NIS 5 billion

worth of food waste in the retail and distribution sector
25 thousand tons increase in food waste in 2021 in the retail sector compared to 2020

Food Waste and Rescue in the Retail and Distribution Sector

(11)

The volume of food sales in Israel in 2021 stood at around NIS 90 billion a year, sold to consumers through supermarkets, open markets, grocery stores, small retailers, and the institutional sector. The total loss in the retail and distribution sector stood at 445 thousand tons of food, valued at approximately NIS 5 billion, which constitutes 5.5% of retail food sales. Of this, the amount of rescuable food was 356 thousand tons, valued at approximately NIS 4 billion (12). In addition, the environmental cost of food waste in the retail and distribution sector was approximately NIS 785 million (13).

11. For waste analysis purposes, this report refers to the retail and distribution sector as a single sector and includes waste occurring from the end of the production stage until the produce is sold to the consumer. This includes finished produce that goes to waste at the manufacturers’ facilities, wholesale waste, returns from retailers to manufacturers, and food wasted by retailers.
12. The amount of rescuable food in the retail and distribution sector is based on BDO’s model for the retail sector, which is based on data from the Central Bureau of Statistics and information from the leading supermarket chains.
13. The environmental cost is not included in the market price of the wasted food, meaning that the natural resources wasted due to food waste in this sector are excluded.

Economic Waste in the Retail and Distribution Sector

The main causes of food waste in the retail and distribution sector are food that has reached or will soon reach its expiration date, food with aesthetic defects on the packaging or the product itself, and food damaged in the sales process. Food manufacturers, distributors, and retailers have an economic incentive to minimize food waste by managing their supply chain effectively, maintaining proper storage conditions, and planning their inventory. That said, it should be noted that there are return agreements between retailers and distributors, and food manufacturers whereby unsold food can be returned to the manufacturer at no cost (14). In these instances, there is no economic incentive to minimize food waste.

Nevertheless, it should be noted that surplus food in the retail and distribution sector is inevitable, even when the distribution and sales systems are planned optimally. This is because retailers must ensure that a wide variety of food is always available to their customers, as consumers do not tolerate shortages of food items they desire. Hence, the potential loss to retailers due to the unavailability of food products is far greater than the cost of creating surpluses. In other words, food surpluses are an inherent part of the retail process.

From an economic perspective, the fact that surplus food is wasted rather than rescued reflects a market failure. Therefore, one of the government’s policy challenges is to create a system of incentives for rescuing these surpluses and getting them to those in need.

14. These agreement permit returning a certain percentage (as agreed) of the unsold merchandise

Naturally, the waste rate is higher for fresh produce and products with short shelf lives, such as fruit, vegetables, bread, and baked goods.

An international comparison shows that the waste rate in the Israeli retail and distribution sector is similar to that in the developed world, even though there is potential for higher waste rates due to Israel’s warmer climate. This is a testament to the relatively high standards of inventory management practiced by the Israeli retail and distribution sector. The rate of food waste in developing countries is higher, primarily due to inadequate distribution, storage, and selling conditions.

Food sellers’ investments in establishing logistics centers, online inventory management, demand planning systems, and keeping an unbroken cold chain have contributed to reducing the volume of waste in the retail and distribution sector.

During 2021, customers returned to a higher rate of purchasing from stores and markets where the waste rates are relatively high. Therefore, there was a slight increase in the food waste in this stage.

Financial Loss in the Retail and Distribution Sector

* Numbers are rounded for ease of presentation.
**The rate of the loss refers to the loss from the total production or consumption of the same food category at each stage in the value chain.

That said, consumers did continue purchasing from online retailers in 2021. Online retail may be more environmentally friendly than traditional retail, in part due to the decrease in number of individual trips to various stores and the consolidation of many items being delivered to multiple addresses in a single trip. A study conducted by the University of Washington (15) and published in 2014 found that if routes are planned efficiently, delivery services could potentially reduce up to 80% of carbon emissions produced by consumers traveling to stores.

Waste in the retail and distribution sector has high economic value as it includes all the previous investments made in growing, manufacturing, packaging, and transporting food. This waste refers to food that was ready to be sold and consumed but was wasted before it reached the end consumer. Due to the characteristics of this waste, the vast majority of food at this stage is rescuable. Indeed, out of food valued at NIS 5 billion that is wasted, approximately NIS 4 billion is rescuable. Food waste in the retail and distribution sector stems from three primary causes.

15.Changing Retail Business Models and the Impact on CO2 Emissions from Transport: E-commerce Deliveries in Urban and Rural Areas (🔗 link)

International Comparison: Rate of Waste in the Retail and Distribution Sector

Source: Food and Agriculture Organization (FAO) data, processed by BDO

Consumers Transition to Purchasing in Stores with Lower Percentages of Waste

Source: CBS, analyzed by BDO

Three primary causes of food waste in the retail and distribution sector

1
Short expiration dates
Food products by nature have a limited shelf life and inevitably, some products will reach their expiration date before they are sold. Food that has reached its expiration date can no longer be sold or distributed to the needy. Therefore, rescuing food in the retail and distribution sector requires incentives to facilitate inventory management that ensures food with a short expiration date is sold at a lower price or distributed to the needy before it expires. This type of inventory management is feasible, as the amount likely to be consumed can be statistically estimated and compared to the current inventory, allowing surpluses to be donated at an earlier stage and certainly before the food expires. Similarly, the food expiration classification policy should be reviewed and differences between various labels related to expiration dates should be explained to consumers.
2
Aesthetic defects in the product and packaging defects
Aesthetic defects lower the market value of food products, but in most cases do not reflect damage to these products’ nutritional value. When such food is wasted, this reflects a market failure, because while the market value of the defective product is low, the nutritional value it holds is completely intact.
3
Damaged food
Damage caused to food in the logistical process is a relatively minor cause of food waste. Damage can be caused in various stages of the retail and distribution process and includes broken eggs, spilled products, fruit and vegetables that have fallen or been damaged, leftovers from butcher shops and deli departments, etc. This food cannot be rescued, but its volume is relatively small as maximal efforts are made to limit it. Moreover, it can be transferred for uses other than human consumption, such as animal feed and industrial use.
Actions taken to Reduce Food Waste in the Retail and Distribution Sector
Retailers and food manufacturers sometimes work to reduce waste and rescue food based on economic considerations. Food waste is reduced in several ways:
1. Discounts on surpluses
When products are about to expire or their packaging has defects, retailers. sometimes offer them at a discount.
2. Food donation
This is done in a centralized and coordinated manner, based on agreements with food rescue non-profit organizations or in other cases, as local initiatives in supermarket branches.
Food manufacturers are also involved in food rescue activities. Some work with non-profit organizations and donate production surpluses and food that is about to expire. In addition, products with aesthetic defects or defective packaging detected in the factory are sold in various secondary markets if the food is still safe and fit for human consumption.