CONSUMER & TAXPAYER / 8 Feb 2018
Blog: What is our role in creating the demand for bio-products?
The market entrance of novel bio-products such as advanced second generation bio-fuels, bio-chemicals and bio-plastics has taken longer than many of us working in the industry would have expected and hoped for.
The main reason for slow and disappointing market penetration of advanced bio-products is their higher cost compared to traditional materials, often made from oil and gas, which they are trying to substitute. The competition in the marketplace is tough and different industries are not willing, nor able, to pass on the extra material-related cost to their clients who in turn have the same problem with their clients. We need to be true to ourselves; the number one criterion, when making whatever type of personal and professional business decisions is always the price.
What drives the commercialisation of bio-products?
If it is not the economy that drives the bio-product commercialisation it must be something else. In the case of bioenergy and biofuels it is naturally the need to reduce greenhouse gas emissions. From a pure economic angle it does not make sense to replace gasoline with ethanol so we need regulation that creates the demand and the market for biofuels. It is equally clear that the cost of substituting fossil fuels with more expensive biofuels needs to be compensated by someone and needless to say that someone is of course all of us, we, the taxpayers. I dare to say that many of us feel bad about the growing tax burden regardless of the reason behind the taxes. As individuals, we have limited amount of power to impact the taxes that are put in place and this triggers often a negative reaction and attitude towards different subsidies and environmental taxes. The politicians ultimately responsible for setting the taxes and various incentives supporting renewable energy need to have a strong stomach and willingness to accept the fact that the decisions they make, do not necessarily guarantee re-election but rather on the contrary.
Our behaviour drives commercial breakthrough
As consumers, our attitude and willingness to spend money is quite different compared to paying taxes. Many of us try to optimise taxes, but as consumers, we often make spending decisions based on emotional rather than rational reasons. This creates an opportunity for the bio-products to make a commercial breakthrough.
Some years ago salesperson from a cartonboard company told me an interesting story that is a perfect example of our “irrational” behaviour as consumers. The company was selling cartonboard to a company producing classic triangle shape sandwiches that had traditionally always been packaged in transparent rigid plastic packages. The sandwich company made a decision to replace the package with one made from cartonboard, printed in nice colours so that the printed outlook of the package communicated the ecological image and also the higher quality of the product. A small window made from bioplastics was added to the package enabling buyers to see the sandwich inside the package. As a result of the change from rigid plastics, to colourfully printed cartonboard package the cost of packaging increased by 30%.
More importantly, after the change in the package, the sales of the sandwiches tripled regardless of the fact the price of the sandwich was doubled. At the same time– inside the package was exactly the same sandwich as before.
Bio-based materials already are an earnings booster for consumer products companies that know and understand our behaviour as consumers, and the fact that it is not always rational. This is also a major opportunity for bio-materials and chemicals as more and more of us are also knowingly willing to choose a more sustainable product even though they are and remain to be at least a bit more expensive.
The author of this blog, Mr Jaakko Jokinen, heads the Biorefining team at Pöyry Management Consulting with 20 years experience of analysing the environmental trends, bio-product technologies and markets.