Wasted value in food and how tech is there to change it
The critical role of network effects in Market One Capital’s investment strategy makes it a recurring theme in our writings. As part of our activities, we examine various sectors to identify potential network effects implications in the future. The examples of our investments like Ovoko, Metycle, Vosbor or Connect Earth have underscored that the closed-loop economy and other ClimateTech solutions provide fertile ground for these effects to emerge, in addition to their support in combating climate change. Consequently, we have decided to delve further into the space of ClimateTech.
The multitude of possibilities to address the environmental contamination problem requires an understanding of the climate change status quo and the possibilities for preventing further deterioration. We began by breaking it down into sectors that emit the most greenhouse gases or carbon dioxide equivalents. It turned out that one of the substantial sources of emissions is food — including that which goes to waste without ever being consumed.
The big picture
Let’s start with some critical information to lay the groundwork: the Earth’s atmosphere is composed of various gases including greenhouse gases acting as a double-edged sword — there can’t be too little (which we have no problem with) and too much of them (which we struggle with). Their basic job is to insulate the solar radiation hitting Earth, keeping it warm at the same time. The problem is too much insulation.
Under the 2015 Paris Agreement, nations agreed to try to limit global warming, intertwined with the emissions above, to 1.5 degrees Celsius compared with preindustrial times. To reach that goal we need to reduce ~50 gigatons of carbon dioxide equivalents annually to get the net zero.
What is the source of all these emissions? There are several ways to think about the sources of these emissions, one great approach presented by the Ecofys Analysis (and plenty of other organizations) is the emissions flow chart presented below.
It is clear, that to achieve climate neutrality, a great deal must be combined in the most diverse areas of the economy. One study on food system emissions grabbed our attention in particular. When taking the whole value chain of food systems (from the very land used to grow and harvest through transport to the final consumption) it turns out the food system shows a staggering 34% of the global emissions being arguably the biggest polluter out there. Naturally, studies could be conducted from any other angle proving that another sector’s edge — that’s not the point. The point is — that the problem with food system emissions is huge.
How can we reduce food system emissions?
Now that we know the scale of the problem we face, the big question is what can be done to reduce these emissions in food systems?
In order to achieve emission reduction targets in food systems to get closer to the requirements known from the Paris Agreement, 5 main actions need to be combined:
- Improved efficiency
- Increased yields
- Plant-dominant diets
- A healthy amount of calories
- Food loss and waste halved
It turns out, however, that according to one of the most prominent non-profit climate research organisations, Project Drawdown, the one change with the most benefits in terms of CO2 reduction would be to cut food waste in half.
Cutting food waste in half
Coming to the food waste problem some last stats from this standpoint. Accounting for 8–10% of global emissions, food loss and food waste is a problem that directly affects the state of climate change. The value of the 1.3 trillion tones of food wasted is in the region of USD 1 trillion annually (some sources go as high as USD 2.6 trillion in costs associated with waste).
A sobering statistic is presented in Nat Bullard’s annual presentation — of all the food that is produced in the world, 1/3 of it is wasted which roughly corresponds to the 3rd largest emitter comparing to countries.
Structure of the food waste
From Production to consumption, food loss and then waste is a problem affecting every part of the supply chain. (Food loss refers to the losses along food production and supply chains up until the stage retail and consumer level where it’s called food waste)
A general rule of thumb is that the more developed the country, the more food is wasted at the consumer level. The EU recommendations on waste prevention propose a hierarchy that prioritizes food loss prevention, then reusing, recycling, and finally energy recovery. It seems that a similar market dynamics is visible among early-stage companies out there with more players focusing on prevention and descending accordingly. It has been well described in an article by Dr. Marie from Earlybird, where she discusses her thoughts on this breakdown of topics in food waste.
Removing middleman
Starting with the problem of climate change, we have transitioned into exploring food waste technology. This shift aligns with our strategy to focus on areas within our investment scope. As evident, the food waste sector can be segmented in numerous ways. From our perspective, we have intentionally not engaged deeply with life sciences or hardware solutions being outside our investment scope, despite being a crucial element of the climate puzzle. Hence, decided to zoom into three main sub-categories that we consider to be particularly promising for further exploration: marketplaces a.k.a removing middleman, data observability, and energy recovery.
