“Viability of Kerbside Recycling Services”
The impacts of the global recession on markets for
recycled paper and plastics and the implications for
South Australian Councils
Background Paper
Prepared for the
Local Government Association of South Australia
Prepared by
John Comrie
Director
JAC Comrie Pty Ltd
in association with
Terry Bruun
Principal Consultant
Sustainable Outcomes
4 May 2009
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This paper has been prepared to provide general background information to aid discussions
by Council representatives at the meeting organised by the LGA for 7 May 2009. It is
anticipated that Councils will contribute additional relevant information at that meeting to help
determine what if any future actions are warranted.
1. Introduction
The State General Manager (SA and WA) of Visy Paper Pty Ltd, (Visy Recycling)
wrote to all South Australian Councils and authorities that offer kerbside collection of
recyclables on 26 March 2009 under the heading of “Viability of Kerbside Recycling
Services”.
The key issues raised in letter were:

The prices for recovered commodities have fallen dramatically over the past 6
months and as a result Visy’s kerbside recovery business has become
‘uneconomic’;

Visy is seeking a review of “the commercial arrangements that are currently in
place between Visy and Council” as a “means to guarantee the long term
viability of recycling”.
This Paper outlines:




What’s happened and why
The challenges for the recycling industry
The challenges for Local Government
A possible way forward.
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2. Consultation with selected key stakeholders
The preparation of this background paper involved consultation with a cross-section
of stakeholders:
(1) State and Local Government
 LGA
 Zero Waste SA
 Environment Protection Authority
 Northern Adelaide Waste Management Authority
 East Waste
 City of Onkaparinga
 City of Holdfast Bay
 City of Port Adelaide Enfield
 City of Whyalla
 City of Mount Gambier
 Coorong District Council.
(2) Waste industry




Australian Council of Recyclers Inc
Visy Recycling
SITA Australia Pty Ltd
TJH Management Services Pty. Ltd.
In addition, information was sourced from the following references:
 The Report on “Future Directions for Waste Management in the Local
Government Sector in South Australia”, November 2007 (the Cossey Report);
 Draft Environmental Protection (Waste to Resources) Policy
 Desk research
3. Overview of South Australian kerbside recycling sector
Typically Councils that offer kerbside collection of recyclable materials have
contracts (either directly or through their regional subsidiaries) with kerbside
collection firms (for example, Solo, Cleanaway, SITA) for both:


kerbside collection of recyclable material and
processing of recyclable material at a Material Recovery Facility (MRF).
There are some exceptions to this model. For example;


East Waste provides the kerbside collection service for its member Councils
(and other Councils under contract) and has a contract with a MRF operator
for the processing of the recyclable material.
Some Councils undertake the kerbside collection service using their own
resources, and have a contract with a MRF operator for the processing of the
recyclable material.
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
A few Councils have a separate contract for collection and another for
processing.
The recyclable material from the kerbside collections is recovered from one of three
MRFs located in metropolitan Adelaide.
(1) The Northern Adelaide Waste Management Authority (NAWMA) MRF at
Elizabeth West;
(2) The Solo MRF at Plympton North;
(3) The Integrated Waste Services (IWS) MRF at Wingfield.
Visy has the ‘operating rights’ for all three MRFs.
Visy exports most of the recovered paper-based recyclable material to China directly
from Adelaide. (Visy is also a dominate market player in the eastern states and uses
the majority of the recovered recyclable material internally to supply its packing
business and exports any that is surplus to its local needs.)
4. The issues
In summary, Visy is appealing to Local Government to “help develop a commercial
solution that enables current service standards to be maintained” which will
overcome the “current challenges”.
What are the current challenges for:


