution). These cost savings are calculated as the differences between compliance costs under the high cost non trading scenario ( estimated to be $ 177.2 million), and compliance costs under a sector specific trading system ( estimated to be $ 55.7 million).

Depending on the allocation method used under the command and control scenario, cost savings of trading could be lower. Cost savings for the universal trading system compared to a high cost nontrading scenario were estimated to be as high as $ 143.6 million ($ 177.2 million in incremental costs for the high cost scenario and $ 35.5 million in incremental costs for universal trading). Incremental costs in Kim et al.' s analysis include profit loss from reduced methyl bromide consumption under the Allocation Rule ( e. g., reduced yields, forced switches to other crops or commodities, or business closure) and increased production costs.

The values of the cost model for the Allocation EIA and Kim et al. differ because the analyses compare different baseline situations and have similar but different data sets. The Allocation EIA compares industry costs for sector specific and universal allocation under the Allocation Rule, which allows continued use of methyl bromide beyond 2005 for CUE, to a complete phaseout of methyl bromide in 2005 under the Phaseout Rule. Kim et al.' s analysis compares industry costs for universal and sectorspecific allocation under a market trading system to a system that does not allow trading ( command

andcontrol Further description of the potential cost savings of trading compared to command and control allocation is provided in the full EIA. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 11  Costs and Benefits Comparison of Options Costs to end users under the Allocation Rule will be less than under the Phaseout Rule because end users will receive more methyl bromide than would have been the case under the Phaseout Rule.

Under the Allocation Rule, industry will be able to continue using methyl bromide for CUE purposes until 2018. Although both Options 1 and 2 will lead to cost savings for industry as a whole, affected entities ( producers, importers, distributors, applicators, and end users) will experience various impacts. Exhibit ES. 11 presents a comparison of the net present value costs of the Allocation Rule for each option. Total costs include incremental costs of the allocation options and public and private administrative costs.

Exhibit ES. 11. Costs of the Allocation Rule, Approach 1, High Scenario, Options 1 and 2 ( 1997$) Allocation Type Discount Rate Option 1 Costs Option 2 Costs 3%  585.6 million  496.6 million 7%  360.0 million  294.6 million 3%  585.6 million  496.9 million 7%  360.0 million  294.6 million Sector Specific Allocation 7%  360.0 million  294.6 million 3%  664.6 million  575.9 million 7%  424.1 million  358.7 million 3%  664.6 million  575.9 million 7%  424.1 million  358.7. million Illustrative Universal Allocation 7%  424.1 million  358.7 million The relative costs of each option are presented in Exhibit ES. 12. Option 2 is roughly between 10 percent and 13 percent more costly than Option 1, depending on the allocation method and discount rate employed.

Exhibit ES. 12. Costs of Option 1 and Option 2, Approach 1, High Scenario ( 1997$) Allocation Type Discount Rate Option 1 Costs Option 2 Costs Relative Costs 3%  585.6 million  496.9 million 1.18 Sector Specific Allocation 7%  360.0 million  294.6 million 1.22 3%  664.6 million  575.9 million 1.15 Illustrative Universal Allocation 7%  424.1 million  358.7 million 1.18 Because more methyl bromide will be used under the Allocation Rule than under the Phaseout Rule, health benefits will be negative. More methyl bromide will be released to the atmosphere, resulting *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 ES 12  in higher incidence and mortality from skin cancers and increased incidence of cataracts than under the Phaseout Rule.

Efficiency and Equity Although the quantitative cost comparisons provide initial estimates of the allocation options that may lead to the highest net benefits to society, the options also result in differing levels of efficiency and equity for industry. Universal allocation under Options 1 or 2 would result in the most efficient allocation because with fewer limits on trading, end users would have more chances of identifying trading partners with large control cost differentials ( thus resulting in higher cost saving potential). Universal allocation would also allow for a higher trading volume, thereby increasing the potential for lower aggregate control costs and higher efficiency. Under a sector specific system, each critical end use type would be guaranteed at least some methyl bromide. Within each crop type or consortium, methyl bromide would be allocated to the most efficient use. This system would help ensure the continued domestic production of each of these products in an economically feasible manner.

Industry Total Cost Savings Net cost savings to industry participants will vary by allocation option. Option 1 is very similar to the existing QPS self certification system, where producers and importers already submit annual forms and distributors submit quarterly forms delineating methyl bromide distribution and implied consumption.

For methyl bromide allocation under Option 1, similar self certification procedures will be in place and hence, will pose few new costs to producers, importers, distributors, applicators, or end users.

Additionally, reporting requirements for distributors again would be similar to requirements under the QPS system, but would entail reduced frequency of reporting amounts of methyl bromide bought and sold.

Option 2 would present more costs to industry than Option 1 because it involves end user participation in a permit trading system. Many end users do not have experience with this type of system,

or trading in general. Reporting trades in a tracking database operated by EPA also may pose incremental cost burdens. In particular, many of these costs would be borne by small users. However,

trading can also lead to significant cost savings, as described in further detail in the full EIA.

These additional costs to industry over the current methyl bromide purchasing system, however,

will be greatly outweighed by the advantage afforded by continued methyl bromide use under the CUE system beyond 2005. Under a 2005 phaseout, affected entities, especially small farms, would be required to switch more quickly to substitutes. Furthermore, many small farms may not have as many resources as larger entities for conducting trades, and may lack sufficient information to settle on prices.

With continued methyl bromide use, small farmers will have a longer " buffer time" to identify methyl bromide substitutes and prepare for the phaseout in other ways. It is critical to note that both options are deregulatory in nature, and would substantially lower the cost of compliance to all users, including small users. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 1  1. Introduction 1.1 History of Methyl Bromide Use and Phaseout Methyl bromide is a toxic pesticide used globally to control pests, weeds, and soil borne diseases. It is primarily applied to pre plant uses, to treat agricultural crops such as tomatoes,

strawberries, and orchards, but is also used for post harvest applications, to treat stored commodities,

quarantine and preshipment ( QPS) products, and structures. Production of methyl bromide is being phased out under the Montreal Protocol on Substances that Deplete the Ozone Layer because its emissions contribute to stratospheric ozone depletion.

The United States is required to reduce all pre plant and post harvest baseline methyl bromide produced and consumed in 2003 by 70 percent of 1991 consumption levels ( consumption defined as production plus imports minus exports, not use). As the 1991 consumption baseline for methyl bromide is 25,528 metric tons 3, a 70 percent reduction in use sets a cap at 7,658 metric tons for 2003 and 2004. By 2005, methyl bromide consumption for pre plant applications must be reduced to 0 percent ( i. e., 100 percent reduction against the 1991 baseline) apart from allowable exemptions. However, the Montreal Protocol allows for: unlimited Quarantine and Pre Shipment ( QPS) uses of methyl bromide; small amounts of methyl bromide for emergency use provisions after 2005; and limited critical use exemptions ( CUE) after 2005 in order to prevent significant market disruptions. Under Decision IX/ 6, the Montreal Protocol provision for critical use exemptions permits countries to request exemptions for methyl bromide end uses where no " technically and economically feasible" alternatives have been demonstrated and where the absence of methyl bromide would create a significant market disruption ( EPA 2003a).

1.2 EPA's Statutory Authority In the United States, legal authority for the methyl bromide phaseout is provided under Title VI of the Clean Air Act ( CAA) Amendments. Thus, the United States must implement the critical use exemption based on CAA regulations as well as international decisions that determine the amount of additional methyl bromide allowed for critical uses. The U. S. EPA ( henceforth described as EPA) began formulating the Critical Use Exemption application process beginning in early 2001, and after receiving applications from consortia and individual growers in September 2002 to determine the amount of methyl bromide requested by end users, submitted a U. S. nomination to the Parties to the Montreal Protocol in February 2003.

3 This baseline represents non exempt uses ( i. e., non QPS uses that are exempt from the phaseout schedule). Preharvest uses of methyl bromide consumed approximately 85% of the baseline; post harvest and structural fumigation claimed the rest. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 2  1.2.1 Critical Use Exemption Application Process EPA began the CUE process by holding several open informational stakeholder meetings in early 2000. These meetings were designed to notify interested parties about Montreal Protocol requirements;

answer questions about the CUE process; and provide a forum for stakeholders to inform EPA about issues involved in researching methyl bromide alternatives. Following this initial set of meetings, EPA embarked on a three pronged approach to the CUE nomination process including: ( 1) development of a national application form to address all questions and instructions posed by the Montreal Protocol; ( 2)

commencement of a set of sector specific meetings to further educate growers about Montreal Protocol requirements and to ensure that all sectors would be represented in the national application; and ( 3)

assembly of an expert technical review team and creation of a timeframe for CUE application review.

Finally, the applications were reviewed by PhD experts in biology and economics and a draft nomination package for submission to the Parties was assembled ( EPA 2003b).

The data in the CUE applications from methyl bromide users was the basis for the U. S.

nomination package. Each application consisted of five primary worksheets, the contents of which are briefly described below:

1. Contact information for each applicant. 2. Crop pests, methyl bromide use, yields, and operating costs.

Subsection 1: Crops and Pests o Major target pests, pest problems, and the pest economic threshold; o Methyl bromide application types and rates; o Fumigation cycle of the crop and percentage of total growing area infested; o Crop yields and revenue; and o Operating costs.

Subsection 2: Methyl bromide historical use information from 1997 through 2002 o Total active ingredient of methyl bromide applied per year; o Total actual acres treated per year; o Average pounds of active ingredient applied per area per year; and o Frequency of methyl bromide application.

Subsection 3: Revenue and crop yields o Yield per acre, price, and gross revenue per acre.

Subsection 4: Operating costs o Land preparation, fumigation, irrigation, and harvest operations. 3. Feasibility of methyl bromide substitutes o Percent yield change and pest control compared to methyl bromide; o Regulatory restrictions on substitutes; and o Operating costs for implementation of substitutes. 4. Planned future research on methyl bromide alternatives. 5. Amount of active ingredient and acreage for fumigation requested in 2005, 2006, and 2007.

