Agribusiness, Morrison School
Non Technical Summary
Reducing food waste promises many potential benefits, such as helping improve food security, making more efficient use of scarce water and land resources, reducing landfill, and reducing (Hall et al. 2009; Buzby and Hyman 2012). Administrative solutions - regulating disposal, educating consumers about labels, or changing consumers' incentives to waste - are likely to be intractable, inefficient, and difficult to implement. On the other hand, business models have emerged in the "sharing economy" (commercial peer-to-peer mutualization systems, or CPMSs) that may provide a market-based solution. Trading waste will generate incentives for all stakeholders, from households to restaurants, retailers, and farms to manage, and reduce, food waste. In the proposed research, we intend to investigate the potential for these new businesses to substantially reduce the problem of food waste. Our supporting objectives are to develop a theoretical model of how a CPMS would operate as an intermediary between food retailers or foodservice operations; estimate an econometric model of the two-sided demand facing a CPMS intermediary in the food waste business using data from Cerplus, LLC; carry out an economic experiment in which consumers, food retailers, and CPMS managers function in a linked, vertical supply chain; develop a machine-learning model of the food-waste supply chain that includes a CPMS; and synthesize our results to develop a set of solutions. Our proposed research promises to make a number of substantial contributions to theoretical, empirical, and experimental literatures on food waste, and to conversation regarding policy alternatives.
Animal Health Component
Research Effort Categories
Goals / Objectives
Our primary objective is to investigate the viability of a CPMS, or network of CPMSs, as a potential step toward a solution to the problem of food waste. Because solving a problem as intractable as food waste is a substantial undertaking, we will work toward achieving a set of supporting objectives. In order to meet the supporting objectives, we will: 1. (Stage 1) Design a theoretical model of how a CPMS would operate as an intermediary between food waste buyers and sellers in order to establish equilibrium conditions for a platform to emerge for surplus food, characterize how innovation in the secondary food market affects farmer and consumer food prices and sales in both primary and secondary markets, and assess whether CPMS intermediaries can generate sufficient profit to sustain a secondary market platform; 2. (Stage 2) Design and estimate an econometric model of a CPMS intermediary in the food waste business, using transactional data gathered from a food-waste intermediary (Cerplus) to examine its viability in a two-sided market setting; 3. (Stage 3) Design and implement an economic experiment in which consumers and CPMS managers function in a linked, vertical supply chain to determine whether changes in information about the scope of the food-waste problem, better information about forecasting food demand, or knowledge of the presence of a food-waste CPMS makes the platform either more or less viable in allocating surplus food; 4. (Stage 4) Investigate the optimal re-design of a retail food supply system, using estimates from a machine-learning model of inventory demand, in order to derive a set of conditions that will be necessary for the efficient distribution of food from waste-suppliers, to end-users; 5. (Stage 5) Synthesize and integrate our findings from the theoretical, empirical, supply chain, and experimental sections of our research to propose a comprehensive set of solutions to the food waste problem that takes advantage of the incentive structure inherent in emerging sharing-economy markets.
Our investigation begins with a theoretical model of intermediation in the food waste economy. Based on the general model of intermediation developed by Hamilton and Bomtemps (2016), we will show that demand uncertainty at each level of the food supply chain creates conditions for CPMSs to arise. In contrast with dynamic equilibrium models of durable assets (Fraiberger and Sundararajan 2015; Chen, Estaban, and Shum 2013), the incentive to trade in a secondary food market lies not in the durability of the asset, but rather in the excess capacity and supply coordination problems that result in products being incompletely used prior to expiration. Preliminary results from our model demonstrate that a CPMS that redirects food waste to a secondary food market decreases consumer prices in both the primary and secondary markets, increases total food utilization in the food system, and reduces food waste. The emergence of a robust secondary food market coordinated by CPMSs also has important implications for farm surplus. The model reveals two offsetting effects of secondary food market development on the farm sector. The emergence of a secondary food market reduces farm prices in the primary market by augmenting total food supply; however, because food sales in the secondary market increase the total quantity of food sales, farm surplus rises to the extent that farmers participate as sellers in the secondary market. Based on our theoretical findings, we will conduct an empirical analysis of data provided by a real-world CPMS operating in the food-waste arena. Cerplus Foods, Inc. is a startup company based in San Francisco that "...aims to alleviate food waste by matching farmers directly with restaurants and grocery stores in northern California," with an ultimate aim to expand their network to include foodwaste