The Future Circular Economy
The circular economy is changing the way that CPG Brands in the Health Food industry operate.
Today, it is common to find restaurants announcing that their menu is limited due to supply chain disturbances. Many businesses are similarly affected as the perfect storm of supply chain interferences drastically affects the world economy. According to a recent analysis by Forbes Magazine, almost one-third of small businesses in the United States have reported that supply chain disruptions have significantly impacted their business. Another third report a moderate impact. Bloomberg News reports solemnly that “the bad news is that the world’s supply chain problems are more persistent and more severe than previously realized. The worse news is that there is no single reason why, and therefore no straightforward fix. And the even worse news is that no one really knows when the situation will improve.” The circular economy might be able to offer a way to deal with these increasingly serious supply chain issues.
Some economic analysts may point to trade delays, higher energy and transport costs, and shortages of key technologies as the leading causes of the current supply chain disruptions. However, the current situation also invites us to take the opportunity to carefully analyze some of the root problems of our current global economic system and the inherent vulnerabilities that exist in a linear, extractive financial system that requires highly interdependent supply chains across wide geographic dispersion.
The circular economy summons us to drastically rethink some of the fundamental elements of our globalized economic system. The Sheffield Political Economy Research Institute believes that “an ambitious circular economy, relying on narrower, slower, and shorter resource loops may help avoid future disruption." Beyond reducing vulnerabilities to supply chain disruptions, however, the circular economy offers practical solutions to several severe crises.
This article will examine some of the difficulties with the linear, extractive economic model. We'll then analyze how the circular economic model is distinct and how it can respond to our serious financial challenges and vulnerabilities. Lastly, we'll explain a few different ways that health food brands in the consumer packaged goods (CPG) industry can begin to embrace the circular economic model.
The Problems with the Linear, Extractive Economic Model
Despite significant advances in the recycling industry, the globalized economy today is still dominated by a linear, extractive model, requiring an enormous complexity of corresponding parts. According to one recent estimate, around 61.1 billion tons of metal ores, fossil energy, and non-metallic minerals are extracted annually from the Earth. A further 20.5 billion tons of biomass is extracted to meet consumer demand and keep our economy growing. Most of these extracted materials follow the “take-make-dispose” economic model. According to this model, raw materials are mined or extracted, transformed or manufactured into products, and then discarded as waste in increasingly shorter intervals. The "make-take-dispose" model relies on volume to create value, where producing and selling as many products as possible is the foundational economic goal. Thus, planned obsolescence is essential to the "health" of the economy. In recent years, the unsustainability of this extractive economic model has been modeled by what is known as “Earth Overshoot Day.” This day marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year. Whereas the date fell on October 23rd in 1987, this year it is almost three months earlier, on July 29th. Simply put, the "take-make-dispose" economic model is depleting the Earth's resources faster than they can naturally regenerate. It isn't rocket science to see that this is not a sustainable, long-term solution. Of course, our reliance on non-renewable resources such as fossil fuels is another severe issue. Economist Herman Daly states sums up the problem with this make-take-dispose model nicely: “Because of the exponential economic growth since World War II, we now live in a full world, but we still behave as if it were empty, with ample space and resources for the indefinite future. The founding assumptions of neoclassical economics, developed in the empty world, no longer hold, as the aggregate burden of the human species is reaching—or, in some cases, exceeding—the limits of nature at the local, regional, and planetary levels. The prevailing obsession with economic growth puts us on the path to ecological collapse, sacrificing the very sustenance of our well-being and survival.” Beyond the problems related to resource depletion and reliance on non-renewable resources to power our economy, the complexity of global supply chains is another vulnerability that should be considered. A 2013 study published by the Massachusetts Institute of Technology titled Uncertainty and Risk in Global Supply Chains states that “the globalization and fragmentation of supply chains create risk through interlinkages and interdependencies.” Studies estimate that processed food in the United States travels over 1,300 miles from where it is cultivated initially to where it is eventually consumed. Fresh produce travels over 1,500 miles before being consumed. Besides mere distance, however, the food that ends up on our table generally changes hands dozens of times throughout the process of transportation, manufacturing, packaging, marketing, distribution, and final retail sale. The same complexity in supply chains applies to virtually every other consumer product we purchase. Take the example of the computer or phone you use to read this article: The raw materials may have been sourced from the Central African Republic and Chile. The mining companies sold this natural material to an exporter who shipped the lithium and cobalt to a sub-subcontractor in Southeast Asia who began the primary manufacturing of the parts. The parts were shipped to a subcontractor for module production in China. These parts were then sent to the contract manufacturer for final assembly before being shipped worldwide to a contract logistics company involved in packaging and shipping to the retail stores where the computer was finally sold. For businesses, the vulnerabilities associated with global supply chains pose a severe risk to the health and resilience of the company. Even the most minor disruption along this long and complex supply chain could cause economic shocks. Furthermore, as more and more businesses attempt to adopt environmentally sustainable practices, the fact that up to 90 percent of companies’ impacts on the environment come from supply chains is further cause for concern. The circular economic model offers an opportunity to limit vulnerabilities while drastically reducing your company's environmental footprint.What Makes the Circular Economy Different?
