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9. Agrecovery Stability

The stability of a product stewardship scheme can be affected by three factors:

1. the existence of free riders;

2. the issue of how to deal with historical product; and

3. changes in a product market.

These factors can act as a barrier to establishing a product stewardship scheme due to fears of instability once the scheme is up and running.

9.1. Free riders

Free riders are producers who do not pay into a product stewardship system, but still benefit from its outcomes. Free riders can create instability in a product stewardship scheme because they leave responsible brand owners to pick up the costs of managing all products in a market.

It is difficult to estimate the extent of the free rider issue for Agrecovery because there is limited information about the quantities of product going onto the market and about market share among brand owners.

It is also difficult to estimate the extent of the free rider issue because the Agrecovery scheme is not yet established and there is no exact picture of the level of membership of the scheme. There are indications from preliminary consultation that non-Agcarm brand owners, with significant volumes to market, are interested in participating in the Agrecovery system. With concerted effort, there is the potential for the free rider issue to be minimised.

However, without regulation requiring brand owners to have a product stewardship scheme in place, there is still the potential for companies to withdraw from the Agrecovery system at any time. If a company that represents a significant portion of the market withdraws from the scheme this could threaten the stability of the entire system.

There is a strong incentive for the large brand owners to participate in a product stewardship scheme like Agrecovery. An international code of conduct [FAO International Code of Conduct on the Distribution and use of Pesticides 2002 revision] for the management of pesticides was amended in 2002 and now includes an industry commitment to the stewardship of agrichemical containers. The New Zealand operations of multinational agrichemical companies will be increasingly encouraged to adhere to this code of conduct by participating in a product stewardship scheme such as Agrecovery.

The free rider issue becomes more significant for the "generic" sector of the market. This sector is price driven with fine margins and strong competition. It, therefore, becomes critical for these companies that there is a level playing field and their competitors within this sub-sector are participating in the Agrecovery programme.

Looked at from a different perspective, as farmers begin to look for greater compliance reporting against regimes such as EurepGap, and look to "do the right thing", membership of Agrecovery may provide a market advantage. Farmers will look to purchase brands that provide for the easy and safe disposal of their used containers.

The industry suggests that the extent of companies free riding will be determined by the level of levy charged by the Agrecovery system. The challenge will be that the level of levy will be determined by the number of businesses signed up to Agrecovery. This catch-22 situation will be resolved through the contract negotiations between the Agrecovery Foundation and brand owners.

There is the risk that companies may withdraw from the Agrecovery programme at some point in the future, destabilising the programme and driving costs, and therefore, levies upwards. This may be addressed through the establishment of minimum period contracts between brand owners and the programme. A period of perhaps five years would provide a level of stability. International obligations, as described above, also reduce this risk of withdrawal.

9.2. Historical and "orphan" waste

Historical waste is product that was placed on the market before a product stewardship initiative began to operate. A product stewardship scheme is faced with the problem of financing the collection and processing of this "pre-existing" product.

Orphan waste is product that is on the market but the original producer has gone out of business or withdrawn from the market.

Product stewardship schemes are faced with picking up the cost of managing these historical and orphan products. In some instances, the financial burden of dealing with these products is significant enough to prevent a product stewardship scheme being established. This barrier is particularly the case for long-life products (eg televisions) because these products remain in the marketplace for a long time during which period brands can change significantly.

The issue of historical waste is not particularly big for agrichemical containers. Containers do not remain in the market place for significantly long periods of time. Typically, a farmer buys the product, uses the agrichemicals within a year (see section 3.1 for details), and is then ready to discard the empty container.

When the Agrecovery programme starts, there will be containers already on the market and in use by farmers. In order to avoid confusion Agrecovery will provide an "amnesty/overhang" period at the start of the programme. A period of six months has been recommended in the Agrecovery Business Plan. During this period all containers, irrespective of brand, will be collected in order to avoid confusion for farmers at such a critical stage of the programme. This short amnesty period will remove the bulk of historical product from the market.

9.3. Changes in product market

Instability can also be caused by shifts in the market (eg, if there is a major shift to different types of products or if different materials become more prevalent). There is no indication that the agrichemical industry will experience any such significant shift in product types or packaging types (see Section 3.5).