Eunomia's 60% recycling limit claim not true

Eunomia has today published the latest version of its residual waste review. This has generated headlines on the basis that England's local authorities are going to build so much capacity that they will effectively place an upper limit on their recycling rates of 60%.

Eunomia makes this claim on the basis that England will build roughly 5 million more tonnes of capacity on top of the current 5.5 million tonnes, thereby only leaving only 15.5 million tonnes available for recycling. But this is of course a partial analysis which is only looking at residual LA waste (taking their figures at face value). England also generates much larger quantities of residual commercial waste which also needs to find a home.

Eunomia's report/media line talks about local authorities tying themselves down with the minimum tonnages which they are committing to the facilities in the pipeline. But minimum tonnages in residual waste contracts consist not only of Contract Waste from the Authority, but Substitute Waste from commercial sources as well.

In other words, as levels of local authority residual waste fall during the life of a contract, the shortfall is made up using commercial sources, i.e. more and more residual commercial waste is used during the life of the contract so that the plant can keep running while the authority remains incentivised to meet its recycling commitments elsewhere.

To say that England's authorities are therefore constraining their recycling rates to 60% is nonsense.

Food waste benefits UK supply chain by up to £1.5 billion

There has been much recent coverage in the trade press about ReFood's 2020 vision campaign (see e.g. here). According to reports food waste is costing the UK £17 billion per annum. An extraordinary sum and at face value seems to offer the potential for vast savings. But is it accurate, or does it suffer from the common problem of failing fully to incorporate the opportunity costs involved in eliminating food waste?

ReFood/WRAP figures suggest that households waste 4.2m tonnes of food and 4.3m tonnes are lost in the supply chain. So roughly a 50/50 split. This means that the supply chain alone is wasting £8.5 billion every year. Wow.

But of course there is a reason that waste exists and that actors within supply chains "over-order". It is to reduce the risk of lost sales caused by having insufficient stock available. This risk is asymmetric as the value of a lost sale will outweigh the costs of material inputs, and this creates an incentive to over-order to guarantee stock availability. The lower the proportion of material input costs in output value, the greater the incentive to over-order.

For our food supply chain, I presume that the £8.5 billion figure is actually final sales equivalent. Assuming that retailers have a margin of around 15% and that the incentive is to over-order up to the point where the additional stock would outweigh the value of an additional sale foregone, this would mean that the £8.5 billion of food waste actually has a value to the supply chain of circa £10 billion. In other words, eliminating the food waste would provide £8.5 billion of savings but at the same time would lead to £10 billion of losses - an aggregate loss of around £1.5 billion.

We can therefore deduce that the presence of this food waste actually benefits the UK supply chain by up to £1.5 billion every year (given current policies and technologies) and as such is a good thing.

(This is a v simplistic approach and in reality the optimisation problem would be based on p(lost sale), which is influenced by a range of factors, including technology, logistics, timing, demand, etc and costs to consider would include waste management costs as well as input costs, etc.)

[Separately, I would argue that the £8.75 billion wasted by householders is caused by the incentive of avoiding unforeseen additional trips to the supermarket. £8.75 billion is the equivalent of 700m hours (based on median hourly wages of £12.50), or just under half an hour per week per household. If eliminating this household food waste raised time spent on food shopping by over half an hour per week then householders would lose out and the net benefits to the economy would be negative.]

Returning to Defra's forecasts

Further to my previous post on this subject, I have subsequently realised that the updated waste arisings' forecasts published by Defra this month were in fact already out of date when Defra published them.

We now know that the 'revised February 2013' forecasts (published in October 2013) has been updated/superseded by this version, which has been produced to support the decision to remove central government support for Norfolk.

At first glance this seems slightly puzzling, as the forecasts for arisings in the new version are higher than the old numbers. Surely this (on it's own) would increase the case for supporting Norfolk? Apparently not.

My personal view remains that these forecasts are a bit on the low side, but at least they're moving in the right direction. My central forecast is towards the upper end of Defra's range, but at least they don't look completely out of kilter with one another.

WRAP once again ignores prices

I see via MRW that WRAP has published its latest report on consumer behaviour. In it we find the startling revelation that consumers may be willing to consider trade-in business models for their unwanted goods, i.e. they'd be happy if someone is willing to pay them for their old rubbish. And other similar insights.

The report seems bemused by the fact that people would be willing to consider some of these models (repair or rental also feature as alternatives to purchase) in theory but not in practice. To me this leads to the obvious questions, how much would people in reality be willing to pay for different (e.g. repair) models? Is this cheaper than buying new?

But this doesn't seem to be considered by the report. (I may have missed it whilst skimming.)

We know that people in the UK are expensive relative to stuff. This means that in the modern consumer world it is usually now cheaper to buy a replacement product than it is to hire someone to repair it. This is a good thing. It is a sign of progress and tells us that consumers are able to afford a huge range of luxuries denied to them in the past.

I have noted before that WRAP research often ignores the central role of prices in delivering market solutions. An extraordinary oversight.

I am reminded of Oscar Wilde's line that a cynic is "a man who knows the price of everything and the value of nothing". Although in this case WRAP knows the 'value' of everything and the price of nothing.

Maybe I'm just a cynic.

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.