The Coca-Cola Amatil Ltd (ASX: CCL) share price has had a stellar 2019 so far. Coca-Cola shares started the year going for around $8.40, but today a slice of the company will set you back $10.79 (at the time of writing) – meaning CCL shares are up nearly 30% for the year (not including dividends).
But things could take a turn for the worse for the famous red and white bottler.
According to a report in the Australian Financial Review (AFR), the New Zealand government announced this week that it is launching a container deposit scheme (CDS) across the country by August 2020. A CDS is a government-mandated recycling program that is already in place across many states of Australia. It consists of a tax placed on each new beverage container (e.g. each can of Coke) sold in a jurisdiction in conjunction with the ability to return used containers for a refund of said tax. In Australia's state-based CDS programs, a refund amount of 10 cents per can/bottle is standard.
Why is this bad for Coca-Cola Amatil?
Coca-Cola is one of the consistent leading opponents of CDS programs, virulently resisting the NSW scheme introduced in 2017 and Queensland's CDS which came online last year. A CDS makes each beverage sold by Coca-Cola more expensive, therefore reducing demand for its products.
According to the AFR report, Coca-Cola has claimed that the NSW CDS contributed to a 3.4% fall in beverage sales volumes in NSW in 2018 and that the Queensland scheme has resulted in a 3.8% drop in sales volumes for the first half of 2019. So it's obvious why the company is concerned about a New Zealand CDS. New Zealand is one of Coca-Cola Amatil's highest-growth markets, with nearly 20% of its earnings coming from the Land of the Long White Cloud.
Foolish Takeaway
Although a CDS is clearly not a beneficial program for Coca-Cola's balance sheet, I think its general support amongst governments and the public as well as its success in reducing littering rates means that it's a reality that the company will have to deal with going forward. I think that once the scheme is implemented, consumers will get used to it and Coca-Cola's sales will eventually balance out. Sometimes companies and investors just have to take one for the environment!