A circular economy is "a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible." The ultimate goal of a circular economic model is to create a closed-loop system, thus decreasing reliance on resource inputs (especially from non-renewable resources) while reducing waste streams, pollution, and carbon emissions. Whereas the extractive and linear extractive model that dominates the global economy is dominated by planned obsolescence, the circular economic model aims to keep products, materials, equipment, and infrastructure in use for as long as possible. Rather than just focusing on recycling, the goal in the circular economy is for all waste materials and energy to be transformed into an input for other processes, either as a material for further industry manufacture or as a regenerative resource to be returned to the natural world. By focusing on manufacturing durable products from sustainably sourced resources and ensuring that all waste is circled through the economy as long as possible before returning to the natural world as a regenerative resource, the circular economy certainly offers solutions to the environmental problems posed by the linear economic model. Furthermore, a circular economic model might also help to reduce supply chain vulnerabilities leading to greater resilience. One recent study concludes that “the application of circularity principles implies a radical change in stakeholder relations, breaking with the "end-of-life" concept existing in linear economies. Furthermore, the circular economy can ensure resilience in supply chains and be considered a tool in uncertain environments.” The practical implementation of a circular economic model will differ depending on the industry, the geographic location of the business, and other contextual factors. However, the following key elements can help to guide the design of a circular economy model.- Prioritize regenerative resources: The circular economic model does not deny that any economy will ultimately depend on land-based resources. Instead of extracting non-renewable resources in the most rapacious way possible, however, circularity focuses on using renewable and regenerative resources in the most energy-efficient manner.
- Stretch the lifetime: Raw materials manufactured into products must be maintained, repaired, and regularly upgraded to keep them functional and in circulation for as long as possible.
- Use waste as a resource: One person's trash is another treasure. There is a sustained focus on continually discovering ways to recover waste for reuse and recycling. In the circular economy, every effort is made to identify waste streams that can serve as a source of secondary resources for other economic actors.
- Team up to create joint value: Shifting to a circular economic model cannot be done alone, as this shift will require several businesses, organizations, and actors working together to eliminate waste streams. Companies attempting to shift to a circular economy must find like-minded partners throughout their supply chain, internally within their organization, and throughout the public sector. Communicating your shift to a circular economic model with the end customer is another strategy for success.
Five Circular Economy Strategies for CPG Health Food Brands to Embrace the Circular Economy Model
For health food brands in the CPG sector, embracing a circular economic model makes sense on several levels. Generally, healthy food products begin with agricultural inputs produced in organic and/or regenerative ways, one of the critical elements of the circular economic model. Furthermore, many consumers of health food products share a genuine concern for the environment. This presents an opportunity to connect with consumers across shared ecological values, thus offering a chance to increase a loyal customer base. Below, we offer five practical strategies for health food brands to transition towards a circular economic model.Strategy #1: Partner with Regenerative Producers at the Grassroots Level
Agriculture should be circular by nature. The soil, when managed correctly, can maintain its levels of fertility, as crop rotations, pasture rotations, and other soil husbandry practices return to the land what we take from it for our sustenance. Unfortunately, industrial agriculture of the past decades has essentially turned agriculture into an extractive industry. Consider the following:- We are now losing about 1 percent of our topsoil yearly to erosion, most of which is caused by agriculture. The United States is losing soil ten times faster than the soil replenishment rate, while China and India are losing ground 30 to 40 times faster.
- Over 36 billion tons of soil are lost yearly due to water, deforestation, and other changes in land use.
- Over 1 billion pounds of pesticides are used in the United States annually, and approximately 5.6 billion pounds are used worldwide.
- Globally, about 25 percent of the total land area has been degraded. When land is degraded, soil carbon and nitrous oxide are released into the atmosphere, making land degradation one of the most important contributors to climate change.