A total of 56 applications were sent to EPA requesting methyl bromide for critical use exemption;

52 of them were analyzed in the nominations process. 4 These applications represented entities and 4 The remaining four applications were not processed due to insufficient or incomplete information. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 3  groups of entities that use methyl bromide for both pre plant and post harvest end uses. Applicants ranged from individual farms or commodity producers ( e. g., one dried ham company) to consortia of many farms or commodity producers with similar products ( e. g., the Florida Fruit and Vegetable Association application on behalf of all tomato growers in Florida). Applicants included pre plant users of methyl bromide for such products as vegetables, fruits, trees, and turfgrass that are grown in fields and nurseries. Other applicants were post harvest end users of methyl bromide, such as producers of dry cured meats, dried fruits, and nuts and grains from mills.

1.2.2 Nominations Process Following receipt of all CUE applications, two review teams ( primary and secondary) were set up to assess the applications. Experts from EPA's Office of Pesticide Programs, from USDA, and expert university researchers participated in the review. The two teams, each consisting of one biologist and one economist, reviewed each crop and application. The full application was then reviewed by the entire 45 person review team. Each application was then placed in a sector category. For example, the " Food Processing" sector nominated a portion of methyl bromide for use in rice milling, bakeries, dog and cat food, and flour milling. The reviewers assessed the information provided in the applications, as well as additional research presented by applicants, and provided expert opinion on whether there was a critical need for methyl bromide for some portion of the application based on pest pressure, regulatory constraints on substitutes, historic methyl bromide use, and technical and economic feasibility of substitutes, among other factors. EPA experts in consultation with USDA and industry experts then assessed the number of acres or cubic feet that would need a CUE.

An overall nomination for methyl bromide critical use exemption in the United States was generated from analysis of all applications. The United States requested methyl bromide for critical use exemption for sixteen sectors, and the final 2003 Nomination for a Critical Use Exemption for Methyl Bromide from the United States described the criteria used to determine the need for critical use exemptions. The nomination packages provided an overview of U. S. agriculture and its unique aspects on an international scale; a summary of production in each sector nominated, and reasons for that sector's need for continued methyl bromide use; as well as a description of the amount of methyl bromide requested by each sector, the nominated amount of methyl bromide, and general reasons for differences between the amount requested in applications and the amount nominated. The nominations also described efforts that the United States has made in the past, and will continue to pursue in the future, to reduce use of methyl bromide, such as substitutes research and prioritization of substitutes registration.

The U. S. nomination requested a total of 9,920,965 kilograms of methyl bromide for 2005 and 9,445,360 kilograms of methyl bromide in 2006 for critical use exemptions. Cucurbits, peppers,

strawberries, and tomatoes were the sectors with the largest nominated amounts of methyl bromide ( accounting for nearly 77 percent of the nominated total in 2005); the U. S. Government requested over 2 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 4  million kilograms of methyl bromide for strawberries and tomatoes and over 1 million kilograms of methyl bromide for peppers and cucurbits in 2005. The Parties have reviewed CUE nominations from all countries, and the amount awarded to each country was to be authorized at the meeting of the Parties in Nairobi in November 2003. Because delegates were unable to reach agreement on the CUE amounts to be awarded, an extraordinary meeting of the Parties is to be held in March 2004. Following a decision by the Parties regarding the amount of CUE methyl bromide granted to the United States, the EPA will be responsible for creating an exemption to the phaseout for critical uses and allocating methyl bromide for critical use. Because the extent of the constraints that the Parties will impose on the amount of the CUE exemption and the means of distribution ( by sector or as a lump sum) is uncertain at this time, this analysis is based on several assumptions detailed in Chapter IV.

1.3 Purpose and Structure of the Report The purpose of this Economic Impact Analysis ( EIA) is twofold. The EIA aims to analyze the economic impacts of regulating the distribution of CUE methyl bromide. In addition, the analysis models the costs associated with the proposed continued use of methyl bromide with the implementation of the critical use exemption, and compares these results to a complete phaseout in 2005, which is the current law. To develop the analysis, three primary options for methyl bromide allocation were considered: ( 1) an allowance system with cap and trade permits for producers and importers only; ( 2) a cap and trade allowance system for producers and importers with tradable permits for end users; ( 3) a cap and trade allowance system for producers and importers with an auction permit system for end users, allowing trading among end users. In addition, Options 2 and 3 contain sub options where potential effects of trading within and across end use sectors for end user permits were considered. The remainder of this report contains the following sections:

  Chapter 2 describes the regulated producer and end user communities;   Chapter 3 reviews the original results of the methyl bromide Phaseout RIA, ( prepared in 2000), and provides a baseline for this report, the Allocation EIA;   Chapter 4 discusses the primary regulatory options analyzed for methyl bromide allocation;   Chapter 5 explores the incremental costs to industry under each of the allocation options;   Chapter 6 explores the administrative and transaction costs to industry under each of the options;   Chapter 7 surveys the administrative costs to EPA under each of the options;   Chapter 8 investigates the benefits of each allocation option; and   Chapter 9 summarizes the total costs and benefits of the proposed options. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 5  2. Regulated Community This section presents a brief summary of the industry sectors affected by the methyl bromide phaseout. The discussion addresses producers and importers of methyl bromide; pre harvest users,

growers of vegetables and fruit; and post harvest uses such as commodity storage and structural fumigation.

2.1 Producers and Importers The United States is one of the largest producers of methyl bromide worldwide, along with Israel,

Japan, France, and China. In 2000, the U. S. accounted for approximately 43 percent of the total world production and consumed 57 percent of world production. Approximately 26 percent of total U. S.

production of methyl bromide was exported in 2000. There are only two producers of methyl bromide in the U. S.: Great Lakes Chemical Corporation located in West Lafayette, Indiana, and Ethyl Corporation,

based in Richmond, Virginia. Similarly, there are only two major importers of methyl bromide to the United States: Ameribrom, a subsidiary of the Dead Sea Bromine Group ( DSBG) based in Israel, and TriCal, a certified applicator in California. Great Lakes Chemical Corporation employs 4,600 people worldwide and had net sales in 2002 of $ 1,401.5 million ( Great Lakes 2003). Ethyl Corporation has 1,100 employees and its consolidated net sales equaled $ 656 million ($ 216 million in the United States) in 2002 ( Ethyl Corporation 2002). Dead Sea Bromine Group is the world's largest producer of elemental bromine ( DSBG 2003). TriCal is the largest applicator of methyl bromide on the west coast; however, sales data are not publicly available.

2.2 Fruit and Vegetable Growers Fruit and vegetable growers are some of the largest industry sectors impacted by the methyl bromide phaseout. The U. S. Nomination included seven types of fruit and vegetable growers: bell pepper, cucurbits, eggplant, strawberries, strawberry nurseries, sweet potatoes, and tomatoes. These sectors are described briefly below. These sectors contain a wide variety of farms, ranging from small individually held plots to large, organized farms belonging to consortia or representative associations.

These crops are grown in all regions of the United States, with concentrations in the Southeast and West in variable soil, temperature, and regulatory conditions.

For many crops, regulations limit the ability of growers to use alternatives to methyl bromide.

Growers face particular constraints in using one of the more effective alternatives, 1,3 dichloropropene ( 1,3 D), because of restrictions aimed at reducing exposure to this hazardous substance. Set back restrictions or buffers between the fumigated field and buildings limit the area of land that can be fumigated. This buffer zone requirement, however, has been reduced from 300 to 100 feet. Applicators of 1,3 D are required to wear personal protective equipment ( PPE), which has contributed to heat stress in workers when combined with high temperatures. PPE requirements have been lessened, reducing these *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 6  complications. The amount of 1,3 D that can be used in California is limited by township caps, which can deplete the supply available for crops grown later in the season. In Florida, certain areas are prohibited from using 1,3 D because of groundwater contamination concerns associated with karst topography ( underground caves and springs). Restrictions and conditions affecting particular crops are discussed in the sections that follow.

The sector discussions focus on the production volume of each crop, the highest producing regions or states, the size and number of farms represented by the critical use exemption applications,

and the status of existing or potential alternatives to methyl bromide. Further information on the estimation of the number of farms represented by the applications is described in Appendix D. Data for production costs and relative costs of methyl bromide provided by the CUE applicants are presented in Appendix A.

2.2.1 Bell Pepper Bell peppers are grown throughout the United States, in all but three states. The industry is valued at approximately $ 459 million ( NASS 2003d). In 2001, 728,572 metric tons of peppers were produced on 22,671 harvested hectares. In 1997, there were a total of 6,269 farms producing peppers,

covering 24,907 hectares of U. S. cropland ( U. S. Census of Agriculture 1997). The industry is concentrated in California and Florida, which are responsible for more than 75 percent of the total U. S.

pepper yield. New Jersey and North Carolina are the next largest pepper growing states. Exhibit <IP_ADDRESS> summarizes the quantity of bell peppers produced and hectares harvested by state for the year 2001.

Exhibit <IP_ADDRESS>. Bell Pepper Production in 2001 From Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares California 324,324 45% 8,903 Florida 245,670 34% 6,358 Georgia 19,051 3% 850 New Jersey 53,706 7% 1,497 North Carolina 35,744 5% 2,550 Other 50,077 7% 2,517 Total 728,572 100% 22,671 Source: NASS 2003d.

EPA received four CUE applications for peppers. The applicants represent growers in California,

Florida, Georgia, and six other southeastern states ( Alabama, Arkansas, North Carolina, South Carolina,

Tennessee, and Virginia). Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl bromide, the *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 7  average farm size, the number of farms, and employment statistics where available for the pepper growers represented by each CUE applicant. Based on information provided by the CUE applicants, the average pepper farm was calculated as 111 hectares.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Pepper Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented Employment 02 0017, California 1,012 81 13 NAV 02 0041, Southeast 749 40 14 NAV 02 0049, Georgia 2,252 162 79 NAV 02 0054, Florida 8,742 162 54 nearly 9,000 full time Total 12,754 111 160 NAV NAV = Not available.

