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Structure your business to ride storms

The Recycling Association lends its support to plastic producer Closed Loop Recycling (CLR) during its present troubles.

But we question some of the reports laying the blame on the roles of the export market and the Packaging Recovery Note (PRN/PERN) system as primary factors behind the problems currently being experienced by the company.

Addressing the skew in the PRN/ PERN system that currently favours exporting, I would like to echo comments made by Jessica Baker, managing director of Chase Plastics (see box below).

It is ludicrous that we have a system that favours export over UK reprocessing and this needs to be addressed urgently. But it is equally ludicrous that some industry views, supported by the British Plastics Federation, would like to now skew the PRN/PERN system back towards the UK.

Let’s level the playing field, certainly. But if we go down the road of split targets with a UK bias, then a problem will be caused further down the system: the roles played by the merchant/collector and the broker.

When a situation like that facing CLR occurs, the industry tends to apportion blame, often searching for a likely culprit and shooting from the hip. And all too often this blame is placed firmly at the export market – the very same market that has allowed the plastics industry to grow, and has allowed the likes of CLR to set up in the UK in the first place.

Let’s not forget that the material used by CLR is available only because the UK has a developed collection infrastructure, one which continues to be supported by the availability of a healthy global marketplace. This marketplace not only provides reprocessing capacity for something like 75% of all the materials we collect in the UK, but also provides the competition that keeps prices at a healthy and sustainable level, and allows the collection infrastructure to survive.

It may sound harsh, but CLR is not the only business in the UK – others exist in the supply chain too, and it is crass to suggest changes to a system that would benefit businesses at the top of the chain but squeeze out those further down. Level the PRN/PERN system, certainly, but do not skew it the other way.

A balanced collection and processing infrastructure is what is required, a system that complements and oils each link in the industry chain.

We are only speculating what has caused the problems at CLR but, if it is the PRN/PERN system, then this is a dangerous and perilous business model. Assuming that a reprocessor has the correct machinery to produce the required product, it must be set up to recognise the marketplace it is operating in.

We are in a commodity-based market where supply and demand, and therefore price, can fluctuate widely. Companies that rely on the sale of recyclable materials need to structure their businesses so they are shielded from these fluctuations.

One of the primary reasons for the current difficulties in the plastics industry is the downward pressure on the global price of oil. However, as we know, this is a short-term problem and we know that the long-term trend is for rising oil prices.

Plastics reprocessors need to be in a position to ride these fluctuations by being in a position to pass the burden up and down the supply chain. They need contracts with suppliers that allow for fluctuating prices, and/or they need to look at other ways of collecting their raw materials so that partnerships are formed which provide stability and sus­tainability.

If you do not structure your business like this in the first place, and you are not geared up to ride fluctuations in a global marketplace, then you have a flawed business model.

That said, we also need to analyse the role played by companies at the top of the supply chain – in this case the retailers and dairies – all of which need to make a contribution to the sustainability of the supply chain.

Big grocers are more than happy to ride on the back of our fantastic recycling industry and to use their own perceived sustainability as a marketing tool. So the time is right for them to nurture this relationship by assisting the likes of CLR financially to ensure that recycled polymer is favoured over virgin for their milk bottles.

How many times do we hear of smaller suppliers going out of business because they have been expected to fund the supermarket price wars?

It is partnership and shared responsibility that is the solution to the problem in the plastics reprocessing sector. Costs must be shared along the supply chain and, if we are to have a sustainable market infrastructure, we need to ensure we have strategies and solutions that benefit the whole of the recycling infrastructure.

Short-term, knee-jerk strategies are not the name of the game in this business.

Simon Ellin is the chief executive of Recycling Association

Online Comment

Jessica Baker

“You cannot incur huge costs trying to process poor quality material if these costs outweigh the price you can charge for your end product.”

A reprocessor’s view: Jessica Baker, managing director of Chase Plastics, has her say at 8681570.article

Readers' comments (2)

  • Jessica Baker

    Well done to Simon for finding anything he can agree with in my article regarding the way the PRN/PERN system has undermined the once thriving UK reprocessing sector. My position is certainly not a knee-jerk reaction, but one which has been held since the PERN became an acceptable and equal form of evidence to melt reprocessed PRN. When the regulations first came into force, only the UK melt process counted towards the target. Now that would have favoured the UK sector!

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  • C Collier

    It seems over the years the purpose of PRN's has been twisted or forgotten. They were and I believe still are meant to help and encourage recycling and growth in collections and not either the domestic reprocessing or export specific sectors. It is meant to be a “floating” price system that through shortage or over supply feeds revenue back into the industry as a whole to promote, encourage and grow volume recovered from landfill and increase recovery.

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