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The only constant is change

The new year always brings with it the opportunity for a little horizon scanning, and there can be few of us who do not ask ourselves what the next 12 months may have in store. We do not need a crystal ball to tell us some of the things that will form part of the landscape of 2013.

The continuing fragile state of the UK economy; the eurozone debt crisis; fluctuating oil and energy prices; the challenges of stimulating growth; the slowdown in the Chinese economy - all these are matters that will be exercising minds.

And if it is giving you a sense of déjà vu, then you are not alone. It was such issues as stimulating economic growth, shrinking budgets, the need to do more with less and the challenges of China that formed the core of a column I wrote for MRW last spring.

So has there been any UK-wide progress at all, you might ask? From WRAP’s perspective, the answer is a definite ‘yes’.

Scotland’s zero waste regulations; the hugely successful ‘zero waste’ Olympics and events roadmap; the Valuing our Clothes and wider textiles research; and the new hospitality and food service voluntary agreement are all evidence of such progress.

But no one is pretending it was easy. Those achievements were made against the backdrop of challenging economic conditions. The prognosis for the UK’s ongoing business health is barely any better: the economy is still around 3% smaller than it was before the recession. Most people expect the fourth quarter of 2012 to contract, so the 1% growth in Q3 of 2012 is likely to be short-lived.

The sober truth is that the Office for Budget Responsibility’s economic growth forecast for 2013 is 1.2% and for 2015 it is just 2%. Even by 2017, its predictions are for only 2.8%. How does all this play into what might happen in 2013 and the new financial year?

We can make some educated guesses. For example, continued pressure on household finances may lead people to become more resource efficient, and therefore create less waste, by reducing food waste and using products for longer. Repair and reuse may become more commonplace, creating opportunities to develop and embed the circular economy.

The grocery retail sector, through the Courtauld Commitment, and consumers have made great progress in reducing food waste. And Courtauld to date has delivered around £3.7bn of savings to companies, councils and consumers. The launch in the summer 2012 of the hospitality and food service voluntary agreement will also pave the way for further reductions in food and associated packaging waste.

This UK-wide agreement was launched by WRAP on behalf of the UK Governments, which are all committed to realising the benefits of zero waste. It aims to cut food and associated packaging waste by 5% and increase the overall rate of food and packaging waste that is being recycled, sent to anaerobic digestion or composted to 70% by 2015.

But as we slowly return to economic growth, the incentive for households to reduce waste may diminish. And a return to growth and corresponding lower commodity price inflation may also lower the pressure on retailers and brands to pursue innovation in packaging.

Given that we have already seen many improvements in the use and design of packaging, this area of activity may hit diminishing marginal returns as efficiency reaches a plateau - and packaging innovations may be delayed or abandoned altogether.

There has been some talk about a slowdown in the Chinese economy and the potential impact on exports of recovered materials. While it remains a key player for the UK - around two-thirds of our waste paper and plastic is currently sold to this market - there are signs of change. China is increasingly sourcing from its domestic waste stream and other suppliers, which means there is a risk that the UK could increasingly become marginalised.

China is also enforcing tighter restrictions on imports of recovered materials and increasing its focus on quality.

The UK could become squeezed out unless quality improves - better quality opens opportunities in all markets, including those at home. This would in turn stimulate economic growth for the UK in these sectors.

There are other ingredients in the mix. We have seen spikes in the oil price, leading to rises in prices at the pumps. It also affects export opportunities as shipping costs undermine the margins for Chinese importers and the values they are willing to pay for materials sourced in the UK.

The impact is also likely to be felt by companies involved in long-distance collection of recovered materials, particularly those who transport low-value bulky waste. Virgin plastic and other raw material costs will also be affected, as will energy prices.

All the more reason, then, to look to the benefits that adopting a circular economy model can deliver: reduced resource price volatility, lower supply chain risks, potential employment benefits and reduced pressure from external drivers.

Cutting reliance on raw materials lowers the degree to which a company’s costs are exposed to fluctuating commodity prices or to scarcity of materials. Not only does this approach cut price risk, but it also reduces the risk of supply disruption.

This circular approach, where materials and products are kept in use as long as possible, also delivers the potential for increased profitability, less product complexity and more manageable product life cycles, as well as increased innovation as companies look to redesign products and rethink their supply chains.

The ancient Greek philosopher Heraclitus of Ephesus said, in 535BC, that the only constant is change. This certainly seems to be true for the UK economy and for the waste and recycling sector, as we wrestle with its implications.

The challenge is to ensure that we are in the right shape - flexible and adaptable as businesses - to absorb, reflect and respond to that change. It is the adoption of circular economy business models that will help us get to that place.

Marcus Gover, director of closed loop economy at WRAP

 

 

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