How is cost inflation

How is Cost Inflation Affecting the Transition to Sustainable Packaging?

ChAI
Published by ChAI
Feb 16 2023
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There are few areas of day-to-day life that have not yet been impacted by inflation over the past year. One area where the rising cost of materials is causing a challenge for consumers and goods manufacturers alike is the popular transition from single-use plastics to more sustainable forms of packaging. In recent years, many consumers have become increasingly aware of the environmental impact of their purchasing habits and one area which has particularly fallen under the microscope is plastic packaging. Now often viewed as an integral part of a product, rather than a distinct item, packaging has become an intriguing intersection between environmental idealism and commercial practicality. However, as sustained cost pressure shifts the priorities of both consumers and manufacturers to the short-term, the future of packaging may also evolve.

Climate Commitments

In the last few years there have been many pledges made by both private companies and international organisations to reduce reliance on plastics in packaging. As recently reported by the Financial Times, the EU proposed new regulations in November 2022 for plastic packaging within the bloc. The proposal ranges from banning mini bottles of shampoo in hotels to changing the recycling regulations for metal cans, and ultimately demands that all plastic packaging should be recyclable or reusable by 2030. This follows on from legislation passed in 2019 and enacted in 2021 which banned single-use plastic items such as straws and polystyrene coffee cups. The EU asserts that, at present, 40% of virgin plastics and 50% of paper is used in packaging by member states and that in both cases there is an upward trend in usage which the new proposals are designed to combat.

Legislation to combat the environmental impact of packaging consumption is not limited to the EU. Last summer, California implemented new rulings that require all packaging to be reusable or recyclable by 2032. As noted by the FT, California has the fifth-largest economy in the world, so this move may act as a trailblazing standard for the rest of the United States. The move will encourage more companies to favour paper or cardboard packaging, which although less versatile and more expensive than plastic, is more easily recycled and has proved to be a more popular choice for consumers.

There are even instances where companies are transitioning backwards with regards to their packaging in order to avoid plastics. In Germany, for example, Nestle is trialling a partnership with a company that manufactures reusable stainless steel cans to replace plastic packaging for Nesquik cocoa powder. Ironically, cocoa powder was commonly packaged in metal cans prior to the advent of plastic packaging. The pilot scheme comes as part of Nestle’s plans to reduce its reliance on virgin plastic for packaging by one-third by 2025 compared to 2018.

How is cost inflation2

Purchasing Patterns Slower to Change?

The commitments of private companies, combined with legislation, to reduce the volume of plastic packaging used each year suggest that consumer goods companies are undergoing evolution, if not quite revolution. However, there are many indicators which suggest that the actual speed of transition is not keeping pace with the pledges and commitments.

In a recent speech at The Packaging Conference in Florida, the MD of Beverage Market Corp. reported that bottled water sales in the United States increased by 2% in 2022, as noted by PlasticsNews. While not matching the 4.6% growth of 2021, this growth nonetheless seems incongruous with the perception that consumers want a transition away from plastic packaging when single-serve PET bottles account for 71.3% of the US bottled water market. Given there is a more environmentally and economically sustainable option for consumers - tap water - this growth in the PET bottled water market demonstrates how convoluted this issue is and suggests consumers would prefer that manufacturers initiate the change.

While consumer preferences may be evolving more slowly than the public perception, there is also the reality that many pledges to change packaging have been discovered to be more difficult than first thought. As noted by John Blake, a senior director analyst with Gartner’s Supply Chain Practice, in an interview for Packaging Europe, “we know a lot more now about the feasibility of these goals than we did just a few short years ago” and many of the goals for the recyclability and reusability of plastic packaging are not as attainable as first thought.

Finally, there is also the issue of cost saving by both consumers and manufacturers alike. Sustainable packaging options tend to be more expensive than standard plastic packaging. As consumer goods manufacturers try to minimise their production costs in order to reduce prices increase for the public and maintain their customer base, there is a conflict of interest between current pressures and future promises. Furthermore, the cost increases faced by manufacturers do not appear to be subsiding in the near future, as demonstrated in the image below which shows ChAI’s Monthly Average Forecast for HDPE Film prices in Northwest Europe this year.

Hdpefilmmaverageforecast16thfeb

ChAI’s Monthly Average forecast for HDPE Film (NWE), 16/02/23

Looking Ahead

Going forward, the challenges of adapting the packaging industry to meet both legislative demands and consumer preferences will not disappear any time soon. In market research firm Mintel’s ‘Consumer Trends 2023’ report, they reported finding that “consumers will want proof of a brand’s ethical credentials, which could go beyond environment friendly positioning” and packaging will certainly fall within this scope.

Returning to the interview with John Blake, he suggests that a more nuanced understanding of packaging is required from consumers and producers alike. His suggestion of a life cycle assessment of the carbon footprint of packaging, rather than binary judgments based on whether the material used is ‘good’ or ‘bad’, may enable a more sustainable approach in the future. Whether guided by this or another proposal, the packaging industry will be an area in which innovation will benefit all parties along the supply chain.

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