Deposit return system will change Scotland’s competitive landscape

As the sole logistics partner for Scotland’s forthcoming deposit scheme, Biffa will have a virtual monopoly on the annual recycling of billions of bottles and cans. Biffa was acquired by US hedge fund Energy Capital Partners in a £1.3billion deal last year and is investing £80million up front in Scotland’s DRS, which it says will create 500 jobs.

The employment dimension was underscored yesterday by Circularity Scotland’s announcement that they have awarded Biffa a contract to build a new recycling center on a former parcel depot at the Eurocentral Industrial Park in Motherwell. It will eventually employ 140 people and be part of a network of processing sites operated by Biffa to sort materials before they are sold for recycling.

Despite the controversy surrounding DRS, Gavin Money, Biffa’s operations director, said the company is continuing to work closely with Circularity Scotland to move ahead with plans for the August 16 launch.

Lorna Slater has come under fire for the DRS system

Circular Economy Minister Lorna Slater, who has come under heavy fire over the structure and costs of DRS, said the investment in Eurocentral is another example of the broader economic benefits of creating a greener economy.

“With billions of bottles and cans to be collected, sorted and recycled, the program will be a major national endeavor and will help create new economic opportunities across the country,” Ms. Slater said.

“It is great news to have a state-of-the-art recycling center coming to Eurocentral – this investment is a direct result of Scotland’s deposit return system and demonstrates the far-reaching benefits it will bring to our environment and economy.”

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Others, including the three contenders to succeed Nicola Sturgeon as First Minister, are less convinced. All hopeful leaders have indicated they will pause to some extent the rollout of DRS, which Treasury Secretary Kate Forbes said could cause “economic carnage”.

Suspending the scheme would have financial implications for Circularity Scotland, which will rely on proceeds from the container deposit monies to fund its operations and staff 45 full-time employees. It would need alternative funding in the event of a hiatus to prevent it from running out of money.

A delay would also call into question the £18m loans made to Circularity Scotland by Lloyds Bank and the Scottish National Investment Bank, and the group’s arrangements with Biffa and others, which provide £100m for the DRS network .

Pubs, restaurants and other venues that have existing contracts with competing waste disposal companies will have no choice but to use Biffa’s services for the collection of glass bottles, plastic containers and aluminum cans from August.

READ MORE: Deposit Return Scheme executive warns of higher prices for consumers

“Recently we have moved away from Biffa but are now being told by Circularity Scotland we have to use Biffa,” said a manager who asked to remain anonymous.

“I don’t know how that’s competitive and I don’t know how that affects the contract I have with the new disposal company. There may well be secondary business impacts.”

Unsurprisingly, the results of a poll commissioned by Norwegian group TOMRA – one of the world’s leading manufacturers of reverse vending machines (RVMs) – released last week revealed “clear and unequivocal” public support for DRS in Scotland. Of the 1,080 people polled in February, 65 per cent said they are delighted Scotland will be the first UK country to introduce a deposit return system.

RVM manufacturers have also supported test runs of their devices in Scotland as DRS looks to create a new high volume market for their wares. Another incentive to go this route is that the processing fees for some automated returns are higher than for containers returned through the counter.

In January, Circularity Scotland announced a 19% increase to 3.7p per item for the first 8,000 containers arriving via RVM each week, falling to 1.6p per item thereafter. The handling fee for manual returns and closed-loop operators – restaurants or bars – remained unchanged at 2.69p and 0.13p respectively.

RVMs can be bought or leased, but assuming a direct purchase price of £12,500, one retailer calculated that her business would need to take at least 400 containers a day just to cover the purchase price.

Londis Solo Convenience’s Natalie Lightfoot is also concerned that wholesalers based in England, where DRS will not come into force until 2025, could pull out of the Scottish market due to the complexity of operations north of the border.

Natalie Lightfoot from Londis Solo Convenience (Image: Colin Mearns)

For their part, wholesalers must decide how much additional risk they are willing to take in lending to customers while retail and hospitality sectors are weighed down by consumer shortages.

Steve Annand of Inverarity Morton, which operates mainly in the hospitality sector, said the Scottish wine and spirits retailer’s debt “will rise by 25% to 30% overnight” due to DRS.

“We need to consider whether we will reduce our credit terms or whether we will take a bigger risk in the market at a time when the independent hospitality industry is under real pressure,” Mr Annand said.

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“There has to be a contraction across all suppliers [credit] Conditions because individual wholesalers cannot bear the full risk of pub closures and outages.”

He added: “For the hospitality end-user the reality is that the cost is higher and the likelihood for the whole trade is that the credit extension will need to be taken because even if we give someone a credit limit of £10,000 a month they will they buy the same amount of shares faster because the cost of making deposits offsets each other [part of] the money they owe us.”