Korea's paper cup industry has fallen into a structural crisis amid government confusion over disposable product regulations. As rules were repeatedly tightened and loosened, the production base for 1G, the core of the paper cup industry, weakened, and small and midsize firms that process it into finished goods are closing one after another.
◇ 90% imported 1G… an industry foundation in flux
The paper cup industry consists of paper companies that produce 1G and small processing firms that receive it to manufacture cups. In the past, domestic paper corporations produced 1G, and small firms made finished goods under a division of labor that took hold, allowing domestic corporations to lead the market. But the government's flip-flopping policies upended the market structure.
According to the paper and paper cup industry on the 24th, imported products from China and elsewhere now account for about 90% of the domestic market for 1G used to produce paper cups. As recently as 2019, the import share was around 50%, but it has surged in six years. Reliance on overseas sources has deepened from the very first stage of the paper cup industry, the 1G stage.
The Ministry of Climate, Energy and Environment announced in 2019 that it would ban the use of disposable paper cups inside eateries and other on-premise locations. Paper cups have a thin plastic coating inside to prevent leakage, and officials cited the difficulty of recycling this coated layer and the resulting environmental pollution.
The government revised related laws in 2021 and signaled enforcement in Dec. 2022. But considering the burden on small business owners and the COVID-19 situation, it granted a one-year guidance period, and in Dec. 2023 it fully withdrew the regulation.
While policies wavered, corporations delayed decisions on facility investment or wound down operations. Before the regulation, KleanNara, Hansol Paper, and Moorim Paper produced paper cup 1G and led the market.
In particular, KleanNara led the localization of paper cup 1G in the 1970s. But as tighter regulations clouded the market outlook and cost burdens grew, KleanNara exited the paper cup business in 2019.
Hansol Paper and Moorim Paper are continuing 1G production now, but output has declined from the past. As the 1G production base weakened, domestic small processing firms were pushed into a structure where they had no choice but to rely on imported 1G.
The business environment for processing firms has also deteriorated. According to the Korea Paper Container Industry Cooperative, the number of small paper cup processing firms fell from about 150 in 2019 to about 85 at the end of last year. That is a drop of more than 40% in six years. The industry estimates that Chinese products account for 10%–20% of the domestic market for paper cup finished goods. As low-priced Chinese products penetrate the market more deeply, the burden on small firms is growing.
A CEO of a paper cup manufacturer said, "With government policies changing several times in a short period, it was difficult to decide on facility investments or expanding production lines," and added, "With no clear regulatory direction, many not only put investments on hold but also wound down operations after judging the market's sustainability to be low."
◇ Low-priced import offensive… quality and safety controversy
Concerns are also being raised about the quality and safety of paper cups. When domestic corporations led the market in the past, product strength was maintained above a certain level.
However, some recently distributed low-priced imported products are said to be so weak that people sometimes have to stack two or three cups. Some also worry about the possibility of microplastics or chemicals leaching from the inner coating.
Experts emphasize that the policy goal of reducing disposable products should be considered alongside maintaining industrial competitiveness.
Hong Su-yeol, head of the Resource Recycling Society and Economy Research Institute, said, "The policy direction of reducing the use of disposable products such as paper cups is itself reasonable," but noted, "If policy fails to remain consistent, it creates confusion in the market and makes corporate investment decisions difficult."
Hong went on, "The government should present a clear mid- to long-term direction to increase market predictability," and emphasized, "For paper products that come into contact with food, it should set stricter standards for harmful substances, and provide institutional support in parallel so that domestic corporations that have invested in high-quality products can secure competitiveness."