In 2001, California bell pepper growers applied 64 metric tons of methyl bromide on 447 hectares   equivalent to 5 percent of the total harvested area ( CADPR 2002). The California applicant requested 181 metric tons of methyl bromide for 1,012 hectares. In 2001, Florida consumed 1,031 metric tons of methyl bromide on 91 percent of pepper crops in the state ( NASS 2003d).

The critical need for methyl bromide for bell peppers, as described in the nomination, is primarily due to the lack of reliable and registered alternatives to control nutsedge species in Florida, Georgia, and the Southeast ( U. S. CUE Nomination for Bell Peppers 2003). For states in the Southeast, including Georgia and Florida, methyl bromide use is critically needed for areas of moderate to high nutsedge infestation. In California, methyl bromide use is critically needed for areas infested with Phytophthora and Verticillium pathogens, representing 10 percent of California's pepper production ( U. S. CUE Nomination for Bell Peppers 2003). Extensive research has been conducted to evaluate methyl bromide chemical and non chemical alternatives for bell peppers. Relatively few herbicides are appropriate for use in pepper production, particularly because of phytotoxicity concerns. Despite the limited selection of herbicide alternatives, U. S. studies on treatments of Telone ® have shown promising nematode and disease control compared to methyl bromide ( Eger 2000). However, concerns remain that Telone ® applied in combination with herbicides may not provide an appropriate level of residual pest control for double cropping, a commonly practiced farming method for peppers and other crops, such as tomato and cucumber ( Gilreath et al. 2000).

2.2.2 Cucurbits In 2002, the cucurbit industry produced 4.3 million metric tons of cucumber, melons, pumpkin,

and squash valued at nearly $ 1.5 billion ( NASS 2003e). In 1997, cantaloupe, cucumber, pumpkin,

squash, and watermelon crops were grown on a total of 39,660 U. S. farms ( U. S. Census of Agriculture *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 8  1997). More than 200,000 hectares of cucurbits are planted annually ( U. S. CUE Nomination for Cucurbits 2003). Using cucumbers as a representation for cucurbit production, Florida and Georgia produce approximately 25 and 24 percent respectively of all U. S. fresh cucumbers in 2001. Other major cucumber producing states include Michigan ( 11 percent), California ( 10 percent), and North Carolina ( 8 percent) ( NASS 2003a). In 1997, 42 percent of the 152 cucumber growers in Florida produced cucumbers on less than 5 acres, and 24 percent of producers produced cucumbers on more than 100 acres ( NASS 1999). Exhibit <IP_ADDRESS> summarizes the quantity of cucumbers produced and hectares harvested by state for the year 2001.

Exhibit <IP_ADDRESS>. Cucumber Production in 2001 From Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares Florida 120,884 25% 2,954 Georgia 115,124 24% 5,868 Michigan 54,886 11% 2,226 California 51,166 10% 1,902 North Carolina 37,558 8% 2,792 Other 108,274 22% 6,273 Total 487,892 100% 22,016 Source: NASS 2003d.

EPA received CUE applications for cucurbits from Georgia ( specifically for squash, cucumber,

and melon), Michigan, and states in the Southeast. The states covered in the U. S. nomination represent approximately one third of total U. S. cucurbits production ( U. S. CUE Nomination for Cucurbits 2003).

Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl bromide, the number of farms, and the average farm size for the cucurbit growers represented by each CUE applicant and cucurbit crop. Based on information provided by the CUE applicants, the average cucurbit farm was calculated as 89 hectares. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 9  Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Cucurbits Applicant Cucurbit Crop Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 005, Michigan Watermelon, Muskmelon, Cucumber, Summer Squash, Winter Squash 585 51 30 02 0042, Southeast Melons, Cucumber, Squash 5,018 71a 345 02 0048, Georgia Squash 618 81 79 02 0051, Georgia Cucumbers 448 81 79 02 0052, Georgia Melons 1,637 162 79 Total 8,306 89 454b a While the majority of cucurbit growers represented by the Southeast Cucurbit Consortium produce 20 to 120 hectares of cucurbits for wholesale markets, it should be noted that 25 percent of cucurbit growers produce 1 to 20 hectares of cucurbits for local and regional markets. b The Georgia Fruit and Vegetable Growers Association submitted the three CUEs on behalf of Georgia cucurbit farmers. Since the same number of farms was given in each cucurbit CUE for Georgia, the total estimated number of farms requesting cucurbit CUEs was estimated by counting Georgia's cucurbit farms only once.

The critical need for methyl bromide for cucurbits, as described in the nomination, is primarily to target Phytophthora capsici and Fusarium oxysporum pathogens that cause rotting and decreased yield and quality of cucurbit harvests in California and Michigan; methyl bromide is also critically needed to control yellow and purple nutsedge infestation in the southern and southeastern regions of the United States ( U. S. CUE Nomination for Cucurbits 2003). While double cropping is a common planting method for many types of cucurbits, such as squash and cucumber crops, 5 the majority of research into alternatives for methyl bromide has focused on the effects of alternatives on the first crop, such as tomato. In general, less is known about the effect of methyl bromide alternatives on the double crop, such as cucumber ( Gilreath et al. 1999).

Treatment of a mixture of 1,3 dichloropropene and chloropicrin combined with Tillam ® on doublecropped tomato and cucumber indicated that this alternative was as effective as methyl bromide in controlling root knot nematode populations in spring cucumber crops ( Gilreath et al. 1999). However,

since this work was conducted, the sole manufacturer of Tillam ® has closed operations, and this product is no longer available on the market.

The effects of soil solarization on a pepper cucumber crop rotation in Florida were also studied.

Alone, soil solarization did not control root knot nematodes in cucurbits, but when combined with 1,3

dichloropropene, nematode control improved. Marketable yield for this double crop of cucumber were 2.7 tons per acre higher with methyl bromide and root knot nematode density and incidences of root galling increased with solarization compared to methyl bromide ( Chellemi et al. 1997).

5 For example, Florida cucumber growers usually double crop with tomato, eggplant, or bell pepper ( Mossler and Nesheim 2000). *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 10  In south Florida, metam sodium and chloropicrin are available alternatives for cucumber growers;

however, chloropicrin alone has not been shown to provide adequate pest control. Metam sodium has shown more promise in providing cucumber growers with some degree of pest control as a fumigant ( McMillan and Bryan 2000).

In Georgia, an effective control against nutsedge for the pepper squash crop rotation has not been found to replace methyl bromide due to the lack of an effective herbicide. In a field study evaluating methyl bromide alternatives on a bell pepper squash crop rotation, both methyl iodide and 1,3

dichloropropene combined with chloropicrin were most effective at controlling nutsedge early in the growing season. However, by the end of the growing season, methyl bromide treatment exhibited the best control over nutsedge ( Webster et al. 2001).

In Michigan, results of treating muskmelon with Telone ® C 35 and Telone ® C 17, in an area known to have disease problems during a previous harvest of melons, resulted in 20 to 29 percent of plants being infected with Fusarium wilt compared to a zero percent infection rate when treated with methyl bromide ( Hausbeck et al. 1998).

Ongoing research to find technically feasible alternatives will be critical for the cucurbit industry,

which consumed an estimated 210.28 metric tons of methyl bromide on cucumber crops in 2000 alone ( NASS 2003a).

2.2.3 Eggplant In 2001, more than 61,417 metric tons of eggplant was produced in the United States, valued at more than $ 36.6 million ( NASS 2003a, 2003e). In 1997, eggplant production occupied a total of 3,198 hectares on 2,246 farms ( U. S. Census of Agriculture 1997). The eggplant industry is most concentrated in California, Georgia, Florida, and New Jersey. Exhibit <IP_ADDRESS> summarizes the quantity of eggplant produced ( in metric tons) and the number of hectares harvested by state for the year 2001.

Exhibit <IP_ADDRESS>. Eggplant Production in 2001 from Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares California 14,923 24% 567 Florida 18,144 30% 648 Georgia 12,746 21% 182 New Jersey 7,258 12% 324 Other 8,346 14% 425 Total 61,417 100% 2,146 Source: NASS 2003a. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 11  EPA received two CUE applications for eggplant. The applicants represent growers in two of the three top producing states: Florida and Georgia. According to the CUE applications, the average farm size is 81 hectares in Florida. According to the 1997 U. S. Census of Agriculture, there were a total of 937 hectares of eggplant farms in Florida; the applicant requested methyl bromide for 728 hectares, or approximately 80 percent of the state total. In Georgia, the average farm size is 162 hectares, and methyl bromide is applied to only half the area of the average farm. The Georgia applicant requested the use of methyl bromide on 325 hectares, which likely represents all eggplant farms in the state, given that there were a total of 285 hectares of eggplant farms in 1997 ( U. S. Census of Agriculture 1997). Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl bromide, the average farm size, and number of farms for the eggplant growers represented by each CUE applicant. Based on information provided by the CUE applicants, the average eggplant farm was calculated as 121 hectares.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Eggplant Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0050, Georgia 325 162 79 02 0054, Florida 8,742 81 NAV Total 9,067 121  NAV = Not available. This information was not provided by the applicant.

According to the applicants, methyl bromide is critically needed for eggplants because it is the only known treatment currently available to provide consistent control of nutsedge and major eggplant pests ( U. S. CUE Nomination for Eggplants 2003). Research on technically feasible alternatives to methyl bromide for use in eggplant production is ongoing. As with other vegetables, Telone ® with Chloropicrin and an herbicide has shown some positive results in pest suppression, but this alternative is only labeled for use with tomato ( Gilreath et al. 2000). To date, Napropamide is the only available herbicide for eggplants ( Gilreath et al. 2000, Carpenter et al. 2000). In addition to the challenge of finding a proper herbicide to effectively work with Telone ® , Florida townships limit the use of Telone ® , with Miami Dade County   where approximately 17 percent of Florida's eggplants are produced   banning its use entirely ( USDA 2000, U. S. Census of Agriculture 1997, Dade Vegetable Newsletter 2001).

