Recently, I spoke about recycling markets in a recent ISWA’s event in Brussels. I understood that my points were impactful and created positive reactions, so I decided to write them down and share them with my readers. Your comments are more than welcomed, of course.
My major idea is simple. We can’ simply speak about market failures. I believe it is something more radical and permanent. It is a market disruption!
See how an OECD report describes the problems of recycling markets. “Five issues have been identified as potentially significant barriers and failures in markets for recyclable materials: search and transaction costs; information failures; consumer perceptions and risk aversion; technological externalities; and market power.”. Allow me to say that those five issues are very frequently combined, and so, in those cases it’s not a market failure because there is almost nothing left from what we call “market”.
In the same mood, we can’t simply speak about price volatility in recycling markets and how we will manage the revenue fluctuations that can make or break a recycling program. It’s not enough to negotiate long-term contracts or other revenue/risk sharing agreements, and broadening markets by developing local manufacturing demand for recycled feedstocks can moderate revenue peaks and valleys. Because higher price fluctuations are becoming more and more the new normal and not the exception.
Temporarily, some of the problems can be explained by the combination of the global recession with the continuous increase in supply of recyclables. As an example, China’s decision to boost its domestic recycling market, Brazil’s slowdown and Europe’s stagnation have created a picture in which a falling demand (relative to supply) allows end users to be more selective in respect of quality. At the same time, due to the shift towards resource management, the growing significance of recycling in the management of waste is increasing the extent to which the costs of waste management are affected by commodity markets, as it was noted in the Resources & Waste UK report “Managing the Risks from Secondary Raw Material Price Movement“.
But I think that the problem with recycling markets is more systemic. What really happens is that the global recycling markets are disrupted by the combination of two major trends of our era, the 4th Industrial Revolution and the Circular Economy.
First, recycling markets are disrupted by the rise of the 4th industrial revolution that changes the production and consumption patterns in each and every industrial sector. The 4th industrial revolution redefines the very meaning of the words “raw material“, “waste” and “recyclables” and this redefinition disrupts the markets of energy and commodities in a very radical way. Thus, recycling markets are victims of their nature: by definition they are part of the resource and commodities’ markets. As an example, consider how seriously the e-waste market will be disrupted by Apple’s Liam robot that will recycle iPhones. Or imagine what will be the impact of 3D printers efforts to manage plastic recyclables with 3D printers will be proven successful.
Second, recycling markets are disrupted by the emergence of the Circular Economy Concept. The emphasis to reuse and repair and the closer links with resource management, although we are still far away from becoming mainstream, has a real footprint: the shift towards recycling programs that provide pure materials and not the usual dirty, cheap materials’ mix that’s suitable only for secondary fuel! As it is mentioned in a recent report by the UK Green Alliance “Addressing this structural problem requires a shift in thinking: resource recovery should be based on preserving material value so that existing demand for high value recyclate and recovered parts can justify investment in reprocessing infrastructure. In practice, this means that collection and processing systems need to operate at a suitable scale to meet the needs of high quality reprocessors and remanufacturers.”
Well, you can’t manage a huge disruptive wave with some improvements. The future requires more radical approaches and a systemic shift in our thinking about waste management and recycling. Some adjustments, some innovation in business models and a little bit of redesign in some products are not enough to address the biggest shift in human history.