- Chris Dow, managing director, Closed Loop Recycling
- Marcus Gover, director of market development programmes, WRAP
- Bill Griffiths, national recycling manager, Viridor
- Joe Papineschi, director, Eunomia Consulting
- Andrew Perkins, head of recycling, Aylesford Newsprint
- Michael Topham, recycling director, Biffa
- Katie Zabel from WRAP attended as an observer
Michael Topham: We all want to do the best we can do with the resources we have, but the biggest determinant over who gets the contracts is cost. Local authorities need the most cost-effective solution. We have great examples in Biffa - we have collection contracts we’ve won through competitive dialogue where we put in a varying bid to introduce weekly food waste collections and alternate weekly collections of waste and recycling, getting 70% landfill diversion. When you add it all together, the council is delighted because it is the most economic.
Andrew Perkins: The initial question was about quality; we have strayed into cost-effectiveness. I don’t think there is a clear answer on this - I think it’s horses for courses. There are some cracking examples where source segregation has come back in after a commingled collection scheme and reduced costs and driven up tonnages. So I don’t think you can leave it unchallenged that commingled necessarily drives up tonnages, increases participations and reduces costs. That’s a big assumption.
MT: I would argue it does. If you look at overall data for recycling rates across the UK, in the top 25 almost all are commingled.
Joe Papineschi: That’s true, but it doesn’t mean it is commingled that is doing it. What we’ve [Eunomia] done is to carry out a load of regression analyses, where you take a big dataset and you strip out the common factors, to do with social demographics, materials targeted, container volume and so on. In the 2009/10 data, there is a difference that commingled does yield more tonnage through WasteDataFlow method, but compared with weekly kerbside sort it [commingled] only yields about 10% more tonnage in collection system, with all things being equal.
JP: We are now seeing a lot of negative gate fees in order to win MRF contracts, so the old incentive of getting a lot of your revenue from a positive gate fee - in effect incentivising ramming as much tonnage through as possible - is no longer there. So the quality of the material becomes more important when you are more reliant on the revenue from the material.
MT: It really is all about the net revenue you earn per tonne, and if that’s a £20 gate fee and £30 for the material, or a £10 rebate and £60 for the material, as long as it adds back to the £40, £50 or £60 or whatever you need, that is what it’s all about.
JP: If you have problems with quality, your whole business model could fall over very quickly. I imagine it is a very nervous time, bidding for fixed-price MRF contracts.
Chris Dow: We are living in a bubble in some of the commodities. What’s your [the panel’s] view of that? If you are building a business around high prices at the other end, is there a flexibility? Should the worst happen and China shuts the doors, where do we go from there?
MT: During the crash at the end of 2008 we were able to move all the paper. There were lots of aerial photographs of material not moving from certain companies and there was a shakeout of the good and the bad. You’ve got to be good so you can make sure you have got your material moving in the bad times.
CD: We had councils begging us to take material and within three months it was back to £150 a tonne.
Bill Griffiths: It was brief but it was long enough to put some bad operators out of business. It did cleanse the bottom 10%.
MT: Coming back to your point Chris. You would like to bid for a contract, win it and have a mechanism where your profit is protected, through derivatives to hedge prices or fixed-price long-term contracts, or risk shares with local authorities. It is interesting in our experience that when the market collapsed, local authorities were quite receptive to those risk share arrangements. We have just debated internally that there is only one bigger risk than commodity risk, which is empty MRF risk. It’s a factory with a lot of fixed costs and we can’t always call the tune - we have to bid with the local authorities.
MT: We have to accept we are part of a global supply chain and economy. We have to be driven by the economics, and we have to sell commodities for the best price in order for us to be able to be competitive when we price our contracts. Provided we are selling to reputable outlets, which have high environmental standards, then we shouldn’t discriminate against them based on where they are.
