Melbourne organisation RED Group, which works with supermarket giants Coles and Woolworths, said on Wednesday its REDcycle program has been paused due to "unforeseen challenges".
The statement came after it was revealed that millions of plastic bags are being stored in warehouses instead of being recycled, posing environmental and safety risks.
"Consumer recycling of soft plastic has grown exponentially in recent years, with a 350 per cent increase in plastic returned since 2019," a REDcycle spokeswoman said.
"However, due to several unforeseen challenges exacerbated by the pandemic, REDcycle's recycling partners have temporarily stopped accepting and processing soft plastics. This combination has put untenable pressure on the REDcycle business model."
REDcycle provides the only consumer-facing soft plastic recycling for the majority of Australian households.
REDcycle bins are positioned at the front of Coles and Woolworths to provide a collection point where customers can return used household soft plastics for recycling into new products.
The organisation was first launched by Melbourne mum Liz Kasell a decade ago and has successfully recycled millions of pieces of soft plastic over that period.
REDcycle denied claims its recycling program has "failed", saying it simply made the decision to pause collections temporarily on Tuesday, to allow the program to reset and the recycling industry to recover.
Coles chief executive Steven Cain said the company is working towards finding a long-term solution for soft plastics recycling.
"Sustainability is as important to Coles as it is to many of our customers, shareholders and partners. We are committed to, and exploring options for, a sustainable, long-term structural solution for soft plastic recycling in Australia," Mr Cain said in his statement to the company's annual general meeting on Wednesday.
Woolworths is also searching for an alternative sustainability initiative.
"We are currently working through a range of options with the Australian Food and Grocery Council, the Australian Packaging Covenant Organisation, and the recycling industry to support the future of soft plastic recycling," a Woolworths spokesperson said.
Premier Daniel Andrews said the stockpiling of soft plastic was concerning.
"We've made investments over a long period of time to try and support this industry, to try to see change a bit as well so it can do the important work so that's obviously a concern for that particular business," he told reporters on Wednesday.
The Boomerang Alliance, which is made up of 55 of the country's leading community and environment groups, said the collapse of REDcycle highlights broader industrial issues.
"The fundamental problem is the lack of a market to support an ongoing effort and this can only be fixed by mandatory recycled content rules, which to date have been opposed by industry and government,'' director Jeff Angel said.
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