from their retail and foodservice clients, as well as from households (Garfield 2016). Cerplus has agreed to share all transactional data from startup to date, including the amounts ordered, prices paid, and attributes of the sharing firms, which will enable us to test an empirical model of a sharing platform. Our empirical model is based recent estimation techniques in two-sided markets (Armstrong 2006; Kaiser and Wright 2006) in which the demand for a "platform," or market-maker, such as Cerplus, is comprised of demand for distribution from potential suppliers of food waste, and demand for procurement from potential consumers of food waste. Because of the two-sided nature of demand, such platforms are subject to indirect network economies. That is, the benefit to interacting on the platform rises for consumers with the number of suppliers of food waste, and the benefit to suppliers rises in the number of consumers who rely on the platform to procure food waste. Due to this "virtuous cycle" of supply creating its own demand, platforms tend to succeed or fail in spectacular fashion. In our empirical model, we will estimate the strength of demand on each side of the market in order to determine: (1) whether demand conditions exist for a viable business model, and (2) where best to apply policy tools in order to strengthen or facilitate demand on one side or the other. Preliminary analysis of the Cerplus data shows that there is potentially strong demand for intermediation services in the food waste area. In fact, over a one-month period, there were 26 buyers on the platform, interacting with 12 separate sellers, for 44 different items. Items were offered for sale for reasons ranging from "excess inventory" at a retailer, to "blemished" produce from a local apricot farm. Most importantly, however, we find that equilibrium prices for similar items tend to rise as the number of buyers increases. Indeed, holding attributes constant on a food item, the marginal effect of an additional buyer on any given day represents a 7% rise in the equilibrium price for that item. Although this evidence represents only a small slice of the Cerplus data, it is clear that demand exists for intermediation on a market platform for secondary food. Next, we will conduct an experiment of household participation in a food-waste CPMS. Given that household waste forms the dominant share of all food waste produced in the US, and globally, viable solutions for the food waste problem must allow for household participation. Moreover, because many of the constraints households face are behavioral in nature, the emergence of CPMSs are complementary with behavioral incentives currently being examined for reducing food waste (Parfitt et al. 2010; Kallbekken and Saelen 2013; Wilson et al. 2015). Indeed, the very notion of participating in a sharing economy implies very different modes of economic behavior than consumers are used to -- sharing rather than owning is, in many ways, antithetical to what we are taught to understand about capitalism in general (Botsman and Rogers 2010; Bardhi and Eckhardt 2012; Lamberton and Rose 2012; Belk 2014; Mohlmann 2015); hence the need for behavioral studies that facilitate consumer acceptance of food sharing on both sides of the CPMS platform. Our experiment is designed to elicit subjects' willingness to use the CPMS to dispose their unused food, or alternatively to purchase food items from the secondary market conditional on the stage of production, for instance from farmers as opposed to "leftovers" from other consumers. The treatments in a 2x2x2 design consist of accurate or non-accurate information on how much food waste they are likely to have at the end of a simulated week of meal-planning and consumption, information or non-information about the nature of the food waste problem, and access or non-access to the CPMS. Due to the behavioral nature of CPMS participation, we will also ask subjects a number of questions regarding their use of other CPMS platforms (Uber, AirBnB, Wikipedia, etc.) and their level of trust in collaborative sharing enterprises more generally. The experiment will be incentive compatible in that subjects will be endowed with a certain amount of money at the start of the simulated week, and will be compensated on their cost-minimizing and utility-maximizing performance in disposing of and procuring leftover food. With this experiment, we will be able to evaluate our experimental subjects' acceptance of a CPMS for waste disposal on both sides of the platform, given access to a conventional disposal alternative, an environment of planning uncertainty, and a general lack of information regarding the food waste problem. The next stage of the proposed research includes a detailed analysis of the viability of the food-waste supply chain. Despite the fundamental economic incentives to trade food waste, many of the constraints to involving intermediaries in the food-waste equation are supply-chain in nature (Garonne et al. 2014; Halloran et al. 2014). For CPMSs to work efficiently in moving food waste from either farms, retailers, restaurants, or households to end-users, a set of principles must be met. Most importantly, transportation and storage facilities must be sufficient to handle food, and the CPMS must be able to accurately forecast potential demand and supply in order to provide a coordinating role in the market. Our supply chain analysis will consider each of these factors in estimating a machine-learning model of inventory demand, and considering optimal inventory management models that will serve as a template for firms in this market.