Food Waste: How Startups Can Improve This Broken, Fragmented, and Inefficient Supply Chain

During the beginning of the COVID-19 pandemic in the United States, photos and articles involving farmers being forced to destroy crops and subsequently wasting food were frequently shared. This issue was a hot topic because people were frustrated that the food supply chain could not match the farmers with places to sell their crops, as many supermarkets and other retail outlets were out of food at the time. Although it wasn’t financially viable to harvest with the existing approach, that doesn’t mean that a new solution couldn’t lead to a financially viable alternative. Some startups sprung into action, like Milkrun, a platform that helps consumers buy directly from local farmers, but there was only so much it could do since it is in limited cities.

Ordinarily, in the absence of a global pandemic, the USDA estimates that 30–40% of the food supply is wasted. We may not get revised estimates for a while, but it seems like there was additional food waste during Covid-19 due to a poorly constructed and a rigid supply chain. Startups can make an impact on these issues due to their ability to create markets, apply technology to industries with a lack of technology, and utilize new, innovative ideas. Their biggest impact will be applying new technology that currently is not prevalent in the farming industry.

This food waste is a problem for three reasons: food insecurity, environmental damage, and loss of income for farmers. In the United States, 14.3 million people are food insecure, meaning that they lack reliable access to nutritious food. Being food insecure causes health, employment, and education issues because good nutrition is a foundation for success in those realms. Also, everyone has a fundamental right to adequate food according to the UN, so everyone should have access to affordable, healthy food if they want it. According to the National Resource Defense Council, if 15% of the food waste was recovered, it could feed 25 million Americans.

In addition, food waste causes environmental damage through water consumption and methane emissions. When food is wasted, all the water that went into its production is wasted. Food waste in the landfill produces methane, which is one of the most dangerous greenhouse gases, and methane is bad for climate change.

Finally, farmers are forced to destroy crops because it is not worth it to harvest them due to the low prices. They put in hard work but miss out on potential revenue streams. The farming profession itself has issues with poverty and lack of new farmers, so improving revenue streams could help on both fronts. Overall, the theses revolve around mitigating environmental damage, but there is a lot of progress to be made with regard to food waste and loss of farmer’s income as well.

There could be a large market for diverting food waste and creating value from it. The USDA estimates that all the food wasted per year is worth about $161 billion and weighs about 133 billion pounds. Combined with the fact that 25 million Americans could be fed if 15% of the 133 billion pounds of waste were diverted, there is an opportunity to utilize the rest of the food waste and mitigate environmental damage. Food waste mitigation technologies and strategies are lagging behind, and startups need to help fill in the void.

One organization working to reduce food waste, the US EPA, released this insightful chart regarding common uses of food waste, based on preference:

EPA Food Recovery Hierarchy

Based on this hierarchy, I have constructed 5 theses for thinking about how to better use food waste. Overall, the theses focus on a specific aspect of the inverted triangle and offer a potential alternative approach.

1. AI/Data Analytics products will target different areas of the food production process to help mitigate waste with insights that help improve purchasing habits and identify how to utilize waste.
2. Platforms will help companies leverage tax benefits and improve margins from donating food.
3. Agtech companies will turn food waste into animal food providing farmers a cheaper alternative and helping the environment.
4. Energytech companies will use food waste to create energy.
5. Consumer-facing businesses that take people’s compost away will be as normal as trash and recycling collection.

Next, I am going to break down each thesis and highlight some startups in each area.

1. Software as a Service (SaaS) AI/Data Analytics products will target different areas of the food production process to help mitigate waste with insights that help improve purchasing habits and identify how to utilize waste

The best way to mitigate waste is at its creation because then society doesn’t have to worry about any of the downstream effects. The challenge with that strategy is time. It is time-consuming and challenging to plan how much food someone needs, whether in one’s home or in large-scale commercial kitchens. This challenge means that people will buy more food then they need, and it will end up being wasted. Part of this is due to food’s variable time to be used, but a majority of this issue comes down to challenges with planning.

Technology can be used to mitigate food waste that results from poor planning. Commercially, AI and computer vision can identify what is the biggest component of waste, and then the restaurant can figure out how to reduce it or ways to utilize it in their food. AI and booking software can help forecast the number of consumers restaurants will have, so then the restaurant can figure out how much food it needs to have. For instance, Phood focuses on reducing commercial waste via hardware and software by helping restaurants track the total amount and specific content food wasted. There are over 1 million restaurants in the United States, and by helping them expand their margins via reducing food waste, value will be added to the restaurants. Planning apps and AI for in-home kitchens can help people identify what food to get and when to use it. Consumers will need to be convinced of these product’s value, but if companies can successfully acquire users, it could improve purchasing habits and subsequently reduce food waste.

