In Focus

The costs of going green
NEW TAX ON NON-RECYCLABLES EXPECTED TO DRIVE UP BEVERAGE PRICES

WRITTEN BY Nancy Laforest

In an attempt to reduce the amount of waste created in the beverages industry - following the principle of producer responsibility - the government announced it will levy a new tax on non-recyclable packaging materials. The item-based product fee, scheduled for introduction Jan. 1, 2005, will result in drastic price increases in the beverage sector. Metal cans and plastic bottles will be among those hardest hit. Not yet accustomed to reusing and recycling, Hungarian shoppers will be footing a much higher bill to quench their thirst for consumables.

"As of next year, the product fee for an aluminum can, let’s say a beer can, will be 154 times higher than now,” said Béla Kertész, general secretary of the Hungarian Association of Packaging and Materials Handling. Scribbling down numbers as examples, he compares last year’s HUF 13 product fee per one kilogram of aluminum to the new fee of HUF 30 to 60 per can. Each 1.5 liter water bottle will consequently be taxed a minimum of HUF 10, up to ten times more than last year. Needless to say, calculating the tax for containers like bottles or beer cans on a per-item basis results in a much higher amount of tax for producers than the former pay-per-kilo method.

“Up to now, all tax for packaging was measured by kilogram,” explained Kertész, referring to legislation enacted in 1995. While this weight-based system continues to apply to most forms of packaging – released plastic went up HUF 7 to HUF 36 per kilogram, composites up HUF 9 to HUF 44 and aluminum and other metals HUF 3 to HUF 16 and HUF 13, respectively – the amount of tax on bottles, cans and carrier bags (the thick and reusable alternatives to grocery bags), have increased considerably in comparison. Kertész, like many of those in the packaging industry, remained apprehensive about the effects of these new regulations.

GOODBYE CHEAP CANNED BEER?
Initially, Hungarian manufacturers and packagers will be the ones affected by the new law on product fees, which is an amendment to a 1995 law on production tax. Importers, however, will also feel the crunch, as per-item taxation system applies to imported beverages as well. Possible effects of the new tax on inexpensive import drinks, which have appeared in large quantities following Hungary’s EU accession, are the subject of much speculation. German beers, for instance, available for as little as HUF 79 per can, have become huge sellers in recent months. It remains to be seen if importers will be able to keep their costs low after being taxed HUF 30 to 60 on each aluminum can in stores. “This transition is happening too quickly and we haven’t had time to evaluate trends or digest the implementation of this law yet,” said Kertész. “I’m not concerned that the industry won’t be able to handle this, although I am concerned with the financial and administrative circus that comes along with this new law.” Indeed, the system for calculating amounts of packaging and calculating prices based on the reusability of materials is rather complex, according to industry experts. Basic tax increases apply for both manufacturers and retailers, with an extra fee levied on those who don’t comply with the prerequisite guidelines. The new law also outlines next year’s quotas for statutory recovery and recycling: 50% of released packaging should be recovered, with 25% of this recovery recyclable. The government argues such strict measures to promote reusing packaging materials are a much-needed attempt to protect the environment. The concern is legitimate. In the last 10 years, Hungary’s waste production has grown by nearly 150%, a side effect of the booming growth in consumption. Bottles and plastic wrappers, according to the Ministry of Environment, make up a large part of the 20-30% volume growth per year.

AN ONGOING VERBAL BATTLE
Most packaging companies, however, are not equipped to deal with recovery and recycling of materials, making it difficult for them to comply with the new regulations. Of the 60 or so factories which bottle nonalcoholic drinks in Hungary, only three possess the expensive machinery required to refill these bottles. János Solymos, managing director of PET-PACK Ipari és Kereskedelmi Kft., a Dunakeszi company which manufactures plastic bottles for mineral water, admits he is still uncertain about the effects this new legislation will have on business. “The government obviously favors the concept of reusing and refilling, rather than recycling. We, however, don’t have the equipment to refill our bottles, nor the HUF 800 million to buy the equipment. This isn’t a problem that can be solved over the next few weeks.”

