The Economic and Welfare Effects of Food Waste Reduction on a Food-Production-Driven Rural Region

Abstract

Food waste is economically and ecologically unsustainable; the benefits of food waste reduction are indisputable. Yet knowledge of the economic trade-offs and knock-on effects of such reduction is deficient. This study examines the economic effects of food waste reduction in a rural region that is a nationally important producer of agricultural and food products in Finland. We built a detailed social accounting matrix to trace the transactions among the economic agents. Five different simulations of food waste reduction were run by applying a computable general equilibrium model. In the simulations, households and food services halved their food waste. The results indicated that food waste reduction is economically worthwhile in terms of regional investments and gross domestic product at market prices. However, the reduction induced economic trade-offs and welfare redistribution. The value added to the agriculture and food industries and the welfare of agricultural households decreased, albeit that the simulated compensations alleviated the effects. In the long run, falling agricultural wages and factor incomes entail closedowns and, finally, decrease local food production. This aspect is worth considering in terms of policy planning under the principle of just transition of the European Green Deal.