Economic Assessment of Corn-based Plastic Packaging Products

112 Pages·2016·2.3 MB·English

by  Nafis Muntasir

Economic Assessment of Corn-based Plastic
Packaging Products

By

Nafis Muntasir

A Thesis presented to
The University of Guelph

In partial fulfilment of requirements
for the degree of
Master of Science
in
Food, Agricultural and Resource Economics

Guelph, Ontario, Canada
© Nafis Muntasir, May, 2016
ABSTRACT
Economic Assessment of Corn-based Plastic Packaging Products
Nafis Muntasir Advisor:
University of Guelph Professor Alfons Weersink

Polylactic acid (PLA) has been proved to be an environmentally viable bioplastic with the
potential to replace existing fossil-based plastic materials. Packaging is the biggest application of
plastics with food and beverage sector being the biggest end-user market. Thus, this study
identified the cost differences of food packaging containers using PLA and other fossil-based
resins. Results showed that PLA is an economically viable bioplastic over popular fossil-based
plastic materials used for packaging food containers at relatively lower prices of corn than of
crude oil. The prices of corn and crude oil, along with percentage share of feedstock cost in resin,
share of resin cost in packaging and density of resins played vital roles in determining the cost
competitiveness. Since PLA is economically viable for packaging, policy tools such as
government grants and loans, tax credits and state procurement can be used to stimulate the
PLA-based packaging product market.
Acknowledgements
First, I would like to thank my advisor, Dr. Alfons Weersink, for guiding me to completion of
my program. His patience, mentorship, continuous support and trust on me has allowed me to
explore my potentials, and helped me develop my professional and personal capacities which
now has opened the doors for my future.
I would also like to thank Dr. Andreas Boecker and Dr. Manjusri Misra, members of my
advisory committee, to benefit me with their vast knowledge on the topic of my thesis,
encouragement, and for pushing me to learn more at every steps of my thesis. I would also like to
thank all faculty members and staffs of Department of Food, Agricultural and Resource
Economics without whom my learning journey would have been incomplete.
My sincere gratitude goes to Ontario Ministry of Agriculture, Food and Rural Affairs for
supporting me with the knowledge and finances necessary for this research.
I would also like to thank my cohort and my dearest friends for giving me all the support.
It would have been impossible to complete and survive in Canada without them.
I would like to thank my family to whom I owe for the principles and attitude that I have
towards the world. My parents have been an inspiration and support in all steps of my life and
this program, and have taught me to look at the world from different perspectives which made
me more inquisitive about life and has opened my eyes to address new challenges in life more
easily. My sister has been an encouragement as she complemented me with her knowledge on
economics since she is a learned to-be-economist. Last, but certainly not the least, I thank my
wife, Sabrina, for the immense support that she have provided me throughout. Although she was
far away from me during this chapter of our life, I am thankful for her love and care for which I
never felt the distance, and these were invaluable assets to complete my thesis successfully.
iii
Table of Contents
CHAPTER 1 : INTRODUCTION ............................................................................................... 1
1.0. Background .......................................................................................................................... 1
1.1 Economic Problem ................................................................................................................ 4
1.2. Research Problem ................................................................................................................. 5
1.3. Purpose ................................................................................................................................. 6
1.4. Outline of Thesis .................................................................................................................. 7
CHAPTER 2 : OVERVIEW OF THE BIOECONOMY .......................................................... 8
2.0 Introduction ........................................................................................................................... 8
2.1 Definitions of the Bioeconomy ............................................................................................. 8
2.2 Biofuel ................................................................................................................................. 12
2.3 Industrial Bioproducts ......................................................................................................... 15
2.3.1 Bioplastics and Biopolymers ........................................................................................ 15
2.3.2 Biofoams and Biorubbers ............................................................................................. 17
2.3.3 Natural Fibre Composites (Biocomposites) ................................................................. 20
2.3.4 Fibreboards .................................................................................................................. 24
2.4 Canadian Bioeconomy ........................................................................................................ 25
2.5 Conclusion ........................................................................................................................... 27
CHAPTER 3 : PLASTIC PACKAGING SECTOR OVERVIEW ........................................ 28
3.0 Introduction ......................................................................................................................... 28
3.1 Plastic and plastic packaging sector .................................................................................... 28
3.1.1 Modelling the Externality ............................................................................................. 37
3.2 Bioplastic as an alternative to plastic packaging ................................................................. 39
3.3 Conclusion ........................................................................................................................... 45
CHAPTER 4 : METHOD, DATA AND RESULTS ................................................................ 46
4.0 Introduction ......................................................................................................................... 46
4.1 Scope of cost comparison .................................................................................................... 47
4.2 Method ................................................................................................................................ 49
4.2.1 Quantity of feedstock for production of resins ............................................................. 51
4.2.2 Quantity of resins for production of packaging............................................................ 52
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4.2.3 Other costs associated with production of resins and packaging ................................ 52
4.2.4 Percentage share of feedstock cost in resin production ............................................... 53
4.2.5 Cost of resins per pound ............................................................................................... 53
4.2.6 Percentage share of resin cost in packaging ................................................................ 53
4.2.7 Cost per pound of plastic packaging ............................................................................ 54
4.2.8 Cost per plastic container............................................................................................. 54
4.2.9 Break-even point ........................................................................................................... 55
4.3 Data for Simulation ............................................................................................................. 57
4.3.1 Quantity of feedstock in resin production ..................................................................... 57
4.3.2 Prices of feedstock ........................................................................................................ 57
4.3.3 Percentage share of feedstock cost in resin production ............................................... 58
4.3.4 Percentage share of resin cost in packaging production ............................................. 60
4.3.5 Quantity of containers .................................................................................................. 61
4.3.6 Simulation Models ........................................................................................................ 63
4.4 Results and Discussion ........................................................................................................ 63
Results of Scenario 1 ............................................................................................................. 64
4.4.1 Cost differences per pound of PLA and fossil-based packaging .................................. 64
4.4.2 Cost differences per container of PLA and fossil-based packaging ............................. 73
Results of Scenario 2 ............................................................................................................. 78
4.5 Decision Matrix ................................................................................................................... 80
CHAPTER 5 : POLICY RECOMMENDATION ................................................................... 85
CHAPTER 6 : CONCLUSION.................................................................................................. 91
References .................................................................................................................................... 94