2.2.4 Strawberries Strawberry production in the U. S. has an annual value of over $ 900 million ( Carpenter et al.

2000). As such, it is the fourth most valuable fruit produced in the United States. The largest strawberryproducing state is California, followed by Florida and other southeastern states. California and Florida both grow strawberries as an annual crop using a raised bed system, with two or four rows of plants per *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 12  raised bed. Exhibit <IP_ADDRESS> summarizes the quantity of strawberries produced and hectares harvested by state for the year 2001.

Exhibit <IP_ADDRESS>. Strawberry Production in 2001 From Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares California 622,688 83% 10,684 Florida 76,657 10% 2,631 Oregon 18,234 2% 1,255 North Carolina 8,890 1% 688 Washington 7,257 1% 648 Pennsylvania 3,901 1% 526 Other 11,839 2% 2,185 Total 749,467 100% 18,616 Source: NASS 2003d.

EPA received three CUE applications for strawberries. The applicants represent growers in California, Florida, and members of the Southeastern Strawberries Consortium. According to the CUE applications, the average farm size is 53 acres in Florida, 40 acres in California, and 3.5 acres in states represented by the Southeastern Strawberries Consortium. The applicants requested methyl bromide use for 13,640 acres, which is an estimated 38 percent of the total strawberry farm area ( U. S. Census of Agriculture 1997). Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl bromide, the number of farms, the average farm size, and employment statistics where available for the strawberry growers represented by each CUE applicant.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Strawberry Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented Employment 02 0024, California 4,095 16 625 65,000 ( total)

02 0053, Florida 2,873 21 134 NAV 02 0037, Southeast 1,635 1.5 735 NAV Total 21,257 38.5 1,494 NAV NAV = Not available.

Methyl bromide is critically needed in the strawberry sector in the United States, as described in the nomination, because it is the only currently available treatment that consistently controls nutsedge and the disease complex affecting strawberry production ( U. S. CUE Nomination for Strawberries 2003).

In addition, the economic feasibility of strawberry production without methyl bromide is a factor for a *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 13  critical use exemption. It is used for weed control, as most herbicides are phytotoxic to strawberries ( Lange et al. 1961), and for nematode and disease control. Other chemicals that have shown some efficacy ( e. g., chloropicrin and Vapam ® ) , although in California they were shown to result in yield losses of approximately 4 percent in the first year ( Carpenter et al. 2000). These herbicides can also require additional hand weeding, which is labor and cost intensive ( on the order of about $ 500 per acre in southern California). The combination of applying chloropicrin and Vapam ® and hand weeding will increase costs by approximately $ 597.50 per acre over traditional methyl bromide use in southern California ( Carpenter et al. 2000). Plastic mulches could potentially provide an alternative to hand weeding, but clear plastic mulches used in southern California strawberry production have not been proven to kill or prevent weed growth ( Carpenter et al. 2000). Opaque black plastic mulches are more effective at weed control, but tend to slow fruit production and can cause fruit burn ( Carpenter et al.

2000). Therefore, plastic mulches may not be feasible for weed control in all types of growing conditions ( ICF 2003).

Other pests controlled by methyl bromide and chloropicrin formulations include Verticillium wilt,

phytophthora root and crown rot, anthracnose, black root rot and charcoal rot. Main methyl bromide alternatives to control these pests include 1,3 dichloropropene ( 1,3 D), 1,3 D/ chloropicrin, 1,3

D/ chloropicrin/ metam sodium, metam sodium/ chloropicrin, and methyl iodide. However, none of these alternatives were found to be technically and economically feasible chemicals as a methyl bromide replacement. Nevertheless, some research results indicate that the best alternatives to methyl bromide/ chloropicrin would be high rates of chloropicrin or a treatment with combinations of 1,3

D/ chloropicrin. However, due to public concerns over the odor caused by using high rates of chloropicrin it is unlikely that either of these treatments would be available for use by all strawberry growers ( Carpenter et al. 2000).

2.2.5 Strawberry Nurseries California is the largest producer of strawberry nursery plants in the world ( Carpenter et al. 2000,

CUE 02 0034). It is estimated that close to one billion plants are produced by the state's strawberry nursery system each year ( CUE 02 0034). The United States relies on California for approximately 80 percent of strawberry transplants; in 1996, California's production of strawberry nursery plants was valued at more than $ 17 million dollars ( Carpenter et al. 2000).

Critical Use Exemption ( CUE) applications for methyl bromide represented strawberry nursery growers in North Carolina, Tennessee, and California. The typical size of a strawberry nursery ranges from 80 to 160 hectares in California and anywhere from 1 to 32 hectares for Southeastern nurseries ( CUE 02 0034, CUE 02 0038). According to the California Strawberry Nursery Association, the strawberry nursery system is labor intensive, hiring thousands of employees seasonally and maintaining a large, permanent staff ( CUE 02 0034). Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 14  bromide, the average farm size, and the number of farms for the strawberry nurseries represented by each CUE applicant. Based on information provided by the CUE applicants, the average strawberry nursery was calculated as 69 hectares.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Strawberry Nurseries Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0034, California 1,360 121 12 02 0038, North Carolina and Tennessee 63 17 7 Total 1,423 69 19 The primary purpose of the U. S. strawberry nursery industry is to provide mass quantities of strawberry plants free of pathogens to strawberry growers ( USDA 1998b, U. S. CUE Nomination for Strawberry Nursery Production 2003). Methyl bromide has provided the guaranteed protection of pathogens and nematodes from strawberry nursery stocks in order to avoid the introduction of pests into domestic and international strawberry fruit production areas. The critical need for methyl bromide for strawberry nurseries in the United States, as described in the nomination, is to provide pest free root stock to the strawberry industry based on this standard, to avoid the introduction of pest species into new areas, and to control pests that impact the quantity and quality of rootstock, such as Rhizoctonia, Pythium spp. and Phytophthora cactorum ( U. S. CUE Nomination for Strawberry Nursery Production 2003).

Research into alternative fumigants for strawberry nurseries includes Telone ® , Telone ® with chloropicrin, chloropicrin alone, and metam sodium ( Duniway 2002). In a study to determine the incidence of Verticillium wilt in a high elevation nursery, the effectiveness of chloropicrin and a combination of 65 to 35 percent chloropicrin and Telone ® were compared against a combination of methyl bromide and chloropicrin. The three fumigation treatments appeared equally effective in reducing V.

dahliae; however, other experiments showed that the treatment of methyl bromide and chloropicrin combination was more effective when the treatments were applied in the spring ( Gordon et al. 1999).

Containerized transplants are also being investigated where transplants are hand planted into trays; trials to date indicate that these plants perform very well in nonfumigated soil ( Carpenter et al. 2002). However,

further research is required to ensure that chemical alternatives provide the level of effectiveness required for the strawberry nursery industry to meet regulatory and industry requirements ( Duniway 2002).

The world's largest commercial strawberry nursery, Lassen Canyon Nursery in Redding,

California has been looking into possible alternatives to methyl bromide since 1991 ( USDA 1998b).

Although Telone ® combined with chloropicrin has shown promising results, Telone ® use is restricted in California. Strawberry nursery managers are mainly concerned that in the absence of efficacious *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 15  alternatives, nurseries may face increased costs and potential liability issues for not complying with state certification programs and associated regulations on cleanliness standards ( CDFA 2001, U. S. CUE Nomination for Strawberry Nursery Production 2003). California's Department of Food and Agriculture regulates the standard of cleanliness that strawberry nursery growers must comply with in order for their nursery stock to be considered " California certified strawberry plants." According to the Nursery Inspection Procedures Manual ( NIPM) pest cleanliness standards ( Section 3060.2) require that nursery stock be free of pests, weed seeds, and virus infections. If the plants do not comply with the pest cleanliness standards, nursery stock certificates are subject to refusal, suspension, and revocation ( CDFA 2001).

Strawberry nursery owners fear that the use of any alternative fumigant would greatly increase the costs of producing strawberry transplants free of pests, which already can cost approximately $ 80,000 dollars annually using methyl bromide ( USDA 1998b). Moreover, the income of strawberry growers is largely dependant on the livelihood of strawberry nurseries and their ability to provide plants that are not contaminated with disease, nematodes, and weeds, as financial burdens experienced by nurseries will be transferred to growers.

2.2.6 Sweet Potato U. S. sweet potato production was valued at more than $ 224 million in 2001 and approximately $ 213 million dollars in 2002 ( NASS 2003e). As shown in Exhibit <IP_ADDRESS>., the U. S. produced an estimated 663,934 metric tons of sweet potatoes from a total of 38,204 hectares in 2001 ( NASS 2003a). The sweet potato industry is most heavily concentrated in California, Louisiana, and North Carolina. California production in 2001 was an estimated 16 percent of the nation's total sweet potato production ( Exhibit <IP_ADDRESS>.). Production in California covered 2,837 hectares on 100 farms ( U. S. Census of Agriculture 1997). In 2001, North Carolina produced 38 percent of the nation's total ( Exhibit <IP_ADDRESS>.) on 512 farms covering 11,760 hectares ( U. S. Census of Agriculture 1997). Alabama, Louisiana, Virginia, and South Carolina are also major producing states. Nationwide, there are approximately 1,701 sweet potato farms,

with an average size of 40 hectares ( U. S. Census of Agriculture 1997, U. S. CUE Nomination for Sweet Potatoes 2003). Exhibit <IP_ADDRESS> summarizes the quantity of sweet potato produced ( in metric tons) and the number of hectares harvested by state for the year 2001. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 16  Exhibit <IP_ADDRESS>. Sweet Potato Production in 2001 From Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares Alabama 22,362 3% 1,174 California 104,328 16% 4,047 Louisiana 139,709 21% 8,903 Mississippi 108,864 16% 6,475 North Carolina 253,109 38% 14,569 Other 35,562 5% 3,035 Total 663,934 100% 38,204 Source: NASS 2003a.

