June 16, 2023 Mr. Charles O…

June 16, 2023

Mr. Charles O’Hara
Director, Resource Recovery Policy Branch
Ontario Ministry of Environment, Conservation and Parks
40 St. Clair Avenue West, 8th floor
Toronto, ON M4V 1M2

Re: Comments on the regulatory amendments to the blue box regulation (O. Reg 261/22) relating to deductions under the producer responsibility framework

Dear Mr. O’Hara,

As the Government of Ontario seeks comment on recent amendments that would expand deductions for producers under the province’s Blue Box program, Kraft Heinz Canada (“KHC”) would like to express its ongoing concerns regarding the current structure of the extended producer responsibility framework, which is slated to begin on July 1.

Overview

Since its introduction, KHC and its producer responsibility organization (PRO) partners at Circular Materials have worked diligently to meet the requirements established by O. Reg 391/21. However, despite our efforts to collaborate in good faith with the government, we have identified several concerns with Ontario’s multi-PRO system, which will impose significant cost and administrative burdens on producers.

We recognize the Ontario government has been working on a stronger, more effective Blue Box program since 2020. KHC has been engaged as a good partner every step of the way, but we are now at a point where we are seeing the real costs and the regulatory burden of the program materialize in response to every shift and amendment in policy and regulation made by the government.

Furthermore, we know it is extremely important to the government not to impose undue costs on Ontario businesses, in order to create the best environment for businesses to grow and thrive. We believe the cost to business of the program will only continue to mount with implementation and, in turn, impact the affordability of essentials, like food and beverage products.

With these factors in mind, we are bringing forward the following proposal below for the government’s consideration and to facilitate a meaningful dialogue over the coming weeks. At your earliest convenience, we would like to meet to discuss our proposal.

Deductions

While KHC is not opposed to the proposed amendments related to deductions, we would like to express our concerns regarding implications for producers. Furthermore, the many amendments over the past few years to the original set of regulations has had substantial cost implications and impacts as producers ready themselves for the final regulation going into effect for July 1, 2023.

The most recent amendments provide limited detail relating to the scope and implementation processes of the deductions. Specifically, we do not have the necessary clarity to assess the government’s claimed benefits, as well as the impacts the deductions will have on obligations of producers that are unable to request deductions.

Additionally, the proposed new rules for deductions are slated to be implemented during the fee setting process, and in the absence of a strategy for determining the validity of producer deductions, contracts between PROs and producers could be put at risk.

We support updating the reporting deadlines from April 30 to May 31 to align with the reporting deadlines in the other jurisdictions. This measure will help ease the administrative burden on Circular Materials as a national PRO as well as many of our producers who will report into these programs on a national basis.

We would urge the government to consider the unintended consequences of making frequent changes to the regulation and ensure there is adequate time for businesses to prepare for and mitigate the impacts of the new changes.

Increased Complexity

Under Ontario’s current regime, there are four PROs currently registered with the Resource Productivity and Recovery Authority (RPRA). Kraft Heinz believes the multi-PRO system has contributed to additional red tape and unnecessary bureaucracy than if the government had designated a single PRO. The multi-PRO system warrants the creation of an oversight body, responsible for the development of policies and procedures for PROs and producers. This oversight body, namely the PRO Operating Committee, would serve as an additional layer of bureaucracy, which would otherwise not be needed under a one-PRO framework.

Furthermore, a multi-PRO environment further increases complexity as it relates to both the reconciliation of materials and their reporting to regulators. Under the current regime, multiple PROs will seek assurance that the share of Common Collection System (CCS) allocated to them is proportionate to the material supplied by their respective producers. As a result, this reconciliation process, and its subsequent integration into the PRO’s regulatory, performance and financial reporting, has proven to be highly complex and cumbersome due to the absence of a single PRO for all producers.
Ontario’s multi-PRO model is currently the exception, not the rule among other jurisdictions. Aside from Germany, many European countries have chosen to adopt one-PRO models, which has helped to keep costs and the administrative burden down for businesses, while supporting governments’ waste diversion objectives.

If Ontario agrees recycling is a “public good,” delivering these services through a centralized organization (i.e. a single PRO) will contribute to a more efficient, fair, and streamlined program. The Ontario government has taken the same approach through the creation of centralized agencies like Supply Ontario for government procurement and Skilled Trades Ontario for skilled trades certification and promotion. These initiatives have led to reduced costs, less red tape for businesses and organizations, and better services overall.

Added Business Costs

As it is currently designed, Ontario’s Blue Box program is on track to be the most expensive program of its kind in Canada. In comparison to other jurisdictions, total program costs, including program management and post-collection, Ontario’s regime will cost approximately double the costs seen in other jurisdictions. Additionally, the cost of Ontario’s CCS will be more than 50 per cent than the total program cost in other jurisdictions.

