Food Loss and Waste — Part 1

Sustainability has become a global priority for consumers, businesses, and investors. Our team at Wittington Ventures (WV) has been observing the impacts of this shift across our three priority verticals, with a recent focus on food.

Annual food waste volumes have been making headlines lately, and while it may not be the most glamorous topic, we’re excited to be digging into one of our planet’s largest challenges. Today’s post will touch on how we’re thinking about the problem, our view on the landscape of innovators, and what gets us excited about startups in the space. There’s a lot to unpack here, so we’ll be publishing more on the topic in the future.

An opportunity not to waste

Globally, ~40% of all food grown goes uneaten by humans. To give a sense of magnitude, this translates to 150 billion lbs. or $200B of annual food loss and waste in North America, and 2.6 trillion lbs. globally (yes, trillion with a T).

The scale of the problem is hard to ignore. What makes food an interesting problem to crack is that it’s a rare opportunity to better our environment and our society without any economic sacrifice. We’ve detailed how below.

1. Environmental
   The environmental implications are far reaching. Lost and wasted food is estimated to contribute to 8–10% of total global GHG emissions. Further, expansion of agricultural capabilities is responsible for 80% of global deforestation. There is an opportunity for innovators to improve the efficiency of our food supply chain, rather than expanding its capacity.
2. Societal
   Some frightening statistics: over 10% of North America is food insecure, a number that grows to 25% when you look globally. Considering that we currently produce ~1.5x the food we consume, we can effectively reduce food scarcity in line with food waste.
3. Economic
   As investors we’d be remiss not to mention the massive economic opportunity associated with solving these problems. There’s currently a $200B value recovery opportunity in North America alone; an opportunity that’s doubly attractive as consumers, businesses, and investors put more of their dollars towards sustainable products and companies.

Decomposing the problem

As an organizing framework for this problem, we wanted to understand where the problem was concentrated across the value chain. Using data from the Food and Agriculture Organization (FAO), we broke the value chain into 5 steps and quantified the food loss and waste at each stage.

Figure 1: Food waste and loss volumes across the value chain

Our analysis showed that the bulk of food waste occurred at three steps in the value chain: primary production, sale to consumers, and at the consumption occasion. This view informed our market scan below.

WV market scan: 11 themes of innovation

We’ve been monitoring the landscape of innovative companies tackling the food waste problem. In our scan, we prioritized companies targeting the steps of the value chain that generated the most waste. Naturally, this is where the bulk of activity is occurring.

Figure 2: WV map of food waste innovation themes

Our research found 11 themes of innovators tackling food loss and food waste across the value chain. We’ll be publishing a full market map in the future, but for now we’ve provided examples /to help paint the picture.

