Methods to Reduce the Effect of Unsalable Items within the Food Supply Chain

Introduction Between 30-50% of all food grown worldwide is wasted (Food Waste Reduction Alliance, 2014 & Davis, 2014). In the American retail industry this food waste equates to a $47 billion loss annually (Buzby & Hyman, 2012), the majority of which stems from unsalable perishable items. Perishables become unsalable for a variety of reasons, to include, but not limited to, expired sell by dates, packaging breaches (damaged can, boxes, etc.), improper handing, storage, or preparation, seasonal sale items, and poor appearance of fresh fruits and vegetables. The retail industry could achieve a significant reduction in food waste losses by placing greater emphasis on eliminating unsalable food items, as well as realize a financial savings by donating consumption safe unsalable foods to charitable organizations and diverting the remaining food waste to the animal feed industry.

Studies have been conducted on the reduction of unsalable items. The Unsaleables (sic) Leadership Task Force (2005) published a report giving recommendations on how the retail and wholesale industries should work together to mitigate goods becoming unsalable. In 2014, the Food Waste Reduction Alliance conducted a survey and wrote a report specifically focused on the elimination of food waste in the wholesale, retail, and restaurant industries. This report also discussed food waste diversion into both donation and recycling (animal feed, composting, etc.).

Additionally, there have been studies on the application of food donation programs by corporations. Food Recovery Through Donations (Davis, 2014) compares two grocers’ programs side-by-side and provides insight into the reasons why their employees choose whether or not to donate items deemed unsalable rather than throw them away. Other studies reviewed provide positive aspects of tax law and anti-liability bills that have been passed in efforts to persuade retailers and wholesalers to donate to charitable organizations.

The U.S. Environmental Protection Agency (EPA) has challenged businesses to “reduce the environmental impact of materials through their entire life cycle, including how they are extracted, manufactured, distributed, used, reused, recycled, and disposed” (U.S. Environmental Protection Agency, 2015). The EPA has published articles recognizing various organizations and corporations for their efforts to reduce food waste by diverting such items to the animal feed industry.

There have been few studies surmising the combined effect of all three proposed solutions to the unsalable food waste issue. There are reports focused on food waste diversion, which includes donations, recycling, composting, and use as animal feed; however, such reports do not also include information or tactics on how to prevent food items from becoming unsalable in the first place. Conversely, the studies that have been conducted on the reduction of unsalable items do not go much further beyond methods for mitigating causes. There has been little focus from the wholesaler-retailer relationship perspective on how food waste diversion can benefit the industry as a whole.

The lack of condensed informational studies in this area makes it more difficult for industry professionals to determine a clear way ahead for unsalable food items. Researchers must pour through multiple studies to come to conclusions that might be simplified if they were located in a consolidated source.

Purpose and Significance of the Study This study attempted to put into perspective the necessity for retailers and wholesalers to work together to eliminate unsalable food items. Specific scenarios were reviewed to provide insight into how corporations can effectively alter their business practices to make this a reality. This study also examines the positive outcomes that result from donating would-be food waste to charitable organizations. Not only do corporations realize societal rewards from aiding those in need, there can be significant tax benefits through deductions. Finally, this study provides examples of organizations saving money by diverting food waste from traditional garbage movement and landfills into the animal feed industry. Overall, this study provides methods wholesalers and retailers can use to not only mitigate unsalable food items, but to recognize fiscal savings through food donations and diversions.

Understanding why food items become unsalable aids retailers and wholesalers in finding solutions to better control the amount of perishable items that become unsalable. Furthermore, retailers should seek out and develop innovative methods for diverting or disposing of food waste. Such diversions can mitigate the financial loss that comes from unsalable food items.

Problem As of 2012, the retail industry, including restaurants, grocers, hotels, nursing homes, etc., lost $47 billion annually in food waste (Buzby & Hyman, 2012). Though there had been an increase in efforts to reduce the amount of food wasted, at the time of the study there were still a significant number of companies who did no employ effective food waste management techniques.

