Key Takeaways
- Each year, a staggering one-third of food produced globally--worth almost $1 trillion--is lost or wasted, with unconsumed food contributing up to 10% of global greenhouse gases (GHG) in addition to emissions from farming, processing, and other activities.
- More efficient food systems will help eliminate food loss and waste while reducing the impact on the environment, especially since about 14% of the world's food is lost before reaching supermarket shelves.
- With the U.N.'s 2030 target for halving per capita food waste fast approaching, we believe the food industry can create a path to more sustainable food production and supply through closer collaboration and process integration.
- Companies able and willing to adjust their business models and adopt sustainable agronomic practices can strengthen their resilience to operating setbacks and reduce food-related emissions, while delivering higher margins through value-added product offerings.
Studies suggest that the food system is responsible for about one-third of global GHG emissions, including up to 10% from lost or wasted food. This stands out when compared with about 12% from manufacturing and construction and 14% for the transportation sector, according to data from the World Resources Institute (WRI). Food supply disruptions, especially over the past two years due to the pandemic and extreme weather, have brought this issue further into the spotlight.
Last year, for example, one of the warmest on record according to the World Meteorological Organization, thunderstorms, wildfires, plagues, and drought destroyed millions of hectares of crops and displaced thousands of people. In addition, COVID-19-related restrictions severely hampered the transport of agricultural commodities over air, land, and sea. This increased the amount of food lost or wasted at the production and retail stages, already vulnerable to storage capacity, freight availability, and political instability among other factors.
S&P Global Ratings believes agribusinesses can strengthen the food production and supply chain through closer collaboration at every stage, both downstream and upstream. There are meaningful gains to be had, for example by companies expanding into advanced food ingredient technologies to improve product shelf life, or by integrating transport with processing and sales. Some companies are already rethinking their long-term strategies, putting greater emphasis on managing environmental and social risks. We believe they stand to gain a competitive advantage using this approach. The big question is whether they can do enough to have a visible impact on food-related emissions by 2030.
The High Cost Of Food Loss
Although limited data is available, the Food and Agriculture Organization (FAO) estimates (2016) show that, excluding retail and households, about 14% of the world's food is lost between the harvest and retail stages. Before and during consumption, the highest food loss and waste per capita occurs in Asia, according to a World Economic Forum report, followed by North America and Europe. The report states that "if food waste were a country, it would rank behind only the U.S. and China for greenhouse gas emissions." The UN Environment Program (UNEP)'s Food Waste Index indicates that, in 2019, 61% of food waste came from households, 26% from food service, and 13% from retail.
Chart 1
A large share of food waste stems from consumers, food providers, and retailers in developed markets. In North America, the U.S. Department of Agriculture estimates that, in 2010, 31% of the domestic food supply was lost, to the tune of about $161 billion. Seven years later, a report by the National Conference of State Legislatures showed that about 40% of food produced in the U.S. is wasted throughout the supply chain, from farms to households, while 41 million Americans faced food insecurity in 2016.
In the U.K., despite considerable progress in this area, estimates show that households and businesses still waste around 9.5 million tonnes (mt) of food per year (70% intended for human consumption) valued at over £19 billion. The edible portion of this food (6.4 mt) would have been enough to feed the entire U.K. population three meals a day for 11 weeks.
Food is wasted in many ways. Here are just three of them:
- Edible fresh produce not meeting certain criteria, for example in terms of shape, size, and color, is dumped during sorting operations.
- Foods that are close to, at, or beyond the "best before" date are often discarded by retailers and consumers.
- Large quantities of edible food not eaten by households and restaurants are often thrown away.
More Businesses Need To Focus On Sustainability
While the world is focusing on the energy transition, the U.N.'s 17 sustainable development goals (SDGs) are keeping the attention on issues such as hunger, poverty, climate action, and sustainable cities and communities. Resolving these clearly also support the reduction of GHG emissions. In particular, SDG 12 is to ensure sustainable consumption and production patterns, including a target (SDG 12.3) to halve--by 2030--per capita food waste at the retail and consumer levels, while reducing food losses during production and supply. Over 190 countries formally agreed to the SDGs, set in 2015, as part of the U.N.'s 2030 Agenda for Sustainable Development.
Yet only 1% of food companies' business models support responsible consumption and production, according to a September 2020 Trucost survey of 3,500 companies representing 85% of global market capitalization. And not much time is left before 2030. The Trucost report also states that about 90% of the companies it examined provide products and services related to food logistics, including taking products from harvest through to consumption.
