[GRRN] Recycling Profitability

RecycleWorlds (anderson@msn.fullfeed.com)
Thu, 9 Sep 1999 10:01:04 -0500

Robert Lester asked:

"3. Does anyone have the exact figures and source for the statement that
waste haulers generally make X more dollars per ton for hauling and
disposing of regular garbage compared with recycling (what type?)?
Why's that necessarily the case? Is it the structure of the industry?"

There is no answer for this question in the manner in which it is
posed. In general, at the beginning of this decade, many of the large
integrated haulers offered municipalities low ball contract offers for
recycling services essentially as a "loss leader". That is to say, it was
felt that being a "full service" provider would open more doors and fence
out more competition. In that sense, then, the recycling margins were less
at that time. But, in general, that is no longer happening.

What is happening that affects the relative profitability of the two is
that consolidation over landfill ownership, which is a bottleneck in the
solid waste industry, is increasingly establishing market power for the
large vertically integrated consolidators. With market power, those
activities interrelated with their landfill assets will obviously be able
to draw higher returns than activities which must be priced to market, such
as recycling for which there are no barriers to entry, as landfills serve
as in solid waste.

Compounding this further, returns to the collection link of the
recycling industry fluctuate with the commodity cycle (many processors
price to maintain a constant buy-sell spread and hope to thereby escape
that roller coaster). The absence of recourse to options and futures
trading to leven these fluctuations has led to a misunderstanding of
recycling's profitability by incorrectly evaluating returns at a single
point in time.

Bottom line: industry will look upon recycling as the weak sister
unless both (1) the market power conferred by landfill concentration is
broken; and (2) the underlying policy changes that can dramatically improve
recycling economics are instituted (e.g. min. content, design for

I hope that this answer hasn't hopelessly confused things further.

Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011