WRAP chief executive Liz Goodwin has urged the supply chain to “stick with” the Dairy Roadmap in the face of falling oil prices and a market failure which is hitting rHDPE reprocessors.
There is increasing concern in the plastics sector that supermarkets and dairy product retailers are switching to packaging with more virgin plastic, undermining agreed targets for the use of secondary materials under the voluntary dairy and Courtauld Commitment (retail) schemes.
According to Goodwin: “Producing high-quality recycled plastics to replace virgin materials involves investment in expensive plants and, when the finished product prices are low, it can be difficult to deliver the required returns. This is a classic market failure situation where the external costs of virgin plastics are not taken into account.”
Her comment comes in an extended response following a meeting called by Defra on 17 March of representatives from waste, resources and plastics industry associations, the retail sector and major brand owners to discuss the parlous state of the market. Virgin polymer prices have fallen 30% in the wake of oil price cuts, seriously affecting two reprocessors of rHDPE in the UK: Closed Loop Recycling at Dagenham and Biffa Polymers in Redcar.
While supermarkets and large dairies have gained from the windfall of cheaper virgin HDPE in their plastic milk bottles, reprocessors have benefitted from no such reduction in costs. As the price they sell rHDPE is typically set at around 90% of virgin prices or above, they are having to take a substantial hit on their bottom line.
Goodwin said that buying virgin HDPE for milk bottles might seem a better buy at the moment, but it should not be a long-term approach as commodity prices go up and down: “Recycled food-grade HDPE will be a good buy again … but if we don’t stick with it now, there won’t be any to buy in the UK and that would be a real loss for us all.
“Having our own supply of these key raw materials offers a level of resilience which will become increasingly important in this increasingly unstable world,” she added.
“To make this happen, we need the whole supply chain to come together, to look at where the risks lie, and to look at how best to share those risks so all can benefit. Industry might need to pay a premium for high-quality food grade recycled plastics so that it can honour the important commitments it has made. However, in the context of falling plastic prices overall, this should be affordable.”
WRAP said the situation had been made worse for the market by high prices for recovered HDPE bottles in Europe because a dispute at US ports, now resolved, prompted Asian buyers to look to Europe for recovered plastic bottles. This meant that food-grade HDPE recycling plants in the UK face highly squeezed margins, with high input material prices and low finished product prices.
Under the Dairy Roadmap, brands and businesses have committed to using 30% recycled material in packaging by 2015, which has effectively been achieved, and 50% by 2020.
Goodwin said such agreements give confidence to the markets, and she hoped “they will provide the long-term perspective required at this time”.