Commodity market cappuccino
12th April 2015
In the latest of his though leader column’s for the UK resource sector’s leading journal, MRW, Director of Viridor Resource Management Herman Van Der Meij looks at commodity market cappuccino.
It’s a frosty Saturday morning in Amsterdam at the Museumplein. With the stunning Rijksmuseum as a backdrop, the little lady and I, all eight years old, fight the bitter cold of an open air ice rink to take in the last of the winter season’s skating. It’s a first though for Robine and dad and she’s having quite the adventure. Hmmm. It’s what you do for your kids.
Taking a break to dry out wet gloves in the winter brasserie my daughter turns to the iPad in her backpack – a Christmas gift from London – to check in with friends. For a moment we do that ‘thing’ that modern families do, sitting together on separate devices. I check commodity prices, check in on a new contract, on progress at a new processing plant, read the latest on the UK election and check on my schedule for the week ahead.
It’s time for something warm and just when only a cappuccino will do, the counter assistant breaks the news its black coffee or nothing. “But I want cappuccino”. Black coffee it is. And there it is : illustrated perfectly by a simple coffee cup – the challenge and opportunity facing our sector.
The opportunities are real and significant. The core ‘waste’ sector generated £3.8bn in gross value added (GVA) and supported 103,000 jobs in the UK economy in 2013. In 2014/15 Viridor alone completed c.£875m investment in UK energy recovery and recycling infrastructure, releasing over one million tonnes of essential new resource recovery and landfill diversion capacity to Britain. An even more circular economy, where the UK increasingly re-uses and recycles the resources it already has, could help generate 50,000 new jobs with £10bn investment, boosting GDP by £3bn.
But we need to move from the language of waste to the rhetoric of resource, recognising that waste is a zero value concept. It’s time to reposition waste as undesirable : undesirable environmentally and for its economic impact – nationally and locally where spending on waste displaces investment in schools, infrastructure or social care.
We need to define and recognise the value of resources – ensuring the value concept connects with corporates, councils, communities and children like my daughter.
The challenges are significant. A combination of a lack of joined-up government, DEFRA ‘stepping-back’ from waste policy, mixed-messages from political leaders and the impact of austerity on local government has left resources policy in a pickle. A “double whammy” of policy problems combined with sustained declines in the value of commodities on global markets presents a real and significant threat to sustaining progress made to date and to the achievement of 2020 sector targets.
Now is therefore the right time to reassess the opportunities and economics of moving towards a more circular economy. Put simply we need a new economic realism if we are to progress UK recycling and resource efficiency. Whilst landfill levies and the public and private sector’s innovation have in recent years driven multi-billion pound investment in anaerobic digestion and residual waste technologies, the reality is a UK resource sector with rapidly aging, increasingly obsolete recycling technology and systems.
As the CIWM/ Ricardo-AEA report ‘Waste of the front line – Challenges and innovations’ highlighted – input material is increasingly contaminated as UK councils literally count the cost of cuts in front-end waste communication and collections. Out-of-specification ‘waste’ is rising by 3% for each of the last two years.
Recycling technology and systems are being stretched to the limits, regardless of collection methods, pushing up processing costs as material requires increasing ‘re-work’ to meet market demands, undermining long-term partnerships.
This against a backdrop of unprecedented resource price volatility and rising quality demands which undermine the economic case for secondary raw materials. Indeed, resource price volatility between 2005 and 2015 was three times the 1980-2004 average.
This “perfect storm”, which includes a dysfunctional PRN system and the rising impact of waste crime, is increasingly undermining the economics of the industry, UK resilience and its ability to achieve recycling targets.
But, with spring approaching, our challenge is for change. Our ask – real resource leadership as a policy priority in the next UK Parliament. Commodity markets want cappuccino, not black coffee – and technology alone is no longer the answer.
It’s time for a National Resources Council – an OfRes to strengthen the government’s ability to respond strategically to resource supply threats. A re-connect in Whitehall needs resource leadership at Westminster : strong, stable, clear and consistent policy from political leaders.
Combined with combating waste crime, Britain needs a stronger regulatory regime supporting quality and compliance in this essential utility sector. The core cities and devolution agendas provide opportunities to examine real resource efficiency opportunities at a devolved level.
We need to “lock-in” and institutionalise quality by prioritising preventative spend and smarter commercial contracts – refocusing resources for councils or corporate recycling partners on shared risk, and on engaging, consistent communication, arresting declines in recycling performance. Here the MRF Code of Conduct will help.
We are at an inflexion point and face a stark choice – further success or substantial failure. It’s time for a new economic realism. It’s time for a new economic model – one of connectivity, scale and consistency with effective and efficient regulation.
Back at the ice rink it’s time for a stark choice too. Another lap around the ice rink or home to a warm house, to mum and our new chihuahua Rango. Rango wins. Happy voting everyone.
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