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List of Figures:
Figure 2.1: Biofuel Production and Application ........................................................................... 13
Figure 2.2: Potential Industrial Bioproducts ................................................................................. 15
Figure 2.3: Supply Chain of Potential Bioplastics ........................................................................ 17
Figure 2.4: Global bio-based polyurethane (PU) market volume by product (tonnes) ................ 18
Figure 2.5: Supply Chain for Bio-foams....................................................................................... 19
Figure 2.6: Supply Chain for Biocomposites ................................................................................ 21
Figure 2.7: Supply Chain of Fibreboards ...................................................................................... 24
Figure 2.8: Canada's Biofuel Production ...................................................................................... 26
Figure 3.1: Revenue of Goods Manufactured and Price in Plastic Industry ................................. 30
Figure 3.2: Type of Resins Produced in Canada ........................................................................... 31
Figure 3.3: Shipment (in million CAD) and Employment (in thousands) of Synthetic and Rubber
Industry in Canada ........................................................................................................................ 31
Figure 3.4: Number of Establishments in Synthetic and Rubber Industry in Canada .................. 32
Figure 3.5: Import and Export of Plastic Resin (in million CAD) of Canada .............................. 32
Figure 3.6: Application of Plastic in Canada ................................................................................ 36
Figure 3.7: Sales of Plastic Packaging Materials and Unlaminated Film and Sheet Manufacturing
....................................................................................................................................................... 36
Figure 3.8: Quantity of barrels of crude oil in form of feedstock per tonne of resins .................. 37
Figure 3.9: Tonnes of CO2 emissions per tonne of resins............................................................. 37
Figure 3.10: External cost from production of fossil-based plastic resins .................................... 38
Figure 3.11: Global Production of Bioplastics in 2013, segregated by Types and Application ... 41
Figure 3.12: Biopolymer output of PLA and PLA blends per tonne of feedstock ....................... 42
Figure 3.13: Production Process of Poly-Lactic Acid .................................................................. 44
Figure 3.14: Socio-economic technical configuration of PLA ..................................................... 45
Figure 4.1 Price of Crude Oil vs Corn over 15 years.................................................................... 49
Figure 4.2: Process for calculating cost of plastic packaging per pound across supply chain ..... 50
Figure 4.3: Cost differences per pound of PLA and fossil-based packaging in Model 1 ............. 65
Figure 4.4: Cost differences per pound of PLA and fossil-based packaging in Model 2 ............. 65
Figure 4.5: Cost differences per pound of PLA and fossil-based packaging in Model 3 ............. 65
Figure 4.6: Cost differences per pound of PLA and fossil-based packaging in Model 4 ............. 66
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Figure 4.7: Cost differences per PLA and fossil-based containers in Model 1 ............................ 73
Figure 4.8: Cost differences per PLA and fossil-based containers in Model 2 ............................ 73
Figure 4.9: Cost differences per PLA and fossil-based containers in Model 3 ............................ 74
Figure 4.10: Cost differences per PLA and fossil-based containers in Model 4 .......................... 74

