Industry Insights

 


Exploring the Flexible Packaging Business – Interview with Paul Gaster


Plastic is the most widely used material for packaging products in India. Approximately 40 to 50 percent of the plastics produced in the country is used for packaging. Polymers like high-density polyethylene (HDPE), low-density polyethylene (LDPE), biaxially-oriented polypropylene (PP) and polyvinyl chloride (PVC) have gradually replaced traditional packaging materials such as glass, metals, paper and jute.


Depending on the requirement, packaging can be classified as rigid and flexible. Although rigid packaging constitutes a larger market share, demand for flexible packaging is steadily increasing. Flexible packaging finds applications in the food, personal care and pharmaceutical industries, with food packaging being the biggest end use sector in terms of value and volume. The growing population and the concomitant demand for fresh and frozen foods, beverages, personal care products and pharmaceuticals are factors responsible for the rising demand for flexible packaging. Backed by investments in technology and equipment, the flexible packaging industry is expected to see high growth rates in the coming times.


In conversation with Lekhraj Ghai of POLYMERUPDATE, Paul Gaster, Director Flexible Packaging – PCI Films Consulting, provides valuable insights into the global flexible packaging business with a special focus on the flexible packaging markets of India and China.

Paul Gaster
Director Flexible Packaging - PCI Films Consulting
Paul has more than 35 years' experience in the packaging industry in marketing services and corporate planning roles. In 2000 he joined PCI Films Consulting Ltd to head up the company's consulting services to the flexible packaging sector. He co-edits PCI Films Consulting's European Flexible Packaging and World Flexible Packaging Trends quarterly reports and has authored many flexible packaging multi-client studies, including the company's annual survey of the European Flexible Packaging Market.

Interview of Paul Gaster (PG) with Lekhraj Ghai (LG):


LG: What is the current global flexible packaging market size in terms of value and volume? Which regions account for the most consumption?


PG: PCI estimates the global flexible packaging market, on the basis of our definition of flexible packaging*, at USD 80 billion in 2014. Asia-Pacific is the largest and most rapidly growing region, accounting for in excess of 40% of the global total, with North America just over 25%, Europe over 20%, and the balance in Central & South America and the Middle East & Africa.



LG: How has the market for flexible packaging performed in the recent past? What growth rates can be expected from this market in the coming years?


PG: The global flexible packaging market has seen consistent growth of around 4% to 5% per annum in value terms and is expected to be sustained at around 4% per annum over the next few years.



LG: Which are the major plastic substrates encompassed within the purview of flexible packaging?


PG:The most important plastic substrates used in converted flexible packaging include PE, BOPP, BOPET, BOPA and cast PP, also aluminium foil and special papers. Other polymer films include PVC as well as coextruded films that incorporate EVOH and polyamide, and biodegradable and compostable materials such as PLA and cellulose-based films.



LG: What factors drive growth in the flexible packaging industry?


PG: : Growth drivers for flexible packaging include:

  • The trend in fast-growing emerging markets such as India to switch from food products sold loose to prepackaged, thus dramatically extending product shelf life. This trend is underpinned by the expansion of modern mass retailing in emerging markets; rapid urbanisation; population growth where young consumers are eager to adopt developed world lifestyles; the increasing globalisation of the food processing industry which is seeing multinational brand owners setting up manufacturing operations in newly emerging markets; and the steady improvement of distributional infrastructure in these markets.
  • The growing replacement of rigid for flexible packaging in many national markets and end product applications. This is being aided by the development and introduction of increasingly sophisticated materials and flexible packaging formats, such as the stand-up pouch, offering viable cost effective alternatives to rigid packaging in many applications.
  • Environmental and legislative pressures to reduce the volume of packaging waste favours flexible packaging over rigid formats.



LG: Which end-use sectors are expected to see the most growth?


PG: This varies from country to country and region to region. In developed markets there is above-average growth in sectors such as coffee, pet food, fresh produce and medical/pharmaceuticals. In emerging markets there is often strong growth across many applications: in India, for example, rapidly growing applications for flexible packaging include snack foods, confectionery and personal care products, often sold in small-size packages.



LG: What can be said about the flexible packaging industry in Asia-Pacific? What could be the impact of the recent global economic trends on the markets in India and China?


PG: The currently slowing global economy is seeing slower flexible packaging growth in some markets, especially China. However, India stands out as an emerging market that is expected to continue to grow very rapidly over the coming years, at up to 15% per annum in value terms. In developed markets in Asia-Pacific, such as Australia/New Zealand and Japan, flexible packaging markets are highly mature and will continue to grow slowly in value and volume terms.



