Municipal recycling programs, long considered to be high-cost and low-benefit, are riding a wave of high prices and burgeoning demand. It seems some materials, such as recovered paper and some plastics, can't get to market fast enough.
This high demand may be attributed to manufacturers' increased use of recycled material in new products, which has been spurred by the following factors, according to a recent analysis by the California Integrated Waste Management Board, Sacramento: * The general upswing in the economy, which has increased consumer demand for plastics, steel, glass and paper goods;
* The recent billion-dollar investments to develop manufacturing equipment to use recyclable paper and plastics in production;
* Increased demand for recycled-content products by large-volume purchasers such as federal, state and local governments;
* Increased demand for recycled-content products due to six state minimum content laws, which require minimum percentages of post-consumer content in newsprint, glass containers and fiberglass building insulation, plastic for packaging containers and trash bags;
* A rising demand by large-, medium- and small-sized businesses in recycled-content products; and
* Reduced availability of some virgin materials. Consequently, manufacturers are scrambling for recovered paper, plastics and metals, and, as a result, are willing to pay record-high prices (see table).
Short On Supply Indeed, some industry groups and the National Recycling Coalition (NRC), Alexandria, Va., worry that demand is so high that current recovered materials supplies could fall short. In May, the NRC established a Supply Task Force for industry experts to address collection, processing and other issues influencing the recyclables supply.
"Manufacturers across the country are calling for more recycled feedstock - many mills are not operating at capacity because they can't get enough material," said Marsha Rhea, NRC executive director. Paper mills, in particular, have invested in equipment to utilize recovered paper. "For the past five years, the paper industry has put more than $10 billion into infrastructure for recycling," said Phil Bailey, director of market development for NRC. "Clearly that's a vested interest."
NRC fears that slowdowns in the expansion of municipal recycling collection programs could drive paper and plastics manufacturers back to virgin materials. Currently, between 6,500 and 7,000 recyclables collection programs exist nationwide and the number is constantly growing, according to Linda Shotwell, an NRC spokesperson. However, over the past few years it has been increasing at a slower rate, she said.
The National Association for Plastic Container Recovery (NAPCOR), Charlotte, N.C., and the American Plastics Council, Washington, D.C., have similar concerns. Although polyethylene terephthalate (PET) recycling rates have reached 34 percent, demand still exceeds supply. "End-use markets aren't the issue since demand is almost twice the available supply," said Luke Schmidt, president of NAPCOR. Recyclers of high-density polyethylene (HDPE) also are suffering from a shortage of material, according to Dennis Sabourin, chair of the Association of PostConsumer Plastic Recyclers.
Market Myopia With demand so high, one can easily forget that, at some point, prices will stop climbing. "It's fair to say the market is cyclical in nature and we happen to be on the upward turn," said Bailey. "But the common viewpoint in the industry is that the prices will stabilize; they certainly won't fall back to where they were when we started."
A cap on the current price boom may not be such a bad thing, according to Bailey. "If you're competing against [virgin] materials and that material is priced lower than yours, it's not the best long-term situation," he said. "It's always going to be in recycling's best interest to be competitive in terms of price and quality. An equilibrium can be found. If you're selling corrugated, for instance, at $10 to $15 per ton less than your competitor, that's a good place to be on a long-term basis."
With foresight and long-term planning, communities can create marketing programs that will withstand future market fluctuations, while still procuring a fair price. One way to achieve this is through long-term contracts with buyers, which are cropping up across the country. These contracts usually range from one to five years and, in some cases, as long as 20 years.
The recycling programs most prey to market fluctuations are those in small towns and sparsely-populated counties. Ironically, these communities often cannot take advantage of the current price boom, due to their low volumes of materials and inherently high collection and transportation costs. They also may have little or no experience in negotiating contracts with buyers. Consequently, many small communities are binding together in cooperative marketing networks to reduce these barriers (see "National Network Links Co-ops" on page 57).
Follow The Farmers One such program is the Nebraska State Recycling Association (NSRA) based in Omaha. Kay Stevens, executive director of NSRA, considers the Midwest to be the final frontier for recycling. "Historically, the Midwest is under-served by recycling contractors. But this works to our advantage because we can look at the programs on either coast and learn from their mistakes," she said.
From that vantage point, NSRA is creating a marketing program that aims to outlast changes in the marketplace. "We didn't need to prove that small communities could bulk up materials and get them to market quickly and easily. Other groups have proven that could be done," Stevens said. "We wanted to put together a cooperative marketing model that can withstand market fluctuations and still remain solvent."
NSRA's cooperative marketing program is modeled after the agri-business co-op movement which swept the Midwest in the late 1800s. At that time, farmers, like sellers of recyclables, dealt in a commodity market which was subject to constant fluctuation, and were assailed on both sides by conflict with processors and buyers.
NSRA's agri-business model proposes that communities and businesses bind together in locally-controlled, user-owned recycling co-ops based on agreements which require sharing profits and losses. Aside from solvency, the goals of the co-op programs include reduced unit costs; consumer control; maximum diversion/recovery; minimum disposal/consumption; the capability to track the movement of funds and materials; and increased consumer awareness of the marketing process.
Stevens also emphasizes open communication. "Recycling is a paranoid, secretive business. Recyclers don't like to talk about prices. We're trying to get the information out and overcome those barriers," she said. For example, she tells the story of one Nebraska seller who was receiving $20 per ton for old newsprint - while others in the state were receiving $150 per ton.
