Defra arisings forecasts on the low side

I see via MRW that Defra has made the unfortunate decision to pull the plug on PFI credits for Norfolk in yet another tortuous twist for that particular project. (Credits having already been pulled once by a previous Secretary of State and then reinstated.)

Defra has published analysis underpinning this decision which includes forecasts for waste arisings through to 2020. At first glance these seem too optimistic in terms of the degree to which post-recession falls in arisings will persist going forward. My central estimate of future household arisings is above the upper limit to the range considered by Defra, while my central estimate for commercial and industrial streams is towards the upper end of Defra's range.

This would imply that Defra's assumptions are biased towards lower future arisings than I would expect. On the face of it, this could undermine the subsequent analysis which concludes that we will comfortably meet the targets without supporting the Norfolk facility. (It may of course go ahead even without the credits.)

In my mind, basing future forecasts on recent historic trends when we have just been through an exceptional period of recession-induced falls in arisings and have no way of separating cyclical and structural impacts is conceptually flawed at best and dangerously naive at worst.

New WRAP research exaggerates food waste value

I see via Edie that WRAP has published some new research examining the lost 'value' of food and packaging waste in UK supply chains (i.e. from the business sector as opposed to households). This comes to the staggering conclusion that around £7 billion is being lost to UK plc which, if addressed, could provide a significant injection to the economy through increased investment/exports/something else.

The first issue I have with the estimate is that they use average costs for estimating the 'value' of the lost food and packaging. It would be fairer and more accurate to use marginal cost data for ingredients and production costs, although I appreciate it would have been more difficult to get hold of this information.

Similarly they have included lost profit and capital expenditure in their estimates (12% of the total). This is a bit cheeky as capital spend is a fixed cost (and shouldn't be included in marginal cost estimates, as above) while absent profit is by definition not a cost (profit = revenues - costs).

So straight away we can see that their cost estimates are higher than they should be.

But the biggest issue I have with the associated headlines and rhetoric around lost opportunities for investment/the economy is that WRAP assumes that all of this 'value' can be captured at zero cost. This is utterly preposterous. The behaviour of the relevant economic agents tells us that this is not the case. Otherwise they would be doing it.

For WRAP to assume that all this waste is 'avoidable' and therefore able to be captured at zero cost is nonsense.

Chinese Green Fence helps UK paper mills

Via MRW I see that UK paper mills are finding it easier to acquire materials with fewer contaminants than previously, as a possible result of the introduction of China's green fence policy.

This is consistent with my views of the outlook for dry recyclabes markets overall. I think we are going to witness a combination of: lower primary commodity prices; higher consumer consumption in overseas markets (thereby reducing their demand for imports); and continuing upward supply of domestic recyclate supplies (driven by regulation and landfill tax). These will combine to put downward pressure on prices for secondary resources and to shift the bargaining power along the UK supply chain in favour of domestic reprocessors.

The MRF Code of Practice should soon be with us and I believe will ultimately be lauded as a great success in helping to drive up the quality of UK recyclate. But at the same time I suspect that wider market dynamics would have led to reduced contamination and more consistent material quality in any event.

Gate fee survey indicates lower commodity prices

Via Lets Recycle, I see that WRAP's latest gate fee survey suggests that Local Authorities (and others) are receiving lower income for recyclate (notwithstanding the misleading headline).

Regular readers will know my view that we're heading for a sustained period of lower prices for both primary and secondary commodities and that this will inevitably lead to higher charges for waste producers.

This tells me that the principal driver for the currently in vogue 'circular economy' will continue to be regulation and government intervention rather than market dynamics. And waste producers will just have to get used to higher bills for their waste.

ONS estimates waste sector growth of 9%

I see CIWM has spotted some positive government figures for output from the waste industry. The ONS estimates that in the 12 months to June, waste sector output rose by 9%.

CIWM then boldly claims that "the waste management industry fared especially well during the recession and continues to show strong signs of continued growth".

What CIWM has failed to appreciate is (i) this figure is a snapshot in time and (ii) the ONS estimates of waste sector output tend to be very volatile. It was only back in January that a 9% fall was published. If we turn the clock back to June 2012 (the starting point for this period), then output at that time had fallen 6% in the previous 12 months.

The ONS does indeed estimate that the waste sector's output has been "broadly flat since 2005" (i.e. zero growth during a period when landfill taxes have increased 300% driving up charges to customers). This however misses the trend of growth followed by recession and, hopefully now, recovery from recession. Far from faring "especially well", the waste industry has been hit in recent years by a double whammy of falling volumes and prices.

The ONS figures suggest to me that recyclate prices have recovered some of previously lost ground during the first half of the year. The industry is now much more exposed to these hugely volatile prices than ever before and these are driving large swings in ONS estimates. There is little doubt though that the recession has significantly impacted the waste industry, both in the UK (see the large amounts of landfill void space being written off by some of the large operators) and in Europe (opening up capacity for RDF exports).

I am amazed that the huge impacts of the recession seem to have completely passed by the sector's professional body.

No central data - no central planning?

I see, via edie, that people are concerned about the lack of centralised data which might enable better (central) planning to address resource risks.

The issue for me is that knowledge of resource flows and potential risks is widely dispersed among market participants. It is very difficult, if not impossible, for such information to be collated by centralised authorities in any way which might be of practical benefit and not simply a snapshot in time which is outdated by the time it is published.

Markets are the most efficient means we have for allocating resources. The government really needs to recognise that it can't do this better than the market or try to anticipate future resource flows or how to address them.

When the EEF surveyed its Members in 2012, resource risks featured prominently (first? second?) among their concerns. I suspect that if this survey was repeated today then those concerns would be somewhat diminished.

A real issue though may be the fact that for some materials, total volumes produced and traded are relatively low, which can lead to large swings in prices. Rather than Canute-like trying to stop the inevitable, the government could instead consider how to minimise its impact. This could potentially be done by working with the financial industry to develop hedging instruments which are more widely available (particularly for SMEs).

For me the government's resource security action plan is already out of date. Defra is trying to find a way in which it is relevant to the government's overall economic agenda. This isn't it.

ADEPT warns on infrastructure

I see via Lets Recycle that ADEPT is warning that Defra shouldn't have cut waste infrastructure credits at some local authority projects.

Coincidentally I am sure, ADEPT's current President also happens to be strategic advisor to Cheshire West and Chester which was of course one of the projects to have its funding removed.

My personal view is that if ONS projections for population growth are correct, then it is likely that this factor will dominate a continuing fall in arisings per head in forthcoming years (second half of this decade) leading to a (relatively small) rise in total household arisings by 2020.

The crucial factor though will be whether we are able to deliver the PPP/PFI projects which are yet to be built. Progress is painfully slow in closing remaining projects and ADEPT is right to flag up that if the pace doesn't quicken then there really is a possibility that we could miss the targets.