EPA received one CUE application for sweet potatoes. The applicant, Sweet Potato Council of California, represents 80 California farms and requested methyl bromide use for approximately 30 percent of the total sweet potato production area ( CUE 02 0016). Exhibit <IP_ADDRESS>. summarizes the number of farms and hectares fumigated with methyl bromide, and average farm size for sweet potatoes represented by the CUE applicant.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Sweet Potatoes Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0016, California 1,214 40.47 78 The United States is treating the nomination for California sweet potato production as a " contingent nomination" to be exercised only when other uses of 1,3 dichloropropene result in township caps being reached in the sweet potato growing areas ( U. S. CUE Nomination for Sweet Potatoes 2003).

In fact, in 2001 and 2002, California sweet potato growers did not apply methyl bromide to their crops and used only a very limited amount for fumigating transplants ( U. S. CUE Nomination for Sweet Potatoes 2003).

In California, sweet potatoes account for a very minimal percent of the total quantity of methyl bromide that is used annually for soil fumigation. In 2001, the estimated quantity of methyl bromide applied to sweet potato crops totaled only 68.38 kilograms ( CADPR 2002). Research into alternatives for sweet potato has produced positive results. Specifically, 1,3 dichloropropene, also known as Telone ® , is considered satisfactory in areas where pest pressures are less severe. Consequently, California has transitioned away from using methyl bromide to fumigate open fields and has also limited its use in the fumigation of transplants ( U. S. CUE Nomination for Sweet Potatoes 2003). However, Telone ® use is limited by California township caps to 81.65 metric tons. Use of Telone ® by sweet potato growers within *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 17  the townships is further limited by the fact that growers of other crops within the area also require fumigation with Telone ® ( U. S. CUE Nomination for Sweet Potatoes 2003). Therefore, other open field pesticide options must be available to sweet potato growers when the Telone ® caps are exceeded.

Research is ongoing in assessing the viability of using cover crops ( e. g., radish, vetch, barley) both alone and in combination with chemicals such as Vapam ® , Telone II ® , and Mocap ® .

2.2.7 Tomato Tomatoes are one of the most valuable vegetable commodities in the United States. In 2001, the United States produced more than 1.6 million metric tons ( MT) of fresh tomatoes, valued at $ 1.08 billion ( NASS 2003a). These tomatoes were harvested over 50,284 hectares ( NASS 2003a). Florida produces about 42 percent of all U. S. fresh market tomatoes. Other major tomato producing states include California, Ohio, Virginia, South Carolina, and Georgia, although mostly for the processed or canned markets ( NASS 2003a). In 1997, there were over 14,000 farms ( on 168,000 hectares) that grew tomatoes in the United States ( U. S. Census of Agriculture 1997). Exhibit <IP_ADDRESS> presents state specific information on the quantities of tomatoes produced, total area harvested, and value of production in 2001,

and additional data on the number and area of tomato farms in 1997. It should be noted that Florida claims the largest share of tomato production but has a disproportionately small area of land under production ( relative to California). This could be attributed to the fact that Florida growers plant tomatoes in fields twice each year.

Exhibit <IP_ADDRESS>. Tomato Production and Farm Information by Statea State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares Value of Production ( 1000 Dollars) 1997 Number of Farms Growing Tomatoes 1997 Area in Farms ( hectares)

Florida 676,212 42% 18,009 483,019 192 16,148 California 465,383 29% 15,379 255,474 1,747 124,552 Virginia 65,453 4% 1,578 31,746 374 1,547 South Carolina 49,351 3% 1,295 23,501 204 1,102 Georgia 43,046 3% 1,052 23,725 189 1,126 North Carolina 37,739 2% 1,052 23,296 477 755 Tennessee 22,453 1% 1,214 9,900 425 1,505 Michigan 17,146 1% 728 13,230 615 3,148 Arkansas 13,562 1% 526 10,465 213 428 Alabama 9,616 1% 364 4,622 259 778 Other 211,508 13% 9,086 201,188 9,671 16,710 Total 1,611,469 100% 50,284 1,080,166 14,366 167,799 a States listed are those that were included in an application for methyl bromide CUE. Sources: Tomato production, area harvested, and value of production for 2001 from NASS 2003a; Tomato farm information for 1997 from U. S. Census of Agriculture 1997.

EPA received six CUE applications for tomatoes. The applicants represented tomato producers in Florida, California, Virginia, Georgia, Michigan, and collectively in the Southeastern states of Alabama, *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 18  Arkansas, North Carolina, South Carolina, and Tennessee. All but California tomatoes were included in the CUE nomination for tomatoes. Exhibit <IP_ADDRESS> summarizes the area fumigated with methyl bromide,

the average farm size, and the estimated number of farms for the tomato growers represented by each CUE applicant.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Tomato Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0004, Michigan 1,087 NAV 30 02 0006, California 1,012 364 NAV 02 0012, Virginia 2,428 2,833 4 02 0040, Southeast 6,010 71 a 130 02 0046, Florida 21,231 156 b 106 02 0047, Georgia 2,412 162 79 Total 34,180  > 349 Note: NAV = Not available. a In the Southeast, 71 hectares ( 176 acres) represent a weighted average of small and large farms. Small growers represent less than 16 hectares ( 40 acres), while large growers greater than 81 hectares ( 200 acres). b Indicates the area of tomatoes produced by a typical grower in Florida.

Tomato growers   particularly those in Florida   depend heavily on methyl bromide fumigation. In 2000, approximately 3,942 MT of methyl bromide were applied to tomato soils in the United States ( NASS 2003e). Methyl bromide is critically needed in the U. S. tomato sector, as described in the nomination, to prevent the development of Phytophthora, a potentially devastating fungal pathogen in tomatoes, and to control weeds and nematodes ( U. S. CUE Nomination for Tomatoes 2003). Telone ® with different combinations of chloropicrin ( e. g., 1,3 dichloropropene 17 or 35 percent chloropicrin) has shown to be the most promising alternative to methyl bromide in this sector, providing similar pest control and even higher yields in some cases. Basamid ® ( alone or with solarization) and metam sodium ( alone or with crop rotation) are other technically feasible alternatives in cases where nutsedge, nematode, or fungal disease pressure is not excessively high ( U. S. CUE Nomination for Tomatoes 2003). In the Southeast, such conditions occur in approximately half of the farming region ( U. S. CUE Nomination for Tomatoes 2003).

The effectiveness of the alternatives on tomatoes also is limited by climate conditions and state regulations. Applying Telone ® under high temperatures ( as in Florida) combined with the requirement to wear personal protective equipment ( PPE), has led to heat stress in workers. However, the PPE requirements have been eased. Growers in Florida also face buffer zone constraints of 100 feet between fumigated fields and buildings. But again, this regulation has also been reduced; previously a 300 feet distance was required. In Florida, certain tomato growing areas are prohibited from using Telone ® because of groundwater contamination concerns associated with karst topography ( underground caves *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 19  and springs) in such areas as Dade County. In California, growers must deal with limited access to Telone ® as a result of township caps.

2.3 Orchards, Nurseries and Other Growers Besides the fruit and vegetable growers, other pre plant sectors have been reliant on methyl bromide. The U. S. Nomination included six growers: forest seedlings, ginger, nursery transplant trays ( tobacco seedlings), orchard nurseries, orchard replants, and turfgrass and sod producers that are described briefly below. The nursery industry is a high value sector that grows forest trees, tobacco, or fruit and nut tree seedlings for transplantation. Although the majority of nurseries are small in size, put together they occupy a significant amount of acreage in every region of the U. S. Other growers discussed below include ginger, a sensitive and localized ( to the state of Hawaii) industry, and the turfgrass/ sod sector, which supports the U. S. golf industry among others. The sector discussions focus on the production volume of each crop, the highest producing regions or states, the size and number of farms represented by the critical use exemption applications, and the status of existing or potential alternatives to methyl bromide. Data for production costs and relative costs of methyl bromide provided by the CUE applicants are presented in Appendix A.

2.3.1 Forest Seedlings Forest tree nurseries produce conifer and hardwood seedlings used for reforestation, forest establishment, fiber production, and wildlife enhancement and conservation purposes. Annual U. S.

production consists of approximately 200 to 300 million bareroot seedlings ( U. S. CUE Nomination for Forest Seedlings 2003). Seedling nurseries are located in 12 states in the Southeast, seven states in the West, and 11 states in the North. In 2000, U. S. conifer sales were estimated at $ 403 million, with Oregon accounting for the highest state sales ( 21 percent), followed by California and Michigan, with 15 and 9 percent, respectively ( NASS 2001). In 2001, a total of 438 metric tons ( MT) of methyl bromide were used to fumigate the 1,308 hectares of forest seedling nurseries included in the U. S. methyl bromide CUE nomination. Of this total quantity, 69 percent was consumed in the Southeast, while the West and North accounted for 21 and 10 percent, respectively ( calculated using the methyl bromide use data reported in CUEs 02 0003, 02 0007, 02 0021, 02 0008, 02 0009, 02 0022, 02 0011, 02 0032, and 02 0039).

EPA received nine CUE applications for forest seedlings. The applicants were State and Federal governments, large commercial companies, and small private entities, representing nurseries in 30 states.

In 2000, there were over 6,500 nursery operations ( including all nursery crops) with an average of 13.6 part time workers and 15.5 full time workers ( NASS 2001). The average size of a forest seedling nursery ranges from 40 to 80 hectares. The majority of the producers grow conifers. Indeed, in 2001, 1,301 producers grew conifers, representing 20 percent of all forest seedling producers ( NASS 2001). Exhibit *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 20  <IP_ADDRESS> presents the number of coniferous evergreen plants sold and their associated sales by state in 2000. Seedling prices vary by type and region.

