BioCycle December 2004, Vol. 45, No. 12, p. 20
The first step in characterizing an industry is defining who belongs. The next step is identifying tools to measure its economic vitality.
Craig Coker and Nora Goldstein
THE composting industry has grown tremendously in the past 30 years, and there now is a need to develop an industry-wide understanding of this sector in order to help composters achieve industry-specific goals. These goals consist of increasing sales of compost and compost-amended products, increasing support from federal, state and local officials interested in increasing recycling rates, increasing the understanding of the industry by bankers and investors (to financially sustain growth), and promoting legislation that benefits the composting industry.
The types of data needed to fully understand and characterize the composting industry are widespread. Examples include: Composter locations; incoming waste tonnages; compost (and screened overs) production; compost sales; product quality data; investments in land, equipment and permits; employment data; and local economic impact of composters’ employees. Much of this data is uncollected; only incoming waste tonnages are routinely reported to state regulatory agencies, and some of that data is out-of-date.
WHAT, WHO IS THE COMPOSTING “INDUSTRY”?
The first step in characterizing an industry is defining who belongs. A seemingly simplistic definition is any operation (e.g., >500 cy/year throughput) converting organic residuals into a compost product through aerobic decomposition. Compost product could be defined as meeting the U.S. Composting Council’s (USCC) Seal of Testing Assurance (STA) requirements (to provide a set of parameters around how a compost product is tested). Having a straight forward, black-and-white definition (versus gray and muddled) is critical especially when seeking financing from banks or investors, or working with large-scale buyers such as Departments of Transportation. Here are a couple of other possible definitions to get the ball rolling:
1) Facilities that have revenue streams, including tip fees and product sales, thus making them a commercial operation. This definition could apply to both publicly and privately owned composting operations. Many industries quantify themselves by total annual sales, thus investors and bankers are familiar with that measurement tool. This approach would, however, eliminate institutional composters (i.e. schools, prisons, government offices) and municipal operations that do not sell compost products but yet account for significant tonnages of materials processed, as well as significant investments in equipment.
2) Facilities that demonstrate compliance with the EPA 40CFR Part 503 requirements (now also required by many states) of achieving time-temperature relationships that meet “Process to Further Reduce Pathogens” (PFRP) and “Vector Attraction Reduction” (VAR). While end users might like this definition, the reality is that numerous composting facilities processing yard trimmings, land clearing debris and forestry by-products typically are not required to meet the 503 pathogen and VAR requirements. Yet this category of composters could easily account for the greatest volumes of compost produced in the U.S. Vermicomposting is a proven technology for processing food scraps and animal manures, but has been unable to demonstrate automatic compliance with PFRP and VAR, based on time-temperature relationships. Should they be included?
The fact that the composting industry is comprised of public and private sector entities (an estimated 2,000 to 3,000 in total in the U.S.) makes it distinctly different from most industries (with the exception of other public utility related services, such as power plants and landfills). It is also unique because not all facilities need to have state permits in order to conduct their business. This clearly complicates the task of coming up with a universal definition.
Determining how to answer these questions can be guided in large part by how the information collected is to be used. For example, data on all composting facilities (public, private and institutional) is useful for understanding the economic impact of the industry and for assessing impacts that tonnages diverted via composting have on state recycling rates. (One challenge with that latter measurement is that some composters do not have weigh scales, and there is no reliable method of calculating compost production from incoming tonnages.)
Large-volume users of compost benefit from knowing where composting facilities are that meet PFRP/VAR and USCC STA requirements, as well as those processing woody materials at lower time-temperature relationships. And very importantly, knowing where commercial composters are located, which feedstocks they process and what end products they make can be used to inform consumers about where to buy quality compost products and to inform generators of recyclable organic wastes about the locations of possible outlets.
MEASURING THE INDUSTRY’S VITALITY
One clear-cut way to measure the vitality of an industry is to calculate the annual sales. For example, the organic food industry has been growing by leaps and bounds. A search of the Organic Trade Association website notes that in 1996, annual sales of organic foods in the U.S. were $3.3 billion. By 2000, annual sales were close to $8 billion. At this juncture in the composting industry’s history, it would be safe to say that no one really has a clue what the annual sales are industry-wide. Some people cite the fact that the private sector composters are privately held businesses that don’t want to divulge sales figures. Others cite the lack of uniformity in product pricing and product weights and volume (for the same category of product).
