Spiralling costs help make the business case
It's a well-known aphorism that Boards don't give a toss about energy efficiency until prices start to spiral - as they have over the past two years. So, managers with responsibility for energy can expect to be in favour once again - especially with news from the Carbon Trust that as a result of poor energy efficiency, Britain's food and drink businesses will waste £26M this summer.
Common sense surely dictates that preventing waste of any kind at source is better than trying to mitigate its consequences afterwards. But for years senior management have not bought into the idea of waste minimisation. While the three-Rs mantra: reduce, reuse and recycle, might be on the lips of most primary school kids, the same cannot be said for company bosses - particularly those in small and medium sized firms - who prefer to remain within their comfort zones of finance, sales and marketing.
The food and drink sector will waste 12% of its total energy spend this summer, says the Carbon Trust, and emit 442,000t of carbon dioxide in the process. Given the launch earlier this year of the government's long awaited Food Industry Sustainability Strategy (FISS), however, (see panel on p38) companies would do well to start putting their houses in order if they want to avoid unpleasant consequences. As well as additional direct costs, the fiscal stick will increasingly be brought across the backsides of firms that transgress by failing to improve their environmental act.
Help needed
According to a recent Envirowise survey carried out by market research company Ipsos MORI, around half (49%) of small and medium-sized food and drink businesses need practical help with waste minimisation issues such as reducing water use.
But help is at hand - and much of it free into the bargain. It is available from various government-funded bodies such as the Carbon Trust, Envirowise, and Waste Resources Action Programme (WRAP). On top of this, monies are available from BREW - the Business Resource Efficiency and Waste programme, which was set up by the Department for Environment, Food and Rural Affairs (DEFRA) in April 2005 in response to a request from HM Treasury to return £284M of additional receipts from increases in landfill tax over three years.
The Food Processing Knowledge Transfer Network (FPKTN), which is already involved in managing sector specific food waste clubs in the Yorkshire and Humber regions, is also working with Envirowise and has set up the Resource Efficiency Club (REC) to share best practice in the sector. FPKTN is currently working with the West Midlands Food Partnership to look at the feasibility of setting up a network of RECs across the UK.
More support is also now likely to be available from government for pre-competitive research into innovative technologies to save waste, energy and costs. Speaking at a recent seminar on the subject, Pauline Spetsioti from DEFRA's Food Link secretariat said: "Because of FISS, we have an increased commitment to post farm gate funding research. So, we are looking for more projects and ideas."
As an example of the practical help available, take Manchester-based Simply Fresh Foods, which employs 330 staff and makes pre-prepared foods for supermarkets.
Each year it uses more than 50M gallons of water and has energy costs of more than £250,000. In a progressive move, Simply Fresh Foods approached the Carbon Trust for specialist advice and made use of its free energy survey service.
The results were recommendations to: recover waste heat from production processes and refrigeration plant, introduce better housekeeping - basically turning equipment off when it wasn't being used; install automatic lighting controls; and minimise water waste from washing processes. In addition the firm was advised to manage its compressed air equipment better and install better insulation on high and low temperature equipment. As a result, it has cut its energy bill by £30,000 a year.
None of what Simply Fresh Foods has done is rocket science: it's basic stuff that has been known about for years. However, for many firms, preoccupied with meeting daily production schedules and fire-fighting problems that arise, it might appear a luxury to take time out to review important issues such as waste. But the benefits really make it worth doing.
"We have known for some time that we could make savings, but we needed a helping hand from the Carbon Trust to point us in the right direction," said Simply Fresh Foods' engineering manager Alistair Clark. "It's always useful to have an expert second opinion."
For really large energy consumers, typically those spending more than £8M a year on their energy bills, energy futures and options trading probably makes sense. However, for most food and drink manufacturers, which consume considerably less, it doesn't. For them, paying more attention to their energy efficiency is the solution.
Take Westbury Dairies, for example, the largest single-site dairy in the UK, which processes over 2.5Ml of milk a day into cream, butter and milk powder. Westbury has raised the efficiency of its already energy efficient plant significantly. Its energy bill in 2004 was £2M. Now, however, thanks to help from the Carbon Trust, it is consuming 43.5% less energy than a typical dairy. With big price hikes last year, it has identified savings of £400,000 in its annual energy bill as well as carbon emission reductions of almost one-sixth.