Exhibit <IP_ADDRESS>. Number of Coniferous Evergreen Plants Sold and Total Sales in 2000 from Top Producing States State Trees and Plants Sold Gross Sales Alabama 2,532,000 $ 10,090,000 California 6,326,000 $ 61,642,000 Connecticut 2,699,000 $ 23,414,000 Florida 4,215,000 $ 24,603,000 Georgia 2,182,000 $ 10,042,000 Michigan 2,898,000 $ 35,353,000 New Jersey 1,667,000 $ 24,130,000 North Carolina 1,702,000 $ 20,009,000 Ohio 1,418,000 $ 26,229,000 Oregon 9,182,000 $ 82,903,000 Pennsylvania 1,079,000 $ 28,115,000 Other 4,243,000 $ 56,263,000 Total 40,143,000 $ 402,793,000 Source: NASS 2001 Exhibit <IP_ADDRESS> summarizes the number of farms and hectares fumigated with methyl bromide,

and the average farm size for the forest seedling growers represented by each CUE applicant. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 21  Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Forest Seedlings Applicant Total Hectares Fumigated with Methyl Bromide Average Nursery ( amount of production or hectares) Estimated Number of Nurseries Represented Southwest 68 02 0003, Auburn University Southern Forest Nursery Management Cooperative 656 produces 25 million seedlings 55 02 0007, International Paper 109 57 hectares a 9 02 0021, Weyerhaeuser South 67 produces 62.5 million seedlings 4 West 18 02 0008, Western Forest and Conservation Public Nursery Association 61 produces about 50 million seedlings 10 02 0009, Nursery Technology Cooperative 202 produces 12.5 million seedlings 4 02 0022, Weyerhaeuser West 94 66 hectares 4 North 34 02 0011, Illinois Department of Natural Resources Nursery Program 16 121 hectares 2 02 0032, Northeastern Forest and Conservation Nursery Association NAV NAV 15 02 0039, Michigan Seedling Association 34 NAV 17 Total 1,239  120 NAV = Not available. a Only 28 hectares used for growing seedlings per year.

Methyl bromide is critically needed in the forest tree seedlings sector in the United States, as described in the nomination, because of a lack of reliable alternatives to control nutsedge and fungal pathogens ( U. S. CUE Nomination for Forest Seedlings 2003). Numerous studies have been conducted on alternative pest control treatments for forest seedlings with positive results. Dazomet ( Basamid ® ) with tarp and metam sodium ( Vapam ® , Busan) have shown to be technically feasible ( U. S. CUE Nomination for Forest Seedlings 2003). Many studies using Basamid ® have resulted in forest seedling yields that were comparable or higher to those with methyl bromide ( e. g., 68 percent higher than with methyl bromide) ( Rose et al. 1999). Metam sodium and chloropicrin studies have also demonstrated effectiveness for forest seedlings with yields well over 100 percent as compared to methyl bromide ( e. g.,

Carey 2000, Carey et al. 1997).

2.3.2 Ginger The United States commercial ginger industry resides exclusively in the state of Hawaii, which produced 6,532 metric tons of ginger root in the 2001 to 2002 growing season ( HASS 2001, NASS 2003b). In 2002, a yield of approximately 50 metric tons of ginger per hectare was produced on 130 harvested hectares in the state ( HASS 2001). The Hawaiian Department of Agriculture anticipates production to increase to 7,031 metric tons for the 2002/ 2003 growing season using only 105 hectares for *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 22  harvest ( HASS 2001). Exhibit <IP_ADDRESS> summarizes the quantity of ginger produced ( in metric tons) and the number of hectares harvested by the state of Hawaii for the past two growing seasons.

Exhibit <IP_ADDRESS>. Ginger Production in Hawaii Growing Season Year Production ( metric tons) Harvested Hectares 2000/ 2001 8,165 146 2001/ 2002 6,532 130 Source: NASS 2003b.

The Hawaiian ginger industry is vulnerable to a market that easily fluctuates due to unfavorable weather ( such as the heavy rains experienced in the 2001/ 2002 growing season) and foreign competition.

The average farm price for ginger, estimated at $ 1.00 per kilogram in 2001, decreased to 66 cents per kilogram in 2002 ( HASS 2001). Farm revenues also decreased from 2001 to 2002, from $ 8.1 million to $ 4.3 million   a total decrease of 47 percent.

EPA received one CUE application for ginger, submitted by the Hawaii Farm Bureau Federation.

The nation's ginger industry is comprised of only 154 farms in Hawaii. A typical ginger farm is very small   approximately 2 hectares   and a typical farmer grows ginger on rented land that is family owned and operated ( U. S. Census of Agriculture 1997, U. S. CUE Nomination for Ginger 2003). Exhibit <IP_ADDRESS>. summarizes the number of farms and hectares fumigated with methyl bromide, and average farm size for ginger represented by the CUE applicant.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Ginger Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0045, Hawaii 21 2 7 As described in the nomination, a critical need for methyl bromide for ginger grown in Hawaii was determined based on the primary pest, Pseudomonas solanacearum, which causes ginger bacterial wilt as well as the combination of many pests including Meloidogyne incognita ( root knot nematode). The pests challenge the quality and yield of ginger crops. Research on alternatives to methyl bromide that can control root knot nematode and ginger bacterial wilt is only in the preliminary stages. Available literature on ginger production is limited ( U. S. CUE Nomination for Ginger 2003). At least one study has investigated the rotation of planting the legume Tropic Sun sunn hemp ( Crotalaria juncea), which is resistant to root knot nematodes when planted with ginger ( Sato et al. 2000). However, further research is required to identify viable methyl bromide alternatives for this sensitive and localized crop. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 23  2.3.3 Tobacco Nursery Transplant Trays In 2001, U. S. tobacco production was valued at more than $ 1.95 billion ( CRS 2003). In 1997, the United States produced more than 792,000 metric tons of tobacco from approximately 340,000 hectares ( NASS 2003d). The tobacco industry is concentrated in North Carolina ( representing about 40 percent of U. S. production) and Kentucky ( representing 29 percent of production). Other producing states include South Carolina and Virginia ( responsible for 7 and 6 percent of production, respectively). The farm price for tobacco has hovered around $ 1.92 per pound for the last 4 years. There are approximately 89,706 tobacco farms in the United States, the distribution of which is shown below. Exhibit <IP_ADDRESS> summarizes the quantity of tobacco produced and hectares harvested by state for the year 2001. There were a total of 89,706 tobacco farms in the United States in 1997 ( U. S. Census of Agriculture 1997).

Exhibit <IP_ADDRESS>. Tobacco Production in 2001 From Top Producing States State Production ( metric tons) Percent of U. S. Total Production Harvested Hectares North Carolina 175,503 39% 65,440 Kentucky 115,508 26% 46,824 Tennessee 39,414 9% 16,023 South Carolina 35,561 8% 12,950 Georgia 29,123 6% 10,563 Virginia 28,764 6% 11,939 Other 225,735 6% 11,178 Total 449,609 100% 174,956 Source: NASS 2003d.

EPA received one CUE application for nursery transplants from the Tobacco Growers Association of North Carolina ( CUE 02 0025). North Carolina produces about two thirds of the flue cured tobacco grown in the country. In 2002, growers in the state produced about 348 million pounds of flue cured and 9.5 million pounds of burley tobacco. Tobacco accounts for about 12 percent of the total value of agricultural production in North Carolina ( North Carolina Department of Agriculture and Consumer Services 2003). North Carolina has approximately 12,000 tobacco farms representing over 130,000 hectares ( NASS 2003c). Exhibit <IP_ADDRESS> summarizes the hectares fumigated with methyl bromide and the average farm size for the strawberry growers represented by the CUE applicant. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 24  Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Tobacco Applicant Total Area Fumigated with Methyl Bromide ( square feet) Average Farm Size ( field acres) Estimated Number of Farms Represented 02 0025, North Carolina 700,000 75  a a The farm numbers provided in the application were unreasonably high for the amount of methyl bromide requested.

Tobacco has been traditionally grown in outdoor soilplant beds, but the industry is moving almost completely to greenhouse production of plants in trays with a soil less substrate ( transplant trays). While this eliminates the need for methyl bromide soil fumigation, there is still a critical need for some methyl bromide is still needed to disinfect the transplant trays, as described in the U. S. CUE Nomination for Tobacco 2003. Still, according to the CUE applicant, the need for methyl bromide use has decreased from approximately 2.5 3.5 kg per acre, to 0.03 kg per acre.

2.3.4 Orchard Nurseries The orchard nursery sector includes fruit and nut tree nurseries ( apples, almonds, apricots,

avocados, chestnuts, cherries, citrus, nectarines, peaches, pecans, pears, pistachios, plums, prunes, and walnuts), ornamental fruit trees ( cherries, peaches, pears, and plums), and raspberry nurseries. The value of orchard nursery seedlings is high for the area of land under production. In 2000, total fruit and nut tree gross sales were estimated at $ 299 million, and deciduous flowering tree sales accounted for $ 233 million ( NASS 2001). The fruit and nut tree and deciduous flowering tree industries are most concentrated in California, which claimed 73 and 20 percent of national sales, respectively ( NASS 2001).

Washington and Oregon are responsible for the next highest state sales of fruit and nut trees. Other deciduous shrubs and ornamentals had gross sales of $ 722 million ( NASS 2001). In 1997, there were 106,069 operational orchard farms in the United States, covering about 2.09 million hectares ( NASS 1999).

Over 6,500 nursery operations were in operation in 2000, with 394 producers of fruit and nut plants, 6 1,145 producers of deciduous flowering trees, 7 and 1,420 producers of deciduous shrubs and other ornamentals ( NASS 2001). Exhibit <IP_ADDRESS> presents the number of nursery operations by state, and their total and average production areas. As shown, the average U. S. nursery operation comprised 23 hectares in 2000.

6 Includes citrus and subtropical fruit trees, deciduous fruit and nut trees, grapevines, and other small fruit plants and nut trees.

7 Includes ornamental pear, amelanchier, crabapple, crapemyrtle, dogwood, redbud, and other deciduous flowering trees. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 25  Exhibit <IP_ADDRESS>. Nursery Operations and Production Area in 2000 by Top Producing States State Number of Nursery Operations Hectares in Production Average Hectares of Production California 567 7,825 14 Florida 991 10,744 11 Georgia 200 2,075 10 Michigan 517 22,664 44 New York 388 7,921 20 Oregon 867 24,439 28 Washington 256 5,560 22 Other 2,749 68,154 25 Total 6,535 149,381 23 Source: NASS 2001.

