Food & Agriculture Series

Why Investments in a Circular Food System Need to Happen Now

By Bea Miñana & Allison Shapiro

September 08, 2022

Supply chain disruptions and a heightened climate crisis call us to look across a wide range of solutions, including the food we eat – and don’t eat.

In the U.S., 35% of the food we produce goes unsold or uneaten. Whether this is because of too much food produced, too little harvested, food spoilage, or not recognizing the economic value of food byproducts, most of this surplus food ends up in the 1,000+ landfills operated around the country. If we look at U.S. landfills today, food makes up almost a quarter of the materials in them. A lot can be done to improve the resource efficiency of our food system today––and within this work lies a critical path to positive environmental impact and significant economic opportunity.

According to the leading food waste non-profit organization ReFED, uneaten food is a major driver of greenhouse gas emissions today, generating 4% of U.S. and up to 10% of global emissions annually. These emissions come from many sources, ranging from unnecessary forestland conversion to excess energy use in food over-production to methane emissions during food waste decomposition.

To address climate change holistically, we need to look across the supply chains that move food through our economy today and transition them from take-make-waste supply chains to circular ones. Ultimately, a circular food system reduces food waste – and its associated greenhouse gas emissions – fundamentally linking it to climate goals. In fact, it is one of the top solutions to avoiding a global two degree warming scenario today, as reported by climate education non-profit Project Drawdown.

Investments in solutions that prevent food from going to waste, such as predictive software that allows retailers to match supply with demand more precisely, as well as composting infrastructure or anaerobic digestion technologies, are critical. According to ReFED, an annual investment of $14 billion – including $3 billion in catalytic capital that is patient and flexible – is necessary to cut food waste in half in the U.S.

But why invest in food waste reduction now?

1) Investable Innovations Already Exist

For more than five years, Closed Loop Partners has been publishing research, investing in and advancing circular solutions that cycle nutrients and eliminate food, organic and agricultural waste. These solutions span upstream food reduction solutions to midstream consumption solutions to downstream processing infrastructure – knowing that interventions at every stage of the supply chain are required to build a circular food system. As an upstream example, one of our portfolio companies, Mori, has developed a silk-based and edible coating that extends the shelf life of fresh food, reducing food spoilage and waste.  Rebound Technologies, one of our midstream portfolio companies, designs and manufactures freeze-point cooling systems, reducing food spoilage by boosting the efficiency of cold storage. Further downstream, our portfolio company HomeBiogas creates household and commercial-sized anaerobic digester units that convert food and yard waste into renewable energy and liquid fertilizer that can both be used onsite. Closed Loop Partners also invested in Atlas Organics, a growing composting company. In 2021, we successfully exited our investment in Atlas Organics, following its sale to Generate Capital, a key investor aligned with impact outcomes and growth of the company.

2) Demand for Investment Is Increasing

We are now at an inflection point, with several clear tailwinds that have convinced us that the investment case for deploying capital into the sector has never been more attractive. What are the tailwinds? We bucket them into three categories:

  • Environmental and market forces are directly driving revenue opportunities: Climate change has been headline news for years, but it’s never garnered the level of attention in the U.S. that it has today––and its link to food and agriculture has never been clearer. Climate change-induced droughts and severe weather are impacting agriculture cycles and food supplies, and organic waste in landfills is increasing greenhouse gas emissions. Additionally, amidst rising inflation, geopolitical instability and challenged supply chains, retailers are searching for more resilient ways to manage food supply chains: including sourcing more locally and reducing food waste to decrease costs while providing affordable products to consumers.

 

  • Industry leaders are driving action toward shared goals: Many Fortune 500 companies have set public net zero commitments, and more than 20 of them have set food waste reduction commitments with target reduction levels by target dates. As of early 2022, more than 40 large global corporations have signed up to the EPA’s 2030 Food Loss & Waste Champions program to reduce their food waste by 50% by 2030. Furthermore, there are several large cross-sectoral corporate, government and NGO partnerships for food waste reduction now in place, from 10x20x30 to the Pacific Coast Food Waste Collaborative to promote knowledge sharing, innovation and pool sources of demand for solutions. Kroger also launched their Zero Hunger | Zero Waste social and environmental impact plan to help create a more efficient, equitable and charitable food system. We are closely watching and excited by all three sets of development: consumer demand, corporate demand and public-private partnerships for knowledge sharing and innovation.

 

  • Policy is indirectly driving revenue opportunities: Many of us in impact investment have been watching regulatory and voluntary bodies work to standardize and create accountability for ESG disclosure for years. Those of us in the food waste space, particularly in the U.S., have also honed in on the uptick in legislation and updated mandates introduced at every level: federal, state and municipal, including the food waste bill passed this year and local organic waste bans. In 2021, the EPA updated its food waste data baselines to align with international goals outlined in Sustainable Development Goal 12.3, and it expanded the scope of the food scraps it considers waste that must be addressed. More than 10 states and D.C. have enacted food diversion mandates. In the nearly seven months that have passed since January 2022 alone, more than 70 bills were introduced in state legislatures to mitigate or repurpose food waste, calling for measures ranging from making it easier to donate excess food, to updating expiration date label approaches to funding compost collection.