Hypothesis and Questions Through collaborative efforts between wholesalers and retailers businesses can identify the root cause of unsalable items. Pinpointing these causes can lead to preventive measures that can reduce the amount of unsalable foods by 30%. Additionally, retailers could recoup food waste losses through corporate tax breaks by donating unsalable items to charitable organizations. Finally, redirecting foods that are unsafe for human consumption into the animal feed industry will reduce costs associated with waste haulage fees.

Research Method A quantitative approach was used for research on this topic. After reviewing literature on unsalable food items and food waste diversion, variables were found for these topics within the food supply chain. Inferential questions were then developed to hypothesize how these variables relate to each other. These questions predict how one variable (wholesalers and retailers) interacts with another variable (donation, diversion, or mitigation) and how those interactions affect the outcome of specific actions.

Literature Review There are numerous variables that must be taken into consideration when discussing potential control measures of unsalable items within the food supply chain. The literature reviewed for this paper covers some of those variables, from broad overarching necessity of controlling and improving unsalable business practices, to specific examples of how actively pursuing change can mitigate the effect of unsalable food items on reverse logistics management. In her 2014 study, Food Recovery Through Donations as a Response to Food Waste, Davis defines food waste as “any food that gets produced for human consumption but goes uneaten” (p. 3). This is a qualitative study in which the researcher polled numerous volunteers at two grocery stores. The questions asked pertained to both the individual’s inclination for food donation as well as the company policies. Davis identifies quality control, full-shelf standards, unregulated sell-by dates, specialty and unpopular items, and prepared foods as causes of unsalable foods in the retail industry.

From a broad perspective, the Unsalables (sic) Leadership Task Force (2005) gave recommendations on actions suppliers and retailers should take to control unsalable items within the logistics chain. The Unsalables (sic) Leadership Task Force was formed from the Joint Industry Unsalables (sic) Steering Committee to reform recommendations from a 1990 report and to update such recommendations to make them pertinent to current industry concerns. The members of the task force consisted of representatives from Food Marketing Institute, Grocery Manufacturers Association, and an outside consultant with subject matter expertise. They arrived at their conclusions through a collaborative process, and final determinations were made based off of overall consensus rather than full agreement of all entities involved.

The team members discussed concerns in regards to reduction of unsalable items within the supply chain, and on the reclamation of such items from retailers and wholesalers. The task force recognized there are conflicting beliefs and agendas when it comes unsalable items, and there is a disagreement on who bears the burden of cost recovery in the reclamation process. To combat such disagreements, it was recommended that suppliers and sellers work together to root out the cause of unsalable items and set standards for the reimbursement process.

In 2011, Garry published an article in SN: Supermarket News titled “Unsaleables (sic) Reduction.” This article focuses on the efforts of Kellogg to collaborate with their business partners based on the 2005 recommendations of the Unsalables (sic) Leadership Task Force discussed previously. Kellogg conducted 84 customer satisfaction audits annually, each consisting of a weeklong period, once per month, over a six-month timeframe. Through this collaborative process, Kellogg was able to reduce damaged products by 30% over the six year period between their implementation of the recommendations released by the Unsalables (sic) Leadership Task Force in 2005 and the publishing of Garry’s 2011 article. More specifically, using this process Kellogg and Harris Teeter’s combined efforts resulted in a 29% reduction in Harris Teeter’s unsalable food items, bringing them below the industry’s 2011 average (Garry, 2011).

Angerhofer and Angelides (2006) describe the benefits of collaboration. The authors provide a model in which shared responsibility of four supply chain processes (plan, source, make, and deliver) is assumed by the wholesaler and retailer. Furthermore, the authors discuss the needs and impacts of collaboration at the strategic, managerial, and operational levels.

