In a circular economy, the proof of the pudding is in the eating

Residual resources, such as food processing surplus streams, now often categorised as ‘waste’, can be reused at their highest potential value if fair pricing can be ensured, finds the latest report of the Coalition Circular Accounting. In their Valorising Residual Resources report, they elaborate on the financial, accounting and legal aspects of valorising food waste and the organisational challenges of being circular in a linear world.

Annually, 88 million tonnes of food is wasted in the European Union alone. An estimated third of that waste occurs before food items even hit the shelves. In some food categories, waste is particularly hard to avoid because of a lack of knowledge, logistical challenges or expiration dates. But in a time when climate change and hunger threaten millions of livelihoods around the world, minimising food waste is a must, resulting in higher food security and a reduced industry footprint.

A current go-to solution for many food manufacturers is to downcycle and sell waste streams as animal feed. But when these resources are of premium quality and fit for human consumption, this is a massive loss. To ensure efficient resource use, the circular economy aims to maintain the highest possible value of resources for as long as possible. But producers need a stronger incentive to valorise all their waste streams, an incentive the linear economic system does not provide.

The Coalition Circular Accounting (CCA), led by the Royal Netherlands Institute of Chartered Accountants (NBA) and Circle Economy, and where Nyenrode Business University contributed as one of the knowledge institutions, has identified opportunities to salvage and valorise residual resource streams. Using biscuit dough as an example, the coalition teamed up with cooperative IntelligentFood to explore the challenges they are facing.

The Cooperative as circular enabler

IntelligentFood is organised as a cooperative that receives residual biscuit dough from Europastry, a leader in the frozen bakery dough sector, and joins forces with value chain partners to add value and create new products. Members can contribute either as an employee, as an organisation, in cash or in-kind. All members that have contributed value share in the profits, following a distribution key.

The CCA has found that the cooperative governance structure of IntelligentFood offers great incentives for partners to collaborate, create value and share risks. As a cooperative, IntelligentFood does not own production facilities, nor employs chefs or has any logistical capacities. Their primary role is to develop new food concepts that use residual food streams and connect different external parties, from resource input to final product sales, on its platform. They take on the role of a Circular Value Chain Director, connecting and redirecting resources between stakeholders, processes and industries to ensure their highest potential and value.

Fair pricing is key

The CCA once again confirmed that what gets valued, gets managed. The business case proved that residual resources should also have financial value. However, determining a fair price for these resources has sparked a debate about valuation theory versus market value. Moreover, the report provides potential options for accounting for the residual resources, based on a situation where profit margins after sales of the final product constitute the value of the resources used. 

Accounting for true impact

Lastly, it becomes clear from the research that our current accounting models do not incorporate impact. Currently, accounting models and investors focus too much on profit and do not take environmental or societal aspects into account. 

Read the full report here.