 

  • Signals that traditional investors are starting to pay attention are rising: Investors poured more than $10 billion in venture capital into agricultural technology (known as ‘ag tech’) solutions in 2021. They even invested $2 billion into food waste solutions last year as well. But $2 billion trails the capital needed to cut food waste in half in the U.S., which ReFED found to be a $14 billion annual need.

 

3) Opportunities to Invest Are Growing

Having invested in food waste solutions since 2016 through Closed Loop Ventures Group and ongoing strategies within growth equity and private equity, Closed Loop Partners and ReFED have recognized the need to bring additional catalytic capital into the space. The two organizations have joined forces in a long-term partnership to begin to close the funding gap and to connect innovators with large players in the food system for transformational, sustainable systems change. Our new Circular Food Solutions Platform aims to provide the necessary capital, connectivity, market insight and support for innovation, to accelerate a variety of emerging food waste reduction solutions and bolster infrastructure for recovery. Ultimately, the Platform aims to scale a more circular food system that reduces organic waste and its associated greenhouse gas emissions, minimizes the economic burden on municipalities of unnecessary landfilling and waste incineration, and contributes to hunger relief – all with the larger goal of a more sustainable, circular economy.

Our new Platform is an investment and innovation platform that aims to drive traditional capital into the sector through two catalytic vehicles: a catalytic investment strategy and catalytic grant strategy. The Platform will be jointly managed by Closed Loop Partners & ReFED, intending to: (a) provide patient, catalytic capital; (b) de-risk solutions through innovation support and research; and (c) bring critical stakeholders to the table to collaborate in a cross-supply chain, cross-sectoral manner toward shared sustainability goals. The proposed hybrid structure seeks to activate solutions across three categories: Prevention, Rescue and Recycling. The Platform’s proposed design includes philanthropic and catalytic, flexible investment capital – debt, equity and grants – with the intention of meeting organizations where they are in their development cycle and a purpose of accelerating the efforts of not just private start-ups, but also public sector entities, project operators and non-profit organizations.

Collaboration is Key to Solving the Problem

This initiative is unprecedented. Knowing that collaboration is key to solving this complex challenge, it brings together an industry-leading data provider on U.S. food waste and impact methodology to assess solutions, and an experienced circular economy-focused investment and innovation firm, with unparalleled collective industry knowledge, network, and investment experience. By working together, we can collectively have a much bigger impact on the system, in activating supply chains for sustainability.

Closed Loop Partners is already seeing many circular solutions in the food and organics space, seeking capital ranging from grants to early-stage equity funding to later-stage project finance debt. Since 2016, we’ve invested in 10 food waste mitigation or recycling companies ranging from solutions to sequester carbon in agricultural products, to cold chain storage, to industrial organic composting and anaerobic digestion.

With targeted funding of $100M – of which $80M would be allocated to an investment strategy, and the remaining $20M to grants for non-investment-grade (or non-profit) solutions – the new Circular Food Solutions Platform aims to contribute to the diversion of up to 10 million tons of food waste from landfill, which would result in 15M mtCO2e avoided, and save nearly 800 billion gallons of water. All while supporting innovators of all types to benefit from our nearly 10 years of work investing and partnering with large global retailers, consumer goods, technology companies and local municipalities to build more sustainable supply chains.

If you are interested in learning more about this important topic, please contact us here.

To Package or Not to Package? 3 Critical Steps to Advance Sustainable Food Packaging

By Kate Daly

May 06, 2021

Today, brands and manufacturers are faced with endless choices and tradeoffs when it comes to food packaging. Take the packaging options for cheese. From individual foil-wrapped wedges to a round of Camembert packaged in its own rind to plastic-wrapped singles, to resealable plastic bags of shredded cheese, the multitude of options reflect the broader trend of diversifying packaging designs. Yet, which is the most cost-efficient option? Which creates less waste? What supports the longest shelf life? In today’s food system, these questions are relevant to every packaged food item — and packaging design determines not just how much packaging waste results, but also plays a role in how much food waste is generated. 

From a packaging perspective, the more sustainable option is often assumed to be the option that looks the most natural, or organic — the one with less plastic, or less material overall. In many cases this is true, but the assessment of “sustainability” becomes more complex when the package’s contents are food — one of the biggest sources of greenhouse gas emissions when mismanaged and wasted.

In its recent U.S. Climate Summit, the Biden administration set the ambitious goal of reducing GHG emissions in the U.S. by 50 to 52 percent by 2030, compared to 2005 levels. It remains critical to keep the significant climate impact of the food system top of mind. The energy used to produce food and transport it to our plates is enormous. According to a United Nations study, one-third of global greenhouse gas emissions caused by human activity can be attributed to the way we produce, process and package food. And despite all the energy used to create this food, in the U.S. we throw away $43 million worth of it into landfills, where food waste emits greenhouse gases as it decomposes.