Currently, NSRA has a staff of five and is funded by grants from U.S. Environmental Protection Agency and the Nebraska Department of Environmental Quality, as well as a grant funded by the state's lottery revenue.
NSRA targets two core groups for co-op programs: small communities and small- to medium-sized commercial establishments. NSRA's role in the co-ops is to link groups of sellers with buyers. NSRA represents the sellers/co-op members and provides services to help the members establish long-lasting programs. The services include contract management, price/specification negotiation, tracking and accounting, community education, quality control, field work and conflict resolution.
NSRA's prototype program for small community co-ops is the Lexington Landfill Agency, which has established agreements with 45 communities in 12 counties. Stevens' group has formed a co-op committee with six towns and will market newsprint. The start-up population served is approximately 18,000, with a potential to reach 50,000. As the co-op gets its footing, other materials will be added.
NSRA's model for small- to medium-sized businesses includes five establishments: a bank, a local power district, a mall, a university and a public housing administration. Currently, NSRA is helping the members analyze their waste streams and request bids for paper recycling services. NSRA is asking bidders for a price on delivered materials; it will work with each business to set up its own collection program.
Stevens believes that a tremendous, untapped potential for recyclers exists in small- to medium-sized businesses such as strip malls and office complexes. To date, these businesses do not have access to a small, adaptable collection system. "So many contractors look at the mega contracts - the high-rise complexes and the large corporations. But, statistically, I think 85 percent of Nebraska businesses are classified as small- to medium-sized - and they can't get service." At NRC, Phil Bailey agrees. "Smaller commercial establishments are not involved yet. We're going to see tremendous growth in that market," he said.
Both buyers and sellers benefit from cooperative marketing programs, according to NSRA. Sellers, for example, can market bulk commodities; gain access to markets for small programs; achieve economies of scale for transportation; obtain higher prices; establish stronger public/private partnerships; track real supply data for marketing and economic development purposes; and prepare standardized, written material specifications.
Buyers, on the other hand, benefit from having a single point of contact; receive higher quality materials, in more reliable quantities; can more easily predict volume and cash flow; and receive standardized, written material specifications.
South By Southwest Another co-op network, the Southwest Public Recycling Association (SPRA), Tuscon, Ariz., takes a regionalized approach. Through master contracts, SPRA negotiates prices with buyers of materials from communities in Arizona, Colorado, Nevada, New Mexico, Utah and West Texas. SPRA manages scheduling, transportation, billing and payments for co-op members, which include 50 cities, counties and Native American tribes.
"We have cafeteria-style options. Communities decide which commodities they want to market through us - it can be all or one - and then they sign a one-year contract," said Ann Lozon, director of technical services at SPRA.
Currently, SPRA has purchasing contracts for steel cans, glass containers, corrugated cardboard, newspaper, office paper, mixed paper, milk cartons, juice boxes and all plastic resins. Future contracts will include aluminum cans and scrap metal, since those materials are relatively easy to market, Lozon said. SPRA also provides members with monthly price sheets which track market conditions and list end-users as well as prices paid for each material.
The current price boom presents a unique challenge for co-op programs, according to Gary Olson, SPRA executive director. In a recent issue of "Cooperative Connections," the National Cooperative Marketing Network's newsletter, Olson outlined ways to maintain supplier commitment to co-ops when price increases tempt members to market their materials elsewhere. He recommended the following strategies: * Have suppliers sign a binding agreement to market materials through the co-op.
* Establish an intergovernmental agreement which binds publicsector entities together to market materials and pay for those services.
* Provide guaranteed access to processing facilities or equipment.
* Establish supplier ownership of the co-op by holding monthly meetings and setting up a steering committee with representatives from member communities.
* Ensure members access to reliable, cost-effective transportation. Provide joint shipment options.
"Sustaining long-term supplier commitment in hot and cold markets remains a serious concern," Olson said. "Only programs designed to survive these fluctuations will still be around to meet the communities' and buyers' needs."
"The problem with marketing recyclables is that no one has a handle on supply," said Kay Stevens, a member of the National Cooperative Marketing Network's steering committee and executive director of the Nebraska State Recycling Association in Omaha. "That's why market information is crucial to co-op programs."
To increase nationwide communication and the availability of information on markets and supply, cooperative marketing programs across the country joined together in 1993 to form the National Cooperative Marketing Network.
Funded by a grant from the Environmental Protection Agency, the network represents programs in 14 states and regions including the Midwest and Southwest, Canada, Texas, Wyoming, Hawaii, Kentucky, Nebraska, Minnesota, Wisconsin, Arkansas, Illinois, Michigan and Arizona.
From its Omaha office, the network publishes a quarterly newsletter, "Cooperative Connections," through which members can share information on program obstacles and successes. In addition, the network maintains a database of buyer and seller contact names to be published in a directory. The network's goal is to implement a nationwide peer match program to link sellers with markets.
The network also hosts workshops which provide guidelines on setting up cooperative marketing programs; feature case studies; and address political issues, according to Denise Bohlsen, the network's outreach and promotions coordinator.
The next workshop will be held on September 10 at the National Recycling Congress in Kansas City, Mo. For more information or to receive the network's newsletter, contact Denise Bohlsen or Kay Stevens, National Cooperative Marketing Network, 1941 S. 42nd St., Ste. 512, Omaha, Neb. 68105. (402) 444-4188.