Manufacturers should elevate food loss reduction as a top priority—report

Policymakers and stakeholders must work closely together to prevent massive food loss and food waste not only to address the looming food crisis but also to ensure industry growth and enterprise profitability, says a new report.

According to the latest McKinsey & Company research on food, 33% to 40% of the world’s food is lost or wasted every year, a devastating fact made more urgent in light of a looming global food crisis resulting from knock-on effects of the war in Ukraine, COVID-19, and climate change. There are also secondary effects from food loss, including freshwater supply loss and the rise in greenhouse gas emissions.

In the Philippines, the nation has been grappling with runaway inflation and shortages in certain agricultural and food products like onion, salt, and sugar, while experiencing a supply glut in others, such as the overproduction of garlic in Batanes that has caused the local government to plead for buyers.

“Food loss” happens at harvest or soon after, while “food waste” happens after the food reaches the retailer or consumer. Efforts have mostly focused on stopping food waste in stores, restaurants, and households. But the McKinsey report said reducing food loss should be equally prioritized, noting that an estimated US$600 billion, or up to half of the food that doesn’t get eaten by humans, is lost at or near the farm, during or just after harvest.

Business priority

The global management consultancy said minimizing food loss should become a business priority as well, as its study of the farm-to-retailer food supply chain reveals that food loss is a result of inefficiencies, and its hidden costs are often equal to or greater than retailers’ net profit.

The report said that if food manufacturers and retailers work with each other and with all participants in the value chain, they could cut food loss by 50% to 70%. Two-thirds of the potential food lost could be redirected to human consumption and the remaining one-third could go to alternative uses, such as bio-based materials or animal feed.

The business rewards would also be significant as companies would reap economic and cash flow benefits while improving their emission footprint. Retailers could reduce their cost of goods sold by 3% to 6%, and manufacturers by 5% to 10%. Grocers and manufacturers could capture $80 billion in new market potential by developing new businesses from food that would otherwise be lost. And they could cut CO2 emissions and the associated costs by 4% to 9%, the research indicated.

The report also found that of the more than 2 billion tons of food lost or wasted every year, about half of this happens upstream during the harvest, postharvest handling and storage, and processing stages.

Three food categories—fruits and vegetables, cereals, and roots and tubers—account for much of the food loss and the associated CO2 emissions and water use and should therefore be the focus of loss reduction efforts.

Solving the food loss problem will require fundamental changes in the ways that stakeholders work together, said the article. For tomatoes alone, the potential impact is more than 40 million tons saved every year. Globally, CO2 emissions linked to tomato loss would fall by 60% to 80%. And if this can be done with tomatoes, it can be done with other food categories as well.

“Ultimately, addressing food loss will require mindset shifts by all stakeholders. Food manufacturers and retailers will need to see food loss as a result of inefficiencies and missed opportunities across production, procurement, R&D, the supply chain, and sales—not as an inevitable cost of doing business or a niche topic that concerns only the sustainability department. They should see reducing food loss as a potential value pool: an opportunity to improve both the top and bottom lines,” the report added.

Four levers

McKinsey’s research revealed four levers that retailers and food manufacturers could pull to make meaningful impact: minimizing loss during production and processing, minimizing loss during transit, selling more of what is produced, and structurally preventing loss.

“No single combination of levers will be right for every company; each stakeholder will need to select the mix that best fits its particular context,” the paper said. Regardless of the chosen course of action, each company must fundamentally change how it interacts with other stakeholders in the food ecosystem.

The report said specific ways in which manufacturers and retailers can make big strides toward addressing food loss include working with suppliers to better match supply and demand. Some companies are starting to engage in long-term planning with their suppliers, working together to align on the volume and mix of crops in order to reduce uncertainty for the parties involved.

Another way is to overhaul procurement practices by launching structured supplier collaboration efforts or entering into innovation-focused partnerships.

“Don’t choose suppliers based on price alone. Take food loss reduction efforts into account when drawing up contracts, creating incentive structures, and establishing performance metrics,” the report said. For manufacturers, reviewing specifications to optimize for loss reduction both at the farm and at the factory could lead to lower volume requirements.

The research also advocates finding creative ways to turn food loss into value by dedicating R&D resources to developing new revenue streams from nonmarketable food.

Importantly, the report found that weak governance is considered by many industry leaders to be the biggest roadblock to the implementation of food loss programs in their companies.

“One of the most important enablers for significant and sustained change, therefore, is a strong governance model—with cross-functional accountability encompassing procurement, R&D, the supply chain, manufacturing, marketing, and finance; clear responsibilities and objectives; and KPIs at the individual, functional, and enterprise level,” it said. “Designating an owner for each food loss initiative and aligning on measures of success will help ensure progress.”

Stakeholder management, too, is a critical enabler. Suppliers, consumers, and other participants in the value chain can be persuaded to become supporters of loss-reduction efforts rather than inhibitors. Manufacturers and grocers can create and raise awareness of the problem among farmers and suppliers, to help them see food loss as an inefficiency instead of an inevitability. On the consumer side, targeted marketing programs and educational campaigns can help consumers understand how to reduce food loss, which could in turn enable the implementation of upstream measures, such as less-exacting cosmetic specifications for fresh produce.

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