The Business Case for FLW Measurement, Prevention and Reduction
Regional and global institutions are increasingly recognizing the importance of addressing FLW. The CEC Strategic Plan 2021-2025 identifies the circular economy as a key pillar of achieving greater sustainability, pointing out that “food loss and waste entails enormous social, environmental and economic costs” (CEC 2020).
Additionally, in 2015 the United Nations General Assembly adopted a set of 17 Sustainable Development Goals to end poverty and protect the planet. Among these goals is a target (known as Target 12.3) to halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains by 2030.
Businesses, organizations and others are also realizing the importance and benefits of addressing food loss and waste, but many have to start by making their own internal business case for action. Across the food industry, FLW is often buried in operational budgets, where it is accepted as the cost of doing business. However, business leaders around the world are recognizing that reducing FLW is an opportunity to improve their bottom lines while contributing to food security and environmental goals. Although measuring FLW may involve some upfront costs, ample evidence shows that the benefits of measuring and reducing FLW far outweigh the long-term costs of not addressing it. The upfront costs of quantifying FLW for the first time and implementing an FLW prevention and reduction program can lead to a steady stream of financial benefits for years with only minimal continued investment.
An illustrative list of costs and benefits associated with measuring FLW is shown in Table 1.
When starting to measure FLW, businesses often see a quick payback. In many cases, a suite of simple solutions can quickly and dramatically cut FLW and its associated costs. Many organizations can achieve a positive return on investment within just one year. In fact, as shown in Figure 2, it has been found that businesses tend to experience a median savings of $14 for every $1 invested on FLW measurement, prevention and reduction (Hanson and Mitchell 2017).
Figure 2: Average Return on Investment for FLW Prevention and Reduction
Financial savings and increased revenue carry on over time with minimal continued investment; especially as “best practice” behaviors and habits for reducing FLW become engrained in a business’s standard operating procedures. The positive effects of more efficient business operations compound over time.
In addition to financial benefits, reducing FLW can contribute to environmental and corporate social responsibility goals, brand recognition and improved stakeholder relationships. These impacts are discussed in greater detail in the “Selecting Key Performance Indicators and Identifying Impacts” module of this guide.
Making Your Own Business Case
Although evidence shows that reducing FLW generally results in economic gains, managers may still need to establish the benefits for their own companies.
To make the case, follow two basic steps:
FIRST, DETERMINE HOW MUCH FOOD LOSS AND WASTE IS COSTING YOUR COMPANY. Waste management fees (e.g., transport, landfill, composting, etc.) account for a relatively small portion of the true cost of FLW to your organization. Focus on the value of the food as it moves through the supply chain and identify processes, activities and services that contribute to unsold surplus and wasted food to find opportunities for improvement. To maximize potential economic savings, focus on FLW attributed to normal day-to-day business operations (versus atypical occurrences like broken equipment). Many businesses assume a certain amount of waste as being fundamental to their operations, so these assumptions should be checked and challenged as well.
For example, imagine a manufacturer that produces canned tomatoes. This manufacturer sends a tonne of oversupplied tomatoes to the landfill each month at a cost of $100. However, that same amount of tomatoes is valued at $900 at the time it is removed from the food supply chain. So in actuality, the cost of the FLW is the $900 in lost product value in addition to the $100 in disposal fees, resulting in a total loss of $1,000 each month.
For another example, imagine a restaurant that generates FLW as part of its front-of-house (dining area) and back-of-house (preparation area) operations. After measuring the FLW that is generated on the diner side, the owners find that much of the FLW is from bread that is given to customers for free before ordering their meals, costing $200 in surplus bread to be sent to landfill. In the kitchen, the FLW is found to be primarily due to over-ordering of food, costing $800 worth of food to be sent to landfill. This same amount of food costs the restaurant $100 a month to be sent to landfill, meaning all of the FLW combined is costing the restaurant $1100 a month.
One useful tool that can be used to estimate the cost of FLW to a business is the Provision Coalition’s Food Loss and Waste Toolkit, which provides a step-by-step calculator for determining the value of FLW as it moves through processing and manufacturing. Although the toolkit is intended for use by manufacturers, the principle behind it can be adapted to other sectors.
SECOND, DETERMINE THE POTENTIAL BENEFITS OF TAKING ACTION TO PREVENT FOOD LOSS AND WASTE. After assessing the cost of FLW, assess the costs associated with taking action to prevent or reduce it. For example, in the manufacturing example above, the tomato processor may discover that 2.5 tonnes per month of tomatoes, which could be used for tomato soup, are being sent to a landfill. The soup is valued at $2,000 per tonne and the cost of the equipment necessary to produce the soup is a one-time investment of $10,000. So in this case, reducing the wasted tomatoes by using them in soup would pay for itself in two months and generate $5,000 per month in profit from that point onward. Even if the company did not want to redirect the tomatoes to a new product, it could change ordering practices to avoid surplus tomato and achieve savings that way.
In the prior restaurant example, the restaurant can achieve savings by only serving bread pre-appetisers upon request (and/or reducing portion sizes) and improving inventory management of food in the kitchen. Each of these interventions is actually cost-free for the restaurant and will immediately begin to realize $1100 in savings a month if implemented fully.
Implementation and Improvement Over Time
Once a business case has been accepted, a business or organization can implement cost-effective solutions to prevent and reduce food loss and waste. To ensure continuous improvement over time, it is important to periodically reexamine additional opportunities for reducing FLW and introduce additional corrective actions where appropriate. As seen in Figure 3, quantification and implementation are part of a “continuous improvement loop” that lead to greater improvements over time. Measuring and preventing food waste is not a one-time event, but an ongoing journey.
Figure 3: Continuous Improvement Cycle for Reducing FLW
Source: Provision Coalition 2020