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A new report from consulting firm A.T. Kearney warns that consumer goods companies should be adopting sustainable strategies as a matter of long-term survival. The report, titled “Rattling Supply Chains: The Effect of Environmental Trends on Input Costs to the Fast Moving Consumer Goods Industry,” predicts that companies in certain consumer goods sectors, including food and beverages, could face a potential reduction of 13% to 31% in earnings by 2013 and 19% to 47% in 2018.
The report describes the concept of “ecoflation,” meaning a long-term price rise caused by environmental factors, in commodities used in food and packaging. These factors include climate change regulations, enhanced forest policies, growing water scarcity and new biofuel policies. The commodities include oil, natural gas, electricity, cereals and grains, soy, sugar, palm oil, and timber.
The recommendations boil down to companies paying more attention to the long-term environmental consequences of their purchasing decisions and other strategies. Practices that should be evaluated include product redesign, backwards supply chain integration, local versus global sourcing, and an upgrade of sustainability standards for the supply base.
Recycling, one of the most popular and highly visible “green” strategies available to consumer goods companies today, is taking a turn for the worse. According to The New York Times, mixed paper is selling on the West Coast for $25 a ton, down from $105 in October; tin is down to $5 from $327. The Columbus (Ohio) Dispatch reports that a ton of cardboard that fetched $105 a few months ago now brings only $22.50, while newspaper has dropped from $95 a ton in September to $5 last week.
The economy is the culprit, especially as it reduces demand in China, the biggest market for American recycled materials. Some municipalities now have to pay to have recycled trash hauled rather than getting paid for it.
On the bright side, even in such cases, it’s still cheaper to recycle the trash rather than pay to have it landfilled, meaning that recycling programs are likely to endure. And glass, which does not depend on the Chinese market as much as other materials, is seeing steadier prices. The Glass Packaging Institute recently affirmed a goal of having all glass containers made with 50% or more recycled material by the year 2013.