EPA received three Critical Use Exemption Applications ( CUE) for the nursery industry including California citrus and avocado nursery trees, deciduous fruit and nut nursery trees in California, and raspberry nursery stock in California and Washington ( U. S. CUE Nomination for Orchard Nurseries 2003).

Orchard nurseries in these states are most dependent on methyl bromide, due primarily to soil conditions and state regulations ( discussed in more detail below). Exhibit <IP_ADDRESS> summarizes the number of farms and hectares fumigated with methyl bromide, and the average farm size for the orchard nursery industry represented by each CUE applicant. Based on information provided by the CUE applicants, the average orchard nursery was calculated as 24 hectares.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Orchard Nurseries Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms/ Nurseries Represented 02 0035, California Association of Nurserymen   Deciduous Fruit and Nut Tree Growers 668 NAV 6 02 0036, California Association of Nurserymen   Citrus and Avocado Growers 42 12 3 02 0010, Western Raspberry Nursery 184 36 7a Total 895 24 16 a Indicates farm locations.

Nursery sizes vary depending on the type of crop, although the majority of U. S. nurseries are small. The size of an average deciduous tree nursery in California is 80  120 hectares, while the average *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 26  size for field grown nursery stock in California is about 12 hectares ( U. S. CUE Nomination for Orchard Nurseries 2003, CUE 02 0036). In 2000, the average U. S. nursery employed roughly 14 part time workers and 16 full time workers ( NASS 2001).

In 2001, about 502 MT of raspberry stock were produced in areas treated with methyl bromide that applied for CUE ( CUE 02 0010). A total of approximately 23.3 million deciduous fruit and nut trees and 1.85 million citrus trees were produced in areas treated with methyl bromide that applied for CUE ( CUE 02 0035, CUE 02 0036).

Nurseries in California must meet the California Department of Food and Agriculture's requirements that nursery stock be " found free of especially injurious pests and disease symptoms" in order to qualify for a CDFA Nursery Stock Certificate for Interstate and Intrastate Shipments. To obtain this certification, nursery stock must be fumigated with methyl bromide. Fumigation with 1,3 D is allowed in some cases, but the nursery stock is subject to soil sampling. If nematodes are found, the entire nursery stock will be destroyed, which can result in major revenue losses. Extensive research has addressed the use of methyl bromide alternatives to specifically address nematode problems in orchards.

1,3 Dichloropropene ( Telone ® ) in combination with chloropicrin, metam sodium, or both chloropicrin and metam sodium have been found to be effective alternatives for growing pest free and high quality trees and nursery stock in the initial research results. However, the completion of an actual trial takes many years for perennial crops in order to determine the lifetime impact unlike annual crops where result are gathered at the end of a growing season. In addition, because the use of 1,3 D is constrained by soil conditions 8 and township cap regulations in California, nursery growers can be left without the ability to use the one feasible alternative. Yield losses associated with the various alternatives depend on factors such as region, climate, altitude, crop, pests, and pest prevalence. As described in the U. S. CUE Nomination for Orchard Nurseries 2003, methyl bromide is critically needed because the legal limit for 1,3 D is often reached early in the season due to intense agricultural production, or because heavy, clay soil conditions cause 1,3 D to be ineffective when used in conjunction with other chemicals.

2.3.5 Orchard Replant The orchard replant sector includes a number of crops of significant value to growers and consumers of fruits and nuts in the United States. These orchard grown crops include stone fruit ( peaches, nectarines, sweet cherries, plums, and prunes), table and raisin grapes, almonds, and walnuts.

In 1997, orchard and vineyard crops in the United States covered nearly 2.09 million hectares of land ( 106,069 farms) ( NASS 1999). California   the only producer of almonds and walnuts and the state with the greatest production of peaches, nectarines, plums, prunes, and table grapes   accounted for about half of that total area ( approximately 1.04 million hectares) ( NASS 1999). Total production, area 8 Light, sandy soils with low moisture are needed for 1,3 D to be effective. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 27  harvested, and value of production in 2001 for each of these crops in California are presented in Exhibit <IP_ADDRESS>.

California produces about 97 percent of plums, prunes, and table grapes in the United States, 70 percent of peaches, and 19 percent of the sweet cherries. ( Washington, Oregon, and Michigan are other leading producers of sweet cherries in the United States ( NASS 2002a). Among the orchard replant crops grown in California, almonds, followed by table grapes, have the highest value of production.

California's fruit and nut crops have a production value of $ 5 billion per year ( Carpenter et al. 2000).

Exhibit <IP_ADDRESS>. California Orchard Crop Production, Area Harvested, and Value of Production in 2001 Crop Production ( metric tons) Harvested Hectares Value of Production ( Thousand 2001 $) Stone Fruit 1,731,082 100,083 662,279 Peaches Nectarines 782,443 249,475 27,439 14,772 246,315 127,642 Sweet Cherries 50,167 8,094 79,814 Plums 190,508 14,974 66,443 Prunes 458,489 34,804 142,065 Table Grapes 632,304 36,828 445,828 Almonds 385,552 212,468 685,440 Walnuts 276,690 79,321 296,360 Source: NASS 2002a.

According to the NASS ( 2002), among the orchard fruit and nut crops, almonds, sweet cherries,

and walnuts are the most costly commodities to growers, with fruit and nut prices in 2001 of approximately $ 1,850, $ 1,400, and $ 1,370 per metric ton ( MT), respectively. Prunes are the next costly at $ 838 per MT, followed by nectarines, grapes, peaches, and plums, with prices between $ 300 and $ 500 per MT ( NASS 2002a).

Exhibit <IP_ADDRESS> summarizes the number of orchards and hectares fumigated with methyl bromide,

and the average farm size for the orchard replant industry represented by each CUE applicant. Stone fruit crops are typically grown on a portion of a land plot of 32 to 40 hectares ( CUE 02 0013). Vineyard sizes range from approximately 50 to 120 hectares, and roughly half of that land is planted into grapes ( CUE 02 0014). A typical walnut grower uses 16 hectares ( CUE 02 0029), while a typical almond grower farms on 40 hectares ( CUE 02 0043). Based on information provided by the four CUE applicants, the average orchard size was calculated as 53 hectares. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 28  Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Orchard Replant Applicant Total Hectares Fumigated with Methyl Bromide Average Orchard Size ( hectares) Estimated Number of Orchards Represented 02 0013, California Grape and Tree Fruit League ( Stone Fruit) 3,278 36 90 a 02 0014, California Grape and Tree Fruit League ( Table and Raisin Grapes)) 433 49 to 121 5 02 0029, California Walnut Commission 809 16 38 02 0043, Almond Hullers and Processors Association 405 40 10 Total 4,925 53 143 a Calculated using information on acres requested and typical user as provided by the applicant.

Before replanting fruit and nut trees, orchard and vineyard replant growers fumigate the soil with methyl bromide to control pests and prevent resulting complications. Both known and unidentified pests in the soil can lead to what is called " replant disorder" or the " replant problem." Replant disorder can cause delayed tree growth and uniformity, nutritional deficiencies, and poor root systems ( Trout et al.

2002, Carpenter et al. 2000). Because the exact causes of replant disorder are unknown and an orchard is only fumigated once ( i. e., before replanting), methyl bromide   with its broad pest control abilities   has been the most effective fumigant to eliminate pests that cause replant disorder. Methyl bromide use for replanting trees, orchards, or vineyards, occurs once over the crop's 20 to 25 year lifespan ( CUE 02

0013, CUE 02 0014). Among the orchard replant crops, walnut orchards demand the highest volumes of methyl bromide. In California, 533 MT of methyl bromide were applied on walnuts, 328 MT on prunes,

and 123 MT on peaches in 1999, and 155 MT of methyl bromide were applied on grapes in 1995 ( NASS 2003d). The applicants for methyl bromide CUE indicated that, in 2001, 156 MT of methyl bromide were applied to 348 hectares for walnuts ( 0.45 MT per hectare), 53 MT were applied to 1,723 hectares for stone fruit ( 0.03 MT per hectare), 71 MT were applied to 273 hectares for grapes ( 0.26 MT per hectare),

and 75 MT were applied to over 3,600 hectares for almonds ( 0.02 MT per hectare) ( CUE 02 0029, CUE 02 0013, CUE 02 0014, CUE 02 0043).

Methyl bromide is critically needed in the orchard replant sector in the United States, as described in the nomination, because it effectively kills and reduces pests and permits seedlings and/ or new vines to grow without competing organisms ( nematodes, pathogens, or weeds) ( U. S. CUE Nomination for Orchard Replant 2003). None of the methyl bromide substitutes effectively control replant disorder. However, among the alternatives recommended by MBTOC, 1,3 Dichloropropene ( Telone ® )

alone, in combination with chloropicrin, or in combination with metam sodium provides the next best effectiveness to methyl bromide for stone fruit, almond, and walnut orchard replant fumigation when used on light soils. Use of 1,3 D alone or in combination result in average yield losses ranging from 1 to 8 *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 29  percent, relative to methyl bromide use ( U. S. CUE Nomination for Orchard Replant 2003). The effectiveness of 1,3 D is limited by soil conditions in California orchard land   two thirds of which consist of medium and heavy clay soils ( U. S. CUE Nomination for Orchard Replant 2003). Also, township caps,

in areas where many California orchards are located, restrict the use of 1,3 D. Currently, there are no technically feasible alternatives available for use on table and raisin grapes.

2.3.6 Turfgrass/ Sod The turfgrass sector includes farms that grow sod and turfgrass for golf courses, athletic fields and lawns. The wholesale value of sod is $ 670 million. In the U. S., sod is grown on 132,000 hectares of land. Over 76,990 hectares were harvested in 1998 ( USDA Census of Horticulture 1998). In 2001,

approximately 25 MT of methyl bromide were applied to 2,542 acres of turfgrass ( CUE 02 0055).

