Australia’s recycling industry faces an uncertain future, with China having effectively closed its borders to foreign waste and the Australian Government setting targets to ban the export of waste plastic, paper, glass and tyres, commencing in 2020.
The response to these developments to date has included solutions such as stockpiling, landfilling, and trying to find other international markets for our waste. However, none of these are long-term solutions. Ultimately, there will be a need to find domestic markets for recycled products.
In this context, the debate often turns to the price competitiveness of products made of recycled materials compared to products made from virgin materials, and the scale of the infrastructure investment required for recycling, particularly in terms of reprocessing and remanufacturing.
Price is important, but not in every case.
Recycled products can suffer from a price disadvantage, and that disadvantage can stem from factors that individual businesses cannot control. For example, the price of virgin materials does not always fully reflect the cost of their production. Environmental impacts are not normally factored into market prices and therefore the costs of virgin materials will be low compared to the cost of recycled materials. The cost of recycled materials also linked to global commodity markets, which are volatile in nature, which means that price cannot always recover the cost. There are further issues of verifying the quality of recycled materials, the scale of supply and demand, and availability of information to source products and materials.
Some of these issues are reflective of an immature market, which should correct over time. The experience in other markets, particularly in commodity markets such as sugar, coal and iron ore, is that financial and contracting instruments are developed which overcome uncertainty and risk.
Consumers don’t have to be convinced of the benefits of recycling but they do have to be convinced of the benefits of buying recycled products.
In the meantime, demand remains for recycled products and the challenge for business is to maximise that demand opportunity.
The most important short-term challenge facing businesses is to identify which consumers are willing to pay more for products made from recycled materials. The closer businesses move to an understanding of what convinces individuals to pay more for recycled products, the better they will be able to develop strategies specifically targeted at these consumers.
Whilst price forms from purchase decisions, other product attributes can be equally important in determining demand. As product knowledge and education improve, and environmental consciousness forms part of consumer choice, businesses which focus on these product attributes will have a source of distinctive competitive advantage in the future.
There have also been ongoing discussions amongst government and industry on procurement of products with recycled content for government projects. This potentially provides opportunities for demand at a large scale. The State Government has recognised that investment in recycling infrastructure is a key factor in developing the market and has made available a number of funding channels, including the $100 million Resource Recovery Industry Development Program.
BDO’s experienced economic advisers specialise in providing clients with insightful economic advice in areas such as policy, regulation and commercial decision-making. Contact us to learn more about our economic advisory services.