Deposit return scheme will alter Scotland's competitive landscape

The jobs angle was underscored yesterday by the announcement from Circularity Scotland, which gave Biffa the contract, that a new recycling centre is to be established at a former parcel depot at the Eurocentral industrial park in Motherwell. Eventually employing 140 people, it will form part of a network of processing sites run by Biffa to sort materials before they are sold on for recycling.

Despite the controversy around DRS, Biffa operations director Gavin Money said the company continues to work closely with Circularity Scotland to progress plans towards launch on August 16.

Lorna Slater has come under fire about the DRS scheme

Circular economy minister Lorna Slater – who has come under intense fire over the structure and cost of DRS – said the investment at Eurocentral was another example of the wider economic benefits of creating a greener economy.

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

“It is great news that a state-of-the-art recycling centre is coming to Eurocentral – this investment is a direct result of Scotland’s deposit return scheme and shows the wider benefits it will bring to our environment and economy.”

READ MORE: Getting a return on all those 20 pence deposits

Others, including the three contenders to replace Nicola Sturgeon as First Minister, are less convinced. All of the leadership hopefuls have indicated they will to some extent pause the introduction of DRS, which finance secretary Kate Forbes has warned could cause “economic carnage”.

Putting the scheme on hold would have financial ramifications for Circularity Scotland, which will rely on revenues from the container deposits collected to fund its operations and staff of 45 full-time employees. It would need alternative financing in the event of a pause to prevent it from running out of cash.

Delay would also put a question mark over the £18m in loans that have been extended to Circularity Scotland from Lloyds Bank and the Scottish National Investment Bank, as well as the group’s agreements with Biffa and others who have provided £100m in capital funding to establish the DRS network.

Meanwhile, pubs, restaurants and other venues that have existing contracts with rival waste management companies will from August have no alternative but to accept Biffa’s services for the collection of glass bottles, plastic containers and aluminium cans.

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

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

“I don’t know how that’s competitive, and I don’t know how that affects the contract I’ve got with the new waste management company. There may well be a secondary business impact there.”

Results released last week from a survey commissioned by Norwegian group TOMRA – one of the world’s leading producers of reverse vending machines (RVMs) – unsurprisingly found “clear and unambiguous” public support in Scotland for DRS. Of the 1,080 people questioned in February, 65 per cent said they were pleased that Scotland will be the first UK nation to introduce a deposit return scheme.

RVM manufacturers have also been supporting trial runs of their equipment in Scotland as DRS is set to create a new high-volume market for their wares. There is further incentive to go down this route as the handling fees for some automated returns are higher than for containers handed back over the counter.

In January Circularity Scotland announced a 19% increase to 3.7p paid per item on the first 8,000 containers received each week via RVM, falling to 1.6p for each 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 purchased or leased, but at an assumed price of £12,500 to buy outright, one retailer reckoned her business would have to take a minimum of 400 containers per day just to break even on the purchase price.

Natalie Lightfoot of Londis Solo Convenience is also concerned that wholesalers based in England, where DRS will not come into effect until 2025, may withdraw from the Scottish market because of the complexities in operating north of the Border.

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

For their part, wholesalers will have to decide how much additional risk they are prepared to take on extending credit to customers at a time when the retail and hospitality sectors are under strain from the crunch on consumer spending.

Steve Annand of Inverarity Morton, which predominantly serves the hospitality sector, said the Scottish wine and spirit merchant’s debt exposure will “go up overnight by 25% to 30%” as a result of DRS.

“We need to consider whether we are reducing our credit terms, or whether we are going to have bigger risk in the marketplace at a time when the independent hospitality industry is under real pressure,” Mr Annand said.

READ MORE: Business owner speaks out on bottle return scheme: 'We are flailing'

“Across all suppliers, there will have to be a contraction in [credit] terms because individual wholesale can’t take all of the risk of pub closures and failures.”

He added: “For the end hospitality user, the reality is their costs will be higher and the likelihood across the whole trade is that the extension of credit will have to be pulled in, because even if we give somebody a £10,000 credit limit for the month, they are going to hit that quicker buying the same amount of stock because the cost of the deposits make up [part of] the money they owe us.”