April 11, 2013 - A third of the food destined for human consumption - around 1.3 billion tonnes - is lost or wasted every year according to the Food and Agriculture Organization of the United Nations (FAO). Consumers in wealthy countries waste almost as much food (222 million tonnes) as the total amount of food produced in Sub-Saharan Africa (230 million tonnes). Given that there are still almost 1.3 billion people living in extreme poverty and that 870 million people are chronically undernourished, we may conclude that food waste is a threat to food security in the world and may even contribute to hunger. But is that actually the case?
Economic science can teach us various things about what we can expect if the problem is addressed. It is important in this respect to make a distinction between food losses on the supply side (in the production, harvest, storage, and processing phases) and food waste on the demand side (in the consumer's home or in the shop).
The laws of supply and demand teach us that a decline in losses (irrespective of where this takes place within the chain) gives rise to a lower price; after all, fewer costs have been incurred. Given the demand, this in turn leads to an equilibrium in the market with a larger traded quantity, leaving both the consumer of the food product concerned and the producer better off; a win-win situation.
This could be a good solution in developing countries in which the problem of food losses in supply dominates. However, the costs of reducing losses could throw a spanner in the works; better harvesting techniques may not be that expensive, but investments in storage and transport may be.
The consumer is buying less
If waste is reduced, the consumer will need to buy less than before. In view of the supply, a new equilibrium will emerge with a smaller traded quantity and a lower price. The consumer is better off because a certain amount that was previously wasted is now not wasted, and because the market price is now lower. The producer on the other hand is not better off. Less waste by the consumer has a negative impact on sales, and this has negative consequences for employment in the sector concerned. But what does the consumer do with the money saved? He or she may use it to buy other goods, benefiting other sectors. Alternatively, in these difficult economic times, the consumer may not spend the extra money at all. The money may be 'saved for a rainy day' which initially leads to lower prosperity.
These are important outcomes in industrialised countries such as those within the EU, where the problem of food waste in demand is high on the agenda; they suggest that a reduction in waste leads to trade-offs between food consumers and producers, as well as between producers and other producers (of food and other products), with winners and losers in each case.
Across European borders
If we look across national borders, the story becomes even more complex. A reduction in food waste by the European consumer could for instance lead to a reduction in demand for food on the global market, resulting in lower food prices. In developing countries, this is good for consumers but bad for local producers who end up being pushed out of the market. In developing countries, the majority of the population lives and works in rural areas and is dependent on food prices as their main source of income. Trade flows and barriers influence these outcomes.
An argument for better insight
This is an argument for better insight into the causes and consequences of food waste and losses in order to deal with the problem more effectively. Research into these issues is dependent on good data on the extent of food waste and/or food losses on a global scale, the extent to which these can be reduced, the underlying causes, and the costs of reducing them, as well as greater insight into consumer behaviour. There is a lack of consistent information in these areas, compounded by a lack of clarity about what waste or losses actually entail .
If a reduction in food waste were to result in trade-offs, it is ultimately the responsibility of policy-makers to make choices. It is very likely that also non-economic aspects such as climate and health will need to be considered when making such decisions. Applied economic research can help provide insight into the effects and trade-offs that may occur.
This blog is based on a framework for analysis using economic science as point of departure and deriving implications for research, policy and practice. The framework has been published in Agriculture & Food Security.
LEI Wageningen UR is currently carrying out a large-scale applied study for DG Environment looking at the impacts of reducing food waste within the EU as part of a broader project relating to the modelling of the impacts of greater resource efficiency. The project is called 'Modelling Milestones for Achieving Resource Efficiency' and is being led by BIO Intelligence Service.
As part of the research into the impacts of reducing food waste, LEI is also studying the impacts of reducing food losses in the Middle East and Northern Africa. This work will be presented during the 16th annualGlobal Trade Analysis Project (GTAP) Conference on Global Economic Analysis "New Challenges for Global Trade in a Rapidly Changing World" in Shangai, 12-14 June, 2013.