1. Yield and demand forecasting for primary producers: The USDA estimates 4–5% of planted produce is left unharvested on US farms each year due to overproduction. Agtech companies such as Agrograph and CropProphet are helping farms forecast yield and demand to reduce the amount of edible food that is left in the field each year.
2. Rapid quality and freshness assessment: A 2019 Harvard analysis shows that our current expiry-date labelling practices create $30B of preventable waste each year. Start-ups (e.g. ImpactVision, AgShift, ImagoAI) are using hyperspectral imaging to enable businesses (and soon, consumers) to rapidly assess the freshness of products, to help avoid waste. The use cases range from more intelligent retail markdowns, to expedited distribution for soon-to-expire products upstream in the supply chain.
3. Cold chain: Up to 50% of temperature sensitive produce is lost post-harvest, primarily due to lack of or inadequate access to cold-chain logistics. Companies in this space are improving the efficiency/accessibility of cold chain technologies.
4. Traceability: Tracking food across today’s supply chain is notoriously difficult, with most links in the value chain maintaining only ‘one-up, one-back’ records in line with FDA requirements. Solutions in this space use distributed ledgers, tracing codes, and IoT sensors to help paint an end-to-end picture.
   Traceability is a substantial topic we’d like to expand on in a future blog post. For now, we’ve found this 2019 report from the World Economic Forum and McKinsey to be a helpful primer.
5. Sales channels for imperfect or surplus produce: $15B of edible produce is discarded each year in the US because it is blemished or there is a surplus. Some of the most mature food waste companies are building a supply chain for imperfect produce, either by selling to consumers (e.g. Imperfect Foods, Misfits Market), or by creating B2B marketplaces (e.g. Full Harvest).
6. Innovations to improve shelf life or reduce spoilage: Once produce is harvested, one of the largest challenges in the food supply chain is managing spoilage timelines. Spray companies (e.g. Apeel, Mori) and packaging companies (e.g. Hazel, Anacail, ImpactfulHRD) are innovating to improve the shelf life of fresh produce.
7. Distribution for at-risk food inventory: Rather than sending inventory to landfills, startups are helping businesses distribute inventory either to consumers or other businesses. In the consumer vein, companies such as Flashfood (used by Loblaws here in Canada) and TooGoodToGo are using markdowns to incentivize consumers to purchase soon to expire food and prevent waste. For B2B, companies such as Spoiler Alert and Copia are making it easy to distribute at-risk inventory to other retailers or NPOs.
8. Retail inventory management and demand forecasting: Retailers traditionally do not sell ~20% of the food that they purchase. While most have other solutions in place to avoid landfills, a large opportunity exists to more efficiently manage their inventory. Companies such as Shelf Engine and Afresh are helping grocers reduce their waste while avoiding stockouts, while Crisp is providing a view of customer/consumer demand across the supply chain
9. Recycling food waste into agricultural products or energy: Companies such as AgriProtein and EnTerra are using insects (primarily black flies) to create animal feed, while others are using anaerobic digestion to convert waste into electricity. While these solutions do not recover food to the top of the hierarchy, we like the high volume of waste that they address.
10. Upcycling food waste into consumer products or ingredients: A large wave of companies, including 7/10 companies from this year’s Zero Waste Zero Hunger cohort, are transforming food waste into high value consumer products. In the same vein, companies such as Outcast Foods are transforming food waste into powdered ingredients for use in consumer products.
11. In-home food waste solutions: The bulk of food waste (30–40%) occurs in consumers’ homes due to over-purchasing and, frankly, a lack of convenient disposal options today. Solutions in this space range from peer-to-peer food sharing platforms such as OLIO, to convenient at-home composters like the soon-to-launch Lomi or Tero devices.
    Platforms that address consumer waste are particularly interesting as environmental and economic impacts compound as you move further down the chain.

What gets us excited at WV

As citizens, we’d love to fund and support as many companies tackling this problem as possible. As investors, we have limited resources and must develop a thesis on which opportunities have the most potential. Here’s a window into what we’re looking for when investing in this space:

1. Addressing a large volume of food waste
   Beyond the value chain view above, we also think about addressable volume as the percentage coverage of a customers’ total waste profile (i.e. how much of your waste is addressed by a single solution). After speaking with large incumbents in the space, our view is that customers won’t want multiple solutions for each different type of waste. This creates a natural advantage for one-size-fits-most solutions.
2. Recovering food to high value uses on the EPA’s food recovery hierarchy
   In the long term, we expect that a significant reduction in the volume of waste will drive competition for the waste that remains. The winners of that competition will be those who can extract the most value from it. For example, farmers benefit more from selling waste that is upcycled into a product, versus selling waste that is recycled for agricultural feed.
3. Developing sustainable differentiation
   As the world becomes increasingly aware of the opportunities to capitalize on the waste in our current supply chain, we expect startup activity to increase. We typically get more excited about proprietary technology or network effects than we do about supply chain innovations that could be more easily replicated.

Let’s talk

We’re going to leave part one of this series here. In the coming months, we’ll be publishing deeper dives on the segments we are most interested in, as well as our full market map as we develop it. In the meantime, if you’re building something, researching or investing in this space we’d love to hear from you. Please don’t hesitate to reach out to Curtis (curbanowicz@wittingtonventures.com) and we can find time to connect.