To start, let’s check out the difference between a Linear and circular economy:
A linear economy exploits resources and puts pressure on the environment because of its reliance on large quantities of cheap, easily accessible materials and energy. It follows the “take – make – consume – waste” pattern.
Contrarily, a circular economy aims to reduce the leakage of resources and waste to a minimum. It does this by extending the cycle of use; preserving, rebuilding, and increasing the utilisation of assets or resources of any form by sharing, reusing, repairing, and recycling, thus closing the loop.
As good as this sounds, in reality, it’s still a fantasy. Even though some steps have been taken to bring our world closer to a circular economy, for now, there is a huge gap between the theoretical concept and the practical appliance. It is predicted that the annual consumption of minerals, fossil fuels and biomass double by 2050.
Implementing the Circular Economy requires multi-level governance and actions at local and international levels. Other challenges to overcome are the reluctance of people to adapt to new business models that point away from ownership, such as the sharing economy, and the significant changes needed in consumer behaviour and habits at all levels [EPRS, 2016].
Before going into the topic of how digitalisation can contribute towards a more circular economy, let’s talk about the complexity of a circular economy, using food wastage as an example:
To illustrate customer behaviour changes, think about an apple. Would you buy an apple in a supermarket if it had a brown spot? You would pick the shiny red apple next to it even if the other apple still is perfectly edible.
Did retailers adapt to the customer’s behaviour, not selling imperfectly shaped or blemished food or did they shape the customer’s purchase behaviour by not providing the option?
This is just an example within a complex supply chain, of a system that has evolved and captured consumers and retailers alike.
In our linear economy, the production of food that remains uneaten occupies 1.4 billion hectares of land, an area bigger than Canada, and close to 30% of the total agricultural land available. Next, to an immense amount of water, energy, fuel, fertilisers and pesticides that are used to grow food, agriculture uses up space to grow crops for which rainforest is clear-cut. Food wastage exacerbates this problem for no reason [FAO, 2013].
Next to food loss, which is unintended due to a lack of knowledge of farmers or food damage, steps where food waste happens, meaning throwing away edible food, occur at the process, retail and final consumption stages due to behaviour and legal restrictions such as many countries not allowing retailers to donate expired still edible food.
Whilst there are so many steps where food is wasted, it’s sad but true that in developed economies, the highest percentage of total food wasted, almost 50%, happens at household level (Determinants of consumer food waste behaviour. Two routes to food waste. Appetite, Stancu et al, 2016).
Amongst others, reasons for this are social trends such as an increasing number of single households, more woman working but also declining food prices that change the shopping routine (Food waste prevention in Europe, Priefer et al, 2016).
The processing phase further contributes to 30% of food wasted [Tagesanzeiger Zurich, 2016]. Needing to deliver what supermarkets and thus, the end-consumer wants, at this stage, the bad apple is pre-sorted from the shiny apple. Logistics and packaging further add up waste: for example, crooked cucumbers are thrown out, as they need more space than straight cucumbers during transport [Hatz, 2013].
To my surprise, food waste at the retail stage is relatively small, fluctuating per country. Nevertheless, retailers play a crucial role, being the “interface” between producers and consumers. Retailers are getting more and more aware of their role in educating consumers and the positive impact they can have on consumption, usage and disposal, reducing food waste, supermarkets are in control of food promotions that nudge a consumer to buy food not needed.
So, for the circular economy fantasy to become true, we have far to go.
Just looking at one piece of the puzzle, and just talking about a few factors that shape the human food supply chain as it is today, deep changes are needed at every link chain to not only reduce food wastage but preventing it. Ranging from educating farmers, improving post-harvest management, optimising package processes, to changing the consumers’ behaviour.
Aside from environmental benefits, a circular economy comes along with advantages such as the creation of new jobs and an innovation drive across many sectors, due to the need to redesign materials and products for a circular use [EPRS, 2016].
So, how can digitalisation contribute towards a more circular economy?
Combining digital developments such as intelligent assets – physical objects that are able to sense, record and communicate information about themselves and/or their surroundings – with the circular economy principle provides room for new innovations. Objects with embedded information technology, for example, smart cars or smart energy systems, will reshape the way people make, use, and reuse assets. It is predicted that by 2020, the number of such objects quintuples.
In a circular economy, global economic developments are decoupled from finite resource consumption. Intelligent assets increase asset utilisation and cycle use length, which creates new sources of value.
Sensors will gather data about the device location, the device condition and the device availability:
- Location: Real-time knowledge of the location of a car aids to optimise route planning, which reduces vehicle wear and extends the cycle use. Through knowing the location, shared assets can be localised, which increases the utilisation.
- Condition: Knowledge of the condition of a car can help to change user patterns to minimise vehicle wear and to take predictive maintenance prior to failure, which extends the user cycle. This information then aids to make founded decisions for improving future loops.
- Availability: Data on an asset’s availability could lead to a shift in the way products are used as transparency about supply and demand is boosted. Information of available parking space is sent to a driver, which saves driving around looking for space, reducing vehicle wear and blocked roads.
Knowledge of availability furthermore features the reuse and repurposing of assets that are no longer in use and also contributes to sharing assets by automatically connecting available assets to the next user.
Also read this article: Retail Customer Service: Reality of Retail Industry
To close the loop, back to food waste:
Intelligent assets with sensing technology are improving the agricultural sector enabling greater output with less input. The agricultural sector is becoming very high-tech and software based. Digitalisation will help to overcome land and resource productivity challenges by enabling monitoring soil nutrients, better pest and disease control, increasing the yield per square metre without using more fertilisers, pesticides and fuel [WEF, 2015].
A digitalised supply chain where location, condition and availability play a role to be optimised, will improve the steps from food being harvested until reaching the end-consumer – bringing us a step closer to the circular economy.
“Failing to reap the benefits that the Internet of Things and the circular economy present, is the biggest waste of all.“ – Kenneth Cukier
This post is brought to you by one of AQ’s Undergraduates, Alexa V. As part of our internship programs, undergraduates and classic interns are encouraged to take part in company culture. Alexa’s primary focus is in digital marketing.