“Investors won’t touch our market without some visibility on where the material is coming from. We need to ensure we have a level playing field”
CD: I agree, but I think you’re missing the point. What I am talking about is that we are struggling to get some of the good material because they are having to give that to traders, to take the bad material. I was just wondering where that dynamic is going to end up. What is the bad material - why is it being given to traders, why is it going overseas and why are we starving the development? Investors won’t touch our industry without some visibility on where the material is coming from. We need to ensure we have a level playing field. There is one other critical factor - my competitor in China has a lovely piece of infrastructure, but his landfill costs are a fraction of mine and the reason is that in the UK we observe very strict and prudent methods of landfilling that ensure safety. It’s not just one world market, it’s one world. Do you want the spill-over costs for that poor landfilling methodology to occur, or are we going to accept that is the case?
JP: The threat to the economics of collection and processing is actually the Chinese regulating and pushing up their cost to landfill, and at the same time they have got economic growth. You’ve then got a situation where the Chinese will be wanting to buy locally, so they can control quality better. This is pure speculation, but I don’t think there is going to be a massive crash as a result of what the Chinese do. I think it will be more gradual but it is going to seriously erode the economics of what you’re doing, Chris.
CD: But will it really? If we’ve got quality infrastructure here and quality material here, we can add value. You look at Nampak - it is paying good prices for quality material, so therefore what I am suggesting is that we can not only secure long-term markets for the material that is good, but we can add a couple of thousand of green jobs along the way.
MT: We’d love to do more and more.
CD: How do we move from where we are now to where we want to be? Is it better enforcement of the export of waste? I know of examples where I have rejected material and it goes overseas.
MT: I think your point about landfill cost is factually correct. Having said that, I’m not sure that would be the main determining factor for why overseas reprocessors can pay better prices than UK ones. There have to be other factors in play. Perhaps they have more infrastructure, cheaper energy and labour costs.
JP: The biggest factor is demand at the moment. Demand for fibre in China is still growing almost exponentially: they are closing higher-tech mills than we are running in Europe.
MT: The reason for that is that they manufacture the consumer goods we buy.
INCREASING COMMINGLED QUALITY
Marcus Gover: The four of you [MT, CD, BG, AP] are the UK’s green economy, collecting the material and making it back into high-value material - how do we make that work better? We have been hearing that quality is still an issue and that the industry can increase quality.
BG: It all comes back down to having the right MRF. All they do is sort things - if you put the wrong thing in, it goes out horribly, horribly wrong. You do come back to the point of collection - you have got to get the right scheme in, communicate it effectively at roll out and then re-communicate it afterwards. Whoever is putting that scheme out, whether it’s local authority or commercial business to business, that is the point where you solve your quality problem. We have seen that if you get the right quality going in the front end, you can run at 18 tonnes an hour.
Paul Sanderson: There is an argument that source separated is the only collection scheme in town to get good quality material. But would you all say, actually, that the debate should not be about whether one system is bad or the other good, but about making commingled collection and sorting better?
CD: That’s what Bill said. Get the inputs right at the kerbside and you will get good material out the other end. Quite frankly, I’m with Michael on this one - there is a lot of positive in the incredible growth of the volumes we have collected. Michael, you said before “there’s nothing worse than an empty MRF” and I agree. [There’s a] world market, you’ve got to run your plant, but what is the price? We will pay it, but what we are encountering is some resistance around that. Some traders are trying to get rid of material and are contaminating our loads with films and these loads are heavily contaminated.
MT: I would have thought their role over time is diminishing, especially with the likes of the mixed plastics plant we are opening. Plants built with the recycling stream in mind will end up making those people surplus to requirements. Mixed plastics is a good example - it is a difficult material at the moment, but we are proving that with new technology you can do that.
MG: Coming back to your question Paul, there are so many factors to consider, it is difficult to break it down. It has got to be about the local factors that drive what sort of collection scheme you would need, which really means that the local authority is making the decision, then it is about how the service is delivered - good service is really important. Whether it is a single stream, two stream or a multi-stream, you can get good quality with all of them. I think it is more difficult with single stream with that extra communication you need and so on.
Part three of this discussion will be in next week’s issue of MRW