What next for Israel’s packaging economy? How the Hamas war is disrupting the booming biotech scene

03 Nov 2023 --- Israel’s packaging economy is under pressure following the Hamas terrorist attacks on October 7. The country’s market, which includes numerous packaging and material tech start-ups, now faces a volatile wartime economy, military drafts and the continued threat of attacks from militants in Palestine, Lebanon and Yemen.

Israel’s reputation as a bastion of the global tech sector has roots in its plastics industry, which has played a central role in the country’s economy since the 1970s.  

Tato Bigio, co-CEO and co-founder of UBQ Materials, a scale-up company that has developed a technology that transforms all forms of municipal and household waste into thermoplastics, explains to Packaging Insights this development began when a significant number of Kibbutzim (intentional communities) started developing a wide range of plastic companies and research centers. 

The industry now contributes to over 5% of Israel’s GDP, which in 2022 was US$522 billion, and is “renowned for leading some of the most sophisticated developments and applications on a global scale,” says Bigio. 

However, with the outbreak of war with Hamas, companies like UBQ Materials are fighting to restore order and maintain development rates. 

UBQ Materials is in the process of restoring its operations with international support.This scenario is exemplified by disruptions at UBQ’s Ze’elim facility in southern Israel, roughly 20 kilometers from the Gaza border. 

“Tragically, two of our employees, Hadar Rosenfeld and Uri Russo, lost their lives, along with dozens of friends and family members. We are supporting the survivors with shelter, financial aid, security and psychological assistance,” says Bigio. 

Crisis plans, international support 
UBQ has enacted a “crisis, recovery and resilience plan.” 

“Our first priority was to support, rehouse and re-equip our employees. Second, we ensured the delivery of inventory to customers by relocating it to our international warehouses in the Netherlands, US, Colombia and Brazil,” says Bigio. 

“Third, we initiated efforts to bring the Ze’elim facility back online. Fourth, we secured international continuity, especially with the impending start of production at our facility in Bergen Op Zoom, Netherlands.”

Currently, the company is still in the third phase of restoring production in Israel, but its global operations have continued without interruption, according to Bigio. To help maintain the industry, support from other nations, particularly in the West, is essential, he says. 

“Collaborative efforts, including continuing to do business with Israel and checking in with your counterparts in Israel, can have a significant positive impact. We deeply appreciate the incredible support and the ongoing offers of help that have poured in from around the world from our partners and customers. This support plays a vital role in ensuring our business continuity.”

Economic downturn, military drafts 
Despite reconstruction efforts by individual companies and the backing of international support, Israel’s packaging industry may face many of the same challenges as the tech industry as a whole. Melodea’s team at its pilot biomanufacturing plant.

Ronen Nir, managing director in the Israel office of US venture capital firm PSG Equity, told Israeli magazine Globes that he estimates between 10% and 15% of Israel’s tech workers have been drafted into the IDF reserves.

That would mean roughly 60,000 to 400,000 Israelis employed in high-tech companies or international companies’ R&D centers are on active service. For smaller enterprises, staff shortages could mean a significant blow. 

Daphna Nissenbaum, CEO and co-founder of Israel-based Tipa Compostable Packaging, says: “The atrocities unfolding in our country are devastating to witness and experience. Our team is spread across Israel, with some employees now switching office wear for army uniforms.”

“On a personal level, we are grappling to manage circumstances beyond our control, yet professionally business remains as usual. Due to our localised manufacturing practices, our global customers are not impacted by this suffering and local factories continue to produce our compostable packaging, which leaves no harm on the planet.”

Cee Azeraff, vice president of sales and marketing for biotech company Melodea, which produces plant-based barrier coatings, says that while the harm they encountered was “unimaginable,” she does not anticipate any long-term consequences. 

“We operate in a risk management decision manner with backup plans for various scenarios,” she says. 

“We immediately organized at the outbreak of the events with all the necessary resources to continue to provide our customers with everything they need in our important mission to provide a real, sustainable solution to the global environmental problem of the packaging market.”

Daphna Nissenbaum, CEO and co-founder Tipa Compostable Packaging.Israeli packaging 
In the past year, many Israeli packaging companies have made strides toward developing circular product designs. Tipa last year raised US$70 million in series C round funding to develop its bio-based flexible F&B films. 

The company also secured partnerships with two of the largest packaging manufacturers in the US, PPC Flexible Packaging and Clearview Packaging. Tipa also recently joined forces with Charter Next Generation, a major US specialty film manufacturer. 

We recently spoke to Nissenbaum about plastic packaging and waste management in the fashion industry.

In September, Israeli biotech company MadeRight secured seed funding of US$2 million from Fresh Start food-tech incubator, joined by Arkin Holdings and ARC Impact, for its fungi-based packaging. 

Biotic Circular Solutions, another bioplastics company, also raised US$2 million last year from various investors. 

Against this start-up scene and backdrop of pioneering packaging technology, Israel has also long faced domestic pollution issues, caused in part by its ultra-orthodox communities, which typically use single-use plastic packaging and cutlery in place of reusable tableware as a result of religious customs. 

The country’s finance minister, Bezalel Smotrich, was heavily criticized for promising to ax Israel’s single-use plastic tax, which was introduced in 2021. 

However, the Shekel is depreciating and the Ministry of Labor reports that 18% of the nation’s employees are not at work. Hundreds of top Israeli economists also recently called on Smotrich and Prime Minister Netanyahu to divert all economic activity to the war effort, accusing them of undervaluing the scale of the crisis. 

How this will play out for Israel’s packaging sector remains to be seen. 

By Louis Gore-Langton