Examining what becomes of unsalable food items is critical to understanding the importance of properly managing the food supply chain. The Analysis of U.S. Food Waste Among Food Manufacturers, Retailers, and Restaurants report (Food Waste Reduction Alliance, 2014), is a collaborative effort of the Food Marketing Institute, Grocery Manufacturers Association, and National Restaurant Association to analyze survey data on food waste donation, reuse and recycling, and disposal by respondents in the food manufacturing, wholesale, retail, and restaurant sectors. Contrary to previously discussed literature, this report focuses on food waste overall, rather than any specific aspect of the food supply chain. The data was collected through a survey sent to manufacturers, wholesalers, retailers, and restaurants, and the results were analyzed, interpreted, and published by The Business of a Better World (Food Waste Reduction Alliance, 2014).

The Food Waste Reduction Alliance (2014) found that 30% of all food grown is wasted, and recommends finding alternate diversions of unsalable foods such as donations or reuse as animal feed. More specifically, the 2014 survey found that 57% of unsalable food within the retail and wholesale chain is sent to landfills, leaving 42.4% for recycling or donation (Food Waste Reduction Alliance, 2014). This report also identifies barriers to donating or recycling, such as transportation and regulatory constraints, as well as liability concerns.

Aiello, Enea, and Muriana (2014) published an article titled Economic benefits from food recovery at the retail stage: An application to Italian food chains. The authors cited various research studies that determined Italian food manufacturers and wholesalers send 35% of food waste to non-profit organizations, but only 4.6% of food loss in the retail industry is diverted to charities (Aiello, Enea, & Muriana, 2014). In defining the cost/benefit of food loss recovery, this article compares and contrasts the variances of government regulation in regards to food donation between USA, UK, and Australia. The authors then propose a mathematical model to show a minimization of losses (both financial and product) can be achieved by careful management of each step of the supply chain, as well as donations to charitable organizations. Further information on monetary benefits from the donation of unsalable food is given in Charitable Contributions of Food Inventory: Proposal for Change (Jackson, 2008). In this report to Congress, Jackson specifies the amount a company may claim in tax deductions due to food donations.

Finally, the U.S. Environmental Protection Agency published two documents in 2006 and 2009 describing specific incidents of organizations diverting their food waste for use as animal feed.

img4

Findings In 2012, retail food loss totaled $47 billion annually (Buzby & Hyman, 2012). Through thoughtful collaboration, wholesalers and retailers can mitigate the amount of foods that become unsalable. Collaboration takes many different forms, including strategic alliances, joint ventures, third party logistics, short- and long-term contracts, partnership sourcing, and retailer–supplier partnerships (Angerhofer & Angelides, 2006). This collaboration includes efforts at the strategic, managerial, and operational levels. Enhanced collaboration will allow companies to better forecast their needs and provide for improved communication between organizations.

One example of a successful collaborative effort is the joint Kellogg-Harris Teeter venture, as described in Garry’s “Unsaleables (sic) Reduction” (2011). These corporations teamed together to identify causes of unsalable food items within the supply chain. Using the Unsalables (sic) Leadership Task Force’s (2005) recommendations, Harris Teeter and Kellogg developed a shared responsibility program for out-of-date products that gave each side incentive to focus on and improve their stock management processes (Garry, 2011). Additionally, Kellogg collaborated with each process owner within the supply chain to determine the cause of packaging breaches. If problems were found at any step of the process, changes were made at that location to eliminate further damages (Garry, 2011). The collaborative efforts between these two companies allowed for Kellogg to reduce their amount of damaged product by 30% over the six-year period between their implementation of the recommendations and when the study was concluded (Garry, 2011). Furthermore, Harris Teeter saw a 29% reduction in unsalable food items, bringing them below the 2011 industry standard (Garry, 2011).

