New Packaging Policies Are A Global Game Changer

Thursday, May 24th, 2018

Susan Hansen, Global Strategist, Food&Agri Supply Chains for Rabobank, explores the changing packaging policies in China and its global impact.

The Policy Challenge

Over the last couple of years, local and national governments worldwide have presented strategies for dealing with the growing challenges of packaging waste. Some of these proposed legislations will have far-reaching implications for the packaging industry, primarily for producers of plastics- and paper-based packaging. These policies can have a ripple effect on the entire global industry.

From Plastic Bags To Recycled Paper Waste

Globally, an ever-growing number of countries are introducing laws and policies to reduce, discourage, or ban the use of certain types of packaging materials. And it’s not just developed countries—many developing countries in Africa and Asia are getting involved, too. Examples include:

Europe and the US: Various regulations and voluntary initiatives to prevent and reduce disposable packaging waste from, for example, coffee cups
Kenya: Severe penalties for non-compliance with the plastic-bag ban
India: Requiring packaging producers to set up a system for collecting the (multi-layered) plastic waste generated by their products
UK: Ambitions to achieve “0 percent avoidable plastic packaging waste”
EU: Ambitions to ensure that 100 percent of plastic packaging is either recycled/recyclable or re-used
China: Bans and restrictions on imports of certain types of waste as input for packaging material production

Restrictive policies and regulations can have a far-reaching, and perhaps even unintended, impact across the packaging supply chain. Not only for the material (such as plastics) for which the policy was designed, but also for substitute materials (like paper, metals, or glass). To understand this effect, let’s take China as an example.

China’s Import Restrictions On Recovered Paper (RCP) Products

Since 2013, China has adopted a range of policies such as ‘Operation Green Fence’ and the ‘National Sword 2017’ campaign. These policies were both aimed at addressing various environmental issues (such as curbing the smuggling of foreign contaminated paper waste products), as well as (indirectly) used as an instrument to develop a larger degree of self-sufficiency when it comes to high-quality RCP, such as old corrugated containers (OCC), to produce containerboard.

At the end of 2017, China imposed a complete ban on the mixed paper category of RCP (used to produce boxboard), which led to an overnight 20 percent reduction of RCP imports, amounting to 4.9 m tonnes. In January 2018, China imposed further import restrictions through a new maximum RCP contamination standard at a strict level of 0.5 percent versus the previous 1.5 percent.

Another policy instrument employed by China: import quotas. Between 2015 and 2017, the volume of import quotas nearly halved as a result of combined policy measures.

Finally, unexpected restrictions also pop up occasionally. China just announced a 100 percent inspection rate for OCC/RCP shipments from the US—for the time being, this measure would last from 4 May to 4 June. This will most certainly increase the rejection rate of US cargo.

What This Means For The Chinese Paper Value Chain

The effects of these new policies are far-reaching. China is still very dependent on imported RCP (Figure 1), so the price of domestic OCC and containerboard has already increased due to scarcity, and the restructuring process of the (corrugated) paper packaging industry has accelerated. Depending on how strictly China will enforce its policies,

RaboResearch estimates that local importers will face an OCC import gap of roughly 3.2 m to 8.2 m tonnes.

These developments partly drive investment initiatives by Chinese authorities to establish better waste-recycling systems and increase the self-sufficiency in OCC/RCP. The Ministry of Industry and Information Technology has set a goal for China’s domestic RCP recycling volume to reach 55 m tonnes by 2020, corresponding with a recycling rate increase to 50 percent. They are backing up these ambitions by introducing subsidy and penalty schemes. In January 2017, the government announced for example that it would allocate USD 38.2 bn through 2020 to combat the overall domestic garbage problem. Private players like Anhui Shanying Paper Industry and Nine Dragons are likewise investing in recycling infrastructure. Finally, these changes will drive Chinese paper packaging companies to become much more internationally focused through acquisitions, partnerships, and greenfield projects.

What About Other Regions?

These stricter trade barriers will have a ripple effect on the global paper-packaging value chain. The price of OCC outside of China has strongly declined already (Figure 3), and US- and EU-based exporters of OCC/RCP need to find other channels for the lower quality products previously exported to China (Figure 2).

This has led, among other things, to an increased level of dispersion to landfills and incineration in the US and the EU, and increased exports to South-East Asian countries buying cargo not accepted by China. These countries then benefit from cheaper inputs, allowing them to produce cheaper containerboard that might subsequently be imported by Chinese converters who indirectly benefit from the import ban in this way.

These export obstacles also drive investments in waste collection and recycling infrastructure projects across the EU and the US, specifically, in order to improve the quality of OCC/RCP and thus improve market opportunities for this waste product.

In summary, the introduction of packaging regulations in one country has the potential to negatively or positively impact an entire packaging value chain on a global scale. This is currently happening in the paper packaging industry as a result of China’s changing import barriers.