Visy?
Local Government?
What is Visy’s proposed solution?
It is understood that Visy has also sent a letter similar to the South Australian version
to Councils interstate which have a direct or indirect association with it for the
disposal of recyclable materials.
Visy is also seeking discussions with its commercial/industrial customers.
4.1 The Challenges for Visy
It has been widely reported in the media that the prices of recyclable material have
dramatically fallen in the past few months due to the global financial crisis. That is,
the slowdown in general economic conditions has led to a reduction in market
demand for products made with recycled materials. This has led to a reduction in
demand and corresponding prices paid for inputs by producers of end-market
products.
There are no official figures available from independent sources (e.g. ABS) to
quantify this impact.
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The Visy letter claims that “most materials have shown drops of between 50% and
80% comparing current prices with those of August 2008”. It is understood that Visy
is preparing an ‘information package’ to support its claims which will be presented at
the 2009 joint LGA and Zero Waste SA Waste Pathways Forum on 25 May 2009
(refer LGA circular 17.8 of 2009 for details).
Market intelligence suggests that paper and cardboard, for example, was selling at
about $80 to $100 per tonne in 2005/06 and increased steadily to $160/$180 per
tonne by 2007/08 and returned to the 2005/06 prices (or lower) towards the end of
2008. Note: these prices are influenced by significant movements in the US$/A$
exchange rate over that period. (International market prices are typically expressed
in US dollars. If the A$ falls in value relative to the $US then an Australian exporter
will receive a higher $A price for their products all other things being equal.)
How has VIsy been affected by the falling prices for recyclable material?
The downturn in prices has meant it is less economically viable to export recyclable
material from Adelaide. It is understood that much of it is currently either being
transported to Melbourne (typically for internal use by Visy) or stockpiled locally.
The fall in prices and associated loss of marketing opportunities has placed
significant pressure on Visy. However it needs to be recognised that poor market
conditions have only been experienced over a relatively short recent period
compared to the very positive market conditions during the preceding years.
Some insight into Visy’s position is provided by the following article which was
published in the November 2008 edition of Environmental Management News (EMN)
(a trade publication with circulation in local government and the waste management
industry).
“Visy has a large internal demand for material, sheltering it from the worst of the
global price squeeze. However, it does export about 50% of the recovered
paper fibre it collects and an even higher percentage of the plastics stream.
A little known fact is Visy is actually the nation’s largest exporter of
containerised material, which gives it another advantage in the current
downturn of having a dedicated presence in Asia, allowing it to deal directly
with mills without the middlemen. Coupled with the internal demand, it means
Visy is better placed than others to weather the commodity downturn.
At the other end of the equation, the generators of recyclable material –
primarily local councils – are feeling the pinch as material prices plummet.
Many councils have gotten used to high commodity prices subsidising their
waste collection operations through recent years, although many are now
seeing contract variation clauses coming into play.”
What about the future market conditions?
No commentators or industry representatives are prepared to make any firm
predictions about the future prices for recyclable products.
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However, the February 2009 edition of Environmental Management News reported
that:
“Improving demand from China for recyclable materials is helping lift prices for
recycled materials, which went into free-fall late last year, according to data
released by the UK’s Waste and Resources Action Program.”
Although the above report is a statement about the European position, Visy was
making encouraging comments about the Australian mrket in the same edition:
“The industry was hoping the market “bottomed out in January” which recorded
the lowest prices since the decline last year.
“We’ve been seeing a little bit of an increase from January to February though
there was only a price increase of about 1-2%”.
“We’re not prepared to say ‘hey, it’s over’, but hopefully it looks as if we’ve seen
the bottom of it. We’re still pretty close to the bottom. I can only say that the
market is not continuing to fall”.
It is reasonable to assume that when the global economy returns to growth that
demand for recyclables will once again increase. Actual prices achieved will also
depend on the quantum of recyclable material available. Market prices are of course
a function of both supply and demand.
The implications of the Draft Environmental Protection (Waste to Resources)
Policy
The South Australian Environmental Protection Authority has released a draft
Environment Protection (Waste to Resources) Policy that provides regulatory
underpinning for ‘South Australia’s Waste Strategy 2005-2010’. It aims to further
promote the implementation of the waste management hierarchy (avoid, reduce, reuse, recycle).
An intent of the draft Policy is to reduce the potential for disposal to landfill of
material collected for recycling.
If the draft Policy is implemented in its present form it will present recyclers with a
number of challenges. These are highlighted by ACOR’s (Australian Council of
Recyclers Inc) in its submission to the Environment Protection Authority in response
to public consultation on the draft document.
(1) "If government policy seeks to ban materials from landfilling which do not
have sufficient market value to cover their recycling costs, then new financial
mechanisms (such as rebate and EPR schemes) need to be put in place to
cover the recycling cost gap"
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(2) "Circumstance change and where markets collapse or are adverse and/or
materials are not in accordance with predetermined specifications, disposal to
landfill must be available as a matter of last resort"
(3) " Stockpiling is a business decision made at times of market surplus or
adverse trade conditions and the sector needs clarity on this matter
(inappropriate stockpiling) so we can manage our business"
The period for public consultation on the draft Policy has now concluded and the
Environment Protection Authority is considering feedback before finalising the
preferred Policy content.
4.2 The Challenges for Local Government
Current arrangements
