São Roberto Factory Visit - Researching the Recycling Industry

Last week, I visited the São Roberto cardboard factory in Santa Luzia, right outside of Belo Horizonte. Together with a group from UFMG, we are researching the supply chain of paper and plastic recyclables. Although the recycling market is in fact quite huge (big business all over the world), it is in a lot of ways relatively unknown. Our goal in this project is to gain a better understanding of the recycling market so that we can better help the cooperatives of catadores to tailor their production to the demands of industry.

São Roberto produces their cardboard almost entirely from recycled paper, so this visit was very interesting for me to learn about the recycling process in general and better understand the economics of the recycling industry. I won't go into details here, but I was really struck by the fact that the input materials for the entire process were loads of pressed cardboard and paper completely identical to those produced by the cooperatives I visited. Although our tour guide explained that the goal was for the material to be as clean as possible upon arrival, he also explained that they used many advanced mechanical and chemical processes to clean the paper pulp and impurities were thus rarely an issue. That is to say, even paper and cardboard that appears somewhat dirty can be sold to industry.

The visit revealed to me how little is actually separating the catadores from industry. It really isn't a question of adding more value to the product (at least as far as paper is concerned). The middlemen clearly do very little other than collect material from the catadores for a dirt cheap price, press it, and sell it to industry at a significantly marked up value. (That is why we call them middlemen, after all!) The catador does all the work of collecting and sorting the material, and yet the middlemen take all the profit.

Instead of adding value to the material, the key for catadores to sell directly to industry is simply to increase scale. Our tour guide explained to us that they only buy their input materials from the large middlemen because they have a very large demand and need to buy materials in bulk and make sure that their suppliers will be reliable. The smallest supplier to the factory provides around 80 tons of cardboard per month. This gives me hope for the future of the commercialization networks - if we start by focusing on the areas that demand greater scale and less value added, we might be able to capture more of the profit within the market, and then we can later expand into more intense value-added areas such as plastic processing. With the infrastructure and equipment that cooperatives and networks can provide, there is little reason for middlemen to exist within the recycling market at all.

One interesting side note: our tour guide mentioned that they only buy materials from within the state of Minas due to high taxes on interstate transport. At the State Conference, an aluminum industry representative complained of the same problem. I will go into further detail in a later post about the Brazilian economy in general, but I find this to be a fascinating example of the complex tax regime in this country that undermines efficient economic production and further concentrates manufacturing in individual, separate clusters rather than a nationally integrated economy.