Commodity values at the material recovery facility (MRF) are hitting low points, particularly with commodities like mixed paper and old corrugated containers (OCC). Mixed paper has been close to $0 per ton for at least half a year, and some MRFs are paying to get rid of it.
With low-value commodities, MRFs need to work with municipalities to adjust contracts given volatile market conditions. During the Institute of Scrap Recycling Industries’ (ISRI) 2019 Convention & Exposition, Bill Keegan, president of Dem-Con Companies, Shakopee, Minnesota, and Rob Potter, division manager for the solid resource program support services division for the City of Los Angeles, discussed trends and challenges with municipal recycling contracts as a result of today’s market conditions.
According to a joint advisory on designing contracts for processing of municipal recyclables written by the Solid Waste Association of North America (SWANA) and the National Waste & Recycling Association (NWRA), municipal recycling contracts “should ultimately be designed to ensure that they are functional and cost effective for both public entities and contractors and ensure high-quality service that return recyclables to the marketplace as commodities.”
Potter noted that municipalities and material recovery facilities (MRFs) need to enter into partnerships for contracts to work smoothly. “We need MRFs,” he said. “We are committed to the concept of recycling. Because the market is so volatile, in our most recent contract negotiations with our MRF, we got down to the nitty gritty. Could we set minimum floor value based on markets? What were primary commodities? We were trying to find a win-win situation.”
The following were a few tips offered for improving municipal recycling contracts.
With today’s challenging market conditions, transparency between MRFs and public entities is important when making or updating contracts. Keegan said his company is moving more toward fee-for-service-based business in order to remain sustainable.
“A lot of this comes down to communicating with the consumer on the cost of recycling—talking to the municipality on the cost and value of commodities and making sure consumers know that recycling costs money,” he said. “Recycling providers can’t pick up all the costs; municipalities can’t pick up all the costs. It has to be at the generator level. The days of loading up your [recycling] cart and feeling like it has value in it are gone because recycling costs just as much if not more than disposal. So, we’re trying to get the message out and be transparent with our contracting relationships.”
Share risks and benefits
With a volatile market, neither MRFs nor municipalities can take on the full cost of recyclables. There needs to be a fair amount of risk and benefits for both parties. Also, with more communities offering single-stream recycling, the value of the recyclables mixed together goes down.
“If all we did was collect aluminum cans, it would be fine,” Keegan said. “But we’re looking at diversion and trying to get to zero-waste. We’re getting more things in the bin. But as you do that—add more commodities to the bin—you dilute the value of the ton. It’s well-intended, but it does change the value of the ton.”
To ensure contracts are fair, Potter said the city of Los Angeles uses a formula that adds up the three biggest commodities and calculates an average cost. “We get that average cost off the industry market information and apply that,” he said. “Every few months, we apply this. There are things we need to work on, but in the big picture, this allows [the MRF] to remain viable and have income sources.”
With declining commodity prices, Keegan also advised looking into fee-for-service-based models in the contracts.
MRFs and municipalities also need to be open minded when negotiating contracts. After National Sword was implemented in 2018, NWRA and SWANA updated their joint advisory document on municipal recycling contracts. The revised document recommends that contracts offer flexibility, particularly when there is no reasonable commercial market for certain commodities.
Potter added that when his municipality decided to use a new formula to get an average commodity price instead of paying a set floor price, both the city of Los Angeles and the MRF had to be flexible with the contract negotiations.
“We’re both trying to protect each other,” he said. “And [as a city], we look out for our ratepayers. We want reasonable rates for our customers. But the MRF also has responsibility to its owners and the business to stay viable. So, we had many six-hour meetings, going back and forth. It’s not perfect. There are areas we have had to tweak. It has flexibility, though.”
Know what’s acceptable
Both parties need to have a uniform understanding of what recyclables are acceptable in the stream. MRFs need to clearly communicate to municipalities what commodities they will accept, then municipalities need to relay that same information to the community.
This can be particularly challenging with plastics Nos. 1-7, as there are mixed messages on how to recycle plastics. “It’s challenging,” Keegan said. “For instance, tops need to be on the bottles, but I still see messaging that says, ‘take it off.’ If you change a message, it takes years to change.”
With that in mind, he added that MRFs and municipalities must discuss clear messaging to relay about recyclables that are accepted in the stream.