Film and bag producers, already beset with a host of competitive challenges, are finding that each day seems to bring yet another one.
When the industry met Oct. 29-30 in Chicago for the fall conference of the Film and Bag Federation, the usual issues - rising raw material costs, onslaught of competition from low-cost foreign producers, proposed taxes and product bans (particularly in California) and a low growth rate - were on their minds. But so were two new issues, as well.
That is: What impact will the Nov. 7 elections have on public policy in Washington, and how will the new Wal-Mart Environmental Sustainability initiative and supplier packaging scoreboard change how film and bag makers do business?
Manufacturers are concerned that the Wal-Mart initiative, while creating opportunities because it intends to shrink the amount of packaging, also will create difficulties by giving preference to products that are compostable, biodegradable or have higher recycling rates than film and plastic bags - where the recycling rate is estimated at only 3-5 percent.
``The Wal-Mart initiative will affect our businesses,'' said Jack Riopelle, FBF chairman, and president of Wisconsin Film & Bag Inc. in Shawano, Wis. ``As an industry, we have to be part of the solution, not part of the problem, and develop leading-edge solutions to sustaintability and recycling rates.''
Suppliers will be rated on the amount of material used, its ability to be recycled and its recycling rates, the level of greenhouse gas emissions used in manufacturing and the space needed to ship a product, Riopelle said. The industry needs to reinvent itself through innovation to this challenge, he said.
``From the standpoint of raising the awareness of sustainability, ... Wal-Mart is doing something very few organizations can do - bring the kind of attention to an issue that no one else could. It should spawn innovations in what we do and drive innovation and creativity throughout the industry,'' he said.
Also, the Nov. 7 elections that are expected to put Democrats in control of the House, and possibly lead to a split in the Senate, make it doubtful that bills already passed that would allow drilling for natural gas in the Lease 181 area of the Gulf of Mexico or in the outer continental shelf will become a reality.
``A major shift in political party control could have enormous impact on public policy outcomes,'' said Chris Brown, senior director of government affairs with the Society of the Plastics Industry Inc. in Washington. ``If we don't get something done in November, I don't see it happening.''
Another executive at the meeting was even less optimistic: ``It's just not going to happen,'' he said.
And, without that legislation, film and bag makers are unlikely to get any relief in feedstock prices. The industry's main building blocks - polyethylene and polypropylene - are tied to natural gas prices, which are higher in the U.S than in Asia, Saudi Arabia and many other countries across the globe.
More than 50 percent of PE consumption worldwide is used to make film and bags.
``Without passage of a natural gas bill, you are going to continue to see high costs and it could cause some companies to go out of business,'' Brown said.
He said high natural gas prices mean that finished products coming into the U.S. have a 12-15 percent cost advantage, even after overseas manufacturers, mostly from Asia, pay to ship them. That cost advantage is one factor driving the double-digit growth in U.S. imports of film and bags during the past two years, said Howard Rappaport, global practices leader for thermoplastics at Chemical Market Associates Inc. in Houston.
And the potential exists for countries to increase their film and bag exports to the U.S. even more. A country like Saudi Arabia, for example, would have a 40 percent cost advantage if it sold its high density PE resins to the U.S., Rappaport said. ``It's a matter of when they start to do that - not if - and how much volume,'' he said.
Although Rappaport said the natural gas wellhead prices per million Btu have declined to nearly $8, and are expected to fall to $6 by 2010, he said film and bag makers will continue to be at a cost disadvantage with offshore competitors.
The U.S. must limit its dependence on high-value commodities and instead focus on value-added features, services and products, Riopelle said.
That's particularly critical, since CMAI projects industry growth over the next three years to be 2.6 percent, or almost a full percentage point lower than gross domestic product.
Riopelle's forecast is more optimistic. He sees the flexible packaging industry growing ``at or slightly higher than GDP,'' with segments like pouches growing at two to three times GDP; and others, such as poly bags, growing at slightly lower because products like stretch film continue to be imported.
Despite the attention to those issues, it is recycling - and the continued onslaught of legislation initiatives and proposed bans in California - that seems to weigh more heavily on the minds of film and bag producers.
In August, the industry was successful in passing a plastic bag recycling bill in California that prevents communities from taxing or banning plastic bags until after the measure's sunset date of Jan. 1, 2013. Nonetheless, industry leaders are worried that the spate of proposed plastics bans in California will continue because of marine litter issues and clean waste initiatives in the state.
``We would be seeing chaos in California and it would have moved east quickly,'' without passage of AB2449, Riopelle said. That rule mandates bag producers to put together more than $1 million for education and work with grocers, retailers and municipalities to develop plastic bag recycling solutions.
``The job is not done. It is just beginning. Many of the initiatives threaten our industry,'' he said.
For example, a ban in Oakland on polystyrene containers is scheduled to go into effect Jan. 1. That rule also requires restaurants and food-service operators to use biodegradable and compostable containers as a PS alternative, provided they are available at the same price.
San Francisco will discuss a similar piece of legislation Nov. 6 that would prohibit the use of PS containers by city departments, restaurants and retail food vendors. It also would require San Francisco to provide a list of biodegradable alternative materials and require all disposable food-service packaging - cups, clamshells, plates - to be biodegradable or compostable unless there is no affordable alternative. Its backers hope to pass the measure so it can go into effect Jan. 1.
Santa Monica is scheduled to meet Nov. 14 to discuss the implementation of its PS ban, agreed upon in June, and Calabasas is weighing a similar proposal, while looking at initiatives to increase recycling.
The industry's argument, made by the Polystyrene Packaging Council, which is part of the American Plastics Council in Arlington, Va., is that such initiatives won't have the intended effect.
``Our message is that it is not the product - that it is a litter issue,'' PPC executive director Mike Levy said Nov. 2 by phone. ``You just change the litter mix, but you haven't solved the problem. The issue is an improper disposal issue and we are trying to delicately put out the fires and try to come up with solutions for the cities.''
Regardless, anti-plastics initiatives ``are not just another cycle,'' said Laurie Hansen, a California lobbyist who works with FBF and the Progressive Bag Alliance on legislative issues in the state. ``They have become real issues and have the potential of going nationwide. These issues are real and getting exacerbated.'' she said.
``They are using polystyrene as the stepping stone. They are looking to ban polystyrene first and then looking to ban nonrecyclable food packaging that is not collectible in curbside recycling.''
Hansen said the industry will continue to see proposed bans on nonrecyclables and on nonbiodegradable plastic food packages in California in 2007.