EPA Solicits Comments on Updated Method for Establishing Economic Minor Use

The comment deadline of August 15, 2016, is approaching on the June 14, 2016, notice of availability of the draft Pesticide Registration Notice (PRN) 2016-X issued by the U.S. Environmental Protection Agency (EPA), in consultation with the U.S. Department of Agriculture (USDA).  Draft PRN 2016-X proposes to update Section 5 of PRN 97-2, and to clarify and update criteria by which EPA classifies crops as “minor use.”

Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) Section 2(ll) defines “minor use.”  One of those definitions at Section 2(ll)(2) defines a minor use, in part, as one that does not provide “sufficient economic incentive.”  Current guidance in PRN 97-2 defines a use as minor under FIFRA Section 2(ll)(2) if gross revenues at full market potential do not cover the costs of registration.  EPA’s concern with this policy is, in part, that:

• [T]he method in PRN 97-2 does not accurately measure economic incentive to register pesticides.  Gross revenue will overstate the registrant’s true return on the cost of registration while reliance on a single year of sales will understate the total stream of revenues.  The direction of bias is unknown.  Most importantly, it does not account for the difference in timing between costs of registration and future returns.

EPA states that the draft PRN is intended to clarify and update “its interpretation of how economic minor use status under FIFRA section 2(ll)(2) can be determined.”  Under the proposed PRN, EPA would interpret a minor use as one that “does not provide sufficient economic incentive to support the … registration” when “the registrant would not obtain sufficient revenues from sales of the pesticide to justify the cost of registration.”  Specifically, EPA states:

• This PRN describes the revised approach to interpreting economic minor use based on the concept of the registration of a pesticide as an investment.  The registrant incurs costs associated with applying for a registration while the registration once granted allows the pesticide product to be sold, generating a stream of revenue in the future.  This approach provides several measures by which EPA can assess whether there are sufficient incentives for the registration of a pesticide use.  These measures include the net present value of returns, the benefit-cost ratio, and the internal rate of return, each of which provides insight into the magnitude of the incentive to register or maintain the registration of a pesticide.

With regard to calculating the net present value (NPV) of the investment (in registration), EPA provides the following formula: 

In the draft PRN, EPA provides guidance on the four primary components to conduct a quantitative analysis to estimate NPV, the benefit-cost ration (B/C), and the internal rate of return (IRR).  These components are:  (1) costs of registration (e.g., cost to generate data necessary to show the product can be used safely for the proposed use, PRIA fees, cost to prepare and submit an application); (2) net revenues from sales of the pesticides; (3) the discount rate; and (4) the time of investment.  EPA states that, in general, “if a use of a pesticide has a negative NPV, a B/C ratio < 1, and IRR that is lower than average for a particular sector, it will be considered to have insufficient economic incentives to pursue registration.”  EPA is not setting a firm threshold, however, and will review minor use determinations on a case-by-case basis. 

For a use that the applicant requests a designation of economic minor use under FIFRA Section 2(ll)(2), the applicant should include the following types of information in writing with the application:

• The type of registration action for the specific site/use;
• A list of the registration data requirements for the specific site/use;
• Information to inform future sales, which might include the target pest(s), the application rate, the extent of the pest problem;
• Information to inform the sales price of the pesticide, which might include the price of relevant competitors; and
• A narrative addressing at least one of the criteria described in FIFRA section, 2(ll)(2)(A-D).  This summary should contain, at least, a brief description of how the pesticide will be used including the target pest(s) and alternatives.

Applicants may also wish to include the following to improve EPA’s understanding of the incentives they face in producing and/or registering a pesticide for the specific use:

• A narrative describing any relevant factors that influence the cost of manufacturing and, therefore, the net revenue from product sales;
• A narrative describing any relevant factors that influence the fixed costs of registering and marketing the pesticide;
• A narrative describing any aspects of the market that might limit or enhance sales; and
• A narrative describing any other factors which affect the economic incentive to register this use.

Commentary

EPA states its intent in revising the method and criteria for determining when a potential minor use does not present a sufficient economic incentive is because the current “outdated approach could prevent applicants from obtaining the incentives for registration that should be available to them.”  EPA further states that it is interested in developing an approach that is “simple and transparent” because a burdensome process would be “an added deterrent to registration.”  The draft PRN would indeed seem to expand the ability of registrants to seek minor use status; since EPA will be making determinations under this revised approach on a case by case basis, how broadly EPA will apply these criteria and what minor use approvals it makes will only be seen over time, however. 

It is important to note that EPA’s proposed policy has potential implications beyond minor use determinations.  For example, EPA’s discussion of the elements of the costs of registration as well as how those costs for applying for a registration are a part of the registrant’s investment could have implications in FIFRA data compensation contexts:

• The cost of applying for registration can be viewed as an investment toward the eventual marketing of a registered product.  Applying for registration is the final step in the process of developing and marketing a pesticide.  The costs of applying for registration include the costs of generating data that EPA requires for registration, the registration fees, and the cost of paperwork burden from the registration process.  In terms of “economic incentive,” the main question to answer is whether the investment in registration of a particular use is worthwhile to the registrant, that is, whether future returns from sales are sufficiently high to justify the cost of obtaining/maintaining a registration. 

The proposal also is significant because it can be applied to conventional pesticides, biopesticides, and antimicrobial pesticides to determine whether they meet the definition of minor use.

Comments are due August 15, 2016.