Plastic packaging tax: Turning negatives into positives

Plastic packaging may be ubiquitous in UK food and beverage industries today, but the way it is used is undergoing fundamental and rapid change. Organisations must be ready to address critical sustainability issues when the challenge of responding to COVID-19 subsides.

It seems like a lifetime ago, but it was only on 11 March that the Chancellor announced in his Spring Budget that a plastic packaging tax will come into force from April 2022. This will see businesses whose products have less than 30 percent recyclable material being charged £200 per tonne. As a result, food and beverage firms are facing even more pressure in what is the tip of the plastic packaging financial time-bomb. Put simply, the financial burden is too high for the industry to continue the way it has been going.

Yet, whilst a handful of food and beverage companies are addressing this fundamental change in a meaningful way, many have yet to grasp the extent to which the costs and pressure associated with plastic packaging will fundamentally threaten their current business model.

What industry needs to know

1. Rising cost burden of current regulation

Packaging Recovery Note (PRN) charges are the compliance fees that companies must pay towards the collection and disposal of plastic packaging waste they put on the market. On its own, the per-tonne increase of plastic compliance – from an average of £50 in 2017 to over £400 in 2019 – is eye-catching enough. However, when these costs are modelled for large and mid-sized businesses, it is calculated that for every £1,000 a company was spending on plastic compliance in 2017, they are now spending over £8,000. The cost of these PRNs has effectively risen from a level many businesses might have considered a manageable marginal cost of doing business, to a major cost centre.

2. New regulations will further increase costs

The Extended Producer Responsibility (EPR) rules, due to go live in less than three years’ time, will force producers and users of packaging to pay the full net cost of collecting, reprocessing and recycling packaging to local authorities in the UK. By the government’s own calculations, EPR is set to increase the cost of packaging compliance fees by an estimated 21 times what businesses were paying in 2017. There is also the new headline plastic packaging tax. However, the rules for this tax will provide a powerful advantage for businesses that reduce the amount of packaging they use, ensure it is made from the maximum recycled content, and that it is universally recyclable.

3. Supply chain and investor pressure

In the face of higher costs – as well as changing consumer demand and the reputational impact of commercial and policy pressure on businesses to reduce the use of non-recyclable plastics – companies are exerting their influence on supply chains to reduce the use of plastic packaging. For example, initiatives from large retailers who want their suppliers to remove or reduce packaging put product manufacturers unable to meet these targets at risk of delisting or reduced orders. At the same time, with the growing power of environment, social and governance responsible investment, investors are increasingly aware of the impact of plastics and packaging on businesses’ future viability.

All this places companies which use plastics at a fork in the road, with some critical decisions to make. The new operating environment calls for industry to rethink its model from one that sees plastic packaging as a basic cost of doing business, much like paying your monthly gas bill, to one that understands the fundamental changes that need to be made to the business for it to thrive sustainability and profitably.

How to turn the potential disruption into an opportunity

1. Understand the risks to your business today

The first step is to evaluate the impact of current and future changes to packaging on your business. This requires establishing the implications of the evolving packaging landscape. You will need accurate data on all the packaging you currently use – including types of materials, quantities, recyclability and recycled content – which should be mapped against the current PRN system and proposed legislative changes so you can understand your exposure to risk.

2. Join up your packaging and business strategies

Packaging and business strategy are now intertwined. Understanding this link and how it applies to your business opens up vital opportunities to reduce costs and add value. For many organisations this requires changing the way they think about packaging. Instead of focusing on cost management and compliance, organisations need to think about how product use, disposal and production methods can be adapted for lower costs and reduced consumption.

3. Lead from the top and take a company-wide approach

Done the right way, efforts to reduce plastics and packaging require change across the business and extend to relevant suppliers and partners. Identifying and prioritising these changes needs top-down support. It will also require people in different functions, including operations, finance and marketing, to work together. Do not leave an individual department or functional team to drive these changes on their own; it will fail without the support of others.

4. Avoid knee-jerk reactions

As plastics activism has grabbed the headlines so too have the number of businesses going for ‘quick fixes’ around packaging, typically swapping plastic for another material perceived to be more eco-friendly. The risk here is a failure to reduce overall environmental impact. If the goal is to make sustainable changes to the business then it is imperative to research alternative packaging suppliers and understand the limitations and opportunities offered.

5. Don’t try to do it on your own

A key facet of the packaging revolution is the need for organisations to communicate and collaborate within supply chains and across sectors as the entire system changes. As such, this is not something that should be navigated or tackled by a business working alone. Business leaders should be outward-looking and open-minded, ready to forge new relationships with industry peers and partners, and to cooperate on areas of shared challenge.