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FT Investing in a Sustainable Future March 24, 2010, New York

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Plastics vs. Bioplastics

By Toby Reid / Sole Gear Design Inc.

Bioplastics emerge onto the global scene as the wonder

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"I just want to say one word to you. Just one word. Are you listening? Plastics."
– Mr. McGuire advising young Benjamin Braddock in the movie "The Graduate" (1967).

When those words were first heard by the public in the late 1960s, it caused bafflement, dismissiveness and in some cases ridicule. Forty-one years later, it is a statement that is considered prophetic and visionary, as plastics are used in factories all over the world and account for an industry that is now in excess of $300 billion in annual sales.(1)

Plastics are almost entirely derived from fossil fuels, requiring 5 percent of total crude oil produced

The fastest growing basic material in the past half century, plastics have seen huge market adoption due to its lighter weight, durability, low cost and ease of processing. Displacing such materials as steel, wood, aluminum, glass and paper, plastics emerged onto the global manufacturing scene as the wonder material of the 20th century. As we turned the corner into the 21st century, the use of plastics continued to grow.

However, one thing we have learned in these early days of the new millennium, is that plastics are turning out to be not as fantastic as we originally thought. Plastics are almost entirely derived from fossil fuels, requiring 5 percent of total crude oil produced,(2) which has become more and more unstable in supply, less and less affordable in cost, and heavier and heavier in its burden on carbon emissions and toxic environmental pollution. As science has evolved, plastics have gone from being a manufacturing wonder material to being a hazardous consumer material. In the face of all these negative factors, why are plastics processors optimistic for the future of their industry? Well, with all deference to Mr. McGuire, there’s just one word I want to say to you. Just one word. Bioplastics.

Bioplastics are a form of plastics derived from renewable biomass sources, such as vegetable oil, corn starch, plant cellulose or bacteria.(3) They are recyclable and compostable, tend to have much smaller carbon footprints, are much less toxic to consumers and their feedstocks come from steady, local farmers.

While recycled plastics are a good first step, they can only be recycled two to four times, and only 16 percent of plastics are actually recycled worldwide.(4) Bioplastics are a source of cost savings, as they are processed at lower temperatures than their petroleum-based cousins. No longer the realm of radical chemists, bioplastics are now the stuff of everyday living.

Plastics are mostly sold to processors by the pound, in meltable pellets. As the supply of crude oil has become less steady, and the price per barrel of crude has become more expensive, the paradigm has shifted. Bioplastics prices are in turn going from mostly competitive to near parity. Since 2002, prices for plastics and bioplastics have taken radically opposite tracks. The fundamentals underlying these paths are expected to remain in place for some time: unstable supply and pricing of crude oil and higher manufacturing costs of synthetics, versus stable biomass supply and reduced manufacturing costs for bioplastics.

Investment is just starting to tap into bioplastics as they are becoming more sophisticated in performance,
more efficient in biomass yields and more cost effective in processability. According to the Freedonia Group, demand for biodegradable plastic in the United States is projected to rise more than 15 percent annually to 720 million pounds in 2012, valued at $845 million.5 Infrastructure proposals for capturing and reusing bioplastics are being proposed in municipalities all over North America, Europe and Japan, and long-time bioplastics consumers are well on their way to building this infrastructure.

International certifications and standards are being developed for bioplastics as they emerge onto the global manufacturing scene as the wonder material for our carbon-constrained future.
The responsibility that accompanies developing bioplastics to full-scale output is to ensure that biomass sources remain reliable and annually renewable. The overdevelopment of arable lands, or the overuse of grain stocks have destabilizing effects throughout the world’s economies. For instance, to make ethanol from corn kernels, it would require the entire U.S. corn crop to displace only 12 percent of North America's gasoline use. Bioplastics, on the other hand, can displace that same 12 percent of petroleum-based material with only 9 percent of the U.S. corn crop.(5) There is a 10 percent annual surplus of corn production every year, so where ethanol's math doesn’t add up with corn kernels, bioplastics can thrive off existing supply.

With the responsible stewardship of farming techniques, land planning and use of biomass resources, as with all resources, bioplastics offer a progressive development opportunity for all plastics processors in every market.
So what do bioplastics mean to the enterprise? To manufacturers they mean using cheaper, more efficient and greener materials to increase their margins. To marketers they provide opportunities for differentiation and leadershipto access new markets. To the financial officer they are a source of cost savings. To legal counsel they are a strategy for risk mitigation. And to savvy CEOs and boards of directors, bioplastics are the future and an opportunity not to be ignored. Mr. McGuire would agree.

BENEFITS OF BIOPLASTICS
Cost Saving in Processing
Performance
Consumer Safety
Carbon Mitigation
Competitive Pricing

Purchasing;Supply Chain Management;

*Footnotes