List of Tables:
Table 2.1: Definition of the Bioeconomy in the United States and European Union ................... 10
Table 2.2: Definition of Bioeconomy by Stakeholders in Canada ............................................... 11
Table 2.3: Renewable Fuel Standard Percentage Standard .......................................................... 14
Table 2.4: Renewable Fuel Standards by Provinces in Canada .................................................... 14
Table 2.5: Application of Biocomposites by car manufacturers ................................................... 22
Table 2.6: Examples of Interior and Exterior Automotive parts from Natural Fibres .................. 23
Table 4.1: Quantity of crude oil energy in fossil-based resin production ..................................... 57
Table 4.2: Simulation Scenarios for Price of Corn and Crude Oil ............................................... 58
Table 4.3: Range of price of fossil-based resins per pound .......................................................... 59
Table 4.4: Percentage share of crude oil cost in fossil-based resin production ............................ 59
Table 4.5: Percentage share of fossil-based resin cost in packaging production .......................... 61
Table 4.6: Quantity of Containers on average per pound of fossil-based resins .......................... 62
Table 4.7: Number of containers per pound of PLA .................................................................... 62
Table 4.8: Models for Simulation under Scenario 1 and 2 ........................................................... 63
Table 4.9: Savings per pound from packaging using PLA over fossil-based resins at different
price ratios across 4 Models at $3.5 per bushel of corn ................................................................ 72
Table 4.10: Savings per container using PLA over fossil-based resins at different price ratios
across 4 Models at $3.5 per bushel of corn ................................................................................... 77
Table 4.11: Savings per pound from packaging using PLA over fossil-based resins at different
price ratios across 4 Models at $5 per bushel of corn ................................................................... 79
Table 4.12: Decision Matrix based on cost differences per pound ............................................... 81

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List of Abbreviations:
CAGR Compound Annual Growth Rate
DNA Deoxyribonucleic Acid
EU European Union
FAPRI Food Policy and Research Institute
GHG Greenhouse Gas
GPPS General Purpose Polystyrene
HDPE High Density Polyethylene
LDPE Low-density Polyethylene
MJ Megajoules
MT Million Tonnes
NAFTA North American Free Trade Association
NAICS North American Industry Classification System
OMAFRA Ontario Ministry of Agriculture, Food and Rural Affairs
PET Polyethylene Terephthalate
PHA Polyhydroxyalkanoates
PLA Poly-Lactic Acid
PP Polypropylene
PU Polyurethane
RFS Renewable Fuel Standard
R&D Research and Development
USDA United States Department of Agriculture