Chart 2
Among the largest global food corporations working with farmers, retailers, and other organizations in support of the SDGs are market leader Cargill, which has launched several initiatives under its Sustainable Supply Chains program (beef, cocoa, corn, and cotton, among others). Similarly, ADM (food and beverage ingredients) has SDG-aligned environmental targets it aims to achieve by 2035, including a 25% drop in GHG emissions. Nestle (more than 2,000 food and beverage brands) has committed to tackling emissions through 100% deforestation-free supply by 2022, 100% recyclable or reusable packaging by 2025, and food loss/waste reduction targets. Bunge (the world's largest oilseed processor) has an ambitious goal that includes a deforestation-free supply chain by 2025. Mondelez (brands include Cadbury, Philadelphia, and Oreo) reports that it's on track with its 2022-2025 sustainable-ingredients targets. Danone (including Activia, Alpro, and Silk) has pledged a 50% reduction of food waste from the 2016 level, plus 100% next-generation, recyclable, biodegradable packaging by 2025.
There Are Many Possible Solutions
Several global companies plan to effect changes to reduce the environmental impact of their own activities, but this is not enough to transform the entire food production and supply chain. Successful collaboration and consolidation won't be easy, but food companies have several options open to them.
Support for farmers and the local salesforce through better data, technology, and training. We believe direct links with farmers and closer relationships with salespeople where crops are grown are increasingly important to limit loss at production. In large crop-producing regions such as the eastern coast of Latin America, South East Asia, and the Black Sea, local currency inflation and volatility often mean that farmers make storage, sale, and process decisions every week, depending on trading data. Such fragmented decision-making means that transport companies operating with long-term contracts might see their freight capacity underutilized if farmers renege on supply contracts. This is a particular risk if the monetary penalty for farmers is small relative to the potential gain of diverting the sale.
Value-added products in food processing can help reduce waste further down the line and offer agribusinesses opportunities for profitable growth. Innovative technologies can help reduce waste at consumer level by improving the shelf life and appearance of staple foods. In addition, they can promote more efficient crop use by improving the taste and texture of more environmentally friendly plant-based food. Many companies are investing in this are also looking at new materials, to be used, among other things, in food handling and packaging.
Collaboration with retailers is key to cutting distribution inefficiencies and food waste at households. This will enable large agribusinesses and consumer product companies to reap the full benefits of their measures to tackle food waste. Grocers, for instance, can play a huge role in influencing consumers' food choices and attitude toward waste. In recognition of this, leading agribusinesses, consumer products groups, and food retailers have joined the WRI's "10x20x30" initiative since it launched in 2019. The program aims to drive progress on SDG 12.3, using a "whole chain" approach, with participating companies pledging to engage with at least 20 of their suppliers and--together--halve their food loss and waste by 2030.
Adoption of the "Target-Measure-Act" strategy can help track sources of waste/loss, find solutions, and record progress. The strategy was launched by U.K. sustainable resources advocate WRAP and the IDG (Institute of Grocery Distribution) in 2018 as part of the country's Food Waste Reduction Roadmap, which is geared toward the U.N.'s SDG 12.3 target. Three years into the program, nearly 200 companies, including top global names like Unilever, Nestle, Mondelez, and PepsiCo have committed to using the Target-Measure-Act method to speed up food loss/waste reduction in their operations, and make the results public. U.K.-based Tesco was the first retailer to use the approach, inviting 27 suppliers to take part in 2017. WRAP has also called on COP26 delegates to adopt to Target-Measure-Act to tackle climate change. The U.K.'s September 2021 Food Waste Reduction Roadmap progress report showed that businesses had lowered food waste by an estimated 17%--worth £365 million--over the previous year. The U.K. is the first nation to create a plan to achieve SDG 12.3's target of reducing food loss and waste by 50% by 2030.
Increased use of processed food byproducts and restaurant waste for renewable fuels. Animal fats and meal resulting from meat processing, well as cooking oils from food-service establishments, are increasingly being used to produce renewable fuel, thereby reducing the amount of waste as well as reliance on fossil fuel. Under initiatives such as the U.S. National Renewable Fuel Standard Program, gasoline refiners are required to increase their blend of such biofuels into the gasoline supply, with production mandates for renewable and biofuels expected to increase by more than 20% in 2022 compared with 2020 levels. Continued biofuel demand growth will also increase the economic value of such byproducts for recycling into fuels. In fact, a market for various grease grades (for example yellow grease, choice white grease, and poultry grease) already exists, with prices rising more than 100% year over year in the quarter ended Sept. 30, 2021, according to the Jacobson Index.