2. Platforms will help companies leverage tax benefits and improve margins from donating food

Under federal tax reform passed in December 2015, all businesses are able to get some sort of tax benefit from donating food, but some have a hard time figuring out the details to pursue this option. In order to receive a general tax deduction, businesses that donate inventory can receive the cost of the inventory back for up to 30% of their total taxable income, depending on their legal structure. Alternatively, the company donating the food can receive extra tax benefits, best explained by the graphic below:

The only issue with this process is that the logistics are challenging, and it can be complicated to calculate. As small businesses are the ones who could benefit from this the most, it would help if they could consult with an expert specializing in this topic. At scale, there would be many opportunities for restaurants to partner with this service. There is an opportunity for a platform that charges a low monthly subscription cost and takes a percentage of the food distributor’s savings. One company, Goodr, takes elements of this thesis and fuses it with elements of the first thesis. Their software tracks food waste and surplus food, and then helps facilitate the donations and subsequent tax savings.

3. Agtech companies can turn food waste into animal food providing farmers a cheaper alternative and helping the environment

Right now, there doesn’t seem to be a startup turning food waste into animal food at scale. Instead, there are many small, local companies that do this process. However, there could be an opportunity for a startup to develop and scale the technology to do this difficult process.

To convert food waste into animal food, there can’t be any contaminants in the food that would be toxic to animals. Animal feed cannot contain microbial pathogens, herbs, flowers, domestic house plants that are toxic to animals, food packaging, or animal meat. Unlike smaller companies, a big startup could afford to develop technology, like machine vision, to identify problematic components. A big startup could also negotiate better deals with large waste producers, like farmers and consumers, for the optimal ingredients, like pumpkins, rapeseed, barley, mushrooms, and olives. Another benefit of this business is that production and distribution could be localized, so local food farms produce waste and local animal farms consume the waste, thereby saving on transportation costs. The animal feed business is a $33 billion a year industry, so if a startup could capture a portion of that market, it could have a successful business, even without generating revenue from complimentary products, like waste hauling services and waste analytics. This space has the potential for a startup to come in and really disrupt the industry.

4. Energytech companies will use technology to transform food waste to energy on a larger scale

Food waste has a lot of potential benefits due to the vast amounts of nutrients. These nutrients can be consumed, recycled (composting), or harnessed to create energy. However, current food waste to energy conversion processes only focuses on specific foods. In order for this to be large-scale viable and maximize opportunity, there needs to be a technology that can convert a lot of mixed food waste into energy. Otherwise, this product will struggle to gain traction because there may be issues with the amount of energy generated and time. Other methods compared to energy conversion are better for the environment and take less time. If technology is able to support this process without needing to sort the food before converting to energy, it could be frequently adopted because of the reduced time constraints.

5. Consumer-facing businesses that take people’s compost away will be as normal as trash/recycling collection

In the past, people just threw everything into one trash bin (or can) and brought it to the curb, but in the 1970s, recycling rose in popularity. We have now reached the point where recycling is pretty common, but the US has not caught up to other countries, where they break down their waste into several categories when disposing of it, including composting. I believe that this trend is going to reverse in America as more composting services pop up and public awareness of this issue increases. One example near me is Blue Earth Compost, but we are yet to see a national company like there is in the waste removal space. While growing food, wasting it, and then composting is the least desirable with regard to the environment, there is always going to be some food waste that is going to be wasted. On the business side, composting companies can make revenue from charging the customer a fee for hauling away the food waste and then selling the compost. This dual revenue stream can help mitigate the costs until scale is reached. Plus, people produce less compost than trash and need it picked up less frequently, so the startup can minimize a lot of the fixed costs. Technological innovation would be needed to mitigate the smell, however. As more people want to reduce their carbon footprint, they will turn to one of the simplest solutions, composting, thereby encouraging more composting services to spring up.

Conclusion & Takeaways

For people, companies, and societies striving to be more conscious of their environmental impact, one activity they can easily address is food waste. As hunger and food supply chain issues are discussed more frequently, people will realize that there is plenty of food to feed everyone, it just needs to be distributed properly. Companies can improve margins by transforming their food waste into an asset via donations and recycling. Consumers can turn to services to help them compost. Companies can turn to services to help them analyze and reduce waste. I believe companies are already starting to catch on to these products and consumers aren’t far behind them. Regardless, tackling the food waste issue has the opportunity to reduce hunger and pollution, longstanding societal problems. Startups in this area have the opportunity to make a difference and be successful.