Ian Nolan, founding partner of Circularity Capital, explores how increasing pressures around food costs, environmental sustainability and legislation are leading to the growth of businesses helping solve these challenges.
According to insight from the UN Food and Agriculture Organisation (FAO), more than 33% of all food produced worldwide is lost or wasted every year due to inefficiencies across the supply chain – roughly 1.3 billion tonnes, costing upwards of $940 billion.
Insight from the Thompson Reuters Foundation suggests that wasted food is responsible for one-third of the world’s total emissions, while the UN Environment Programme suggests that if food waste were a country, it would be the world’s third largest polluter after China and the USA.
With supply chains reeling from the hangover of COVID-19 and the continued impacts of the war in Ukraine, “business as usual” is coming under increasing pressure. Innovation is therefore critical to not only achieving supply security but also creating a viable food system for the future.
The circular economy
Economic pressures have prompted the food supply chain to embrace more circular ways of working, but an increase in environmental legislation is also bringing about notable change. Indeed, earlier this year, the EU published its Circular Economy Action Plan (CEAP). Positioned as a cornerstone of the European Green Deal, the document provides a roadmap towards a circular industrial economy that prioritises the environment and works to eliminate waste.
CEAP focuses on four key objectives: making sustainable products the norm in the EU; empowering consumers to embrace circularity; focusing on the lifetime of products through a sectoral lens; and reducing waste. In simple terms, it aims to ensure that companies accelerate their transition towards circular business models.
The action plan will undoubtedly result in disruption across the sector, with businesses forced to amend their operations to remain compliant. Indeed, the EU is not simply looking for incremental improvements in technology, but instead is committed to driving a paradigm shift. Brands, therefore, need to think about a supply chain that makes the most of resources and reduces waste significantly.
Change in practice
One company leading the charge is Cocogreen, a leader in the manufacture of low-carbon, high-yield coir growth media for berries, salads, citrus fruit and avocados. With facilities in the UK and across Sri Lanka, the company manufactures a sustainable alternative to peat-based composts using a previously wasted by-product of the global coconut industry.
In addition to improved nutrient distribution, minimising water use and delivering a higher production yield profile, Cocogreen’s products have a significantly smaller carbon footprint than their competitors, providing a truly circular solution for growers the world over.
Earlier this year, Circularity Capital invested in Cocogreen to support the company’s continued international expansion. As the brand continues to grow its customer base, the growing adoption of its products will help to accelerate the transition towards a more circular economy.
Alongside Cocogreen, another business disrupting the industry is Winnow. A pioneer in AI solutions, the company has developed a first-to-market solution for designing out food waste in commercial catering facilities.
With operations in 29 countries, Winnow works with thousands of chefs to reduce food waste. Sites using the solution typically see food waste cut in half within 12 months from the point of installation, resulting in an increase in gross margin of between 2-6%.
But alongside the commercial case, there is also a significant environmental benefit for companies in reducing waste.
The company’s unique technology is already being used with global hospitality brands such as IKEA, Compass Group, AccorHotels and Carnival Cruises, who have all rolled out Winnow solutions at scale. Feedback is hugely positive, with businesses previously hampered by rising purchase and disposal costs now able to navigate the issues with confidence.
Since partnering with Winnow, Ingka Group, the largest IKEA retailer, recently announced a 54% reduction in food waste in its IKEA stores worldwide. This makes it the first major corporation to meet the Sustainable Development Goal (SGD) of halving food loss and waste by 2030.
But alongside the commercial case, there is also a significant environmental benefit for companies in reducing waste. Winnow estimates that its clients save the equivalent of 36 million meals annually through the use of AI technology, diverting resources away from landfill and preventing the unnecessary creation of methane (released during the degradation of food, but considered 21 times more damaging to the environment than CO2).
But why are these two companies relevant? Well, they demonstrate that the future of the food supply chain can be both circular and successful, with new and innovative solutions not only able to meet the demands of global customers but also set the standards in environmental performance. Indeed, circular business models can achieve both profit and purpose, while alleviating many of the challenges experienced by some of the sector’s more traditional companies.
The circular economy is restorative and regenerative by design, with resources previously considered “waste” effectively eliminated. While Winnow prevents waste from arising in the first place, Cocogreen transforms it into an environmentally beneficial product that displaces carbon-intensive incumbent solutions while offsetting wider resource use.
Growth-stage capital funding
When we founded Circularity Capital in 2015, we did so with the firm conviction that the entrepreneurs of businesses like Cocogreen and Winnow – who are developing circular innovations to make this transition a reality – deserve a specialist investor with the right knowledge and network to unlock their full potential.
We have worked hard to develop a firm with the right capabilities to make this a reality and have recently raised our second dedicated circular economy private growth-equity fund – at €215m, it is the largest of its kind globally.
Our current portfolio includes a number of leading circular businesses across Europe, but our ambition is to further grow this investment base by supporting leading, innovative, circular businesses where we can add value as a domain expert investor.
It’s clear to see that the circular economy provides a strong framework for decoupling business growth from resource constraints.
It’s clear to see that the circular economy provides a strong framework for decoupling business growth from resource constraints, enhancing resource productivity and driving competitive advantage. It also highlights a subset of business models which are enabling this transition and can generate premium returns for investors. Indeed, circular economy thinking will drive industry for years to come.
The global food supply chain is set to experience rapid change over the coming years. At Circularity Capital, we’re looking forward to playing a leading role in the sector’s transition towards a more resource-efficient supply chain for the future.
For more information about Circularity Capital, or to find out more about its unique portfolio, visit https://circularitycapital.com/.