Conversion Values:
1 tonne 2204.62 pounds
1 barrel of oil 6000 megajoules
1 bushel of corn 56 pounds of corn
1 tonne of corn 39.368 bushels of corn
1 tonne of crude oil 7.33 barrels of crude oil

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CHAPTER 1 : INTRODUCTION
1.0. Background
The movement toward an economy relying more on renewable resources and with a greater
emphasis on sustainability is being pulled by private firms and pushed by government initiatives.
A shift toward cleaner sources of energy and greener products is envisioned to deal with
environmental problems, such as global warming, but also to lead to productivity increases
through the development of new technologies (Friedman 2008). Thus, a bio-based economy is
assumed to create profitable economic opportunities for individual firms while also reducing
negative environmental externalities.
The bioeconomy refers to the sustainable production and conversion of a biomass into a
range of food, health, fiber and industrial products and energy (European Bio-Economy
Technology Platforms 2012). Government efforts to promote the bioeconomy have largely
focused on energy production. For example, mandates on the level of renewable fuels consumed
and financial incentives for the construction of ethanol plants have been used across a number of
jurisdictions to establish a viable biofuel sector and reduce the reliance on fossil fuels.
Similarly, Ontario’s Green Energy Act enacted in 2009 attempts to facilitate the expansion of
renewable energy generation and to encourage energy conservation (O’Malley 2013). These
legislative programs focused on renewable energy have been criticized as a poor use of public
funds and for their unintended consequences, such as changes in land use and food prices.
The private sector’s interest in the bioeconomy has focused largely on its non-energy
dimensions, referred as industrial bioproducts in this study, which includes the bioplastics and
bio-polymers, biofoams and biorubbers, natural fibre composites and fibreboards that are
1
sourced from biomass and/or renewable resources. Consumers are increasingly showing their
willingness to pay a premium for green products (Oliver and Veldt 2004; David 2014; Biswas
2016) and private companies are responding. For example, Ford Canada has started using wheat
straw-based interior storage bins in their cars (Stoakley 2009). Ontario’s $135 million BioAmber
industry will produce bio-based succinic acid which then will be the precursor for production of
biodegradable plastics, paints and coatings, and industrial lubricants (Government of Canada
2014; BioAmber Inc. 2015).
The growth of a particular bioproduct industry depends on how it competes technically,
environmentally and financially with the type of fossil-based products that will be substituted by
the bioproduct. One of the industries producing fossil-based products that is closely tied to the
global and also the Canadian economy is the plastics industry. In Canada, the plastics industry is
valued at $29.2 billion (Canadian Plastics Industry Association 2014) and GE Capital (2015)
projects the industry to grow by 3% per year until 2019. The biggest application of the plastics
industry is the packaging of food and beverage containers. However, the global plastic market
accounts for around 4% of the total consumption of petroleum (Gourmelon 2015). In Canada, the
most popular plastic resin, polyethylene, required 140,120 million megajoules1 (MJ) of fossil
energy in 2013 in the form of feedstock and emitted approximately 16,954 million kg2 of CO
2
during its production (Vink et al. 2003; Gironi and Piemonte 2011; Chemistry Industry
Association of Canada 2014). In addition to the fossil fuel required during its production, fossil-

1 Low-density polyethylene (LDPE) and High-density polyethylene (HDPE) uses approximately 40 MJ/kg of fossil
energy in the form of feedstock and production processes (PlasticsEurope 2014). Total polyethylene produced in
Canada in 2013 was 3503 kilotonnes (Chemistry Industry Association of Canada 2014). Therefore fossil energy
used in 2013 by PE is 140,120 million MJ (3,503,000,000 kilograms x 40 MJ/kg).
2 Low-density polyethylene (LDPE) and High-density polyethylene (HDPE) emits 5.04 kg CO eq/kg and 4.84 kg
2
CO eq/kg (Gironi and Piemonte 2011). Assuming all PE in 2013 was HDPE, production of PE resins resulted in
2
16,954 million kg of CO equivalent (3,503,000,000 kilograms x 4.84 kg CO equivalent/kg)
2 2
2