Co-op Marketing: A one-year-old association of municipalities trying to take advantage of economies of scale in marketing recyclables is finding its niche
(from Maine Townsman, June 1993)
Jo Josephson, Assistant Editor

In the spring of 1992, a study was funded by the state and conducted by the Maine Resource Recovery Association (MRRA) to see if it was feasible to establish a cooperative marketing service for Maine's more than 200 municipal recycling programs.

Noting that recycling consisted of collection, processing and marketing (reuse), the authors of the study observed that most of the attention, to date, had focused on the collection ; and processing to the detriment of marketing. While acknowledging that for many programs, marketing recyclables was an unreliable, frustrating and time-consuming task, they pointed out that marketing and ultimate reuse was the most important aspect of the cycle.

They concluded that "for Maine to continue to market recyclables in the increasingly competitive marketplace, programs need additional assistance."

Out of that study, midst numerous calculations as to what it would take to break even in the highly competitive, volatile world of recycling, the quasi-public, non-profit Maine Resource Recovery Marketing Cooperative was born. Its goal was to provide its members with "marketing assistance", meaning it would provide its members with information, education and training, marketing services and transportation coordination.

To send it on it's way, the Maine Waste Management Agency gave the Marketing Cooperative a $40,000 start-up grant. Plans were to phase out the state subsidy as the co-op took hold.

The co-op began by focusing on paper. At 36 percent, paper is one of the biggest segments of the waste stream and new markets were opening up in it, explains Marketing Director Kathy Guerin.

"We knew Bowater (the deinking plant in East Millinocket) was coming on line and it would help build our reputation."

Almost a year old now, the coop includes 15 recycling programs, representing 83 member towns. The latest to join were Waterville and Winslow.

This article looks at some of the hurdles the fledgling organization has had to face in the past year from both the private and public sector, as well as some of its successes. It also looks at the coop's internal structure as it continues to evolve toward a "true cooperative" and viable entity in Maine's solid waste system.

FIRST ENCOUNTERS WITH THE SYSTEM

One of the first things the co-op did when it opened for business last fall was to put out a REP (Request For Proposal) to move what is known in the trade as "OCC" or Old Corrugated Cardboard.

But, despite the fact that OCC makes up a large part of Maine's waste stream (13 percent) and despite the fact that the market for OCC was developing rapidly, none of the state's three major paper brokers responded. And, when the cooperative scheduled a meeting to find out why, only one of them showed.

"They saw us as a state-funded competitor that could only mean a loss of business for them; they felt threatened by us," recalls Guerin.

"It was never our intention to compete with the advocates," says Guerin.

Guerin says that when the co-op entered the market there was no one teaching the municipalities how to properly prepare their materials for the market. "All the brokers were interested in was volume," notes Guerin.

"We figured that if we could assist the municipalities in making their materials more marketable—of higher quality, consistently so—not only would the municipalities benefit but so too would the brokers," says Guerin.

While all that is true, the co-op goes far beyond educating its members in proper processing. For as a "municipal advocate", the co-op is also trying, in Guerin's words "to make the best deal for the municipalities . . . be it top dollar, timely payments or timely transport."

Looking back over the first six months, Guerin says that the co-op has not taken business away from the brokers, but it has changed the way the brokers do business with the municipalities.

"The brokers are cleaning up their act. Payment is faster, the prices they are offering is higher. While some of this is due to the market, much is due to our presence," notes Guerin.

During the winter of 1992, Guerin notes one broker was offering $40 a ton for #2 Natural Plastic; the cooperative was offering $100 a ton. In the old newspaper market, the broker was offering $10 a ton; the cooperative was offering $20 a ton. Both the broker and the cooperative were offering $15 a ton for OCC.

Broker. Advocate. It's all a question of politics and semantics and deals as the Marketing Cooperative wends its way through the minefields of the highly established and competitive field of marketing recyclables in search of a good deal for it members, a field where one broker is capable of locking another out of the market . . . where price wars are not uncommon.

As the following two successes indicate, the co-op appears to have made it through the minefields of the fiber industry. Glass, plastic, metals, where the markets are even more limited, where the co-op has to date just dabbled, have yet to be tried and tested.

THE ACCOMPLISHMENTS:

New Markets For Paper

"It's a real plum," says Guerin of the agreement the co-op signed earlier this year with Bowater/Great Northern Paper Co.'s plant in East Millinocket to provide it with 500 tons of magazines a year and 5,500 tons of newspaper.

While no one knows how much old magazine is generated in Maine each year, Guerin notes that the 5,500 tons of old newspaper represent about half of all the old newspaper collected in Maine annually. What is known is that it will mean that the co-op will provide Bowater with one trailer load of old newspaper every business day, five days a week, 52 weeks a year.

