The Billion Dollar Food Waste Market Investors Are Missing

A collaboration between AgFunder and ReFed, this article aims to highlight some of the technologies working towards reducing food waste globally that are not always associated with the problem.

ReFed is a multi-stakeholder coalition of over 30 business, government, and nonprofit leaders committed to reducing food waste. In March 2016, it released A Roadmap to Reduce US Food Waste by 20%: the first ever national, data-driven economic study by a multi-stakeholder group to outline solutions to food waste.

The authors of this report are Sarah Vared, interim director of ReFED and a principal at impact investment fund MissionPoint Partners, Nate Clark, program manager at ReFed, and Louisa Burwood-Taylor, editor of AgFunderNews.

Food waste is finally getting the attention it deserves. Over the past year, nearly every major news publication has highlighted that roughly a third of all food is wasted at a cost of over $200 billion a year to society. Businesses, government, and innovators alike are taking notice.

According to ReFED, some $18 billion in investment is needed over the next 10 years to reduce food waste by 20%, and about $800 million of this is projected to come in the form of private early stage and growth equity funding.

But waste technologies are still considered a niche market by most investors. According to online investment platform AgFunder‘s Agtech Investing Report, only $93 million was raised by 20 unique “waste tech” startups in 2015, less than 2% of the total investment going into the agtech sector. AgFunder’s definition of “waste tech” includes products made out of food waste, wastewater treatment for agriculture, and agriculture or food waste mitigation technologies.

In the first half of 2016, AgFunder notes that $29 million has been invested. Two examples of startups that raised funding in early 2016 are Winnow Solutions and Sanergy, which raised $3.3 million and $1.7 million respectively. Winnow is a UK-based startup that’s helping restaurants to measure the food waste that occurs on customers’ plates and in the kitchen. Sanergy is a Kenyan business that’s converting waste from urban slums into byproducts like fertilizer and animal feed.

It’s not yet clear why waste technologies are still a small portion of the growing agtech investment universe considering the global attention the problem of food waste is receiving. The increasing number of startup innovators showing up to food waste conferences and competitions shows that something is missing.

There’s definitely an infrastructural element to many of the technologies innovating in this space, as they may need to collect waste, change existing processes around how it’s disposed of, or involve the construction of a large facility to process it. All of the above might be better suited to project finance or even straight loans instead of venture capital that expects high returns in a limited time frame.

Another answer may be that the definition of waste tech is too narrow including, mainly, investments toward solutions for handling waste, and missing technologies that prevent waste in the first place.

To explore this notion, ReFED turned to its innovator database, a living compilation of over 340 for-profit and nonprofit organizations that are tackling this issue. ReFED utilizes the data to highlight trends, growth areas, and gaps in food waste innovation. The accompanying infographic highlights some insights from the database.

An analysis of this database shows that the food waste investment and innovation sector is much larger than previously estimated. When comparing the organizations we’re tracking with the AgFunder list, it’s clear that there are opportunities to expand the definition of waste tech to include companies and innovators who are working hard to keep food as food, avoiding the need for disposal altogether. These companies bring a whole new meaning to the term ‘waste tech.’

Beyond the traditional sectors of waste processing and supply chain efficiency, ReFED has identified 12 additional categories of innovation. Four of these categories are particularly ripe for additional innovation and investment: products that extend shelf life, secondary online marketplaces, upcycling edible food scraps, and value-added recycling.

Shelf-life extension technology

There are innovations for food producers, distributors, and consumers that increase the shelf life of perishable foods, or keep food from spoiling. Apeel Science’s Edipeel is a post-harvest solution for farmers that creates an edible surface layer on produce to reduce oxidation and water loss, extending average shelf life by two to five times.

Fresh protein distributors now have access to BluWrap, which combines fuel cells and built-in sensors to actively reduce and monitor oxygen levels, as well as maintain temperature, in refrigerated shipping containers. The technology has exhibited the ability to enable up-to 40 days of shelf life extension for fresh fish and meats.

The consumer goods market has a number of products that either prevent or remove ethylene, a naturally-occurring hydrocarbon that triggers fruits to ripen. For example, Bluapple is a tiny device that can be kept in a home refrigerator, which absorbs ethylene to extend the time period fruit remains fresh and edible.

Other solutions that decrease the amount of food we throw out, such as packaging adjustments to reduce food left in the container or technologies that make home composting more attractive, also offer opportunities for innovation and investment.

Secondary online marketplaces

Next are the bright minds in business that are creating secondary marketplaces for surplus food. The ReFED Roadmap report states that 10 million tons of produce go unsold each year on farms, mainly due to cosmetic imperfections. To salvage this perfectly edible food and generate additional revenue for farmers, companies like Cerplus, Souper Seconds, and Full Harvest have created online marketplaces to sell this excess to food businesses. Taking a slightly different approach, Imperfect Produce and Hungry Harvest utilize the CSA, or “community supported agriculture”, business model to connect consumers directly with surplus or cosmetically-challenged produce delivered right to the front door.

Full-service restaurants are another major generator of food waste, estimated at about 7 million tons per year. Real-time applications like Gebni, Food for All, and Too Good To Go notify users of discounts and deals on surplus food that restaurants must either sell or trash, creating a win-win for both the eater and the seller.

Solutions that leverage analytics to increase the efficiency of food collection — whether collecting food for people or food for soils and energy (composting and anaerobic digestion) — are another area where creative thinking and capital are needed.

Upcycling edible food scraps and value-added recycling

Finally, there are the entrepreneurs that are using various methods to transform what might be considered food “waste” into value-added products. Two companies stepping up to the challenge include Misfit Juicery that creates juices from 70-80% recovered fruits and vegetables, and SecondsFirst, which utilizes surplus produce and “under-appreciated” fish to make healthy protein-based meals.

There are also entrepreneurs that are taking the discarded, yet edible, byproducts of different manufacturing processes and creating entirely new food products. Take CoffeeFlour, a company that takes the unused coffee cherries leftover after coffee beans are harvested, and converts them into highly nutritious flour. Even when food scraps are finally destined for the wastebasket, innovators are developing solutions to process the material into new products ranging from plant fertilizer (Re-Nuble) to biodegradable plastic (Full Cycle Bioplastics).

Beyond these four new categories, there are new emerging sectors with massive potential under the food waste umbrella. For example, ReFED research has identified a largely untapped opportunity to expand markets for compost through value-added products that extend beyond agriculture, as more supply is expected to become available as waste recycling efforts increase.

Innovation is seen as a key lever to meet national and global food waste reduction targets, and the investor and entrepreneurial communities are starting to respond. In September, SOCAP, an impact investment conference, included at least three different sessions focused on waste. The Ag Innovation Showcase, agriculture technology’s oldest conference, also put a spotlight on waste innovation, and the OpenIDEO Food Waste Challenge (which took place from July-October 2016) concluded with more than 450 submissions – another sign that the global community is starting to step up to the challenge.

AgFunder and ReFED look forward to following this growth as we move into a world where ‘waste tech’ means generating no waste at all.

Note: ReFED’s Innovator Database is populated as ReFED staff learn about new companies and organizations tackling the food waste problem, and therefore may not depict a complete picture of every innovator in this space. Please reach out if you’re interested in learning more about the database.