Although different types of turfgrass and sod are grown all over the United States, the major turfgrass producing states are California, Florida, Georgia, Alabama, and Texas ( CUE 02 0044). There are at least 1,200 turfgrass and sod producers in the United States ( USDA Census of Horticulture 1998). On average, sod farms employ about 30 full time workers and are approximately 350 acres in size   235 acres of which are typically in production ( CUE 02 0044). Exhibit <IP_ADDRESS> summarizes hectares fumigated with methyl bromide, the number of farms, and the average farm size for the turfgrass and sod industry represented by each CUE applicant. Based on information provided by the CUE applicants, the average turfgrass/ sod farm was calculated as 174 hectares.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Turfgrass/ Sod Applicant Total Hectares Fumigated with Methyl Bromide Average Farm Size ( hectares) Estimated Number of Farms Represented 02 0044, Sod Producers of Florida, California, Georgia, Alabama, and Texas. 1,416 142 12 02 0055, Golf Courses of the US 182 31   33 4 Total 1,598 173   175 16 NAV = Not available. Information not provided by applicant.

EPA received two CUE applications for turfgrass and sod. One turfgrass applicant, Turfgrass Producers International ( TPI), represents nearly 1,200 turf and sod producers across the nation. The other turfgrass applicant, Golf Course Superintendents Association of America ( GCSAA), represents the 16,000 golf courses in the United States, which cover about 728,000 hectares of land. The two turfgrass uses of methyl bromide included in the nomination are for sod farms   especially those where warm season turfgrasses are grown   and for soil disinfectant for the installation and renovation of golf courses. *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 30  Methyl bromide was requested to treat one percent of the total sod area grown in any single year,

representing approximately 1,416 hectares. Growers harvest up to 9,200 square meters/ hectare ( 40,000 square feet/ acre) per cutting. Normal yields are generally between 6,400 and 8,700 square meters/ hectare ( 28,000 and 38,000 square feet/ acre) ( CUE 02 0055).

The need for methyl bromide to control the pests in the sod production and golf courses is critical because methyl bromide has shown to be the only fumigant that can control the many pathogens on a variety of turfgrass species that can potentially destroy turf surfaces, according to the U. S. CUE Nomination for Turfgrass 2003. Some research has been conducted on alternatives to methyl bromide for fumigation of turfgrass and sod. Dazomet and composting were found to have some success in controlling pests although further research is needed to improve consistency of control ( EPA 1998).

AGRI 50 is a biodegradable alternative to treating turfgrass against pests and diseases ( Steckler 1999).

Yield loss estimates are not an appropriate measure for sod production, however, consistency of grasses is critical where no secondary market exists for lower quality sod ( U. S. CUE Nomination for Turfgrass 2003).

2.4 Post Harvest Commodity Fumigation and Structural Fumigation Post harvest uses of methyl bromide include fumigation of commodities, structural fumigation of commodity storage and food processing facilities. The U. S. CUE Nomination included requests specifically for five CUE applications for commodity storage, representing over 120 facilities or processors, and four food processing applications representing 255 facilities. These are described briefly below. The sector discussions focus on the value of each industry, the historical consumption of methyl bromide as it relates to the areas requiring fumigation, and a brief overview of existing or potential alternatives to methyl bromide. Data for costs provided by the CUE applicants are presented in Appendix A.

2.4.1 Commodity Storage The post harvest commodity storage industry manufactures and exports high value products,

totaling roughly $ 130 billion ( U. S. CUE Nomination for Commodity Storage 2003). The U. S. nomination for methyl bromide critical use exemption ( CUE) in this sector includes dried fruits ( i. e., raisins, prunes,

and figs), nuts ( i. e., walnuts and pistachios), beans ( i. e., black eye and garbanzo), and ham warehouses.

California produces the vast majority of dried fruits, black eye and garbanzo beans, and 99 percent of walnuts and pistachios in the United States. In 2001, California produced all of the dried prunes ( 134,263 MT) and fresh figs ( 37,467 MT) in the United States, and 91 percent ( 5,379,577 MT) of fresh grapes produced in the United States ( NASS 2002b). California's tree nut production in 2001 included 277,379 MT of walnuts and 72,883 MT of pistachios ( NASS 2002b). In 2001, a total of 45.7 MT of methyl bromide were applied in commodity fumigation in California ( CADPR 2002). *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 31  EPA received five CUE applications for commodity storage, representing over 120 facilities or processors. The applicants were the California Dry Prune Board, California Pistachio Processors,

California Walnut Commission, California Bean Shippers Associations in Storage, and Gwaltney of Smithfield ( processor of dry cured hams). The majority of the facilities represented by the CUEs were for dried fruits ( 60 facilities) and walnuts ( 51 handlers), while the other applications represented 3 pistachio facilities, 5 bean facilities, and several facilities for dry cured meats. The California Walnut Commission indicated that approximately 113,400 MT of walnuts are received and processed by the cooperative each year ( CUE 02 0030). The curing and ham storage operation represented in the U. S. nomination for CUE processes 10,308 MT of salted hams, jowls, shoulders, and bacon bellies per year ( CUE 02 0033).

The representative commodity storage facility sizes for dried fruits, walnuts, pistachios, and beans are 0.5 million, 0.3 million, 1.1 million, and 0.3 million cubic feet, respectively ( CUE 02 0015).

There are roughly 1.68 million employees in the food processing industry and 22,000 in the preserved fruit and vegetable market ( U. S. CUE Nomination for Commodity Storage 2003). Exhibit <IP_ADDRESS> summarizes the area fumigated with methyl bromide, the average facility size, and the number of facilities for the commodity storage industry represented by each CUE applicant.

Exhibit <IP_ADDRESS>. Summary of Critical Use Exemption Applications for Commodity Storage Applicant Total Area Fumigated with Methyl Bromide ( cubic feet, unless noted) Average Facility Size ( cubic feet) Estimated Number of Facilities/ Handlers/ Processors Represented 02 0002, California Bean Shippers Associations in Storage 9,013,122 300,000 6 02 0015, California Dry Prune Board 30,000,000 500,000 60 02 0019, California Pistachio Processors 2,000,000 1,100,000 3 02 0030, California Walnut Commission 390,813 metric tons walnuts 300,000 51 02 0033, Gwaltney of Smithfield ( Ham) 50,000 sq. feet NAV 1 Total  550,000 121 NAV = Not available.

Methyl bromide is critically needed in the commodity storage sector in the United States because it is the only treatment used for rapid fumigation in stored commodities that consistently provides a high degree of insect and mite control, according to the U. S. CUE Nomination for Commodity Storage 2003. In the CUE sector, a total of 20.4 MT of methyl bromide were used to fumigate dried fruits within 30 million cubic feet of storage in California in 2001. Of this total, 14.2 MT of methyl bromide was used on prunes and figs and 6.2 MT of methyl bromide was used on raisins ( CUE 02 0015). Based on the applicant's claims of representing 85 percent of the industry, it is estimated that the dried fruit sector as a whole used roughly 24.0 MT of methyl bromide ( 16.7 MT for prunes and figs, and 7.3 MT for raisins). In 2001 in the CUE sector, 65.0 MT of methyl bromide were used to fumigate 276,690 MT of walnuts in *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***

 32  California ( CUE 02 0030). In 2000, 3.9 MT of methyl bromide were used to fumigate 109,587 MT of pistachios ( over an area of 2 million cubic feet) in California ( CUE 02 0019). In 2000, 10.6 MT of methyl bromide were used to fumigate 7,674,688 cubic feet of beans in California ( CUE 02 0002). In 2001 in the CUE sector, 0.7 MT of methyl bromide were used to fumigate 200,000 square feet of 10,331 MT of dry cured hams, pork bellies, pork shoulders, and jowls ( CUE 02 0033).

Several alternatives have been identified as replacements for methyl bromide fumigation.

Phosphine, both alone and in combination with carbon dioxide and heat, has shown to be technically feasible for dried fruits, nuts, and bean post harvest treatments. However, phosphine treatments are feasible only when production and market timing allow. Phosphine requires longer application times than methyl bromide; three to five days instead of 24 hours ( U. S. CUE Nomination for Commodity Storage 2003). In addition, use of phosphine is constrained by several other factors, such as resistance by some pests, its corrosive nature ( which is damaging to metal equipment), and regulatory limitations. Extensive research has also been conducted on other alternatives, including propylene oxide, sulfuryl fluoride,

irradiation, cold and heat treatments, high pressure carbon dioxide, Integrated Pest Management ( IPM),

biological agents, pesticides, pest resistant packaging, controlled and modified atmospheres, and physical removal/ cleaning/ sanitation. All identified alternative approaches, except sulfuryl fluoride, have been shown to be technically infeasible. Sulfuryl fluoride is an effective treatment against insects, but is not sufficiently toxic against eggs and is not registered for use in the United States. Irradiation prevents further reproduction of insects, but does not readily kill exposed pests. The long exposure periods required for the controlled atmosphere applications to be effective, limit the feasibility of this treatment as a methyl bromide alternative.

2.4.2 Food Processing Food processing involves the processing and packaging of meat, fish, fruits, vegetables, and specialty food and beverage products using various technologies including canning, dehydration,

freezing, and refrigeration. The United States makes up 26 percent of the global food processing industry valued at about $ 130 billion. There are approximately 17,000 food processing facilities in the United States, which include rice and flour mills, food packaging facilities, and pet food producers. Methyl bromide is used to fumigate these plants and warehouses, in order to maintain a pest free, sanitary environment. Because these facilities are distributed throughout the country, they are subjected to very different weather conditions and pest pressures. Currently, facilities fumigate between 2 times per year to once every 3 years ( U. S. Nomination for Post Harvest/ Food Processing Plants 2003).

EPA received four CUE applications for food processing facilities including, rice milling, flour milling, pet food manufacturing, and bakeries. The applicants represent 255 facilities ranging in size from one million to over 10 million cubic feet. Exhibit <IP_ADDRESS> summarizes the area fumigated with methyl *** DRAFT ( 8/ 20/ 2004) DO NOT CITE, QUOTE OR ATTRIBUTE***