On 16 August 2023, Scotland will become the first of the four UK nations to launch a national deposit return scheme (DRS), initiating one of the most significant shake-ups the recycling system has ever seen. England, Wales and Northern Ireland have also committed to launching their own schemes by 2025.
But, for DRS to deliver the desired outcome, government and industry need to work towards a joined-up, future-proofed solution. One, harmonised approach that creates clarity and consistency for all involved – prioritises ease of cross-border implementation – and integrates existing product identifiers.
A future-proofed DRS will need to deliver simplicity, convenience and ease of use for all.
Deposit return schemes (DRS) are an example of extended producer responsibility (EPR).
EPR is the idea that responsibility for the whole lifecycle of a product and its packaging should lie with the producer. It’s a shift that therefore incentivises industry to factor sustainability into the development of new products, packaging and labelling. DRS achieves this by incentivising consumers to return used containers for recycling by charging them a small deposit that is only reimbursed once the packaging is returned. These containers can then be properly disposed of under a scheme that is ultimately paid for by the producer.
A traditional deposit return scheme involves consumers manually returning containers to reverse vending machines (RVMs) or handing them back to retailers, online delivery drivers or takeaway outlets. A digital deposit return scheme (DDRS) allows them to return containers via a network of ‘on the go’ return points or regular kerbside collections. Consumers would likely scan a QR code to register the return and redeem the deposit via their smartphone.
With the impacts of DRS soon to hit both shoppers and industry alike, GS1 UK surveyed business owners and consumers across the UK to measure their awareness, readiness and attitudes as well as the challenges facing successful implementation.
“As well as revealing that over a third of consumers already believe recycling is unnecessarily complicated and that 45 per cent view simplicity as the most important aspect of a redesigned recycling system, our research also found that a little incentive can go a long way to encourage adoption,” comments Anne Godfrey, CEO GS1 UK.
“However, simplicity, ease of use and ensuring that consumers are well informed will play a vital role in delivering DRS success and, the operational impact for businesses, compounded by a lack of awareness, means there are significant challenges that need to be addressed in the next two years.”
Circularity Scotland has announced £22 million of cashflow support measures to help Scotland’s brewers, distillers, importers and drinks manufacturers prepare for the introduction of Scotland’s deposit return scheme.
The support package is particularly designed to help SMEs, who have previously voiced concerns about the impact of the scheme on their business’ cashflow.
To address these concerns, Circularity Scotland is removing the day one and month one charges for all producers, up to a threshold of three million units per year. It is also providing two month credit terms on deposits and fees up to the same volume threshold to reduce the working capital impact on all producers.
The three million unit threshold has been established to ensure that the thousands of smaller scale producers selling in Scotland benefit more proportionately from the cashflow support. This will particularly help companies like craft brewers, wine importers and craft spirit producers. The two month credit terms will be made available to all producers, regardless of their size, ensuring all producers within the scheme are treated equally.
Circularity Scotland has also confirmed that it will be offering the option to use self-adhesive barcode labels for producers placing less than 25,000 units per year of a specific product on to the Scottish market. This will provide a simple and straightforward administrative solution for independent producers and importers for whom the cost of changing packaging to introduce new barcodes could be prohibitive.
David Harris, Chief Executive of Circularity Scotland, said: “Circularity Scotland was established by industry to meet their obligations under the deposit return scheme as efficiently and cost-effectively as possible. This announcement is further evidence of how we are continuing to innovate and identify additional ways to mitigate the pressure on businesses. We know that smaller producers in particular have been concerned about the cashflow impacts of the scheme, and these measures will address those concerns.
“Circularity Scotland has successfully secured over £100m of third-party funding to establish the infrastructure of the deposit return scheme, with only minimal up-front funding from the very largest producers. This funding approach allows producers both large and small to benefit on equal terms from this investment in world-class infrastructure and leading-edge technology and only pay their share of the costs once the scheme is in operation.
“We have already announced reductions in producer fees of up to 40%, while also being able to offer the highest return handling fees of comparable schemes anywhere in the world. These additional support measures further demonstrate our confidence in being able to deliver ongoing operational efficiencies once the scheme has gone live. We are committed to ensuring that the deposit return scheme works for Scotland, is cost effective for business and helps protect our environment for generations to come.”
Circular Economy Minister Lorna Slater said: “This is a big and welcome change that that responds directly to many of the concerns that have been raised, particularly those from smaller producers like craft brewers. It addresses initial cash flow challenges, and provides a pragmatic and simple solution to the issues raised around barcodes for smaller product lines. This is a package that gives businesses the clarity and confidence they need to be part of Scotland’s deposit return scheme.
“Over the last few months I have been meeting industry regularly to listen to their feedback and this industry-led solution has been designed in direct response to its concerns. I remain committed to a pragmatic approach to implementation between now and 16 August. By working together we can lead the UK in delivering a deposit return scheme which will increase Scotland’s recycling rates from around 50% to 90%, cut emissions, tackle littering and address public concerns about the impact of plastic and other waste.”
