Impact of cosmetic standards on food loss

• Main Authors: CRAMA, Pascale, ZHOU, Yangfang (Helen), WANG, Manman
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Food loss; cosmetic standard; agriculture contract; government policy; Agricultural and Resource Economics; Food Studies; Operations and Supply Chain Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7181; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8180/viewcontent/Crama_Zhou_Wang_2023_Impact_of_cosmetic_standards_on_food_loss__1_.pdf
• Institution: Singapore Management University

A significant portion of the food loss in agricultural supply chains occurs at the farm level and has been linked to high cosmetic standards adopted by retailers regarding the size, color, and shape of the produce. We examine the economic incentives for retailers to adopt such high standards and their impact on food loss. We build a sequential game between a retailer and a farmer, where the retailer signs a contract with the farmer specifying both the wholesale price and cosmetic quality standard. Setting a high standard allows the retailer to sell the products at a price premium but increases the rejection rate, i.e., reduces the proportion of produce that satisfies this standard. We find that compared to a low cosmetic standard, a high standard does not always increase food loss and could lower food loss when the price premium is high and the relative difference between the rejection rates under both standards is low. Consequently, banning cosmetic standards may backfire and increase food loss instead. When retailers set a high cosmetic standard, we find that an effective policy intervention is to reduce the rejection rate under the high standard by, e.g., investment in agriculture research. We confirm and add to these results and policy implications in the presence of yield-enhancing efforts, an alternative sales channel, and harvesting cost variability.