Defra's Resource Security Action Plan, published last week, comes as the issue of accessing and securing raw materials rises quickly up the manufacturing agenda. Earlier this year we surveyed executives to find out what they perceived as the biggest threats to growth. The Eurozone crisis? Access to finance? Accessing the right skills? Perhaps surprisingly 80% of respondents said access to raw materials was a risk to growth. One in three said it was their top risk.
Why? Well there are probably a number of reasons for this emerging as a critical risk. For one, the chemical's legislation REACH means that supply (and use of) certain chemicals which are deemed to be “of high concern” is uncertain. In addition, 2013 sees the next tranche of registrations of chemicals. This time chemical manufacturers are required to register dossiers for all chemicals placed on the market between 10 and 1000 tonnes. For some the costs of pulling together the dossier might outweigh its market value. We certainly saw some substances being withdrawn from the market during the previous registration round. There's a good chance we will see the same again in 2013.
There is also increasing competition and demand for certain materials. A lot of attention has been paid to rare earths whose supply is risky due as worldwide production is concentrated in a few countries, demand is expected to grow rapidly, they are not widely recovered nor are they easy to substitute. The US Department of Energy said in its latest critical materials strategy that a number of rare earth materials were heading for critical levels in short-term supply and predicted there could be problems in the supply chain imminently. Many of these materials will play a crucial role in the very type of manufacturing the government is keen on growing – high value manufacturing as well as low carbon and green technology.
But supply risks are not just limited to rare earths. Material price fluctuations in part reflect growing demand from the emerging markets. A recent analysis by FTSE350 profit warnings in 2011 found nearly a third was attributed to rising resource prices. Rising demand is creating other impacts. I heard of one manufacturer whose supply of titanium oxide, a substance which is used as a white pigment in plastics, stopped completely as everything was now being sent to China. Equally, manufacturers are growing wary of having to source raw material from the Far East. One member highlighted how it was sourcing recovered plastics from China as it could not find the quality it needed in the UK. Relying on this supply was making the company nervous.
So it was welcome news to hear that the Defra was developing a Resource Security Action Plan. Certainly it is something our international competitors are taking extremely seriously. Japan is treating recycling as a key strategy for bridging the gap between demand for rare earths and their supply and has earmarked Y42 billion (roughly $550 million) for the development of rare earth recycling. It has also earmarked $65m to help manufacturers reduce their reliance and consumption of these materials. This month, Germany has forged a rare earth and technology swap with Kazakhstan – a strategic partnership worth some €3 billion. It has already signed a similar deal with Mongolia. In the US, some $31.6m has been invested into 14 research projects to study ways to reduce or eliminate use of rare earth elements. At least a dozen bills have been introduced into Congress supporting the development of a domestic rare-earth industry. China, meanwhile, which holds most of the world's operational rare earth mines, has been taking steps to limit exports and enhancing domestic consumption.
It is against the responses by our international competitors that it is best to view the outcome of the government's action plan. The new actions which the government has committed to include:
- An innovation challenge to fund closed loop economy projects in the next financial year. To be coordinated between the Technology Strategy Board through the Small Business Research Initiative.
- Government will explore the feasibility of applying the principle of Individual Producer Responsibility to waste electronic and electrical equipment (WEEE).
- Government will look to expand on the data it collects on WEEE treatment and recycling
- A new critical materials dashboard will be launched to better provide companies with the information they need to manage resource risks to their operations. This will be launched by January 2013.
- Material flow analysis will be developed, looking initially at WEEE ‘hot spots'
- WRAP will conduct demonstration trials of critical material recovery through WEEE treatment
- A new industry consortium, convened by Green Alliance, will address resource opportunities and concerns, disseminate leadership thinking and provide a forum for policy innovation.
This is a reasonable first step. But there are some serious drawbacks. For one, the funding through the innovation challenge is just £200k. While some might think that we should be thankful for that in today's economic climate it is worth noting, as one waste pundit highlighted this week, that Eric Pickles has been given £200 million to persuade local councils to return to weekly household waste collections. The amount dedicated to support industry is paltry compared to commitments in Japan and the US. The other is that it is seriously WEEE-focused. At the moment we collect and treat just 16% of small WEEE. We need to recycle many more of these products to get a critical amount of material to make more sophisticated recycling technologies to be viable.
We would like government to take a much broader view of resources. We need a resource strategy that looks to extract all the valuable, reusable materials contained in the products and materials we throw away and to minimise what we produce in the first instance. It needs to consider all the materials needed to create a healthy, vibrant manufacturing industry and consider how these materials flow through the economy. At the heart of these considerations must be resource security, resource quality and incentives to encourage more resource efficiency.