The packaging industry is much bigger than many realise. Though definitive statistics about the size of the industry are hard to come by — none of the Office of National Statistics’ standard industrial classifications are appropriate — a turnover of £15bn and 130,000 jobs are generally accepted figures. Many observers believe that packaging is between fifth and 10th in the UK manufacturing industry ranking of sectors by turnover.
However, packaging is beset by obstructive and bureaucratic regulations, and economic factors which have weakened its position globally. There is now cause for concern that another sizeable chunk of UK industry could end up in foreign ownership.
The first bugbear is the EU Packaging Waste Directive of 1996. Here, the UK adopted an unnecessarily complex method of implementing the legislation, which is intended to make sure recycling of packaging materials reach a specified target.
Most EU countries adopted the ‘Green Spot’ system in which a levy is placed on packer/filler companies for each kilogram of packaging they put into the market. The money is used to fund recycling schemes. ‘It’s one levy which is fed back into the system. It’s simple to understand and administer,’ says John Webb-Jenkins, chief executive of the Institute of Packaging.
The recycling issue
But the UK went for a system called Producer Responsibility, under which companies have a responsibility to recycle a proportion of the packaging materials they use, the exact percentage depends on where the company is in the supply chain. Raw material suppliers are assigned least responsibility and retailers most. Firms can either recycle the material directly and produce a certificate from the recycling company. Or they can register with a ‘compliance agency’ such as Valpak, and buy the appropriate amount of packaging waste recovery notes (PRNs). Valpak then uses the proceeds to fund recycling schemes.
Although the system is working reasonably well for glass, metals and paper, where recycling is well established, the value of PRNs for plastics are worth only about a 10th of the recycling costs. ‘Nobody is recycling plastics,’ says Webb-Jenkins.On top of this comes the Essential Requirements regulations, a so-called ‘daughter directive’, full of detailed rules about what can and can’t be thrown away. For example, packaging that is not reusable, must be capable of being recovered through recycling, incineration with energy recovery, or composting. If it is incinerated or put in landfill, poisons or hazardous substances must be minimised. Specific limits for heavy metal content were laid down.
Developing standards for these requirements, not surprisingly, proved difficult. However, towards the end of last year, a CEN standard was finally published, and the requirements can now be enforced by the Environment Agency. But there are two further complications. Companies don’t have to follow the CEN standard if they think they can meet the requirements in other ways, negating the original objective of harmonisation across the EU; and second, only the UK and France bothered to take any action in implementing the directive. Other European states decided to do nothing until the standards had been agreed.
And to add to this already hefty raft of legislation, from April 1 this year there is the Climate Change Levy. ‘Packaging manufacturers use a lot of energy, but not enough to qualify for the 80% rebate, so they’ll end up paying a lot,’ says Webb-Jenkins. The industry is also highly automated so rebates of National Insurance contributions do not help.
‘There are large and unknown cost burdens on the sector,’ says Webb-Jenkins. ‘And because it’s already a mature sector, returns on capital are around the 6% to 8% mark, so it’s unexciting for the City.’
As a result share prices have drifted downwards, leaving firms as takeover targets. US competitors are starting to buy up ‘bargain’ UK packagers — Dolphin recently went to Sealed Air of the US in an agreed sale. ‘Chesapeake and Tenneco have been doing serious buying in the UK,’ Webb-Jenkins says.
The concern is that as a result, decision-making moves out of the UK, and a situation similar to General Motors’ decision to close the Luton plant is not hard to imagine. ‘We are at a disadvantage compared with our EU competitors, and in danger of losing day-to-day control of these vital manufacturing bases on which much of the industrial fabric of the UK depends. The door is also wide open for imports from Asia Pacific and emerging nations, where this type of legislative burden does not exist,’ Webb-Jenkins adds.
Sidebar: Part and parcel
The future Investment in plant, research and education and training are vital factors if the industry is to keep its competitive edge, The Institute of Packaging believes.
The institute, along with the Packaging Federation, is working with the DTI to make sure the packaging Foresight report — part of the government-backed initiative to identify areas of technology for the future — is followed up with funding for industry-biased research projects.
The Pakex 2001 exhibition (2–6 April at the NEC) will feature more than 1,200 exhibitors from across the supply chain. A seminar programme will cover subjects such as the supply chain of the future, e-commerce for the packaging industry, radio frequency tagging, and digital print technology, with speakers from Pira International, PricewaterhouseCoopers, Westland and Michigan State University.
In addition, 100 winners of the Student Starpack competition for students and schoolchildren will be taken on a ‘career trail’ in which people from 10 companies will give 10-minute talks on what they do.