Monday, 8 January 2018

Some thoughts on the proposed “latte levy” on takeaway cups

The UK coffee industry has been in the news recently, as a group of politicians that make up the Environmental Audit Committee have come up with several proposals, but this is by far the most eye-catching (and headline-grabbing):

The growing demand for coffee means that the Government should act urgently to tackle avoidable coffee cup waste. The charge on plastic bags prompted consumers to change their habits, reducing plastic bag use by over 83% in the first year. Additionally, the plastic bag charge saw an increased level of support for further charges to reduce waste. We therefore recommend that the Government introduces a minimum 25p levy on disposable cups, to be paid by the consumer on top of the price of the coffee.

There’s a BBC summary article here, and a more in-depth look at the report on the United Baristas blog. The report itself is available here.

I’m going to work from the base principle that the waste produced by disposable coffee cups is a problem, that we should be trying to fix. I will also outline where I disagree, and why, with the government. There’s quite a lot to discuss here, so it is best broken down into four parts:

  1. What problems are we trying to address?
  2. What outcomes are we looking to achieve?
  3. What measures will lead to us attaining our goal?
  4. What do I propose?

What problems are we trying to address?

The UK uses about 2.5 billion disposable cups per year, and the rate is increasing. However, this only makes up about 0.7% of all UK packaging waste. Cynically, one might argue that politicians have focused on it because of its visibility, more than its potential environmental impact.

In the UK there are only 3 facilities capable of recycling these cups – because standard recycling facilities cannot remove the bonded plastic liner from the paper. It seems appropriate to note that recycling is a profitable business (when done properly), and these businesses may stand to benefit from all of this/have a role to play in potential solutions. It also seems relevant to note that one of them, Veolia, has global revenues in the billions.

The larger problem, according to the committee (and I agree with them here) is that people incorrectly believe that most cups can be recycled. They point the blame at coffee sellers, but I believe this information is spread by manufacturers first and foremost. This misunderstanding is not just an issue for coffee cups, but for other packaging materials too.

There are other issues, such as the current cost of dealing with them – be it as litter or incurred collecting and sorting the cups. However, let’s just focus on the main issues.

In summary:

  • We produce lots of waste
  • We don’t realise that most recyclable cups are not being recycled.

What outcomes are we looking to achieve?

We want a few things, I believe, from the coffee market and the consumer:

  • Choosing to use less disposable cups (i.e. ceramics or reusable cups like KeepCup)
  • Disposing of cups in a way that allows recycling (i.e. specialist collection points, separate from traditional recycling collection bins)
  • Potentially encouraging the use of potential alternatives like biodegradable cups and lids, and encouraging their proper disposal too – should the cradle to grave energy costs not be higher than disposable cups.
  • Understanding the limitations of the current materials and recycling process.

What measures will lead to us attaining our goal?

So, let’s talk about this tax: on the face of it, there is probably some good evidence it would work. A similar scheme with supermarkets/groceries, with a 5p of 10c fee per bag, has been incredibly successful. In the UK, at least, there have been some key differences:

  • Supermarkets can deduct the cost of manufacturing the bag from the fee. Previously supermarkets had to suffer the cost of producing the enormous amounts of bags they gave away for free. Now they have no cost to them, as it is covered by the consumer, which has improved their profitability.
  • The cost of the bag, relative to the cost of a typical food shop, is very low i.e. way less than 1% typically.
  • Reusable shopping bags are easy to carry and require no maintence or cleaning (hopefully)

Other schemes mentioned in the report suggest charging a deposit, rather than a tax, which I am more comfortable with.

However, I do have grave concerns about a levy as large as 25p. This represents a likely increase in cost >10%. It also presumes that demand for coffee, especially premium/specialty coffee, is fixed. I do not believe this to be the case. I believe that, especially at a time of economic uncertainty, we would see a negative impact on consumption with independent businesses hit hardest of all.

I could be more open to it if the scheme allowed coffee shops to deduct the cost the cups and lids from it – but I don’t think it is realistic as it would be nearly impossible to police. (There are only a few supermarket companies, that have well audited public accounts – there are enormous numbers of coffee shops).

The committee believes that charging a fee is more effective than offering a discount. As much as it pains me, I have to agree here. Pushing reusables as the only answer is problematic for me in a lot of ways:

  • There are hygiene issues here. I don’t think baristas should have to wash or handle dirty cups. This would undoubtedly happen often, and be a potentially contentious and difficult interaction for the cafe. Equally, there are other hygiene issues where disposable cups may be the best option when considering infection control or sanitation.
  • Standardisation will be a problem. Coffee shops sell by liquid volume, mostly using the vessel as the measure. If people are bringing whatever they have to hand, how would portion control work? Which brands and products are to be considered acceptable? Again – I foresee more difficult conversations for baristas and customers.
  • Reusable cups are, for the most part, inconvenient to carry around (in comparison to a shopping bag). I know some brands are better than others, but I just see more friction here.

One final point in this section: takeaway sales are vital to independent coffee businesses. Most lack sufficient capital when they start to be able to afford a large space with sufficient covers to sell enough drinks inside the cafe to be profitable. Reducing takeaway sales, as a whole, would be brutal and destructive to many independent cafes.

