Managing Director & Partner
The scale of the problem is staggering. Each year, 1.6 billion tons of food worth about $1.2 trillion are lost or go to waste—one-third of the total amount of food produced globally.1 To put the figure in perspective, that is ten times the mass of the island of Manhattan. And the problem is only growing: BCG estimates that by 2030 annual food loss and waste will hit 2.1 billion tons worth $1.5 trillion.
Food and Agriculture Organization of the United Nations, Global Food Losses and Food Waste, 2011; FAOSTAT database; BCG FLOW model. 2015 findings, in 2015 dollars.
This massive misuse of resources is emerging as a critical global issue, with the UN’s Sustainable Development Goals setting a target of halving food loss and waste by 2030. The urgency reflects the fact that the food waste disaster has far-reaching implications. According to the UN’s Food and Agriculture Organization and the World Resources Institute, it accounts for 8% of global greenhouse gas emissions. And it is difficult to imagine solving the hunger problem—some 870 million people around the world are undernourished—when so much of the global food supply is lost between the farm and the table.
The challenge is enormous, but there is a clear way forward. On the basis of an extensive analysis of the food value chain from production through retail and consumption, BCG has identified five drivers of the problem, issues that—if addressed—could reduce the dollar value of annual food loss and waste by nearly $700 billion and create major progress toward hitting the SDG target. Certainly no one group, government, or company can make this happen. Rather, real headway will require commitment and coordinated action from consumers, governments, NGOs, farmers, and companies.
Companies that play a major role in the food value chain in particular can be catalysts for change. Through our research, we have identified 13 concrete initiatives companies can take to address those five drivers and help slash the amount of food lost and wasted every year.2 This is not only a chance to help the world—it is a compelling business opportunity. Recent research by BCG has found that companies that are effective at addressing societal challenges tend to be rewarded with higher margins and higher TSR. Companies that play a role in the food value chain stand to reap tangible business benefits such as lower costs, the opening of new markets, and new revenue opportunities. Just as important, these companies can burnish their brand and improve their ability to attract and retain talent as they tackle a daunting global challenge.
Food loss or waste occurs at all steps in the value chain—but it is most pronounced at the beginning (production) and at the end (consumption). (See Exhibit 1.) In developing countries, the problem is largely a function of the production and transportation of food from farms, while in developed countries it is most prevalent in the consumption phase, among both retailers and consumers
To understand the scale and scope of the problem, BCG created a food loss and waste model. (See “Quantifying the Food Waste Challenge.”) That work reveals a disturbing upward trend line: BCG projects the volume of food loss and waste will rise 1.9% annually from 2015 to 2030 while the dollar value will rise 1.8%.3 Food loss and waste are projected to increase in most regions around the world, with a significant spike in Asia in particular.
To get our arms around the food waste problem—and the potential solutions—BCG has built a proprietary model to forecast food loss and waste to 2030. The model, which builds on data from the Food and Agriculture Organization, The World Bank, and the IMF, tracks food waste and loss along four dimensions: region, step in the food value chain, food type (such as fruit and vegetables, meat, or cereals), and year.
We projected food loss and waste on the basis of forecasts of food volumes (both production and consumption) and loss intensity (the percentage of food lost and wasted) for each region, step in the food value chain, and food type. Forecasts for both volumes and loss intensity are based on numerous factors, including historical food production and consumption trends (both per capita and total), growth in population, GDP per capita, and the historical correlations between those factors. Our base scenario forecasts food loss and waste assuming that the development paths for countries around the world, and the production and consumption of food within those countries, follow historical trends.
For a clearer view of the forces at work, we dug into information from major food waste global initiatives. That research helped us identify five drivers of the problem: lack of awareness of the issue and of possible solutions, inadequate supply chain infrastructure, supply chain efficiency efforts that do not focus sufficiently on food loss and waste, weak collaboration across the value chain, and insufficient regulations.
For each driver, we estimated the annual reduction in loss and waste that would be possible if all stakeholders—such as governments, NGOs, farmers, and companies—took action. (See Exhibit 2.) The estimates are based on currently available technologies and processes and reflect realistic progress in each driver, not complete elimination of the issue.
Global, coordinated action to address all five drivers can slash the value of food lost and wasted every year by nearly $700 billion—just about delivering on the SDG target. That is a massive opportunity for society, one that should compel action.
But if the size of the prize is clear, the task of delivering on that $700 billion opportunity is a complex one. Success demands commitment from and collaboration among numerous players. Government must support and in some cases subsidize opportunities to reduce food loss and waste and incentivize better repurposing. International bodies such as the World Trade Organization should work to improve rules surrounding the cross-border flow of food. Consumers must adopt practices that reduce waste. And companies need to step forward as leaders on the issue and implement strategies to reduce food loss and waste.
While all groups have a part to play in combating food loss and waste, the role of companies that operate in the food value chain is perhaps the most critical. These companies are involved in every part of the chain, from production through to consumption. As a result, their decisions and actions have an outsized impact. In addition, they have deep expertise and insight on the potential solutions—and the resources to invest in them. Finally, they have significant influence among all stakeholders, including farmers, consumers, and the public sector.
We have identified 13 initiatives that companies can take—and that some are already taking—to address the five key drivers of food loss and waste at all steps in the value chain. (See Exhibit 3.) There are multiple actions in each of the 13 initiatives, resulting in a total of 70-plus concrete actions.