LG: Which converters operating in India are the ones to watch out for in terms of flexible packaging capacity?


PG: Many converters in India are ramping up their capacity to meet rapidly growing demand: some notable examples include Uflex, Huhtamaki, Amcor, ITC and Creative Packaging.



LG: What are the challenges that are encountered by this industry?


PG: Challenges faced by the flexible packaging industry in India include:

  • Low profitability and margin pressure in the domestic market.
  • Poor distributional infrastructure; for example, the lack of a cold distribution chain.
  • Modern retailing in India in its infancy: food retail continues to be dominated by 'Mom and Pop' small shops where most products continue to be sold loose.
  • The unorganised or 'grey' market, which is estimated to account for nearly 50% of flexible packaging sales in India, continues to grow. Converters operating in the unorganised market often do so beyond the reach of tax authorities and legislators, to the disadvantage of converters operating in the organised sector.



LG: How competitive is the global flexible packaging industry? Which are the major players?


PG: Flexible packaging markets tend to by highly competitive at both the national and regional levels, often with intense margin pressure. The global flexible packaging industry continues to be highly fragmented although a small but growing number of multinational converters are adopting a global strategy to grow with their major brand owner customers who are expanding their manufacturing footprint in emerging markets in Eastern Europe, Asia, Africa and Latin America. Major converters adopting a global strategy include Amcor, Sealed Air Corp., Constantia Flexibles, Huhtamaki and Coveris. Others enjoy regional dominance, such as Bemis in the Americas.



LG: What could be the impact of the falling prices of crude oil on the flexible packaging market?


PG: The collapse in oil prices over the past year has restricted the ability of processors further down the value chain, including flexible packaging converters, to raise their prices.



LG: What are your thoughts on the slowdown in China? How will China's economic performance impact the global flexible packaging business?


PG: Over the past decade, China's flexible packaging market has grown on average by more than 10% per annum. However, the country's slowing economy, now growing at around 7%, is impacting flexible packaging demand, which is now believed to be growing at near 8% per annum.



LG: What factors can be considered as opportunities for growth among emerging markets in Asia, South America and Africa?


PG:Growth opportunities for flexible packaging in these emerging markets include:

  • Exploiting the trend towards prepackaged food and non-food products rather than products sold loose
  • Catering to the growing and increasingly affluent middle classes
  • Selling small single unit pack size products to low income consumers
  • Potential in rural markets – increasingly being exploited by packers



LG: Which innovative technologies that are in use in America and Europe can be implemented in emerging markets such as India to enhance growth?


PG: The development and introduction of more sophisticated flexible packaging laminates, underpinned by a growing domestic film production supply base, now well advanced in India. The use of sophisticated high barrier materials in emerging markets is currently small but is likely to grow over the longer term. There is expected to be good growth in cold form formats, especially for pharmaceutical blister packs offering higher barrier.



LG: Tell us more about your company. What makes PCI Films Consulting unique in the field of market intelligence?


PG: PCI Films Consulting focuses exclusively on supplying news and information on flexible materials across the global flexible packaging supply chain, as well as films used in some non-packaging applications. PCI Films' range of services to clients on a subscription and single payment basis includes:

  • Quarterly Business Reports on the PET film, PP film, European and Worldwide Flexible Packaging Markets.
  • Regional Supply/Demand Reports on the BOPET and BOPP film markets and on the World and European Flexible Packaging Markets.
  • Confidential ad hoc studies for individual clients with specific market research and business needs.
  • Independent reviews of business investment plans for lending institutions.

PCI provides regular monitoring of flexible packaging base substrate price trends around the world for BOPP, BOPA and BOPET films, special papers and aluminium foil. While other information providers report on resin price trends, the monitoring of flexible packaging base substrate prices is a service unique to PCI Films Consulting.


* PCI's Flexible Packaging Definition
'Flexible Packaging' embraces the manufacture, supply and conversion of plastic and cellulose films, aluminium foils and papers that are used separately or in combination, for primary retail food packaging, non-food packaging applications such as pet food, DIY, hygiene product over wrap, household detergents and certain other specialist non-food packaging niche sectors, such as medical and pharmaceutical packaging". As such, this definition specifically excludes label films and labelling, shrink and stretch films used for secondary packaging and pallet wrap, carrier bags, supermarket self-service and counter bags, silage bags, refuse bags and industrial flexible packaging. PCI measures the value of converter-supplied flexible packaging sales at the packer level.


END
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