What do I propose?

When I look at the two problems, I believe this is a good opportunity to attack the issue of awareness and consumer confusion. I would propose:

  1. Every disposable cup must carry disposal information on it. It should state clearly if, where and how a cup can be recycled. I know we all want our cups to be beautiful but I think we’d find ways to display the information in a way that is “on-brand”. Additionally, information and graphics at the point of recycling should be clearer about cups.
  2. Continue to incentivise cafes and customers to encourage reuse of cups and suitable reusable cups. To do that I would propose:

  • Removing VAT on reusable cups, that meet a threshold of sustainability.
  • Taxing the cups at the point of sale from the manufacturer.

Manufacturers should be encouraged to develop better alternatives to what they currently offer. The tax could be waved on alternative products such as those that are biodegradable (if they meet energy impact criteria), which would encourage their use. Cafes would benefit from lower cost of goods if they’re able to encourage more reuse and the tax collected would be easier to project for them in their buying and have fewer issues for cash flow.

  1. Build better recycling infrastructure to allow more cups to be recycled. I’m hesitant to suggest spending a lot of public money in a situation where three companies stand to benefit, but I’d be fine with the government lending money at preferential rates or incentivising those companies to build out better collection systems.
  2. Use the tax that has been collected, use that money to offer a small refund on a takeaway cup when returned to a dedicated collection point. This would offer an incentive to people to properly dispose of them.

While I haven’t had a lot of time to think about all this, it seemed worthwhile to at least get some thoughts out there. Perhaps let me know on twitter @jimseven if you have any feedback and ideas.

    Sunday, 24 December 2017

    Predictions for 2018

    For a few years, I ran an annual predictions post. I was often wrong, or right a year too early (which is still wrong, despite my urges to claim otherwise). You can see previous predictions here: 2008, 2009, 2010, 2011 and 2012 – they are entertaining little time capsules.

    What led to their return this year? I don’t really know – I think I just enjoy having a bit of a guess about where things are going.

    Here are my five predictions for 2018

    1 – High prices drive down quality

    A few years ago, when the C-market price for coffee spiked above $3/lb, there was some concern that higher prices were working against quality focused efforts in certain origins. The rationale was pretty simple – why work harder as a producer to raise your quality, when the market will pay very well regardless.

    We’re in a similar sort of place if you take the world of speciality. There has been a dramatic rise in the number of companies looking to source better quality coffee. In challenging economic times budgets for green coffee buyers are going to be tested – and this is compounded by high levels of competition for speciality coffee, and I think a lot of companies will accept a lower threshold of quality, that they might describe as “good enough”. It will likely be grown at a decent altitude, of reputable varieties, but I suspect the quality of sorting and picking may decrease as producers may find it more cost effective to cut back in those areas as buyers will still pay pretty good prices owing to competition. (This isn’t a criticism of producers or millers, I think the market will simply pay more for a lower quality product).

    2 – Amazon listing the Whole Foods catalogue causes challenges

    Lots of great coffee companies have worked hard to get their product listed by Whole Foods. They move real volume in the US, though less so in the UK. Some of those same companies wouldn’t choose to sell on Amazon’s platform (though many do), for a variety of reasons. Now that Amazon owns Whole Foods I expect more of their product catalogue to appear on the site. If you sell to both Amazon and Whole Foods then I’m curious how that will work – I suspect whichever options gives Amazon a greater margin, and encourage a greater average spend, will be the one that tops the search ranking. (Also, I’ve no idea how funnelling things through Whole Foods/Amazon CDCs will work…)

    3 – People start taking coffee grown in China seriously

    China has been producing coffee for quite a while now, but it hasn’t really been bought and sold by speciality companies. However, there’s been a real uptick in quality from Yunnan and I think more is going to be exported and sold around the world. There’s some surprisingly good and interesting coffee being produced there, and I think this is the year we start to see it appearing more and more.

    4 – Some very quality focused, acclaimed businesses in the UK disappear

    I use the word disappear on purpose. They might fail, or they might just choose to shut up shop instead. Brexit only looks to make life harder for speciality coffee – currency weakening, coupled with ever higher prices for speciality and more competition than ever… It’s a tough marketplace and a difficult place to make money. This might be the year that some choose to walk away…

    5 – Costa Coffee Makes Its Speciality Move

    Starbucks has obviously pushed into speciality coffee quite aggressively, and very successfully, with their Reserve brand and roasteries. No other company could have built the insanity that is the new Starbucks Reserve in Shanghai. In the UK Caffe Nero did try and make a move into speciality by buying Harris & Hoole, though I think it is fair to say that this hasn’t been a huge success for them. Costa Coffee is reporting an increasingly challenging market, and may well be losing enough market share to trigger action. It might be a new brand for them (i.e. the Starbucks Reserve model), though I think several speciality coffee companies who have raised money through equity crowdfunding are going to hope that Costa makes an acquisition instead… I’d probably bet on the latter. (This prediction might fall under the “1 year too early” category, but I’m going with it anyway!)

    Let’s check back in a year to see how I did!