Materials sector trends: recycled packaging: real progress or kicking the can down the road?

But that could soon begin to change. Looming regulatory developments that have long driven innovation efforts are becoming reality – such as recent US state bans on single-use plastic bags – igniting the fire for companies to seek more sustainable solutions. 

Why are CPGs seeking supplier diversification?

Consumer packaged goods (CPG) companies are increasingly evaluating new packaging and raw goods suppliers, a former director at Berry Global Group told us. Supplier diversification is a new trend in the packaging industry, our expert said, as COVID-19 shutdowns highlighted the potential risks of relying on one partner. Additionally, CPGs are showing signs that they no longer wish to be seen as single-substrate players due to mounting sustainability pressures and fear of being left behind as their peers innovate.

As well as exploring local supply chains, there is anecdotal evidence that CPGs are approaching resin companies themselves and negotiating prices. “That takes away a lot of their [packing companies’] competitive advantage when they’re no longer having the best buy on resin in the marketplace,” the former Berry director said. Indeed, this is where a significant amount of Berry’s profits come from, they noted. 

The benefit for CPGs is that they can better control their supply and our expert sees this trend more prominently across larger organisations with greater buying power. However, they noted that this adds complexity and other types of risk to the CPG’s supply chain, such as accountability for material quality. 

What are the top sustainability challenges for the packaging industry?

A former VP at Amcor told us they do not believe the packaging industry at large is doing enough to improve sustainability standards. In the Forum Interview on Berry Global, our specialist said they believe the company needs to explore new resins to stay relevant in a changing environment. Berry, we were told, is focusing on maintaining plastic as the most recyclable product, but investors – and consumers – have come to expect more innovation. “They cannot continue to just lightweight things,” our expert said. Areas of opportunity include fibre packaging, polylactic acid, compostable bio products, biomass and bio-plastics.  

The infrastructure required for plastic recycling “is there”, a VP at an Illinois packaging company said. The challenges are the economics of recycling and ensuring there is an end market. This is a significant barrier in the US, given the often vast distances between consumers and recycling plants. The fact that virgin resin is still much cheaper than recycled content is also a major headwind. To bring the cost of resin recycling down and increase demand for it, our specialist said “railcars and bulk trucks have to be the realm that it gets to and to drive the economics”.

Legislative developments could catalyse a turning point in packaging recycling and innovation. A new rule proposed by the US Securities and Exchange Commission in March 2022 would require publicly traded companies to significantly increase their climate risk reporting. Disclosures would fall into three categories: material climate impacts, greenhouse gas emissions, and targets or transition plans. If companies are eventually required to publicly prove that they have achieved a stated target, brands will no doubt have even more impetus to set objectives and ensure their packaging sustainability standards are up to scratch. 

How is the packaging industry innovating?

On the innovation front, we heard that demand for polyhydroxyalkanoate (PHA) and polylactic acid (PLA) is expected to grow as part of increasing momentum around bioplastics. The benefit of PHA in particular is that it is biodegradable. “If PHA… gets made into a plastic bag, goes into the ocean, it will break down and degrade…it’s a huge benefit vs a PLA.” Our expert noted that Bio-on is “becoming a leader” in the PHA space while Danimer Scientific is growing its US presence. 

Again, the biggest challenge is creating the end market for it. “You’ve got to have a market for the product, so you can scale up, but you can’t scale up without a market for it.” Scale could increase if well-known players such as General Mills, Kraft, P&G or Nestlé use PHA in their products, we were told. Although PHA and PLA cost 10-20% more than standard virgin resin, there are clear long-term benefits to a product manufacturers’ brand and story – but it is down to them to make the move.

What is the general outlook for recycled packaging substrates?

Fundamentally, sourcing recycled materials has been a struggle for many packaging companies, Forum Interviews revealed. The former Berry director noted there is a “very limited supply in PCR [post-consumer recycled plastics] right now”, which is why prices have soared. Similarly, the former Amcor VP said “the biggest challenge in plastics is there is no recycled material”. This chicken-and-egg dilemma has compounded many of the industry’s headwinds and delayed innovation.

In particular, glass has always presented recycling challenges, including a lack of end markets, contamination and high transportation costs. According to the former Berry director, 18 states have banned glass recycling due to the complexities associated with it. While European and North American glass manufacturers have benefited from COVID-19 supply chain disruptions, this might only be a short-term opportunity. 

The energy crisis has pushed European glass prices up to 15x higher than they were in early 2021 and 10x higher than they are in the US currently, our Interview revealed. A “substantial aid package or significantly reduced prices are needed to keep the industry healthy,” our expert said. Unless manufacturers are able to find a solution within 12-18 months, “we’re going to see users of glass packaging look at alternative packaging materials and begin to investigate imports from lower-cost manufacturers in other parts of the world”. 

Demand is strong for aluminium, although, as noted by one of our experts, pricing can be volatile and it still requires substantial natural gas and capital for production. An executive at a Florida-based glass consultant added that the cost to produce aluminium cans is on par with glass, but they ship more efficiently and take up less shelf space. “Metal cans do ultimately have a price advantage over glass and over some plastic products.”

In the short term, plastics still appear to be the most favourable material, with manufacturing costs relative to the others significantly lower, and more innovation seen to date. Production lines are also smaller and a wider range of equipment can be used. Still, across Forum Interviews, our experts say that plastic packaging players are dragging their feet on playing a positive role in the sustainability shift, which is also exacerbating the shortage of recycled materials. However, the dial could soon start to move as CPGs become more empowered to control their supply, and if the SEC’s proposed climate risk disclosure rule comes to fruition.

Paper is one area that our experts see as playing a key role moving forward. It continues to take share from plastic, particularly in food applications and the fast-food sector. In particular, Kraft brown paper is “picking up quite rapidly”, a former executive at Fortress Paper Ltd told Forum. “That market was basically non-existent, it had faded away and started back picking up about 3-4 years ago, and now there is significant demand increase for this product globally.”