The Scottish Wholesale Association comments on the announcement on DRS by Circularity Scotland: “The SWA welcomes Circularity Scotland’s announcement on the removal of upfront charges and retrospective payment terms for small producers and importers, including wholesalers.
“We’re pleased Circularity Scotland and the Scottish Government have listened to our concerns about the cash flow issues facing businesses. However, many concerns remain unanswered around price-marked packs, GS1 compliant barcodes, bonded warehouses and other issues.
“SWA will continue to push for an 18-month grace period to allow those small producers/importers to prepare for DRS as well as for a de minimis exemption for low volume products.
The (SLTA) Scottish Licensed Trade has also welcomed the confirmation by Circularity Scotland that upfront charges for drinks producers with lower sales volumes have been removed from the forthcoming DRS. Circularity Scotland, the scheme administrator, also confirmed that there will be improved payment terms for lower sales volumes and a much more simple labelling option for niche products.
Colin Wilkinson, SLTA managing director, commented: “We very much welcome the fact that Circularity Scotland has announced what it says is £22 million of cash flow support measures to help Scotland’s brewers, distillers, importers and drinks manufacturers prepare for the introduction of Scotland’s deposit return scheme.
“However, we still have serious concerns that the scheme currently being proposed will increase costs for the consumer and reduce the amount of choice available. Many key questions remain unanswered and Minister for Green Skills, Circular Economy and Biodiversity Lorna Slater MSP, has been unable to tell us how many producers – so far – have signed up for the scheme. The level of producer registration is crucial to the scheme’s success.
“At a meeting attended by Ms Slater, she indicated that she was unaware of how many producers had registered with the scheme – nearly 4,500 producers need to register to allow their products into the Scottish marketplace.
In addition, the announcement doesn’t mention a grace period to allow those producers/importers to physically prepare – our view is that this is crucial given there are still so many unanswered questions around the decisions they still need to make.
“We also require definitive exemption criteria for licensed hospitality (closed loop) businesses that provide food takeaway/deliveries and include wine/beer etc, can collection in high-volume premises, cash flow similar to the issues with SME producers that have just been given support, the scale of delisted products, and lack of information on what retailers and operators need to do – there remains an urgent need for clarity.”
Sugro Managing Director, Emma Senior, comments: “Whilst the ethos behind DRS is absolutely the right thing to do, it adds a whole degree of complexity for a wholesaler. There will almost be certainly less product for them to purchase, as manufacturers face the decision as to whether to produce dual skus, or not sell into Scotland. Depending on where they sell product to, it may also mean listing two of the same product.
Systems will also need updating as wholesalers have to update product information, price files etc.”
Certainly, big supermarkets have more space to facilitate this. Capacity is already squeezed in smaller retailers, with more constraints around signage and storage, they might therefore opt out of the return element. This in turn, could drive footfall into the supermarkets, where consumers can readily redeem the deposit.
This will particularly impact wholesalers who might be based in the north of England but sell into Scotland as an example. A different product will now be required, so a Scottish Wholesaler may choose to source from elsewhere, equally hampers their ability to sell from Scotland to the rest of the UK.
“When looking at schemes in Europe it does feel as though they are leading the march,” adds Senior. “It is very clear to the consumer how to claim back their deposit and curb side vending is evident. The onus is not put on the retailer, therefore avoiding some of the complexity I discussed previously. The scheme in the rest of Europe is certainly well planned and thought through.”
Due to the scheme going live in Scotland before the rest of the UK, an English or Welsh wholesaler will now need to stock two of the same product if they wish to sell across the whole of the UK. The same applies for a Scottish wholesaler. It will also be very difficult for manufacturers with forecasting – they will need to work extremely closely with a wholesaler to understand their specific product requirements. If a wholesaler is not completely on board with the scheme and its implications, it runs a high risk of fraud.
“To remove some complexity, DRS schemes across the UK should be aligned, says Senior. “Not only is timing key, but at the moment, it looks as though the rest of the UK will exclude glass, but it is included in Scotland. There is also talk of the deposits being different depending on size of container. Again, this brings more confusion to wholesalers and manufacturers. To a degree, the impact will be felt by the consumer too – imagine buying a bottle of water on a train in Scotland, but travelling to London. How is that deposit redeemed and how much will the consumer receive?”
Any complexity added to production will certainly add costs. Dual production and packaging of what essentially is the same product, reduces efficiency and rate of production. It is still unclear what will happen to PMP products, so redesign of packaging might also need to be considered.
“In an environment where cost of living is impacting on the entire supply chain right down to consumer, any money out of pocket through DRS will have a negative impact,” continues Senior. “Aside from the ‘credit’ aspect, there could be a direct impact on rate of sale.”
Storage will be an issue with dual sku’s. But production delays are also likely as manufacturers switch from one product to another. Availability has been an issue within the industry for the last few years, so this could certainly have a further detrimental effect.
