WHEB Commentary

Hyewon Kong

Packaging – No Longer A Wasted Resource?


Paper, paperboard products and packaging form the bulk of municipal solid waste in the US – about 44%. Only half of these materials are recovered for recycling.  Post-consumer packaging consists of valuable commodities such as aluminum, glass, paper, plastic, and steel and has significant market value. In 2010, the value of discarded packaging in the US was approximately $11.4bn.  Reutilising these ‘waste’ resources represents a real business opportunity.

Improving efficiency, increasing recycling

In a 2012 report, ‘Sustainable Packaging – Myth or Reality?’ PWC concluded that the industry now needs to be looking at the full circle of “efficient packaging”. They recommend a five-pronged approach, incorporating sourcing, the packaging’s role in protection, transport, display and, finally, what happens to it at the end of life. Indeed, in many countries, the producers of packaging are subject to legal obligations (producer responsibility regulations) which set targets for the recovery and recycling of waste materials and therefore encourage producers to minimise and re-use waste materials.

Businesses are increasingly recognising the value of waste materials, with some instigating “closed loop” models. For, example, as part of its “Plan A” initiative in environment, ethical trading and health, Marks & Spencer has committed to meet its packaging recovery obligations as the first UK retailer to directly support recycling services, with up to £250,000 annually for 5 years.

Recycled resource

Paper is an important material for packaging as it derives from trees – a renewable resource – and can be recycled multiple times. Around 60% of cartons in Europe are made from recycled cartonboard. In 2011, paper and board packaging achieved a recycling rate of 70%, making it the most recycled packaging material in the EU, according to European Recovered Paper Council’s Monitoring Report 2011.

However, many other packaging materials do not meet the minimum 60% recovery target set by the EU Packaging and Packaging Waste Directive 2009. For example, only 24% of plastic packaging is recycled in the UK, and in the US, the figure is only 12%.

Important Considerations – the Packaging Value Chain

Packaging companies are engaged in the conversion of commodity raw materials into value-added products and are in a potentially vulnerable position on the supply side of the value chain. It is therefore crucial for packaging businesses to manage the stability of their input raw material costs. Adopting a vertically integrated business model can often improve returns and lowering margin volatility. Recent increases in pulp or paper prices have squeezed margins for non-integrated companies.  This also applies to retailers and consumer products manufacturers like M&S and Coca Cola who are also pursuing vertical integration by starting joint ventures to recover materials and reduce commodity price volatility.

It is estimated that about 75% of purchasing decisions are made in store in front of the shelf and purchase decisions are usually very quick, as shoppers only spend a few seconds in front of the shelf. Therefore, it is not surprising that packaging has become an increasingly important part of product development and a critical component in the success of a brand. Packaging display remains a pivotal concern for many retailers and innovation has become a crucial success factor for the packaging companies. Retail ready or shelf ready packaging is one of the industry’s latest innovations and the fastest growing segment in the market. Retail ready recycled packaging reduces overall packaging waste, weighs less, is visually appealing, and saves costs by reducing complexity in the supply chain.

Conclusion

Packaging is essential. The entire supply chain, from sourcing of raw materials through to product disposal is dependent on packaging. Without packaging, products can get broken, distribution can become unsafe and the supply chain can become inefficient.

Increasingly, post-consumer packaging is not discarded as waste but valued from the starting point for new products and packaging.  Packaging can play a key role in the circular economy by “closing the loop” to prevent waste, optimise resource use, and make supply chains more sustainable.

The IM WHEB Sustaibability Fund has a holding in Smurfit Kappa, a leading provider of recycled retail ready packaging products with a strong focus on innovation and a fully integrated approach to its value chain.

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