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Effects of the ‘plastic pact’ on Food & Drink supply chains

Implications of the ‘plastics pact’

Plastic reduction initiatives present a significant challenge for supply chain risk management in the food and drink sector.

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Andrew Burn

Partner - National Markets Restructuring

KPMG in the UK

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Image of vegetables in plastic packaging

The introduction of a 5p charge on plastic bags in October 2015 was a certain success but the appetite for plastic waste reduction has only intensified. Government ministers and the public are demanding that more can be done to reduce the amount of plastic, a material designed to last forever, used in our society.The issue of plastic food and drink packaging has been barely out of the headlines lately, with retailers and leading brands moving at pace to pledge dramatic reductions in single-use plastic consumption.  But for those further up the supply chain responding to these commitments, it leaves a few headaches.

The first challenge

Firstly, there’s what to replace it with. To illustrate the point, take the cucumber - typically sold in the UK in a sheath of single-use plastic. This is done for perfectly sound logistical and ecological reasons – a wrapped cucumber lasts more than three times as long as an unwrapped one1.

Removing the plastic completely would likely require a complete review of the supply chain, increase food waste and the product would fail to meet retailer and consumer expectations on quality or shelf life. With no biodegradable shrink wrap plastic alternative, there is a challenge to the whole sector to inform and educate consumers on why some packaging is retained, despite initially appearing to be wasteful or unnecessary. Innovation and collaboration between retailers and suppliers to find workable solutions to these challenges is essential.

The second challenge

Retailer specifications are increasingly likely to stipulate in contracts that goods are supplied in sustainable or recyclable packaging. This will apply equally to own-brand ranges or branded goods.

If they aren’t already doing so, suppliers need to rapidly source sustainable alternatives. This may not be straightforward, as manufacturing capacity constraints will limit the supply of paper and biodegradable packaging in the short-term. Suppliers must also consider a potential uplift in packaging or distribution costs and the associated impact on margins and working capital.

The final challenge

There is potential for packaging supply disruption as plastics manufacturers exit the market. Given the importance of plastic reduction in the industry, single-use plastic suppliers will have difficulty filling the void left by large brands and supermarkets no longer renewing contracts as they pledge to use sustainable alternatives.

Plastic packaging is a high-volume business and any loss in orders is likely to make some suppliers vulnerable. The impact could have a significant knock-on effect on food and drink manufacturers relying on this single-use plastic to be readily available to package their produce. Food manufacturers need to consider the risks of packaging supply as part of their broader Third Party Risk Management strategy. In particular, they need to consider the proportion of turnover they represent with their plastics supplier. Firms must be proactive and engage in contingency planning with the suppliers and ensure they have minimised the risk of ‘holding the baby’. If they are dependent on a supplier but its other customers have terminated contracts they run the risk of being required to keep the supplier going on their own to avoid production disruption.

For the manufacturers who are on the front foot, the move to more sustainable packaging is an opportunity to gain market share and foster sector innovation.

If you are facing any of these issues, please get in touch. 

1The Independent - A Lesson in Packaging Myths

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