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How COVID is likely to impact waste management start-ups

Covid crisis has just given us a new definition of “Essential”. While the current lockdown has shut down almost all industries worldwide, waste management companies have continued to run, despite labour shortage and supply chain issues.

India’s waste management industry, estimated at INR 5000 crores[1] (about USD 700 million) comprises a few large waste management companies and a number of regional start-ups. While large companies work with municipalities to manage the municipal solid waste, the start-ups are trying to make the waste value chain more efficient by segregating waste and converting it into value-added recycled products and energy. Boosted by government support through initiatives such as Swachh Bharat and tightened waste management regulations, these start-ups (Table 1) have been growing steadily

This blog describes some of the challenges and new opportunities for these waste management start-ups that could possibly emerge in the post-COVID era.

While there would be increased demand for waste collection and disposal services, this may not necessarily translate into more revenues

Demand for waste management services is likely to increase as municipalities look to enhance the waste collection & disposal services to avoid further increase in virus infection through waste. Also, the volume of waste is expected to grow as single use plastics make a comeback, along with huge increase in medical and hazardous waste (such as masks, sanitizer dispensers, gloves).

However higher demand is not translating into more revenues for waste management companies, as India doesn’t still charge a fee to majority of its waste generators for disposal of their waste. In fact, it’s quite the reverse, with waste generators expecting to be paid for disposing their usedphones/papers/cardboard and plastic items to such companies.

This pandemic has brought about a fundamental change in how people perceive the importance of hygiene and sanitation. This opportunity could be harnessed to increase consumer engagement towards responsible disposal of waste. Several municipalities in states such as Kerala and Madhya Pradesh have already been successful in making people segregate their waste and pay for waste collection services. These models could be replicated by other states, whereby waste collection is viewed as a service and collectors are compensated for the same.

Declining oil prices are likely to impact recyclers’ profitability, forcing them to innovate

Declining oil prices are impacting prices of recycled plastics and forcing many recyclers out of business. Crude oil prices that were at US$ 45 per barrel at the end of February are down to less than US$ 20 currently, and have caused about 30 per cent decrease in the prices of different virgin plastics. Since pricing of recycled plastics moves in line with that of virgin plastics, their prices are also decreasing, thus denting the profitability of recyclers.

As such, this pandemic would accelerate recycling industry’s innovation efforts to develop products that are specialized and not just low cost substitutes of virgin products. For example, in Europe, the manufacturers of recycled food grade PET (RPET) have somewhat been insulated from the decrease in the prices of virgin PET as there is a demand for food grade RPET from large FMCG brands who need to use certain percentage of recycled PET to meet their sustainability targets.

Similarly, in India, some of the start-ups are already creating brands that go beyond being recycled waste products. For example, Carbon Masters, a waste to Bio-CNG start-up offers Carbonlites, a premium organic fertilisers; similarly, Deeya Panels, a multi-layered plastics recycling company offers RICRON panels, a sustainable building material that can replace plywood.

The pandemic may catalyze process automation and industry consolidation

While the Indian waste management industry typically deploys machines to separate dry and wet waste, dry waste is mostly sorted with the help of large number of labour in material recovery facilities (MRF). To maintain social distancing and also to minimize health hazard for workers, automation of dry waste segregation process may be the need of the hour. Further, automation would also enable these companies to process higher quantities of waste and reduce segregation costs.

Since automation is capital intensive, and many start-ups may not have the wherewithal to sustain it, large companies with deep pockets may use this opportunity to acquire regional players to boost their market share and for economies of scale.

Government may encourage banks to provide capital to the waste management sector to help it advance SDG goals

Waste management companies have largely relied on two sources of funding: external producer responsibility (EPR) fee from corporates for manging their waste, and philanthropic capital from foundations and UN organisations. They have little or no access to banking institutions, due to their inability to meet banks’ credit assessment parameters such as collateral and profitable operations for three years.

Post lockdown, the government may look to fund sustainable projects to ensure that economic recovery efforts do not endanger/negate the country’s progress towards climate change. Also, multilateral development banks and international financial institutions that are funding the GOI’s stimulus program would prioritize sustainable projects over those that are based on fossil fuels. For example, the World Bank has recently released a sustainability checklist for governments to select projects /sectors that need to be revived through government spending; similarly, UNDP has recently set up a Sustainable Development Goal (SDG) finance facility to encourage private sector to provide capital to meet the SDG goals. Since waste management companies provide employment to a large number of people including women, and also contribute towards decreasing carbon footprint, they are ideally suited to advance India’s progress towards achieving SDG goals and therefore may benefit from increased bank lending to sustainable ventures.

Conclusion: The current crisis underscores the nature of our interdependent and sustainable world, where waste management should be everybody’s problem, not just that of municipalities and waste management companies. How this situation evolves is anybody’s guess, but companies that can avail this time as an opportunity to focus on product innovation, process automation and to tap into the sources and facilities for funding sustainable ventures are likely to outlast this crisis successfully.

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