While collaboration between companies will result in less unsalable food items, it is not realistic to expect to completely eliminate food waste. When items do become unsalable, there are two methods a company can use to divert food from landfills as well as save corporate money through tax deductions and reduced waste hauling fees. One diversion method is to donate food to charitable organizations, and the second method is to make those items available for animal feed.

Many items that are deemed unsalable are still safe for human consumption. Prior to 1990 each state had its own laws governing food donation (Morenoff, 2002). Some retailers were reluctant to donate their unsalable foods due to the confusing laws that varied from state to state (Morenoff, 2002). To provide a level of continuity throughout the nation Congress first passed the Model Good Samaritan Food Donation Act of 1990, which was then revised into the Emerson Good Samaritan Food Donation Act of 1996 (Morenoff, 2002). This bill states “A person or gleaner shall not be subject to civil or criminal liability arising from the nature, age, packaging, or condition of apparently whole- some food or an apparently fit grocery product that the person or gleaner donates in good faith to a nonprofit organization for ultimate distribution to needy individuals” (Emerson Good Samaritan Food Donation Act, 1996, p. 1).

Not only do such donations divert food from landfills into the mouths of needy individuals, they also provide a means for corporate tax deductions. According to Charitable Contributions (Jackson, 2008), retailers can receive a tax deduction in the amount of cost plus one half the difference between cost and fair market value of the item. The total deduction is limited to 10% of the corporation’s taxable income, but any amount in excess of 10% can be carried forward to future tax claims for up to five years (Jackson, 2008).

Finally, retailers can divert food waste for use as animal feed. In 2009 Rutgers University had the nation’s third largest student dining operation, and had made significant efforts in food diversion (U.S. Environmental Protection Agency, 2009). Their program to divert food waste to farm animals was recognized by the U.S. Environmental Protection Agency in 2009. At the time of the report, Rutgers’ four dining facilities had collected 1.125 tons of food waste each day, which was hauled away by a local pig farm for a cost of $30 per ton (U.S. Environmental Protection Agency, 2009). This was a significant savings from the $60 per ton charged by their primary waste hauler (U.S. Environmental Protection Agency, 2009). Through this program, Rutgers University saved $100K in trash hauling costs in 2007 (U.S. Environmental Protection Agency, 2009).

Another instance of food waste diversion to animal feed was recognized by the U.S. Environmental Protection Agency in 2006. At the time they were recognized, Barthold Recycling and Roll-off Services collected food waste from companies across the retail industry at a cost 30% below trash hauling standards (U.S. Environmental Protection Agency, 2006). To facilitate participation, Barthold provided customers with education on food waste diversion and provided containers with gasket seals to eliminate concerns of odor and seepage (U.S. Environmental Protection Agency, 2006). Barthold collected 1,000 tons of food scraps every month for diversion to animal feed (U.S. Environmental Protection Agency, 2006).

Recommendations Retailers should work with other entities in their supply chain to mitigate the amount of food that becomes unsalable. Short of eliminating all unsalable food items from their businesses, companies should implement programs to encourage the donation of would be food waste to charitable organizations. In instances where this is not possible, retailers should coordinate with a local farm or haulage firm to divert food waste into the animal feed industry.

Conclusions Three hypotheses were developed at the start of this research project. First, it was proposed that wholesalers and retailers could collaborate to reduce unsalable food items by 30%. One article, “Unsaleables (sic) Reduction” (Garry, 2011), was found to support this hypothesis. Through collaboration with their retail partners, Kellogg was able to reduce their damaged goods by 30% (Garry, 2011). Furthermore, the same article showed Harris-Teeter was able to reduce their unsalable goods by 29% (Garry, 2011). In the end, however, sufficient data was not found to support the prediction of a 30% reduction in unsalable foods through collaborative efforts.

The second hypothesis was that retailers could recoup food waste losses through tax breaks by donating unsalable foods to charities. As of Jackson’s 2008 report, businesses could claim a tax deduction in the amount of cost plus one half the difference between cost and fair market value of the item. This deduction could be as high as 10% of the corporation’s taxable income, with any portion in excess of 10% able to be carried forward for up to five tax years (Jackson, 2008). This could amount to a significant tax savings for retailers.

