Sunday, May 24, 2015

The economics of food waste

Source: Dunbar
France is developing a policy to force grocery stores to donate unused edible food to charity instead of destroying it. Aside from the inevitable implementation difficulties, I'm extremely curious to see how this plays out. Presumably French policymakers have two goals: help the poor with more free food at charities, and reduce food waste by increasing the costs of unused food disposal. These are admirable goals, but depending on how supermarkets choose to reduce their waste, some negative unintended consequences could occur.

Grocers could raise prices, shifting the increased cost of waste onto consumers. This would probably hurt those that French policymakers are trying to help--poor people. Consumers with inelastic food preferences would be outright poorer, while those with more flexible purchasing habits would switch to non-perishable processed foods unaffected by the new policy.

On the intensive margin of supply, grocers wishing to optimize their inventory of perishable foods might carry less in stock, reducing consumer choice, diversity of products, and the ability to respond quickly to changes in demand. Additionally, less experimentation with new products might occur. On the extensive margin, some set of small grocers or bodegas might exit the perishable foods market altogether, adjusting their mix of products to minimize the new costs of food waste disposal.

A dumpster-diving
community dinner in NYC
In many ways the problem of food waste is a glorious one. It indicates prosperity and the existence of cheap, accessible food--crucial in maintaining the surpluses that enable modern civilization. The cheaper the food, the less costly food waste becomes. By and large, cheap food is the necessary by-product of an impressive technological production system. This implies that there exists some optimal quantity of food waste, below which efforts to reduce further waste are inefficient and socially harmful (i.e. reducing food waste down to zero would be infinitely costly).

However, to the extent that food is artificially cheap relative to its true cost (accounting for externalities like environmental harms), the market will oversupply food waste, and policies targeted at reducing it can be efficient.

My chosen policy remedy (at least in the developed world) differs from France's strategy. Legalize dumpster diving! From the perspective of a grocer, food that's tossed out has a marginal benefit lower than it's marginal cost. Because of the branding concerns of suppliers, long-run calculations about consumer price/quality expectations, and government health regulations, grocers are unwilling to reduce their prices for damaged, defective or almost-rotten food below some minimal threshold. But just because the grocer won't sell these products doesn't mean they don't have value! The legal restrictions on dumpster diving and distributing expired foods artificially chops-off the bottom section of the market that's willing to capture this value. I say let it!

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