These obstacles aside, there are some industry generalities that can be used as a starting point to estimate annual industry sales. For example, say that a realistic average price for compost is $10/cubic yard (before value added via blends, erosion control mixes, etc.). A recent survey conducted by Matt Cotton under contract with the California Integrated Waste Management Board found that 4.7 million tons of organic feedstocks were composted in 2003 in California. With volume reduction during composting, let’s estimate that 2.5 million tons of compost were produced. An article in BioCycle on the CIWMB survey (“California Compost and Mulch Producers Create A Big Picture,” August 2004) notes the average bulk density of compost is 2.1 cubic yards (cy)/ton. Therefore, one could estimate that 5.25 million cy of compost were produced in California in 2003. At a price of $10/cy, annual sales of the composting industry in California were $52.5 million.
Would another way to calculate the size of the industry be to estimate capital investments? All composting facilities need equipment to operate, even if it is only a front-end loader. More typically these days, however, composters purchase (or lease) grinders and screens – or contract out for those services (often with other composters or processors that have made the investment in this equipment). In addition, many facilities own or lease windrow turners and/or some type of vessel or containment system. For estimating purposes, let’s say that on average, composting facilities spend $500,000 in equipment. (This is perhaps a slightly high guess but at the same time, many composting operations processing significant annual tonnages could easily invest several million dollars). Using the lower number of composting sites cited in the beginning of the article (a conservative estimate), that would represent around $1 billion in equipment investment.
DATA IN THE CAROLINAS
While California has made an impressive dent in data gathering, not all facilities responded to the survey. Therefore there is still quite a bit of extrapolating that takes place. The Carolinas Composting Council (CCC), on the other hand, was able to interview all 36 commercial composting facilities in North and South Carolina, and determined that total compost sales exceed 536,000 cy/year. (At the estimated price of $10/cy (before value added), that is about $5.4 million in compost sales annually.) This production/sales data breaks down to: 150,000 cy/yr of source-separated organic solid waste compost, 193,500 cy/yr of yard trimmings compost, 106,000 cy/yr of biosolids compost, 34,000 cy/yr of manure composts, and 52,000 cy/yr produced by “others” (a vermicomposter and two forestry by-products composters). This data is being used by the CCC to promote compost use for erosion control, and will be used as part of an awareness campaign to federal purchasing agents once EPA finalizes its Comprehensive Procurement Guideline (CPG) rule for compost-based landscape products in early 2006.
Employment data is needed to convince economic development officials of the importance of the industry, and is also useful in convincing elected officials that the composting industry has “jobs clout”. Economic development officials are often the first source in finding new sites for composting facilities and are always interested in knowing how many new jobs will be provided. Knowing how much composters’ employees spend in their local communities can influence local government decisions about siting and rezoning approvals. One private composter in North Carolina has estimated that its workforce of 20 to 25 persons at each plant spends over $100,000/year on local goods and services. Composters pay both sales and income taxes, and that data also can be used to emphasize the importance of composting to a state’s economy.
Financial organizations that invest in the composting industry have an interest in knowing how the industry works, that there are strong and reliable markets for recycling wastes and selling compost, and that the investments they are making are in a stable, growing industry. A consistent set of industry-wide characterization data would go a long way to helping composters access capital at competitive rates.
Steps have been taken to understand and characterize the composting industry in the U.S. Several states, including Connecticut, Massachusetts, and New York, have developed Geographic Information Systems (GIS) models of composters’ locations in order to promote greater diversion of organic wastes. Several state composting associations have rosters of composters to enhance consumer awareness (the CCC, the Mid-Atlantic Composting Association, Professional Recyclers of Pennsylvania Organics Council, the Washington Organics Recycling Council, to name a few). The California Integrated Waste Management Board maintains a list of composters in California on its website, as does the North Carolina Department of Environment and Natural Resources (at the Division of Pollution Prevention and Environmental Assistance website) and the Pennsylvania Department of Environmental Protection. Several states list composters as part of a recycling materials exchange/listing program. The CCC has developed data on composters’ locations and annual sales to support outreach to large volume users, and is now collecting economic data to support legislative initiatives for a ban on landfilling wood wastes.
The composting industry in the U.S. will continue to grow, and this growth potential emphasizes the need to understand the industry. Collecting reliable and comprehensive data is a prerequisite for those who promote the industry for the benefit of composters to succeed in their missions.