Raven’s exit strategy

I am a big fan of Raven Recycling. In fact, my garage is essentially a subsidiary of Raven. And whenever the squirrels in there get too noisy, I load…

I am a big fan of Raven Recycling. In fact, my garage is essentially a subsidiary of Raven. And whenever the squirrels in there get too noisy, I load up my gas-guzzling Suburban with partly cleaned peanut butter jars and head for Raven’s depot in Marwell.

Like recycling programs from England to Toronto, however, Raven is in trouble.

Thanks to the global financial crisis and the dramatic fall in global commodity prices, prices for recyclables are plummeting. Sometimes the market for boxboard and paper resembles the market for Wall Street “paper,” like mortgage-backed securities: there are no buyers at any price.

Toronto’s recycling program reports the price it gets for aluminum cans is down 50 per cent since September. Denver’s reports that the price of some plastics has fallen 90 per cent in 45 days.

Raven’s problems are made even worse by being several thousand kilometres from the people who buy the commodities they collect. A month ago, according to Lewis Rifkind in his column for the News, it received $165 a ton for cardboard less about $70 a ton in transportation costs. When the price fell to $60 a ton, that left Raven losing $10 a ton. Of course, Raven was still saving trees by paying $10 a ton to ship cardboard Outside (although one wonders whether the incremental greenhouse gas emissions of shipping cardboard 2,000 kilometres might not actually be worse for the environment than dumping the cardboard here).

Raven is a worthy effort to reduce our impact on the environment. But, economically, you can think of it like a mine or logging company. It harvests raw materials far away (my garage) and then has what consultants call a supply chain to get them to the giant mill that processes them into usable form.

There are several ways to succeed as a resource-extraction company.

One is to have very low shipping costs by locating near to the processors or with easy access to sea transport. That’s not the case in the Yukon.

Another is to have very high grades. Minto Resources, for example, has a supply chain even longer than Raven’s. But, according to one of their recent investor presentations, out of over 25 other copper mines and development projects only a couple of mines in Mauritania and Zambia have richer copper grades than Minto’s 1.55 per cent.

Unfortunately for Raven, however, Whitehorse’s cardboard is not any more valuable than cardboard found in Calgary or Vancouver.

The final option is to have very low operational costs.

Raven is structured as a privatized or contracted-out government service, in a model that would appeal (strangely) to both social entrepreneurs and Thatcherite critics of government, and appears leanly run, at least to this observer.

Extremely lean, if you consider they use my garage and Suburban and don’t even pay me for them.

But Raven is still relatively small and can’t enjoy the scale benefits larger outfits would have. Raven reports it costs about $300 per ton to handle, bale and ship most of its recyclables.

This is where the story would end for a mine or logging outfit.

If your business model is only sustainable at the historically high commodity prices enjoyed in the few years leading up to 2007, all you have to do now is divide your remaining cash by your monthly burn rate and figure out when to call the liquidators.

But fortunately Raven has other options.

Every ton of recyclables sent Outside saves Whitehorse money on collection and space in its dump. In other areas, this is often calculated to be in the $50-70 per ton range. Plus, in this age of global warming, there’s a public policy benefit to having more recycling.

So what should Raven do? This is a tough question. The people who founded Raven deserve a medal for bringing such a great program to Whitehorse. But it will be tarnished if they bungle the exit strategy and don’t figure out how to make Raven sustainable.

The first option — the easiest — is to seek a bailout to keep the current model going for a bit longer. Let’s call this the “General Motors” option. It doesn’t require much painful change, but it is perhaps the riskiest option in the long run. Raven could fall into the cycle of periodic crises, with periodic bailouts that don’t quite solve the problem. We could see the amount and range of items collected slowly dwindle until Raven is a shadow of its 2008 self. This might pass as a plan in Detroit, but I expect more from Raven.

Of course, maybe global commodity prices will return to their 2007 levels and everything will be fine in 2010. If you believe this, Premier Dennis Fentie has some asset-backed commercial paper he’d like to sell you.

The other downside of this option is that the people behind Raven will end up having their energies consumed managing Raven’s decline. They should think of themselves more as venture social capitalists, founding Raven then exiting and moving on to the next big idea. If they are organizing annual bailouts for Raven then they won’t be founding Whitehorse’s electric car exchange or neighbourhood geothermal heating in Takhini.

The second option is walk away and dump Raven on Whitehorse. The city has benefited from Raven’s activities for years, saving money and space in its landfill and avoiding the trouble of running a recycling program. If it weren’t for the visionaries at Raven, they would have had to start their own recycling program by now since it is now socially unacceptable for a town like Whitehorse not to have one.

And did the founders of Raven really plan to run a multimillion-dollar enterprise on a volunteer basis forever?

There is a strategic element here, in the true sense of that overused word. How will the city and Yukon governments respond if Raven’s board tells them they have to take over Raven or see it shut down?

It’s inconceivable they would shut down recycling in Whitehorse. They have taken over far less worthy nonprofit activities when the founders stopped performing them.

All Raven would have to do is put up a sign at its depot saying, “Closed … drop off your recycling at city hall.”

The governments would prefer the General Motors option, but it is actually Raven’s choice.

And their chances of making this work are highest right now, when the governments are still relatively flush with cash compared to after a year or two of recession.

So the Raven board should move quickly to feign angst before quickly dumping the recycling program on Whitehorse. Their energies will be liberated for their next project and their legacy will be secure inside government with steady access to tax funding.

In a few years, probably thanks to a few extra bucks on our utility bills, we’ll likely even get curbside pickup.

My squirrels won’t be happy with more regular pickup, but they’ll have to get used to globalization-induced change, just like the rest of us.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels. His most recent book Yukon River Ghost appeared in June.

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