While the $60 million recycled fiber mill won't be starting up till later this summer, the co-op has been sending newspapers and magazines to the mill since April as the mill develops its supply of raw materials.

As reported, the mill expects to consume 140,000 tons of newsprint and magazines a year, turning it into 109,000 tons of pulp. While most of the raw material will be shipped in from out-of-state, the company is expected to get about 10,000 to 12,000 tons from Maine.

"They are being tremendously flexible with us," says Guerin, explaining that on the average mills require that you guarantee a minimum of three to four thousand tons a year when dealing directly with the mill. But Bowater was interested in the cooperative, she explains, because they could deal with one office in coordinating all of the loads into the mill, which is what cooperatives are all about. It was an act of "good will", says Guerin.

With Bowater, the co-op will be "riding the market" with both materials. Currently Bowater is paying $25 a ton for magazine and $30 a ton for newspapers. Guerin expects the price with newspapers to drop to $25 a ton in June but it is still better than the $20 a ton it previously received when shipping it out-of-state.

Currently the co-op is working with the mill and its members to help them meet the stringent specifications for processing the newspapers and magazines. It has held at least one workshop

According to the cooperative's OMG (Old Magazine) specification sheet, Bowater will accept "baled magazines (1,200-2,300 pounds each) capable of stacking six high for two months with no appreciable degradation. ..Bale dimension cannot exceed 60" except in length. Bales to be wrapped with wire only, no straps, bands or pallets. Buyer prefers baling wire to be soft black annealed.

Top Price for OCC

The Maine Resource Recovery Association's Marketing Cooperative is now on the verge of signing a contract with a broker that will guarantee the cooperative $20 to $25 a ton for the next year for its old corrugated cardboard (OCC).

"It's an excellent price; usually one can only get between $12 and $15 a ton for OCC," says Guerin. While it is the co-op's policy not to get locked into prices, in a fluctuating market, this was one deal that the coop could not pass on: a year's assurance at top price!

The buyer or end user f the OCC could not be identified as this magazine went to press due to the stage of negotiations the co-op is in. As noted above, competition is extremely intense to get guaranteed markets from end users. Mills will not contract with two brokers covering the same geographic territory and it is not unusual for one broker to lock another out of the market.

The co-op, as a new marketing entity, has already experienced such competitiveness as seasoned brokers have blocked access to some markets. Some Progress has been made, however, because the co-op handles municipal maerials and currently does not market material from the commercial sector, reports Guerin.

Residential OCC is small compared to the OCC generated by the commercial sector. In 1991, Maine's municipal waste stream included 14,000 tons of residential OCC and 150,000 tons of commercial OCC.. While only 8,700 residential tons were recycled in 1991, almost 70,000 tons of commercial OCC were recycled.

In its first six months, the cooperative marketed more than 1,000 tons OCC from its growing municipal membership at $15 a ton.) The pending deal will bring the co-op's members as much as $10 a ton more.

"While top price is important, it is not as important as stability," stresses Guerin. "The pending contract assures our members that they will have a place to send the cardboard; that it will be moved on time; and that they will be paid on time."

THE STRUCTURE:

Services

While Guerin notes that one of the goals of the co-op is to obtain the best possible market for its members, she points out that the ability to make the agreement with the larger and more reliable buyers who can assure topprice and stability is dependent on volume and quality assurance.

By pooling materials, co-ops create volume. Through education and standard quality specifications, they produce quality. And quality is what the end users want.

Briefly, the MRRA Marketing Cooperative works as follows:

New members, in addition to signing a membership agreement, sign a material marketing agreement for each product they wish to market through the co-op. This gives the members flexibility. For example, if the local market for glass is better than what the co-op may be able to offer, a program can reserve the right to market its own glass by not signing an agreement for glass. The material marketing agreements are for one year.

When a recycling manager has materials to move, they call the co-op staff who in turn calls the mill and the broker to confirm the price and the date the material will be moved. The co-op staff then relays that information to the recycling manager. Immediately after the material is moved, co-op staff calls the mill to verify the weight of the material. They then bill the mill or the broker. Within 30 days they receive payment for the materials from the mill or the broker and immediately send the payment to the local program, minus their administrative fee of $1.50 a ton.

"As a rule of thumb, materials are ready to move when a member has collected and processed 20 tons," says Guerin, adding that members are getting to know what an average bale weighs.

On transport, Guerin notes that one of the benefits of cooperative marketing is that it allows programs to partially fill a truck, with other communties making up the balance of the load. In doing so it allows for faster turnover and less storage time. Less storage time means the quality is higher.