David Lunt, Managing Director, National Buying Consortium, comments: “We are always supportive of collaborative initiatives that involve our supplier partners and our members, and recycling packaging waste is obviously a very relevant and important topic.
“We are concerned about the introduction of additional processes, complexity and potential cost to wholesalers, independent retailers, and consumers with this specific scheme. We would rather see a greater focus upon communities participating in recycling schemes that are already in existence.” Fundamentally, recycling is already funded through local taxation and covers more categories of recycling than drinks. Potentially, this scheme could penalise those consumers that already recycle through normal methods.
“From a wholesaler’s perspective, this scheme would seem to favour those businesses that are more able to introduce specific locations for return points, such as larger supermarkets or out of town sites. This may then cause a shift in trading patterns directly caused by legislation which is obviously a major concern to us all,” adds Lunt.
“From a supplier’s perspective, managing multiple SKU’s for different nations will cause further complexity and potential supply issues when they are already trying to deal with existing issues created by the macro-economic conditions we currently face.”
“For those organisations that operate across the UK, this for sure is additional and unnecessary complexity and cost, and will certainly cause regional shortages should forecasts, production and the supply chain not be in complete harmony – for every existing nationwide SKU that a supplier has, they will need another specifically for Scotland,” says Lunt. “If this is then replicated across all nations, the unnecessary duplication is massive! For our own central warehousing and logistics solution, that would mean doubling the picking points for every SKU that we stock, just for Scotland.”
Charles Overin, head of marketing, brand and insight, Kingsland Drinks, comments: “DRS is a Producer Pays scheme, therefore producers need to track where their stock is sold but they can only do that with the help of wholesalers. It will require a lot of additional work for wholesalers – they will need to liaise closely with producers, carrying out more admin, invoicing and keeping records of sales to stores in Scotland.”
There will be no benefit to the wholesalers for doing this additional admin. In addition, some producers may choose to evaluate their route to market, reducing the products they supply to that channel in Scotland. Producers will also have to absorb additional costs in order to register for and manage DRS so this additional cost will likely be passed on to wholesalers, and ultimately consumers.
“DRS may drive more footfall to big supermarkets as consumers head there to return their bottles and in turn will do their weekly shop,” adds Overin. “However, supermarkets will have to bear the initial higher cost of the scheme as they won’t be exempt, unlike some independent stores. Supermarkets will need to host RVM machines which requires significant expenditure, disruption, and the loss of floor space. These costs will likely be passed on to the shopper. Independent retailers may struggle to get stock as a result of a more complex route to market i.e. they can’t access certain lines.”
If producers can’t get sales data from a particular route to market then they may not be able to use that route to comply with the Scottish Government’s regulations. Some producers may decide that the increased administration and costs involved in the scheme are too restrictive and therefore may not register.
“The EU is harmonising its waste policy under PPWR (packaging and packaging waste regulations), they have recognised that municipal systems do not work,” says Overin. “They want alignment across the EU, and we should do the same in the UK. An aligned system across the UK, makes more sense as it is more efficient from a tracking point of view, cheaper for consumers and more environmentally friendly. Scotland going it alone means less choice, higher prices and will be worse for the environment. The scheme requires new waste infrastructure to be created, will result in more vehicle emissions, more machines collecting rubbish, RVM machines, and all of this will have significant financial and environmental consequences.”
Wholesalers will have to adhere to the new regulations. Specific SKUs for Scotland will increase complexity, requiring different barcodes and ways of monitoring the scheme. If this isn’t the case, wholesalers may need to separate stock, selling some stock to Scotland and some to the rest of the UK. This would require changes to the way that wholesalers track products and creating additional invoicing and admin work in order to comply with the scheme. This additional admin is likely to make wholesalers more inefficient as a result and will see inflationary cost increases. The scheme would also be bad for the environment due to changes in supply chain efficiencies that may result.
“A UK wide scheme would make the most sense. It would be more sociably equitable, cheaper and better for the environment,” Overin continues. “It is a shame that Scotland and now Wales have decided to go it alone.”
Costs will be high. In addition to the deposit fee of 20p, there will be producer fee, barcode surcharge and increased admin which will ultimately get passed on to the consumer through higher prices. Businesses will have to decide whether they spread these costs across Scotland or the UK as a whole. Due to the problems with the scheme many manufacturers will be considering if they want to continue to trade in Scotland when the scheme starts this August.
Money will be held up by the scheme, impacting cashflow and the ability for businesses to re-invest and hire people. This will particularly hit SMEs and businesses based in Scotland.
“Entire logistic supply chains will be impacted – including producers, wholesalers, retailers, and the reprocessors of material,” adds Overin. “The scheme will also create logistical issues for consumers. The scheme will particularly impact consumers who are the most economically vulnerable. For example, how do consumers get bottles back if they don’t have a car? The whole scheme is a logistical issue, not just for drinks subscription businesses but the entire supply chain.”
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