Food Waste: a Market Failure to be Solved by Cities?
Cities face many challenges each day with limited resources. Is food waste an issue governments, and more in specifically cities, should even consider tackling?
Before answering this question, let’s zoom out and set the role of a government in society. Governments should cover the essential task of protecting individual right to their life, liberty and property1. Next to that, their exact role is debatable and is partly a matter of belief. It concerns issues like infrastructure, education, healthcare, welfare creation and distribution, and influence on behavior of its citizens. For now, let us assume governments should tackle issues which are not solved by the market itself: market failures.
Let´s examine food waste as a market failure which cities might be able to solve (partly). According to micro-economist Clifford Winston, there are three questions that should be examined to conclude that a policy to correct a market failure is as successful as possible:
1. Is there evidence of a serious market failure to correct?
2. Is policy reducing the market failure?
3. Is government policy optimal?2.
Is food waste a market failure?
The first consideration is whether food waste is a serious market failure to correct. The market failure of food waste is, in essence, that more food is produced and consumed by the group than needed as individuals. FAO estimated about one third of our food produced in the world is lost or wasted3. As an example, in the EU about 88 million tons of food is wasted annually, which results in a loss of 143 billion euros4. With regard to food loss, this imbalance between production and consumption is due to a lack of information: market players lack sufficient information and knowledge. For example, many households and professional kitchens have not learnt how to properly store, process and prepare food.
The second argument for food wastage being a market failure is externalities: it occurs partly because market players are not paying the full costs to society. These costs can be associated with production and end-of-life disposal of the waste. Wasting food reduces the availability of limited natural resources and has severe impact on climate change through breaking down on the landfill and generating methane – GHG emissions.
If this issue is not addressed properly, the challenge will become larger each year, because of our current rapid global population growth. Considering these arguments of lack of information and externalities, let us conclude food waste is a market failure.
Example of food storage at home
Is policy helping reduce food waste?
The second consideration is whether government policy, and more in specifically city policy, can reduce the amount food waste. What could you do as a city municipality? Issues to be addressed are:
- Address food producing or processing companies within the city
- Prevent food waste from local restaurants and retail
- Change consumer attitudes to lower food waste from households
- Close the circle with separate collection and processing of biowaste into resources.
Governments and cities that are actually reducing food waste are out there. In the UK for example, the amount of avoidable food waste has been reduced with 21% in four years5.
Is government policy optimal for food waste?
Winston´s third and final consideration is to assess whether (city) government policy is optimal. Is the policy efficiently correcting the market failure? This is probably the hardest question to answer at this stage because this article is not considering a specific policy. The question which pops into our mind is: Wouldn’t it be more wise to call upon the industry to take their responsibility? And yes, the industry should certainly be addressed by governments, like UK Minister Therese Coffey does6. However, frankly speaking, it is still a market failure, which means without government interventions food waste will remain an issue. In developed countries about one third of the food waste is created during consumption3. Within government agencies, cities are likely best equipped to get into contact with their households and local businesses.
Conclusion: food waste is a huge market failure
To summarise: food loss and waste is a huge market failure, which should be addressed by government policy. Next to national government policies, cities should aim to correct this market failure within their territory. The remaining question is which policies are effective for cities? To get beyond food waste, city policies and their effectiveness will be part of our next blogs. Stay tuned and we will keep you posted!