Unlike in the eastern states most metropolitan SA Councils that offer kerbside
collection services have arrangements in place where they pay a fee for disposal of
the recyclable material and they are either not exposed (or have only minimal
exposure) to the risks and rewards of fluctuating market prices.
The above described arrangements are typically enshrined in long-term contracts.
Many metropolitan Councils could quite understandably therefore say the recent fall
in market prices is not their concern. Nevertheless Councils need to at least
recognise that sustained low market prices could eventually lead to some service
providers withdrawing from the market place and/or higher tendered prices for
renewal of services in future.
Even with favourable market prices the transport distances to logistical hubs
(Adelaide and possibly Melbourne) and small volumes have made the cost of
recycling services prohibitive for many rural and regional Councils. In cases where
such a service is provided it varies from one that is comparable to that currently
provided by metropolitan Councils to more basic ‘kerbside crate’ and ‘depot drop-off’
arrangements.
Some rural Councils that do not have long-term arrangements in place periodically
have collected recyclable material transported to an Adelaide MRF. They are fully
exposed to market ‘spot’ prices and some have found that it is not viable to currently
ship material and are stock-piling it.
Some challenges were previously identified in the Cossey Report (“Future
Directions for Waste Management in the Local Government Sector in South
Australia” prepared by Bill Cossey November 2007).
Some of the findings and recommendations of the Report are relevant to
assessment of any response to the impact of falling market prices for recyclable
material on local government recycling practices and arrangements.
Under section 5.8 Kerbside Recycling (page 30), the Report concludes:
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“Councils have been at the forefront of encouraging householders to contribute to
recycling through the provision of either separate bins or separate compartments in
existing bins for recyclables. This approach has worked hand in hand with the
container deposit legislation in South Australia.
Of course, not all material that householders place in the recycling bin or
compartment is recyclable. Audits conducted by Zero Waste SA indicate as much as
10% of the material is not able to be recycled.
In addition, Councils have little or no control over the processes which the recyclers
adopt – even though metropolitan Councils generally pay the recycler at a rate of
approximately $20 per tonne for potentially recyclable material delivered to the
recycler.
It should come as no surprise that the commercial imperatives of the recycler will
dictate the results that are achieved by the recycler. Those imperatives have a
number of components to them including:
 the ease with which the contaminated material can be removed from the
genuinely recyclable material
 the availability and strength of the markets for recycled product
 the cost of depositing the non-recycled material in landfill and whether or not
the originating Council is bearing this cost.
Consistent with the discussion on the objectives of Councils for their involvement in
Waste Management in Section 5.2 above, Councils should be aiming to ensure a
maximisation of the results from the processes of collecting and processing
recyclables.
In fairness, some Councils and their subsidiaries have recognised this and have
commenced introducing provisions in contracts including:
 requiring the recycler to make a (relatively small) payment related to the
recycling actually performed
 absolving the Council of any obligation to pay the landfill depositing cost for
materials determined by the recycler as not recyclable
These are steps in the right direction. The project anticipates that as the Local
Government sector strengthens its approach to contracting and contract
management other incentives and disincentives will be identified and adopted.”
The Cossey Report goes onto recommend as follows:
“Recommendation 19
That, as a component of the strengthened approach to contracting proposed in
Recommendations 6 to 10, Councils and subsidiaries continue to refine their
approach to contracts with recyclers to ensure that there are maximum incentives
and minimum disincentives for recyclers to maximise the recovery from the material
placed in recycling bins.”
The Visy letter serves as a timely reminder of the risks and challenges associated
with the development of cost effective arrangements for encouraging greater levels
of recycling.
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5. Visy’s proposed way forward
Visy has indicated in discussions that it may wish to explore establishing direct
contracts with Councils for the processing of recyclable material.
This would replace the existing arrangements in which the processing fee is often
part of the total collection and processing fee Councils have in place with the
kerbside collector.
Visy would like to discuss the merit for parties of arrangements that set an agreed
“sustainable” (floor price) gate fee which would be adjusted (up or down) in
accordance with market conditions.
Visy has already commenced discussions with some kerbside collection contractors
and a few Councils.
How could LG respond?
Recycling has always cost Councils more than the alternative of landfill. Councils
and their communities have strongly supported recycling because of the
environmental benefits and as a result the proportion of kerbside presented material
diverted from landfill has steadily grown.
Most metropolitan Councils appear to have long-term arrangements (2 to 5 years or
more) in place for collection and processing of recyclables with large well established
companies where they (the companies) wear the market price risk.
It is in local government’s long-term interests for there to be a viable and competitive
recycling industry. Council representatives should keep an open-mind about the best
way this can be achieved and maintained.
Nevertheless unless additional compelling evidence is produced it is likely that most
Councils that currently have contracts for the collection and processing of
recyclables are unlikely to perceive there will be overall benefits in changed
arrangements prior to the expiration of current contracts.
Councils that don’t currently have long-term arrangements in place are likely to
experience an increase in costs to maintain or introduce recycling services – at least
until world economic demand bids up prices again.
Depending on the state of markets and the degree of competition in future
processors may be wary in about offering councils (or their contactors) new longterm arrangements that leave the processors bearing the full risk of market price
falls.
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