Marketplaces have long leveraged the power of network effects and, from our perspective, represent an astute choice. The problem of no clear parameters in many cases of information between successive market parties, huge fragmentation, repeated orders, and finally digitization seem like just the right grounds for creating a marketplace. The use of this model has been evident for quite some time already, with some of the companies achieving great success to date. This is evident among both horizontal players (like Choco, Rekki, and Wikifarmer) and those targeting specific markets (such as Rooser, MeatBorsa and our portfolio company Vosbor). Despite numerous successful ventures, there is ongoing dynamism in the marketplace sector. For instance, the recent funding round for Torg,(congrats to the team!) a food and beverage sourcing platform, signals continued growth opportunities in this space. Addressing perishable food items, where every saved day is invaluable, adds to the complexity. Additionally, market movements, such as Choco’s acquisition of Katoo, indicate a pivotal moment where competitiveness in local markets becomes crucial or maybe the only way to go. Similar claims to leadership in a given market can be seen on the B2C side and startups offering food parcels in different models (Too Good To Go, Foodsi, Motatos, Munch).
It appears that there is scope for further enhancement by establishing a “source of truth platform” that serves as a definitive market authority. This could include integrating precise parameterization and offering additional embedded services such as web storefronts for merchants, alongside options for financing and arranging logistics.
Data observability
Procurement departments are experiencing shifts across generations. Savvy purchasers are broadening their sources beyond just a handful of longstanding traders, showing a growing, albeit challenging, openness to adopting new tools instead of solely depending on phone-based transactions.
The same principles apply to all sectors of the food systems market. For example, in production management, early-stage tools like Agriful are demonstrating the utility of CRM-like systems adapted from other industries. Focusing on procurement, the traceability of production paths is becoming crucial. With stringent reporting requirements like CSRD becoming more common, larger companies are beginning to impose these standards on their smaller counterparts, which heightens the significance of such data.
In subsequent stages, data pertaining to freight, logistics, and merchant relationships (as seen with platforms like Relex, Crisp, and Spoiler Alert) take on greater importance for major market players, marking a new level of relevance. Additionally, on the retail front, data on customer traffic, product usage, and market trends can greatly impact business performance. Retail solutions that allow dynamic pricing based on product expiration dates, such as Wasteless, offer innovative approaches, although they present challenges for retailers who may see them as a threat to their revenue and tight margins. Regulatory measures, including CSRD and aspects of the Sustainable Development Goals (SDGs), particularly goal 12.3 which focuses on reducing food waste, might prove essential for the adoption of these technologies.
Unlike these, systems that identify discarded food, generate reports, and convert this data into smarter ordering practices (like Winnow, Orbisk, and Kitro) face fewer hurdles in gaining user acceptance due to their direct benefits. From the perspective of network effects, such data-centric approaches are likely to lead to the appearance of what we know as data network effects.
Energy recovery and when it’s already wasted
Last but not least, one might wonder if anything can be done with food that is no longer fit for consumption. This aspect appears to be minimally impacted by software innovations. However, research into converting such waste into biofuels, animal feed, industrial ingredients, or packaging materials is progressing. Despite the current low adoption rates and reliance on substantial green subsidies, these methods present a promising yet infrequent alternative to more traditional solutions.
When the market adapts, we anticipate a fresh opportunity emerging. For instance, we are placing significant bets on the biofuels market, which currently holds a small share of the overall fuel market, yet is about to explode. Morgan Stanley projects that by 2030, approximately 4% of global transportation fuels will be derived from biofuels. Looking further ahead, to meet the objective of limiting global warming to 2 degrees Celsius, an estimated $2.7 trillion investment will be necessary to develop adequate biofuel capacity by 2050. The role of scientists as enablers will eventually allow us to capitalize on business opportunities and effectively look for innovative ways to generate supply in this sector. Given the expected massive growth of this market, the necessity to orchestrate, master, and establish a network of connections is becoming increasingly apparent. First initiatives dealing with the collection of oils after their initial use, the merging of refineries with end users, which in this case dealt exclusively with fuel for aircraft already appear in the market stressing similar themes starting to emerge.
If you’re innovating in the field of food waste and ClimateTech or investing in the space, it’d be great to exchange views and chat. Feel free to drop me a line at kamil.weglinski@moc.vc and let’s take it from there!
Disclaimer: The amount of information about food waste and areas of our investment interest is certainly not exhausted in this piece. We are glad to sit and chat with founders, VCs, and other startup ecosystem actors to dive deeper into ClimateTech as a whole or more directly into one of the areas such as food waste.