Second, companies can design new (or revamp existing) products, packaging, and promotions and help change consumers’ behavior. There is already significant activity in this area. Marks & Spencer, for example, has introduced ethylene-absorbing strips into strawberry packaging, a feature that can extend shelf life by up to 50%. French supermarket chain Intermarché in 2014 launched its Inglorious Fruits and Vegetables campaign, which offers imperfect fruits and vegetables at a 30% discount. And Tesco has experimented with a Buy One Get One Free–Later program that allows customers to pick up their free product when they actually need it, cutting down on the temptation to stock up on discounted products that will go bad. We see the potential to create even greater change in consumers’ behavior. Fair trade campaigns, for example, have encouraged people to buy products that yield a livable wage for farmers. A push for a food waste reduction ecolabel could drive a similar change in behavior.
Third, companies need to ensure that employees have the skills to manage inventory efficiently and properly repurpose and recycle waste. For instance, Sodexo and Ikea have partnered with food waste technology company LeanPath to implement a food waste tracking system in their food production operations. The system not only tracks and measures waste but also identifies the causes, including overproduction, trim waste, and spoilage. The goal is to raise food service employees’ awareness and change their behavior, using tools such as automatic goal setting and instant alerts.
Fourth, companies can facilitate repurposing and recycling among consumers by, for instance, adding information to product packaging. Carrefour Taiwan is promoting awareness of the importance of using leftover food through its antiwaste restaurant, opened in 2016, which serves dishes made from unsold food items from distributors, wholesale partners, and its own stores.
Second, in developing markets, companies can adapt technologies designed for large-scale commercial operations to smallholder farming operations. A prime example: public-private-social partnerships have developed low-cost, “pay as you store,” solar-powered refrigeration units to help farmers in regions like South Asia and East Africa aggregate, store, and preserve their production to avoid spoilage and enable sale when prices are more favorable. The Rockefeller Foundation is working with TechnoServe, private fruit and vegetable export company Meru Greens, and others to implement such units in Kenya.
Third, companies along the value chain can improve how they repurpose and recycle unmarketable crops, byproducts, and food waste into donations or other products such as cosmetics, biofuels, and animal feed. This can involve either investing in infrastructure, technology, and equipment to repurpose on their own site or contracting with a third party for that service. Zembra Group, for example, is using innovative biorefining technology to transform crude olive mill waste—the material left over from the olive oil extraction process—into products that can be used in agriculture, cosmetics, construction, and other industries. Retailer Tesco, for its part, repurposes baked goods into animal feed, converts oil waste into biodiesels, and is piloting the use of the FoodCloud app in several countries to provide excess food supplies to charities.
First, companies can increase the degree to which they source ingredients and inputs locally. This “localization” of the supply chain—which can require some adjustments in product ingredients and formulas—reduces the amount of time products are in transit and, thus, spoilage. For instance, PepsiCo’s global fruit and vegetable procurement team works with in-country procurement groups to identify opportunities to source ingredients locally. In many cases, this requires significant investments to provide local farmers with training and technical support.
Second, companies can set KPIs related to food loss and waste, track performance against those metrics, and adapt their processes to improve performance. Food packaging and processing company Tetra Pak, for instance, has refined its powdered milk manufacturing technology to cut product loss by up to 30%, reduce energy and water consumption by up to 35%, and slash operational costs by up to 50%. Target and Whole Foods are also taking advantage of new automation and software capabilities to improve their supply chain processes. New tools allow both retailers to ship directly from the warehouse to the store floor and tailor deliveries and shelving to store layouts in a way that cuts down on the amount of perishables that go to waste. Meanwhile, General Mills, named a Food Loss and Waste 2030 Champion by the US Department of Agriculture and the Environmental Protection Agency, has committed to a target of sending zero waste to landfills from all of its production sites by 2025 and achieved that objective at seven (14%) of those sites by the end of May 2017. At the same time, the company has adopted new processes for converting food waste into biogas and electricity, significantly reducing food waste from its manufacturing plant in Murfreesboro, Tennessee.
Second, producers, handlers, processors, and retailers can structure contracts and agreements in a way that reduces loss and waste. Buyers of food commodities, for example, can set prices and volumes in contracts that reduce the incentive for farmers to overproduce. For its part, Tesco guarantees suppliers such as agricultural companies, cooperatives, and farmers that it will purchase at least 80% of the orders that it places with them, reducing the need for farmers to either overproduce or underharvest.
Second, companies can support and promote national and state regulations or taxes that encourage food donations and increase the costs associated with discarding food. France, for example, passed a law in 2016 banning grocery stores from throwing away edible food and establishing a fine of $4,500 for each violation.
Companies that take action to reduce food loss and waste will do more than address a critical societal issue. They stand to reap significant business rewards. First, they will reduce costs in the supply chain by leveraging new technologies and improving process efficiencies. In fact, our TSI analysis found that companies that lead in reducing their environmental footprint tend to boast margins that are 3.3 percentage points higher than those of other companies.
In addition, food loss and waste reduction efforts can unearth new revenue streams by transforming losses, byproducts, and waste into new products. And as more attention and resources are directed from government and other players to reduce food loss and waste, companies can partner with those groups. The insights and innovation that result can create a competitive advantage.
There are also less tangible, but equally powerful, benefits. A focus on addressing the global food loss and waste problem will improve a company’s standing with a variety of stakeholders. This can include better working relationships with farmers who provide raw materials, stronger connections to consumers who value the company’s focus on societal issues, and an improved ability to attract and retain talent as people increasingly seek employers with a mission. Furthermore, when companies adopt new tools and more efficient processes to slash waste, they develop the expertise and capabilities of the workforce.
For companies that are committed to playing a role in reducing food loss and waste, it is crucial to understand where to start. Three steps can build momentum:
The authors would like to thank Food Nation and State of Green for collaborating in the preparation of this article.