Plastic fantastic: Cereplast Inc. is poised to cash in on demand for biodegradable cups, plates and takeout containers.

AS plastic food containers increasingly come under fire because they don't decompose and they do use fossil fuels, one local company is taking advantage of this trend by mass producing a biodegradable plastic.

Hawthorne-based Cereplast Inc. makes resins--the building blocks of all plastics--out of renewable and biodegradable crop starches, instead of the traditional petroleum or natural gas resins. It sells the resins to various food packagers that are just beginning to incorporate them into their products.

Frederick Scheer, founder and chief executive of Cereplast, is happy to point out the environmental benefits of his resin, noting it can be composted, decomposes in landfills and marks a small step away from reliance on greenhouse gas-producing petroleum refining.

But he's counting on market forces to lift his small company, which recorded just $726,000 in 2006 sales, to the big time.

"Yes, our resin is fully biodegradable, but I believe more in the power of the market to drive this," Scheer said. "With the high cost of oil now, our product is actually cheaper to make now than many traditional resins, and that's what will drive the plastics industry toward it."

Scheer speaks from experience in trying to bring a biodegradable resin to market. The French native first stumbled into this niche while working as a turnaround specialist in the Los Angeles office of ING Groep NV, the huge Dutch financial and investment services concern.

In the early 1990s, Scheer was sent to help restructure Italian industrial giant Montedison S.p.A. and chanced across a Montedison unit that was trying to make a biodegradable plastic resin, with limited results. Scheer liked the concept well enough to gather some partners, leave ING and buy the unit. He then tried to jump start the venture in the U.S.

But the effort soon fizzled. With the technology available at that time, making a biodegradable resin proved expensive, especially during a time of cheap oil. "We were several dollars per pound, while the industry average was $1 per pound. We had to find a way to get the cost down below $1 per pound," Scheer said.

Complicating matters was the lack of a consensus on what biodegradable meant, which confused consumers and even many within the plastics industry.

"Labeling was and remains a big concern. Manufacturers were putting labels on their products that said they were biodegradable but really were not," said Stephen Mojo, executive director of Biodegradable Products Institute, an industry organization that Scheer helped found.

Heal resistance

Scheer renamed his company Cereplast and, using some $500,000 in hedge fund investments, retooled it to focus on creating resins based on natural starches found in corn, wheat, tapioca and other agricultural products. The starches are extracted, processed into usable resins and turned into small pellets that packaging customers use in forming final products.

Cereplast was ready to go to market in mid-2005 after getting the production cost near the magic $1 per pound, The company started small, making agreements for test runs with food service packagers such as Glens Falls, N.Y.-based Genpak LLC and Highland Park, Ill.-based Solo Cup Co.

At Genpak, a maker of plastic cutlery, cups, plates and takeout containers, executives were growing increasingly concerned about the rising number of bans on the ubiquitous soft plastic "clamshell" takeout food containers. They feared these bans, such as the one passed last year in Santa Monica, could spread to other plastics. Jeff Cole, the company's marketing manager, started searching for alternatives.

Cole ran across Cereplast in a trade journal, and after a review of options, including altering existing resins with additives, Cereplast's pellets came out on top.

Genpack introduced a line of dinnerware products, plates, cutlery and one hinged box to replace the typical polystyrene clamshells that municipalities were banning, he said. The product line was called Harvest Collection, a reference to the agricultural origins of the Cereplast resin.

Cole said the product line, launched this past March, is priced about 20 percent higher than counterpart items made with traditional resins. "We're finding that people are willing to pay a slight premium for this," he said.

Meanwhile, at Solo Cup, executives also heard about Cereplast through a trade magazine. Malcolm Simmonds, senior vice president of sales and marketing for the food-service division, said the company had been looking at various biodegradable resin products for several years.

"Ten years ago, this was more of a fad. But in the last 24 months, it became far too compelling to ignore, so that's when we decided to go with a partner to use biodegradable resins," Simmonds said. "We felt that Cereplast was the industry leader and so we went with them."

For Solo, the main problem was making sure that the Cereplast resin had sufficient heat resistance. So for two years, Cereplast researchers worked with Solo's production team to reformulate the resin.

"Petroleum products are naturally more heat resistant, but it's working much better now," said Simmonds, who added the Cereplast cups should go into mass-marketing next year.

For Cereplast, this sudden interest in its resin poses challenges. The company needs to ramp up production to meet what Scheer expects will be exploding demand within a year.

Currently, the company can produce 55 million pounds of resin per year. Scheer said his goal is to push that up to 1 billion pounds per year over the next five years, using about $6 million in private investment money. He's currently looking to buy a production facility that will allow him to expand capacity.

Over the longer term, Cereplast must sustain interest in its resin, even if petroleum prices decline or the current green frenzy cools. Also, the labeling confusion looms as a potential threat.

"The most damaging prospect is the consumer belief that any product labeled composite or biodegradable will disappear within a year. Sooner or later, people will discover that polyethylene bags are not truly biodegradable. The fallout from that realization could increase consumer skepticism of all things biodegradable, including Cereplast," said Mojo of the Biodegradable Products Institute.

Scheer said he is not overly concerned about this prospect. He notes that the plastic resin market is more than 1 trillion pounds per year.

"Even if we ramp up to 1 billion pounds, we'll still be less than one percent of the entire market," he said. "Our strategy is to position us as the industry leader in the here and now."

Cereplast Inc.

Founded: 2001

Core Business: Makes biodegradable resins that are used for disposable plastic products

Employees in 2007: 32

Employees in 2006: 19

Goal: To boost production to become the industry leader in the manufacture of biodegradable and compostable plastic resins

Driving Force: Rising environmental concerns and oil costs that are making food packagers look for alternatives to petroleum and natural gas-based plastic resins

By HOWARD FINE 

Staff Reporter