Since the earliest days of global food supply chains and industrial food manufacturing, food, food packaging and environmental impact have been intrinsically linked. At Closed Loop Partners, we invest in companies and business models that create innovative, waste-free solutions that prevent resource loss. When looking at the intersection of packaging and food, we believe that setting the course for a more sustainable path forward begins with three initial steps.

1. Consider the tradeoffs

Let’s revisit the cheese packaging options. The choices with bigger servings in their own rinds or in less packaging may seem more environmentally responsible overall, the rationale being the less packaging the better. And ideally the packaging used is widely recyclable or compostable. For households where all the cheese will be eaten within a certain time period, these options with little to no packaging might be the lowest waste option. But what if not all the cheese is eaten before it spoils? That’s food waste that could have been avoided if a smaller portion, albeit with a higher ratio of packaging to product, was chosen. Today, 31 percent of shoppers buy fresh produce in bulk to avoid unnecessary packaging. When aiming to reduce packaging waste, this is an effective tactic. But 53 percent of consumers have said that they waste more food when buying in bulk. According to the National Zero Waste Council, for many types of foods, “any GHG reductions achieved by not pre-packaging food are quickly outweighed by even a minor increase in food waste.”

57% of U.S. consumers want more resealable packages, and 50% want more variety in product sizes.

As eating and cooking habits change, more consumers today are looking for packaging that caters to storing food in their kitchens for longer, using small quantities at a time or buying smaller quantities at a time. Fifty-seven percent of U.S. consumers want more resealable packages, and 50 percent want more variety in product sizes. Particularly, they want to see baked goods, bagged salad, bread and meat available in smaller package sizes. How can we ensure that these preferences, which align with a reduction in food waste, can be met with more sustainable packaging options?

2. Invest in smarter packaging design

Innovation in packaging design can help reconcile the tradeoff between food waste and excess packaging. Smarter packaging works not only for the benefit of the food it contains, but also for the retailers and customers it serves. Emerging “active” and “intelligent” technologies help slow spoilage, giving information on food quality or safety, as well as enabling transparency across supply chains.

Where are we seeing progress? Closed Loop Partners invests in companies across the food and agriculture sector to strengthen every stage of the value chain — from farm to transport, retail, consumption, waste collection, food scrap and organics processing and back to the farm. We have invested in TradeLanes, a company that digitizes trade execution for container ships, increasing transparency in the global trade system to make the process faster, easier and more profitable. By better understanding where and when goods are in port versus in transit, we can ensure the right storage and create the optimal conditions for the transportation of food.

We’ve also invested in Mori, a company that has commercialized silk-based edible coatings that prevent food spoilage in transport and at retail and reduce the need for packaging. Its innovations — coatings applied directly to food, films to replace plastics — can be applied to whole or cut produce, prepared food, raw meat, seafood and processed foods. The edible coating is safe to eat, invisible, tasteless and virtually undetectable. Because it keeps food fresher for longer, less food goes to waste, which benefits the grower, farmer, shipper, processor, retailer, consumer and planet.

Improved package design and active and intelligent packaging also have a combined net annual financial benefit of $4.13 billion.

3. Collaborate to accelerate systemic change

To create system-wide change, stakeholders across the plastics and packaging and food and agriculture sectors and recovery systems need to be at the table together. We’ve seen the power of collaboration thanks to our work in the NextGen Consortium, launched by our Center for the Circular Economy to convene leading brands, industry experts and innovators to reimagine foodservice packaging and reduce waste. The Center’s new Compostable Packaging Consortium is deploying a similar pre-competitive, collaborative approach to identifying greater opportunities for the recovery of compostable packaging, in particular the role packaging can play in increasing food waste diversion from landfills.

In line with this work, we are partnering with the Sustainable Packaging Coalition (SPC) and its new initiative, Food Waste Repackaged. The initiative brings together experts and innovators to address the urgent challenge of food waste, exploring and advancing the role of packaging in addressing this waste in consumers’ homes, food service and retail and spurring new packaging innovations. Closed Loop Partners is proud to partner with SPC, together with GreenBiz, Packaging Europe, ReFED, RILA and Ubuntoo, on a Learning Series, Innovation Challenge and Mentorship Program to help tackle this problem.

When done thoughtfully and collaboratively, packaging reduction and design innovations present robust environmental, economic and social benefits. Preventing food waste is a top solution to climate change, and changes to packaging design could help prevent 650,000 tons of food waste a year in the U.S. Improved package design and active and intelligent packaging also have a combined net annual financial benefit of $4.13 billion. Catalyzing these solutions, and inviting dialogue across multiple stakeholders, brings us a step closer to building a more efficient, less wasteful food system.

 

Originally published in GreenBiz.