Finally, it was proposed that redirecting foods deemed unsafe for human consumption into the animal feed industry could reduce costs associated with waste haulage fees. Two reports from the Environmental Protection Agency, published in 2006 and 2009, identified specific instances of waste haulage savings. In 2006, Barthold Recycling and Roll-off Services offered waste removal services for diversion to animal feed at a 30% lower rate than traditional trash haulers (U.S. Environmental Protection Agency, 2006). Furthermore, in 2007 Rutgers University teamed with a local pig farm to divert food waste to animal feed, saving $100K in trash hauling costs (U.S. Environmental Protection Agency, 2009). Employing strategies such as these could greatly reduce the long-term cost associated with waste disposal.

Future Research Further research should be conducted on the collaboration between wholesalers and retailers to reduce unsalable food items. There is sufficient data to suggest improvements could be realized in this area, but formal studies should be conducted to truly evaluate the outcomes. Additionally, more research should be conducted on diverting food waste for use as animal feed. This research should be regionally focused, as each area might have different animal feed needs based on an agricultural-urban ratio as well as varying degrees of legislation covering the subject. This research should also focus on whether unsalable food items could be sold to farms rather than paying haulers to take the waste to farms.

References Aiello, G., Enea, M., & Muriana, C. (2014). Economic benefits from food recovery at the retail stage: An application to Italian food chains. Waste Management, 34, 1306-1316. Angerhofer, B. J., & Angelides, M. C. (2006). A model and a performance measurement system for collaborative supply chains. Decision Support Systems, 42, 283-301. Buzby, J. C., & Hyman, J. (2012). Total and per capita value of food loss in the United States. Food Policy, 37, 561-570. Davis, C. E. (2014). Food Recovery through Donations as a Response to Food Waste: A Case Study of Two Grocery Stores Participating in a Food Recovery Program in Boulder. Undergraduate Honors Theses. Emerson Good Samaritan Food Donation Act. (1996, Oct 1). Public Law 104-210, 104th Congress. Feed Animals. (2013, Jan 8). Retrieved Mar 28, 2015, from Wastes - Resource Conservation – Food Waste: http://www.epa.gov/foodrecovery/fd-animals.htm Food Waste Reduction Alliance. (2014). Analysis of U.S. Food Waste Among Food Manufacturers, Retailers, and Restaurants. The Business of a Better World. Garry, M. (2011). Unsaleables (sic) Reduction. SN: Supermarket News, 59 (41), pp. 44-45. Ioannidis, S., Jouini, O., Economopoulos, A. A., & Kouikoglou, V. S. (2013). Control policies for single-stage production systems with perishable inventory and customer impatience. Annals of Operations Research, 209, 115-138. Jackson, P. J. (2008). Charitable Contributions of Food Inventory: Proposals for Change. Congressional Research Service. Morenoff, D. L. (2002). Lost Food and Liability: The Good Samaritan Food Donation Law Story. The Food and Drug Law Institute Food and Drug Law Journal. U.S. Environmental Protection Agency. (2009, Oct). Feeding Animals— The Business Solution to Food Scraps. U.S. Environmental Protection Agency. U.S. Environmental Protection Agency. (2006, Oct). Food Scraps Go to the Animals: Barthold Recycling and Roll-off Services. U.S. Environmental Protection Agency. U.S. Food and Drug Administration. (2014). The Reportable Food Registry: Targeting Inspection Resources and Identifying Patterns of Adulteration. Unsaleables (sic) Leadership Task Force. (2005). Improving Unsaleables (sic) Management Business Practices — Joint Industry Recommendations. Joint Industry Unsaleables (sic) Steering Committee.

---

Jessica Mallett