What Food Companies Are Already Doing
We see global agri-commodity companies consolidating their agricultural platforms (such as for grain, coffee, and cotton), while pursuing geographic expansion and shifting their product mix toward more sustainable alternatives. Scale and cost efficiencies should enable them to deliver affordable products. However, they are increasingly recognizing that to improve supply chain sustainability, they have to invest upstream as well as downstream to reduce reliance on less sustainable food inputs even though they may be more cost effective.
The related investments typically stop short of direct ownership of farmland and crop production, but look at all parts of the food system's infrastructure. This includes partnering with growers and supporting them with new sustainable technologies and processes. Such an approach could entail optimizing drying, storage, and quality controls, land transit, and the high volume of crops passing through port terminals.
Four consolidation examples that reduce waste and emissions
ADM continues to focus on more-efficient operations in its core origination and processing business, while expanding its sustainable ingredients platform. As part of its strategy to tighten efficiency in its processing and distribution businesses, ADM is divesting noncore assets like its corn dry mills. It has also recently completed the upgrade of its plant complex in Decatur, Illinois after a multi-year investment period. The upgrade will help the company achieve its goal of diverting 90% of its manufacturing waste to landfills by 2035 while also upgrading its processing facilities with carbon-sequestration capabilities. At the same time, the company is shifting its product mix toward more downstream ingredient manufacturing, including developing sustainable alternatives, such as plant-based proteins for human and animal consumption and insect-based protein substitutes. The most recent example of this is ADM's investment in October in a bioscience venture with Acies Bio, which specializes in synthetic biology and precision fermentation technologies for food, agriculture, and industrial applications.
Over several years, Bunge has divested several noncore processing and distribution assets and is looking to expand production of plant-based feedstocks for biofuels. The company has largely completed its restructuring, which resulted in the divestment of several noncore assets with inefficient operations, including its Brazilian sugar mills and several U.S. grain storage and distributions assets. The company intends to leverage its more efficient oilseed processing assets to expand into next-generation renewable fuels. To that end, it contributed two soybean processing facilities to a joint venture with Chevron that will further increase its capacity to produce low-carbon-intensity feedstocks for biofuel production.
This year, Louis Dreyfus Co. (LDC) entered a joint venture with Instanta as part of the consolidation of its coffee platform. LDC and Instanta--a global private label coffee company--intend to build and operate a freeze-dried instant coffee plant in Vietnam, one of the largest coffee-growing countries in the world. The venture complements LDC's existing Vietnamese footprint and global Robusta green coffee business, enlarging its product offering to customers to address the increasing demand for instant coffee. This move exemplifies LDC's strategy to pursue greater vertical integration and diversify its revenue base. It also brings higher value-added production to the region, supporting growers' incomes, while reducing waste from a less integrated process.
Viterra plans to build a 2.5 million metric tonne canola crushing facility in Regina Saskatchewan, Canada, that will add value to the region's canola production industry. The demand for oilseed crushing capacity is expected to keep strengthening in the long term, given rising demand for canola oil for food usage and in meal at animal feed markets. Additionally, Canada-based Viterra intends to play a key role in supplying the feedstock for renewable fuel production.
Legislation Can Help Turn Commitment Into Action
Political attention on reducing food loss and waste is gaining momentum. The G-7 (Group of Seven nations) has endorsed the Target-Measure-Act approach, and the issue of food loss and waste featured prominently at the U.N.'s first Food Systems Summit in September this year. Various governments and international bodies are coming around to the idea of addressing this problem at a more holistic level. UNEP in particular is launching regional food waste working groups in Africa, Asia-Pacific, Latin America, the Caribbean, and West Asia as part of its Global Opportunities for Sustainable Development Goals (GO4SDGs) initiative. The GO4SDGs' activities include helping countries establish measurement baselines, training, and access to tools to identify and set priorities to address unsustainable practices linked to biodiversity, climate, and pollution, among others.
