The negative externalities that arise from food waste justify government intervention to correct this market failure. Negative externalities occur when external costs of an economic transaction are not reflected in the price (Stiglitz & Rosengard, 2015). An oversupply of food leads to the inefficient use of scarce natural resources, the release of carbon dioxide as food decomposes in landfill, forgone savings and ethical concerns when food could have been diverted (Reynolds et al., 2014). The Australian Government (2017) estimated that food waste costs Australia $20 billion annually and Reynolds et al. (2014) hypothesized that Australia’s avoidable food waste could feed 921,000 people annually. Even if the wasted food was incinerated to avoid greenhouses gas release in landfill, the resources that went into the food’s production are wasted. This result is Pareto-inefficient as parties unrelated to the transaction bear the environmental costs of wastage, making them worse off. Excessive food production causes an inefficient allocation of resources because the marginal social cost is higher than the marginal private cost of food production. As the price of food does not adequately represent the true social cost, government intervention is required to remedy this market failure (Kehlbacher, Tiffin, Briggs, Berners-Lee & Scarborough, 2016).
Cause of Production Food Waste: Overstocking
A well-documented trend across developed countries is that consumer attitudes and behaviors are the largest direct and indirect cause of food inefficiency, causing 40% of food wastage in high-income countries (Rutten, 2013). The Australian Government (2019) has reported that this trend extends to Australia, with 62% of food waste being generated by households and the remaining 32% being produced by the commercial sector (RMIT, 2013). Retailers suffer when shelves are not fully stocking or unaesthetic food is sold, as this decreases consumer demand and therefore profit (Thyberg & Tonjes, 2016). Therefore, large amounts of food waste occur due to retailers overstocking stores in order to meet consumer preference for a diversity of products.
Reducing Production Waste Through Regulation
Regulatory approaches by abandoning VAT liability have been implemented in various countries such as France, Italy and Germany, in an attempt to increase food donation and hence decrease the amount of food wasted. However, tax exemptions have been found to increase waste when compared to VAT donation imposing countries, such as Australia (Chalak, Abou-Daher & Abiad, 2018). This is because regulations fail to target the underlying factors causing wasteful behavior and instead incentivize the creation of food wastage (Facchini, Iacovidou, Gronow & Voulvoulis, 2018). Rutten (2013) explains that the type of government intervention required depends critically on the factors that cause them and therefore, the drivers of food wastage should underpin policy recommendations. As legal initiatives have been found to be counterproductive, fiscal measures should instead be used to reduce food wastage for producers.
Solution: Reducing Production Waste Through Taxation
Food waste literature states that governments should instead use taxation as a tool to correct the negative externalities by ensuring food prices reflect their environmental costs (Schanes, Dobernig & Gozet, 2018). The introduction of a food waste disposal tax equal to the economic cost of the externality will force retailers to internalize the externality and increase the price. Taxation of food waste causes the costs to exceed the benefits, effectively decreasing wastage whilst raising revenues for other initiatives. As food prices are relatively inelastic, with elasticities ranging from 0.27 to 0.81, the consumer is expected to bear the burden of the tax. By targeting the cause of producer food waste, it is expected that this will effectively alter producer, and in effect consumer behavior (Andreyeva, Long & Brownell, 2010). Evans (2014) suggests that decreasing low-price package bundling of perishable food would also allow consumers to select the exact amount of food required to limit over-purchasing. However, studies regarding tax implementation in United Kingdom have shown that whilst fiscal measures have resulted in a significant decrease food wastage at the retailer level, the opposite effect occurred at the consumer level (Kehlbacher et al., 2016). Promotions such as buy-one get-one incentivize consumers to over-purchase, transferring the waste from the retailer to the consumer (Calvo-Porral, Medín & Losada-López, 2016). Therefore, whilst taxation has been found to be more effective at reducing producer waste behavior, another policy is required to target consumer waste prevention.
Cause of Household Food Waste: Information Failure
Food waste at the consumer level is mainly caused by a lack of knowledge regarding the negative externalities. For example, 66% of consumers thought switching off lights had a greater impact that reducing food waste (Linder, Lindahl & Borgstrom, 2018). Thyberg & Tonjes (2016) suggest that globalization and diet changes have caused consumers to become disconnected from food production, which has led to higher household food waste. This is extenuated due to Australia’s weak food culture which emphasizes abundance and quantity over moderation and quality. Further, consumer aesthetic preferences cause an estimated 30% of crops to be left in the field because of their failure to meet appearance standards (Aschemann-Witzel, De Hooge & Normann, 2016). Environmental concerns have been found to be relatively weak motivations to reduce wasteful behavior with motivations of guilt and shame instead being found to be crucial (Jagau & Vyrastekova, 2017). Due to wasteful consumer preferences and weak reduction motivations, effective policies should aim to educate consumers on the environmental effect of food waste by using social motivations.
Reducing Household Waste Through Information Campaigns
Information based campaigns are often cited as the most effective way to encourage behavioral changes, with one study suggesting that awareness movements reduce food waste by 21.3% on average (Chalak, Abou-Daher & Abiad, 2018). The United Kingdom’s ‘Love Food, Hate Waste’ initiative superficially supports this statement, where increased consumer awareness through nationwide education resulted in a reported 21% decrease in food waste over a 5-year period (Yamakawa, Williams, Shaw & Watanabe, 2017). However, high-cost campaigns assume consumer rationality and that the reduction is caused by the response of unbiased consumers with perfect cognitive abilities and willpower to the negative externality information (Linder, Lindahl & Borgstrom, 2018). However, this assumption contradicts the weak environmental based motivations discussed above meaning the campaign’s success was more likely to be due to societal pressures. Whilst information policies are effective, the effects of psychological biases, such as the gap between reduction attitudes and actual reduction behavior, require policy makers to consider social approaches to alter behaviors rather than rational individual methods.
