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Packaging’s moment of truth

What lies ahead for the Packaging Industry in 2020? Neil Farmer examines the road ahead and discovers it’s not all bad news

I am pleased to have the opportunity to outline my perspective on some of the key issues facing the global packaging industry in 2020. I suspect that many commentators and industry experts will have started their analysis by saying that the year ahead will be challenging. The word crops up with monotonous regularity in this context and is often seen as a euphemism for tough or bad. I wouldn’t go that far and indeed am optimistic that 2020 will yield some positive outcomes.

Global packaging market

What is without question is that markets are under pressure from global geo-political headwinds which will continue to blow through the year and beyond. The dangers of an economic downturn are plain for all to see. I`m a great advocate of global free trade. The potential for disruption in the free movement of goods and services will bear heavily on our thinking in the year ahead. This is particularly so because packaging markets are global, large and growing. The global consumer goods packaging sector was worth $485 million in 2019. It will grow at a rate of 3 per cent annually over the period to 2024. Luxury packaging will grow at a rate of 5 per cent per annum over the same period. Significant expansion in Asian and other emerging markets will fuel further growth in the luxury sector, as will M&A activity.

Environmental issues

All these positive influences will play out in a market which is facing more environmental challenges. The European Union Single Use Plastics Directive will result in the banning of various plastics materials, the requirement for a minimum recycled content of 50 per cent in all plastics packaging and tough plastic recycling regulations. The Directive will require 90 per cent of plastic bottles to be recycled by 2029.

Major packaging producers now take the environment very seriously (not that they didn`t do so before). At the top of its agendas, Amcor, one of the world`s largest packaging companies, lists environmental concerns as the number one risk in its latest annual report. Global packaging companies like Mondi are taking out full page adverts in the business press with slogans such as: “Mondi makes packaging SUSTAINABLE by DESIGN” and “PAPER where POSSIBLE, plastic when useful”. Similarly, Smurfit Kappa is currently running ads saying: “Let’s make packaging for a sustainable world”. The message here is: choose companies that are helping to make packaging waste extinct. These are powerful statements for the target audience of investors and business leaders and, of course, consumers. They demonstrate how Mondi, Smurfit, Amcor and others plan to be ahead of the game in the world of 2020. This is understandable because profits of plastic packaging producers will come under considerable threat in the medium term if they continue to use virgin plastics.

Consumer brands and the Circular Economy

Consumer brands are seeking not just to use more recycled substrate but recycle more of their packaging. The proposed Deposit Return Scheme (DRS) in England will help brands in obtaining good quality recycled materials, although there are those who are sceptical about the efficacy of the system. In late November 2019 Coca-Cola Sweden announced that from 2020 it will make all of its plastic bottles from 100 per cent recycled material, becoming the first country worldwide to do so. By switching to this material, the company will eliminate the use of 3,500 tonnes of virgin plastics each year in Sweden. The development of the circular economy will advance at a fast rate throughout 2020 with initiatives by Coca-Cola and other brands in many countries all over Europe.

Political factors

As I write this, we do not know the outcome of the UK`s December 12 General Election. As things stand, the current Brexit deal could be passed in parliament by the new end-of-January deadline. After this momentous event a transition phase with the EU ends in December 2020. If a free trade agreement is not secured by this time, (and there`s a distinct possibility that it won`t), the UK will crash out without a deal. This would not be an outcome which many in the industry, the author included, would want. The election will decide the fate of the government`s Environment Bill, so again the outcome is uncertain. It is safe to assume, whatever the result, that minimisation of the use and the impact of single use plastics will follow. More coherence and consistency on the issue of recycling will also result. This will be welcomed by all stakeholders in a complex chain, where exports of low-grade plastics to Asian and Eastern European countries will again be a hot topic. Indeed, these could be banned to non-OECD countries. If this happens one of my wishes for 2020, namely more investment in recycling infrastructure, including the separation of good from bad plastics in the recycling stream and greater financial support to resolve the waste issue, will simply have to occur and QUICKLY. The industry needs coherence, consistency and, above all immediate action to resolve these issues.

Chemical recycling in 2020

Chemical recycling is a topic which is being viewed with interest by many in the plastics industry. Starting from a low base, it has the potential to bring what has been described by some as game changing affects to the recycling market. Some analysts are cautious about its impact, suspecting this will not be large. However, with companies like Berry Global and Saudi Basic Industries (SABIC) promoting their partnership in the creation and use of initial volumes of polyolefin resins made from chemical recycling, it has to be taken seriously. These companies are not alone in undertaking work in this field, so developments in 2020 will be watched keenly.

The Paper Bottle project

2020 will see many innovations in packaging with sustainability to the fore. I would identify The Paper Bottle project, run by The Paper Bottle Company (Paboco), a joint venture between Billerud Korsnas and ALPLA, as one of those to watch. Consumer goods companies including The Carlsberg Group, L`Oreal, The Absolut Company and Coca-Cola Europe are also involved in the project. The opportunity to bring a fully bio-based and recyclable paper bottle to market would be a dream for some. What excites me about the development is the involvement by chemical technology company Avantium, whose material polyethylene furanoate (PEF) will be used in the project. A thin layer of PEF will provide the paper bottle with high barrier properties, leading to a longer shelf-life of packaged products. Those who have read articles written by me previously will know how enthusiastic I am about PEF. It is 100 per cent bio-based and said to have superior barrier and thermal properties to PET. The paper bottle is fully recyclable by separating the PEF from the paper. Development work of the paper bottle will continue in 2020 with Avantium undertaking controlled testing and gaining experience with the companies participating in the project. Ultimately the paper bottle will be suitable for packaging end-use applications including soft drinks, fruit juices, mineral water and alcoholic beverages. A potentially important development for 2020 and beyond.

Mergers and acquisitions (M&A) activity

The industry saw some mega-deals in 2019, including Berry Global`s acquisition of RPC Group and Amcor`s purchase of Bemis. 2020 will bring more corporate mergers and acquisitions (M&A) activity. Deals of the size and complexity of Berry`s and Amcor`s purchases often trigger off further rationalisation and consolidation. No crystal ball here, but more will surely follow.

M&A activity will also be driven by falling profits, particularly in the fragmented plastic packaging sector. Plastic packaging producers, many of them small medium enterprises (SMEs), will battle to retain market share in the face of the industry`s anti-plastics sentiment. This will result in the inevitable squeezing of profit margins and the consequential closure or disposal of loss-making businesses. Global packaging groups with financial muscle, technological expertise and critical mass will benefit from these developments, acquiring smaller companies who possess innovative products and good R&D, but who are no longer profitable.

Optimism for 2020

The industry has gone through periods of economic uncertainty before. Those of us with long enough memories will recall the industrial disputes and disruptions of the 1970s and 1980s, the economic downturns of the 1990s and the financial crisis of 2008. The year 2020 does not feel the same to me as these previous times. There is cause for optimism that the year and indeed the decade ahead can be good for the packaging industry.

Managing Director of Neil Farmer Associates. One of the world’s leading authorities on packaging and a fellow of the Institute of Packaging. Author of: Trends in Packaging of Food, Beverages and other fast-moving Consumer Goods (FMCG), published by Elsevier.
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