Why 100 Billion Plastic Bags Could Vanish From Stores Across the United States
The first plastic bag was introduced in 1957. And anyone old enough will surely remember how Dustin Hoffman was tipped in to the future of "plastics" in 1967's The Graduate. What an opportunity! Even for simple products like bags. For example, by 1996, plastic bags had gained an 80% share of the grocery bag market. Some estimate that to be as many as 100 billion (yes billion with a B) bags a year. If California is any indication, however, that tides could be switching back in favor of paper.
Before there was plastic
It's hard to imagine a world without plastic. The substance is ubiquitous today, largely because of the many benefits it offers, including low cost and the ease with which it can be used. However, before there was plastic, wood products were the main option for making many things. And plastic bags are probably one of the best examples of the impact "plastics" has had on the world. Imagine the chagrin of paper bag makers as their share of the grocery bag market shrank from 100% to 20%.
However, plastic bags have gotten a bad name since their introduction in the middle of the last century. They have been blamed for clogging landfills, strangling wildlife, and collecting in vast quantities in the world's oceans. All of this because they don't biodegrade like, well, paper. Of course plastic organization dispute many of these claims, but that hasn't helped much with the image problem.
Which is one of the reasons why California looks set to ban plastic bags. There's wiggle room in there, of course, since plastic bags are superior in some ways that will ensure they remain in the mix. But the end result will clearly be more paper bags in Cali. And that could set the stage for a resurgent paper bag industry.
Ready for growth?
The paper grocery bag industry had roughly $1 billion in sales in 2011, according to the U.S. Census Bureau's 2011 Annual Survey of Manufactures. If California's plastic bag ban were to spread across the country, something that is slowly happening town by town (my own town has such a ban), paper could quickly become a growth business again. How big an impact would that be?
If paper bags gained just 20% more market share in the grocery bag sector, still well below the 50% level since reusable cloth bags are clearly a contender for market share, it would double the industry's sales. And if the option is paper or paper, that really isn't as far fetched as it might seem.
International Paper could see demand for its kraft papers (the brown paper used to make grocery bags) pick up — a lot. That said, a big sales boost from a low base won't likely move the needle of a $20 billion market cap company that posted sales of nearly $30 billion last year. But it could be a harbinger of things to come for timber companies.
Timberland owners like Plum Creek Timber and Weyerhaeuser sell trees for use in everything from paper manufacturing to home building. Both companies control nearly 7 million acres of timberland apiece in North America. Paper bags alone won't change their businesses, but it would provide steady demand that could increasingly offset the often volatile swings of the construction industry.
And the grocery bag sector isn't the only one that's reexamining wood-based products. For example, wood pellets, more commonly referred to as biomass, are also making a comeback. In 2013, U.S. exports of wood pellets doubled on strong demand from European power companies looking to meet environmental mandates. Like grocery bags, increasing demand for wood pellets in the energy industry could provide a solid base of business for timberland owners.
Trees, the ultimate renewable product?
So the real takeaway from California's plastic bag ban isn't that paper bag makers are set to return triumphant to the grocery isle, though that may be true. The real lesson is that wood-based products are seeing a resurgence because of the renewable nature of trees. And that is a trend worth watching, particularly if you own timberland companies like Plumb Creek or Weyerhaeuser.
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The article Why 100 Billion Plastic Bags Could Vanish From Stores Across the United States originally appeared on Fool.com.Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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