Most notably, our Ontario recycling fees have more than doubled in 2023 versus the previous year, and are expected to be almost six times 2022 levels when transition to the new system is completed in 2027. Currently, our projected fees for 2027 are only estimates, and we believe these numbers are likely to increase as a result of further regulatory changes in deductions and the Ministry’s deposit-return system. In addition, public space recycling will require a $30 million estimated capital investment, and annual cost of $30 to $100 million.

These additional costs could result in an increase of fees of up to 30 per cent, contributing to existing financial burdens that have already been imposed on producers and consumers.

These escalating costs are a result of operating a separate CCS, the complex reconciliation process between multiple PROs, and the associated uncertainty of Ontario’s Blue Box program under a multi-PRO system. To help manage these escalating costs, it is highly probably that customers will experience higher costs, in turn.

Impacts on Food Costs

As inflationary pressures persist across the country, we know the government is continuing to prioritize keeping the cost of living down for Ontarians wherever possible. To date, KHC has assumed significant risks as a result of these regulatory pressures. Despite this, Kraft Heinz Canada has worked diligently to keep food and beverage costs affordable and have not profited during this economic turbulence.

While food affordability remains a shared priority between the Ontario government and KHC, we are very concerned that the current multi-PRO system will add another layer of regulatory costs to our operations, which will impact food affordability for consumers, in addition to the lack of harmonization across jurisdictions and cross-border trade barriers.

Benefits of One-PRO System

While we recognize that a multi-PRO system enables a competitive landscape for organizations to participate in the Blue Box program under the producer responsibility framework, it concurrently imposes additional cost and administrative burdens on producers, hindering their productivity and competitiveness.

KHC strongly recommends allowing for a single PRO representative to govern the recycling system and rules for producers to help keep costs down, while continuing to meet the government’s objectives. While we believe this will simplify process and significantly reduce costs for producers, it will also reduce risk and ease additional burdens for the province. Under a one-PRO system, there would be a single point of control over collecting and receiving activities of producers, which would eliminate the need for additional reporting and auditing activities for the province and the disparity between private and not-for-profit PROs. As well, it would eliminate the need for an additional oversight body of the CCS, helping to streamline processes for producers.

In addition, a one-PRO system would facilitate a fair playing field for producers as it relates to administrative policies and fees. With a single PRO managing long-term program policies, investments, and performance improvements, producers would feel more confident contributing to a singular PRO as they are guaranteed to see the benefits of their investments.

Further, a one-PRO system will provide the necessary certainty for companies like ours to optimize economic benefits on a national scale. With more certainty under a one-PRO model, vendors will be less incentivized to raise the costs of their services at every level of the supply chain. It is our hope that a one-PRO system in Ontario will eventually enable national producers, like KHC, to develop and implement a country-wide approach for collecting and managing Blue Box materials. Harmonization is essential if Ontario seeks to be a leader in waste diversion.

While a one-PRO system stands to benefit the province and producers, it would also serve to simplify communications to stakeholders, particularly Ontario’s residents. Recognizing the important role residents play within Ontario’s Blue Box program, it will be especially important to have one singular communications channel to this audience. This will help mitigate risk of confusion among residents, should there be multiple PROs communicating various messaging to Ontarians.

Benefits of Non-Profit PROs

A single not-for-profit PRO, which is supported by most producers and used in several jurisdictions around the world, would uniquely benefit Ontario’s producer responsibility framework. In its neutral capacity, this PRO would be squarely focused on ensuring producers meet their respective obligations, without the additional motivation of accumulating revenue.

This compares to for-profit PROs, which have the ability to leverage revenue at every stage of the process, adding additional costs to producers and non-profit PROS. Because these for-profit PROs have the ability to leverage significant resources and discount their services, other PROs within the system become incentivized to offer competitive prices, which could come at the expense of the quality of services. Therefore, the neutrality that a single not-for-profit PRO brings would not only help streamline processes, but would also mitigate cost impacts of Ontario’s Blue Box program.

Recommendations

In closing, the proposed multi-PRO system for Ontario’s Blue Box program will considerably increase financial and administrative burden to producers.

We strongly urge the Ministry of Environment, Conservation and Parks to reconsider its current plan for Ontario’s producer responsibility program and consider the following recommendations to improve the program:

1. Work with producers, RPRA, PROs and other stakeholders as a working group to determine a path forward with respect to expanding exemptions to ensure that producers are indeed paying only for material being managed through the blue box system or with respect to public space recycling.

2. Review timing to ensure that changes to the proposed deductions do not impact the annual fee setting process.

3. Update the annual reporting deadline to May 31 from April 30 to align with the reporting deadlines in other jurisdictions.

4. Conduct a more complete review of the entire regulatory framework and work with producers to determine areas for improvement that would reduce costs for all producers.

5. Amend PRO criteria to specify a PRO must be a not-for-profit corporation and must be governed by persons defined as producers in the regulation.

Thank you for the opportunity to share our comments. We look forward to your response.

Sincerely,

Nicole Fischer
Head of Sustainability, North America, Kraft Heinz Canada
Chair, Circular Materials

Michael Gregoris
Chief Financial Officer, Kraft Heinz Canada