Circular File: Supply It and They Will Buy

“Supply it and we will buy it,” or so we are told by companies eager to buy recyclables such as used aluminum cans, plastic and glass bottles and printed and packaging paper. These companies insist their appetite for recyclable raw materials is limited only by the supply. And they say that the supply is insufficient.

I have a simple solution to this problem. If a manufacturer isn’t getting enough recyclables, it should pay more. It’s amazing how higher prices can stimulate the interest of potential suppliers. If a penny a can doesn’t pull enough used beverage containers out of the waste stream then can makers should raise the price to two pennies or five pennies or whatever it takes to ensure the supply.

Companies might respond that they have investigated the impact of higher prices and that all of their computer models analyzing price and supply show that higher prices won’t do the trick. That could be true, but maybe they aren’t feeding high enough prices into those models. After all, if higher prices don’t work why do we have a rash of copper thefts? People aren’t engaging in dangerous and illegal activities because scrap copper prices are low. I say “pay for it and they will come.”

But, of course, this obvious solution is flawed. In a perfect world manufacturers would pay whatever is necessary for raw materials. In reality they are limited by a host of factors including the price of competing raw materials. They want to keep their costs down so that they can have an economic advantage over their competitors. Their price models are limited by economic sustainability.

Suppliers want the opposite. They want top dollar for their efforts in order to cover their costs and make a profit. But what else is new? This dance between suppliers and buyers is common in all markets. When markets are in equilibrium, both sides can meet their needs.

Before the advent of mandated recycling, this tension between the needs of suppliers and buyers wasn’t as big a problem as it is today. When end markets lowered their prices, scrap and waste paper dealers would pay less to their suppliers and, in effect, shut off the supply spigot. When raw material prices rose, they would reopen the supply spigot with higher prices. Mandated recycling undid these natural demand and supply market mechanisms. As a result we are forced to look for ways to fix the problem we created.

Recycled content laws are one potential solution. But while those laws may guarantee a market, they don’t guarantee that end markets will pay enough to cover their supplier’s costs. In fact, some companies may find it less expensive to pay the penalty for not meeting the mandated content requirement than to pay too much for raw materials.

To add a new twist to this problem, advocates of product stewardship requirements for packaging and printed materials insist those laws will ensure that domestic manufacturers will be able to buy all the recyclables they need. Yet they can’t explain how American manufacturers will be able to outbid overseas companies. Recyclables will always go to the highest bidder regardless of where that bidder is located.

I don’t have a solution to this problem. But I do know that markets, like Mother Nature, bat last. We can’t outsmart markets so maybe we need to learn to respect them.