Two Key Trends Drive Packaging Revolution

Higher oil prices and consumer demand for sustainable packing give investors a new way to profit.

Sustainable packaging represents a massive investment opportunity, as we move away from plastics and into more responsible materials. Packaging comes wrapped around just about every product you can imagine, at some stage in its life cycle. That’s why the annual global market amounts to $420 billion. That’s why this will be a hot sector to watch.

The move away from plastics has become more obvious, with governments legislating plastics out of the market. Europe has led the way, and the US is starting to follow. Although twice defeated in the California state legislature, a bill to ban single use PVC containers likely won’t go away. Other states will certainly follow suit. At present, some 30 million tons or plastic each year get dumped in the US, and only about 5% gets recycled. That will surely change.

When it comes to what makes up sustainable packaging, most experts agree that you have to look at the entire product life cycle, from raw materials sourcing and acquisition through eventual disposal. According to the Sustainable Packaging Coalition of Charlottesville Virginia, a not-for-profit organization, materials must be sourced responsibly, designed to be effective and safe throughout the life cycle, meet market criteria for performance and cost, made entirely using renewable energy, and once used can be recycled efficiently to provide a valuable resource for subsequent generations.

Alternatives to the ubiquitous PVC plastic solutions have become more available. Plastics made from renewable resources, known widely as bioplastics, have gained plenty of exposure, lately. DuPont (DD) fired up its first biomaterials plant in 2006, selling more than a $100million worth of products in the past year, including its bioplastic called Sorona. Starting this year, Cargill’s NatureWorks unit hopes to ship 140,000metric tons a year of a bioplastic called Ingeo, for use in fresh food containers and textiles, among other things. Brazilian petrochemical giant Braskem (BAK) is spending $300million on a factory for sugarcane-based bioplastics, while Toray Industries of Japan is making plastics from fermented plant starches and sugars. There’s also a host of U.S. startups with names such as Novomer and Cereplast (CERP.OB) that make plastics from wheat, tapioca, potatoes, soy, and more.

Many of these bioplastic products have drawbacks, however. First, they must be disposed of through high temperature composting or incineration. Second, many of them draw on what would otherwise be food supplies. As such, they fail to meet both responsible sourcing and efficient recycling criteria, to varying degrees.

As the price of oil continues to rise when world economies shift back into growth mode, the cost of oil, the raw material for most plastics, will drive more manufacturers into alternative sources such as bioplastics. The corollary strain on food stocks could cause bioplastics manufacturers increasing resistance, as higher demand for corn, soy, wheat and other raw materials drives food prices up and results in social outcry and potential restrictions. With bioplastics use growing at 20—30% per year, that’s a real threat. In any case, causing starvation in developing countries so the world can have nice packages hardly amounts to responsible.

Bioplastics increase greenhouse gas emitted from landfills, and concerns exist over the use of GM, or genetically modified crops used to supply bioplastic factories.

Other alternatives to PVC and bioplastics do exist. One popular European product uses agricultural waste to make packaging material than can be easily formed to a wide range of shapes, provides color, can be transferred from freezer to oven or microwave, and can be tossed in a back-yard compost heap and turns into fertilizer.

Adoption of this kind of product has been largely driven by a growing consumer demand for the better part of a decade. Subsequent political pressure has resulted in a spreading marginalization of PVC and oil-based products through legislation.

The two trends of higher oil prices and growing demand for sustainable packaging is likely to continue for the foreseeable future, as the global move to new alternatives transforms the game, and in the process creates a good number of new investment opportunities in green packaging.