Guerin notes that before the co-op arrived on the scene it was taking 90 days to receive payment; the co-op has reduced that turn around time to an average of 35 days.

By handling all the paperwork, i.e. tracking the loads, verifying the mill weights, guaranteeing the price, billing the mill or the broker, collecting the payment and paying the program, Guerin says the recycling manager is freed up to do the collecting and processing and educating they need to do

Membership

As noted above, membership in the cooperative currently includes 15 active programs covering 83 towns. Many are coastal, including Harpswell, Wiscasset, Belfast, Bar Harbor Ellsworth and as far Downeast as Cherryfield. Others members come from Aroostook County through the Tri-Community Recycling Program; others are located as far west as Newry in Oxford County and as central as Waterville and Winslow.

The total represents 24 percent of the 340 towns with collection programs and 30 percent of those who collect and market. The total represents almost 200,000 Maine residents or about 16 percent of Maine's population. Not bad for a program that is less than a year-old considering the highly competitive world it is in. But not enough.

Guerin says those towns that have joined the coop fall into two categories; those who were desperate; i.e., were not being served well by their brokers in terms of pickup and payment; and those who were not intimidated by their brokers; i.e., they were marketing some of their own materials and were not entirely dependent on their brokers.

"It's easy to be intimidated by the system, especially if you are a volunteer; it's a very aggressive and competitive world," notes Guerin, explaining that a broker could present a town with an all or nothing ultimatum.

The larger towns and cities are reluctant to join, says Guerin, as they are very reliant on the broker system. They also have a hard time justifying the $250 annual membership fee to their councils, says Guerin.

Despite all that, Guerin says there is a potential for the cooperative to double or triple the size of its membership and the volume of material it moves in the coming year.

Intimidation, and cost aside, Guerin admits working on a cooperative basis is a new idea for communities in Maine. "There are a lot of hatchets to bury and there is a lot of wanting to do it on their own out there," she says.

And while the waste issue is forcing cooperation, there are still a lot of towns sitting back and waiting for the cooperative to prove itself, says Guerin. "It's a typical chicken and the egg scenario."

The future of the co-op is dependent on enough participation in a timely manner, she stresses. "What we need are a lot of team players. Not golf players but basketball players, whose individual moves affect everyone," says Guerin.

In an attempt to attract more members, Guerin says the co-op is planning to restructure its fees, with an idea towards reducing the membership fees (Currently $250 a member) and increasing the marketing fee (currently at $1.50 a ton).

It is also looking at restructuring the way it is governed. Currently there is an interim cooperative marketing committee consisting of 16 people: 12 representatives from the member recycling programs, two representatives from the Maine Resource Recovery Association's executive committee, one representative from the private sector and one representative from the Maine Waste Management Agency.

"In the true cooperative sense, the non-profit group should be owned by the members; governance would be the responsibility and right of all member programs," says Fergus Lea, one of founding members of the co-op, adding that the cooperative is currently heading in that direction.

Guerin agrees, and adds that some communities are reluctant to join because they " don't want to do business with the state".

"The unspoken intent from the beginning was to be an independent (from the state) organization, for a number of reasons, including the fact that it is difficult to rely on a funding source," says Guerin.

"But we cannot do that until we have economic independence and we cannot do that unless we are able to move more volume and that means we must have more members.

To break even this year, as noted above, with state funding the cooperative must move 14,000 tons at the current rate of $1.50 a ton.

A look at the current funding situation follows.

Funding

With a start-up budget of $70,000, the cooperative expects to cover its expenses the first year with the $40,000 grant it received from the Maine Waste Management Agency. The remaining $30,000 or 40 percent of its budget is expected to be recovered from membership fees ($250 a program) and its marketing fee (currently $1.50 a ton).

"It has been our intention from the outset to be independent of the state as soon as we could," says Guerin.

In doing so, the co-op would defuse the broker's charge of an unfair advantage brought about by the state subsidy. It would also pull in those programs that are currently reluctant to join because they see the co-op as too closely affiliated with the state.

In its first six months the cooperative has moved about 2,000 tons of material. With a marketing fee of $1.50 a

lton that comes to $3,000. It is hoping to move 10,000 tons by the end of its first year for a total of $15,000 in revenues. Membership at the current rate of the $250, with 15 programs is currently accounting for $3,700, which when totaled brings in only slightly more than half the needed revenue from membership and administration.

Obviously the cooperative is not out of the woods yet. But with a restructured membership and marketing fee that is currently under consideration and with the membership growing daily, and with the new contracts for OMG signed and the new contract for OCC waiting in the wings, Guerin is optimistic.