Reducing Household Waste Through Taxation
Behavioral interventions are often used to complement or improve the effectiveness of fiscal administration (Linder, Lindahl & Borgstrom, 2018). However, for the Australian household situation, where waste is difficult to monitor and enforce, it is the main strategy to reduce food waste. Reynolds et al. (2014) found that Australian households informally dispose of 2.6kg of food waste per week, meaning 20% of household waste is unreported and invisible to policy makers. This data is supported by a study on households in the United Kingdom, who informally disposed of 30-36% of food waste (Reynolds et al., 2014). Fiscal measures such as household disposal taxes in the UK were also found to disproportionately target low socio-economic households (Kehlbacher et al., 2016). Kehlbacher et al. (2016) further found that taxes caused unintended health consequences when families switched from nutritional high-waste products to low-waste products to avoid the tax. Therefore, a disposal taxes will not adequately or equitably encapsulate food waste in Australian households, further arguing why behavioral economic approaches are required at the household level.
Solution: Reducing Household Waste Through Behavioral Nudges
Behavioral nudges such as choice architecture can be used to reduce food waste by manipulating consumer behavior (Segrè, Falasconi, Politano & Vittuari, 2014). This strategy recognizes that consumers have imperfect willpower and bounded self-interest which deviates from the neoclassical assumptions of consumer rationality and effectively uses the underlying factors to solve the problem. By targeting consumer motivations, descriptive strategies such as publishing the waste behaviors of neighboring households and societal averages effectively decrease food wastage by activating social norms (Wansink, 2018). Signals of insufficient efforts effectively invoke guilt and have been found to be more effective at invoking awareness than normative messages of money saving and environmental protection (Linder, Lindahl & Borgstrom, 2018). Policy makers should therefore take into account how low-cost nudges can effectively achieve food waste reduction by framing consumer motivations.
Earlier food waste studies hypothesized that the misuse of descriptive norms would generate unintended backlash effects, increasing the food waste behavior that the intervention aimed to prevent (Cialdini, 2003). However, support for this strategy is found in that food waste nudging interventions have already effectively reduced restaurant food wastage. A behavioral nudge of a 1cm reduction in plate size reduced consumer food waste by 19.5% in restaurants (Kallbekken & Saelen, 2013). Supporting this, a cross country analysis of 44 countries found that regulatory frameworks and fiscal incentives have limited value in reducing food waste at the household level (Chalak, Abou-Daher & Abiad, 2018). Therefore, behavioral nudges are recommended rather than taxation and information campaigns as a low-cost effective policy to alter consumer behavior.
Cause of Food Waste: Information Asymmetry
The last market failure to be discussed arises due to information asymmetries, which create an imbalance of power between producers and consumers. Only 37% of consumers understand the difference between ‘use-by’ which explains food safety and ‘best-before’ which explains food quality (Parker, 2018). The best-before label intends to notify consumers of the product’s optimal flavor period but has instead caused ill-informed consumers to throw out edible food. Despite the Australian Food Standards Code only requiring best-before labels to be placed on food products that will expire within two years, retailers often chose to add these labels on products with longer shelf lives, leading to increased profits from further confusion and waste (RMIT, 2013). Consumers are not motivated to screen the food, often using the label as a cognitive rule of thumb due to perceived health risks of consuming expired food and a lack of expertise (RMIT, 2013). Due to an imbalance in information between producers and consumers, the market is inefficient and government intervention is justified to decrease food waste.
Solution: Reducing Waste Through Labelling Regulation
Labelling improvements therefore represent a significant opportunity for food waste reduction. The Centre for Design and Sustainability at RMIT University (2013) suggests that the Australian government can reduce best-before date labels by regulating against safe foods being labelled. The effects would be similar to the UK’s biggest supermarket chain successfully removing best-before dates in May 2018 which resulted in 53% of shoppers reporting that they kept the food for longer (BBC News, 2018). Calvo-Porral, Medín and Losada-López (2016) also report that other retailers in the UK have replaced these stickers with ‘best-kept’ stickers, nudging consumers to store food in the way that increases preservation. Perceived consumer control and shifting informational power back to the consumer has been found to be more important than minimal food waste intentions (Schanes, Dobernig & Gozet, 2018). Therefore, similar to the behavioral nudges’ discussion, labelling regulation is expected to effectively reduce, if not remove information asymmetries between consumers and retailers in relation to packaging waste and is therefore recommended to correct this market failure.
Waste prevention and achievement of SDG 12.3 requires changes in behavior for the collective and the individual. During this essay, taxation at the producer level was recommended to encapsulate the cost of negative externalities. Behavioral nudges were found to be the most cost and impact effective policy to increase consumer awareness, when compared to information campaigns and household taxation. Thirdly, labelling regulation was recommended as the solution for asymmetric information. Due to the issue’s complexity and the related socio-economic impacts, the underlying reasons for food waste were investigated and accordingly, a mix of policy measures were recommended for waste prevention to be achieved.