A breath taking one-third of all food produced is lost or wasted, according to the Food and Agriculture Organisation (FAO). Globally, this translates into 1 billion tonnes of food, or a $1trn economic loss each year – and accounts for 6-7% of global greenhouse gas emissions. With 820 million people going hungry every day, this is a truly woeful situation.
For the sake of definition; food losses occur along the food supply chain from harvest/slaughter/catch up to, but not including, the retail level. Food waste, on the other hand, occurs at the retail and consumption level. Food diverted to other economic uses, such as animal feed, is not considered as quantitative food loss or waste.
Putting personal views on the immorality of food waste aside, this is a very serious business issue – one that is highly relevant for us as investors in major UK food retailers. First off, in any business, waste negatively impacts margins – reducing waste therefore improves profitability. Second, as consumers become ever-more educated on these issues, food waste is bad for a retailer’s brand and image. Third, food losses push up food prices, impacting demand. And finally, waste at the retail end of the food chain has the greatest impact from a greenhouse gas emission perspective.
Food that has gone from growing and harvesting, to processing, to potentially chilled store shelves, with transportation in between, has accumulated the maximum amount of emissions for the food chain. Added to the emissions caused by waste from the end consumer, it ramps up Scope 2 and Scope 3 emissions for our investee companies, exposing them to increasing carbon prices and the costs to mitigate emissions.
Many big supermarkets have committed to halving food waste by 2030 and they have also signed up to the UK-specific Courtauld Commitment 2025. Tesco is a company demonstrating leadership on the issue. A member of Champions 12.3 (a coalition of stakeholders to driving the agenda to achieve the SGD 12.3 target), it has reduced total food waste by 15% since its 2012/2013 base year.
Tesco and Morrisons have tried to tackle the problem of the desire for food products to meet aesthetic standards in terms of colour, shape and size via their ‘Perfectly Imperfect’ and ‘Naturally Wonky’ ranges, respectively. While retailers are attempting to tackle food waste the end consumers are by far the biggest culprits of food waste. We account for 70% of UK food waste post farm-gate; retailers directly account for less than 3%.
This is one of those sustainability issues where we are totally aligned in our fiduciary duty to our investors, and to the interests of wider society. We are aligned with those stakeholders in our local community and globally who want to tackle climate risk, hunger and poverty. Meanwhile, if our investee companies are successful in reducing waste, they will be more profitable, enjoy enhanced brands – and thereby generate more attractive returns for shareholders.