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Packaging taxes are coming for food companies: 4 actions to take now

Extended producer responsibility puts a price on the packaging materials a company brings into a state.

Recycling Bins

Food companies are struggling to meet the recycling goals they made for themselves. Image via Nareeta Martin/Unsplash.

Packaging has been a huge waste problem for decades. According to the Environmental Protection Agency, in 2018 packaging was 28 percent of total waste generation in the U.S. Plastic in particular has become a lightning rod for environmental activists because of its difficulty to be recycled and projected exponential increase. 

According to the World Wildlife Fund, by 2040 plastic production is predicted to double and plastic pollution entering the ocean is expected to triple. And by midcentury, plastic production will account for at least 10 percent of all global greenhouse gas emissions. The United Nations Food and Agriculture Organization estimates 37.3 million tons of plastic were used in food packaging worldwide in 2019. 

Because of consumer pressures, many consumer packaged goods companies have made plastic and packaging commitments — plans to reduce their packaging footprints. In August, Kraft Heinz announced a goal to decrease virgin plastic by 20 percent by 2030. PepsiCo has set a goal of reducing absolute virgin plastic from non-renewable sources by 20 percent by 2025. The company is also expanding beyond plastic, focusing on designing 10 percent of packaging to be recyclable, compostable, biodegradable or reusable by 2025. Danone has the audacious goal of being 100 percent circular and low carbon for its packaging but doesn’t put a time constraint on that goal. 

Food companies are still struggling to meet the recycling goals they made for themselves. Coca-Cola aimed for 25 percent of its bottles to be made from recycled plastic but in 2020 it was only at 10 percent. Mars committed to 30 percent of packaging from recycled plastic by 2025. By 2020, it was still at 0. Soon, food companies may have a new, additional incentive beyond consumer pressure forcing the packaging and plastic conversation and pressure to meet these targets: Extended producer responsibility (EPR) is coming for the packaging world. 

What is EPR?

EPR puts the burden of collecting a product at the end of its life onto the company that created the product. There have been EPR laws for products such as batteries, electronics, mattresses and motor oil for years. But packaging EPR is a whole new ballgame.

"Packaging recycling touches everybody's life, every day," said Andriana Kontovrakis, director of compliance services at Reverse Logistics Group. "Every day you're consuming products that have packaging. So it's either hitting your waste stream or your recycling stream. And the way it's collected is considered an essential service to most local governments." 

So far EPR laws for packaging have passed in four states — Maine, Oregon, Colorado and California. About a dozen more will introduce legislation this year.

According to Olivia Barker, spokesperson for the Circular Action Alliance, a key difference between EPR for packaging and EPR laws for other products is that the packaging collection will mostly be done through expanding traditional curbside processes. Other EPR laws, like for mattresses and electronics, have tasked brands and stores to create store drop-off points or other collection methods themselves. 

EPR for packaging will work like a tax, where companies pay a fee for the amount and type of packaging they bring into a state, and that money is then reallocated to the existing recycling infrastructure to increase recycling rates of all packaging. Changes and improvements could include adding curbside service to multifamily residences, which would increase the number of routes and bins, improving collection and sorting at recycling depots, which would require an increase in containers, equipment, labor and land, all the way to building new recycling facilities.

The goal is to encourage companies to be more thoughtful, innovative and efficient with their packaging while also supporting more collection and recycling. The fee structures are being developed by cross-sector groups called producer responsibility organizations (PRO). The Circular Action Alliance is the PRO in Colorado, with members including Unilever, PepsiCo and L’Oreal, while Reverse Logistics Group has applied to be the PRO in Oregon. Once the fees begin to be collected, the PRO will also be in charge of distributing the money.

While the EPR laws for packaging are still very new and much of the fee structures — such as what and how different types of packaging will be taxed — and other nuances are still being figured out, there are still things food companies should start doing to be prepared. 

1. Start getting organized

Knowing how much, what type and where your packaging goes will be critical to understanding how EPR laws will affect your business. And you will have to submit those numbers to the PRO. For some companies this might be easier, such as if you sell primarily online, but for companies that have distribution centers this will be much harder to track.

Kontovrakis suggests reaching out to the counterparts at your company in other countries where EPR laws have been on the books for a while — such as Canada, Japan, South Korea and Europe. Start figuring out who has the knowledge base and can share tactics and lessons with the U.S. side of the business. 

2. Get buy-in from leadership

EPR laws will force companies to pay millions of dollars they weren’t paying before, according to Kontovrakis. That will be a shock to the CEO and chief financial officer, and they will want to understand the ins and outs of the new regulation. 

"We talked to people where they don't have enough staff [to start tracking packaging]," she said. "[If] they don't have buy-in, you're going to be struggling. You're gonna have to do this and report on this. You need to get organized."

Someone needs to step up to be the champion of EPR at your company to understand what will happen, how it will affect different parts of the company and what needs to be done at each step.

3. Talk to your suppliers 

Companies will need to engage with their packaging suppliers to truly understand all aspects of their packaging and thus how the EPR fees will work out. Many PROs are exploring a concept called eco-modulation — where some packaging products will have higher or lower fees depending on how easily recyclable the material is or its other desirable attributes.

According to Kontovrakis, companies will need to know a lot more about their packaging than they do now. Factors such as knowing the exact material, the recycled content, the future recyclability, the color and thickness, if there are any concerning chemicals in the packaging and if it is a blended material such as waxed paper or plastic-lined paper will become key to making EPR laws work for you instead of against you.

4. Join the PRO so you have input

EPR laws are in the very early stages. And much of these fee structures as well as details of the packaging taxes haven’t been finalized. By joining a PRO, your company can have a say in how these rules get defined and implemented. You can bring up your concerns and have a role in shaping the direction. The PRO will also help explain a system that can be complex and confusing. 

The zero packaging and reusable packaging agenda lost momentum during the COVID-19 pandemic when health and safety came to the forefront. Hopefully this new incentive scheme will breathe new life into an important aspect of the climate agenda.

CORRECTION: A previous version of this article misstated the name of the extended producer responsibility laws.

This article originally appeared as part of our Food Weekly newsletter. Subscribe to get sustainability food news in your inbox every Thursday.

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