Europe: The Farm to Fork Strategy aims to speed up the EU's transition to a sustainable food system. The reduction of food loss and waste is an integral part of this strategy, which is a component of the European Green Deal. Also, the EC is proposing a revision of EU rules on date marking ("use by" and "best before" dates) by year-end 2022, alongside legally binding targets for food waste reduction across the EU by the end of 2023. It also intends to further integrate food loss and waste prevention in other EU policies, investigate and explore ways of preventing food losses at the production stage, and continue mobilizing market participants by fostering the implementation of recommendations of the EU Platform on Food Losses and Food Waste. Even before the U.N. implemented SDG 12.3, the EU had designated 2014 as the European Year Against Food Waste.
Asia-Pacific: The FAO has been working with partners in the region since 2012. Since the Save Food campaign was launched in 2013, it has made its way in some form to Thailand, Indonesia, Malaysia, and China. Activities include the Shanghai World of Packaging expo. Moreover, GO4SDGs supports the Switch-Asia program, which was launched in 2007 by the EU and its partners and focuses on reducing the environmental impact of products coming out of the region, and helping consumers make informed choices, among other activities. For example, the program provides grants, including to help companies use cleaner technologies, and aids projects that could feed into policy discussions. Switch-Asia works in 24 countries across South, East, and central Asia, including Bangladesh, India, Cambodia, and Kazakhstan.
North America: The EPA officially aligned with the U.N.'s SDG 12.3 in September this year. In 2015, the U.S. Environmental Protection Agency (EPA) together with the U.S. Department of Agriculture set the country's first food loss and waste targets, namely, to reduce them by half by 2030 versus the baseline years of 2010 and 2016, respectively. The EPA is challenging all stakeholders to do their part to stop food waste. In 2017, 12 states introduced more than 30 bills to combat food waste, including tax incentives for small farmers and businesses, and clearer date labelling on perishables; while five states have imposed organic waste bans, including preventing the disposal of food, which has led to an increase in food donations and lower wastage.
More Needs To Be Done, And Quickly
Eliminating food waste is essential for lowering GHG emissions and fostering food security, particularly in view of the 2030 SDG target. What's more, with 80% of global primary food production coming from small farms, the U.N.'s road map for food security sees strengthening the food system's climate resilience as an imperative.
Multinational food companies are in a good position to make efficient crop collection and processing more accessible to farmers. Global food commodity traders and processors have already emerged as leaders in upstream food system consolidation, improving their prospects for sustainable growth. This has the added advantage of widening the network for others to join. But there's still a way to go.
At the consumer-facing end of the food system, scaling up investments in ingredient technologies should usher in a more diverse range of agricultural inputs, with lower waste and higher nutritional value. Food companies will likely measure their financial success in the future by benefits from the approaches they are backing today.
Writer/Editor: Bernadette Stroeder. Digital Design: Joe Carrick-Varty.
Related Research
- The Positive Impact Scorecard, Trucost; April 2020 https://www.spglobal.com/marketintelligence/en/news-insights/blog/the-positive-impact-scorecard]
- Reshaping Our Financial System in the Post Pandemic Re-set, https://www.spglobal.com/marketintelligence/en/campaigns/sdgs-responsible-investor
Other Research
- WRAP Food waste measurement roadmap 2021 progress report, Sept. 2021, https://wrap.org.uk/sites/default/files/2021-09/WRAP-Food-Waste-Reduction-Roadmap-Progress-Report-2021.pdf
- Five UN Agencies Chart Progress towards Ending Hunger, Malnutrition by 2030 (Aug. 2021) https://sdg.iisd.org/news/five-un-agencies-chart-progress-towards-ending-hunger-malnutrition-by-2030/
- State of The Global Climate 2020 (WMO-No. 1264), April 19, 2021
- Food systems are responsible for a third of global anthropogenic GHG emissions, March 8, 2021, Crippa et al (nature food)
- UNEP Food Waste Index Report 2021, March 2021
- FAO. 2019. The State of Food and Agriculture 2019. Moving forward on food loss and waste reduction. Rome. Licence: CC BY-NC-SA 3.0 IGO
- FAO, 2014. Food Wastage Footprint: Full-Cost Accounting, Final Report, https://www.fao.org/publications/card/en/c/5e7c4154-2b97-4ea5-83a7-be9604925a24/
- https://sdgs.un.org/goals
- https://www.epa.gov/sustainable-management-food/united-states-2030-food-loss-and-waste-reduction-goal
- https://www.ncsl.org/research/agriculture-and-rural-development/fighting-food-waste.aspx
- https://www.fao.org/save-food/regional/asiapacific/en/
- https://www.switch-asia.eu/
This report does not constitute a rating action.
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