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Wednesday, December 7, 2011

Strategic CSR - Coca-cola

The article in the url below questions the value for firms in investing in recycling.

In January 2009, Coke opened a state of the art recycling facility in Spartanburg, North Carolina. We featured it in the second edition of Strategic CSR (Case-studies: Paper vs. Plastic, p314). Coke opened the plant with the ambitious goal “to recycle and reuse 100 percent of its plastic packaging in the United States” (http://www.csrwire.com/press_releases/17692). Two and a half years later, as Coke’s director of sustainability Scott Vitters puts it:

We’re not exactly where we’d want to be. Last year the plant produced only about a third of its targeted 100 million pounds of plastic recycled from PET, or polyethylene terephthalate. For much of this year, the 120,000-square-foot facility has remained mostly unused.

The reason offered in the article to explain the poor performance is a combination of low consumer recycling rates in the U.S. and Coke and Pepsi’s opposition to 5 or 10 cents bottle deposits. Both factors constrict the supply of used plastic bottles delivered to the plant, which increases per unit costs:

So low is the supply of recycled, bottle-grade PET that its price is about 10% above that of virgin PET in the U.S., according to Coke and recycling industry executives.

It gets worse:

The U.S. recycling rate for plastic bottles made from PET, typically derived from petroleum, was 28% in 2009, according to the National Association for PET Container Resources. That compares with a recycling rate for PET plastic bottles of nearly 50% in Europe.

A bottle deposit would help (Issues: Compliance, p310), but the soft drinks firms are reluctant to experiment with anything that would push up their costs and/or price, especially in a difficult economy:

The PET recycling rate in the 10 states with bottle-deposit laws is more than double the national average. In California, which recently strengthened bottle-deposit rules, 68% of PET bottles were recycled last year, according to the state. Europe also uses bottle-deposit rules and other variations of "extended producer responsibility'' laws requiring bottlers to bear recycling costs.

The outcome is disheartening and will discourage other firms from investing in recycling technology:

Due in part to the woes at the Spartanburg plant, Coke only has about 5% recycled content in its plastic PET bottles today, down from 10% roughly five years ago. PepsiCo Inc. says it has 10% recycled PET content. Both rates pale with recycled content in aluminum beverage cans, which stands at 68%, according to the Aluminum Association.

In spite of these figures, Coke says its recycling goals remain in place:

to recycle or reuse 100% of its bottles and cans in the U.S. by 2020, and aims to have 10% recycled content in its PET bottles again by next year.