Solymos hopes he and others in the industry will have the next two years to integrate and get accustomed to the change in procedures. In the meantime, the debate continues. “Refilling bottles is not necessarily the most environmentallyfriendly way to deal with the issue,” he pointed out. “And the European Union agrees. Bottles have to be transported by the consumer back to the retailer, raising the question of bottle deposits and customer will. If taken back, empty bottles must then be stored, and from there, carried on to the manufacturer. The petrol used is another form of pollution,” he added, “and essentially, since we are talking about empty bottles, we are basically transporting and storing air.” The environmental and economical pros and cons are difficult to calculate.

GREEN THINKING
Solymos, similar to Kertész, is arguing for a system of selective collection rather than recovery, which they claim is by far more effective. This would consequently place the onus of a greener nation on recycling companies. At the moment, there are 350 waste islands, or centers, in Budapest where waste can be returned, with plans to raise the total to 600 by the end of 2005. The efficiency of reusing, recycling and selective collection, however, depends a great deal on private individuals. Greener consumer habits need to be formed and the overall mentality transformed, industry players argue. According to Alexandra Nagy, managing and artistic director of PAQART Design, which does product packaging and brand design for Tesco, among others, Hungarians don’t yet choose products because of recycled or recyclable packaging. “The majority of Hungarian shoppers are financially-sensitive and want more product for little money,” said Nagy, who added recycled material is extremely expensive to make and work with. Growing public consumption only makes matters worse. “We have become a throw-away society. Products are popping up everywhere, individuallywrapped, in different portion sizes, flavors and so on.” Nagy predicts that product tax increases will not prevent the introduction of new products. “It might create a new type of competition, who will be able to keep their prices down. But in the end,” she said, “the customers will pay.”

The primary requirements in food packaging in Hungary are that it should be eyecatching, appealing and informative. Material used, however, is of little concern to consumers. Out of the 700-800 product packages PAQART developed last year, 600 were made of flexible materials, Nagy said. “Plastic is very big in the region. In the West, where the environment is a bigger priority, more paper and cardboard is being used.” Increasing pressure from the international community, however, along with higher prices for nonrecyclable or reusable packaging, might prove effective in getting Hungarians to be more conscious of their choices.

Will domestic beer producers fight back?
Late in 2004, the Hungarian Parliament passed a new law on the “environmental product fee.” Beverage producers who sell a high proportion of their drinks in returnable bottles will pay a low fee, while those that concentrate on non-returnable containers will pay a high tax. Not surprisingly, Mike Short, chief executive of Dreher Brewery, supports the new law. After all, it will help stem the dramatic increase in cheap canned beer imports, since the law will effect importers that do not sell bottled and keg beer. For Short, the rise in cheap imports represents more than just an assault on his market, it is also part of an environmental disaster for Hungary. “The government has been very right in trying to establish ways to restrict sales in non-returnable containers. All these cans are thrown away, they’re pure waste,” he said.
In effect the new tax helps to offset the current state of affairs, whereby the producers of cans and other non-returnable containers are subsidized by the taxpayer, who pays for the disposal of the waste. Given this, the government should move to support responsible breweries that accept returnable bottles. While the cost of beer in a returnable bottle is cheaper than in a throwaway can, this saving is only realized after the brewery has invested significant sums in facilities to handle bottles and their return – an investment not always appreciated by the general public. “Bottles are heavier and bulkier than cans. Therefore you need crates, not cardboard boxes to hold them, and you need heavier pallets and bigger trucks for deliveries. You also need washing facilities for crates and bottles, and all the quality checks to ensure they are clean and sanitized. That’s all a huge investment, and having made it, breweries are not at all happy seeing cheaper caning operations come in and leaving it under-utilized, “ Short said.
”I just hope the government can withstand the lobbying offensive. If you walk into any store now you see a sea, an ocean, of plastic bottles. But I honestly think you have to do what’s right, even if you have to change your business plan a bit. This country is beautiful but I get upset by the rubbish and graffiti around,” Short added.
Kester Eddy