Investment incentives
As well as fiscal sticks, government is also offering businesses carrots to help them improve their green credentials. Enhanced Capital Allowances (ECA) are available for investing in equipment on the so-called 'technology list': kit which DEFRA considers will enable significant environmental performance improvements.
Take Cambridgeshire-based G's Fresh Beetroot, which claimed to be one of the first food companies to gain ECA approval for tax relief worth more than £100,000 for the capital costs of an efficient membrane filtration system selected from the Water Technology List (WTL) at its site in March this year. The WTL scheme was widened in September 2005 specifically to include efficient membrane systems.
The Aquabio membrane filtration installed will allow G's to treat, recover and re-use up to 70% of the waste water generated on site, leading to a reduction in water supply and a cut in disposal costs estimated at £125,000 a year. G's is eligible to claim first year allowances worth around £120,000, which will shorten the payback period by 12 months to less than 2.5 years.
G's Fresh Beetroot has been able to make a business case for expenditure on more efficient processes. Md Graham Forber says: "ECA eligibility has really made the difference. It has provided us with a major incentive to invest. Not only will we be able to significantly reduce our water and effluent costs, but the ECA has also shortened the payback period of the project by 12 months giving the Board the confidence to invest."
But that's the rub for many companies in the food and drink manufacturing sector: they are looking at paybacks as short as six months in many cases to justify any expenditure. And that applies to both investment in capital equipment and research that could help them improve their production efficiency.
Peter Jarman, who works for DEFRA to bring industrial and academic partners together in collaborative food manufacturing research projects, has doubts about the appetite of many companies to get involved. Jarman says: "Since the food industry is not awash with money, it is difficult for anything that is not six months hence."
Barclays' food sector relationship director John Laud adds: "We tend to see a couple of years still on returns on capital." He works closely with many UK food companies and admits that waste-to-energy projects based on 'bio-fuel' (Food Manufacture April 2006, p26), in which interest is growing - particularly in the poultry sector - "tend to be longer than that". However, Laud claims that as costs rise, the financial incentives to invest will become greater. "A number of our customers are looking at these things," he says. "It is a growing market for us."
Laud is currently involved with six bio-fuel feasibility studies with food manufacturers across the UK, with one project expected to get the go-ahead in January 2007. However, others will follow, he adds, as rising energy costs improve their economic viability. But he accepts that obstacles along the way - such as confusion over the definition of waste and by-products and planning objections - could still thwart such projects.
To illustrate the complex environment in which companies must now operate, Laud cites the example of a business, which generates large quantities of blood by-products. Prior to the introduction of the new animal by-products regulations, revenues of £1.5M were generated by the sale of blood. Now, he says, the company faces costs of £1.5M for its disposal - effectively a whopping £3M cost increase.
"So, there is quite an incentive for these companies and the costs are going to get worse for them," says Laud. Rising energy costs are also causing companies in the flat and windy eastern part of the country to investigate the feasibility of using wind power as a source of electricity, he adds.
With 78% of respondents to last month's Food Manufacture survey reporting that reducing waste was a top priority and even more (81%) saying that improving energy efficiency was top, it appears that reluctance to address the 3-Rs could at last be changing. FM
FISS in outline
The Food Industry Sustainability Strategy (FISS), launched in April by Margaret Beckett in virtually her last act as secretary of state at the Department for Environment, Food and Rural Affairs (DEFRA) before handing over the reins to David Miliband, sets out tough targets for the industry:
- Carbon emissions: reduced by 20% by 2010 against a 1990 baseline
- Water use: reduced by 10-15% and 20-25% in the South East.
- Manufacturing food waste: reduced by 15-20% by 2010.
- Transportation: 'significant' reductions in environmental and social costs by 2012
Key Contacts Aquabio 01905 641966Carbon Trust 020 7544 3100Compact & Bale 01732 852244DEFRA Food Link 020 7238 1522 Environwise 0800 585794FPKTN 01664 503640Mono Pumps 0161 339 9000WRAP 0808 100 200 40
