Sustainable Operations through Product Philanthropy: Models and Applications in Food Inventory Donation

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Only recently have people begun to discover the next frontier of sustainability: food waste reduction. In Canada, about 40% of food produced for humans is wasted . Food waste is a huge problem. Economically, it is a colossal loss due to the waste of food and the resources used. Environmentally, most food waste ends up in landfills emitting methane which is 25 times more harmful than carbon dioxide. Morally, this is wrong because one in eight Canadian families are food insecure. A potential solution to this problem is food inventory donation. That is, firms along food supply chains donate (excess) food to charities. Anecdotes and empirical studies have shown food donation as a triple-bottom-line solution. First, it can improve a firm's after-tax profit by claiming tax credit and reducing disposal cost. Second, it serves the poor. Third, it protects the planet by decreasing the amount of food spoilage going to landfills.******However, food inventory donation, or product philanthropy (e.g., merchandise donation) in general, is still not that common, especially in Canada. To further inform stakeholders on if and how to implement product philanthropy, researchers have called for economic modeling and rigorous analyses. Our proposal is the first to answer this call. Our long-term goal is to generate decision support tools, managerial insights, and policy suggestions for product philanthropy. In the short term, we aim to answer three critical questions: how do the current Canadian policies impact a firm's operational (e.g., production), marketing (e.g., pricing), and donation (when and how much) decisions? Do they lead to profit improvement and waste reduction? If not, what are the better policies? Here, we will analyze if Canada should adopt the U.S. policy which allows tax credit for the market value (not the cost) of the donated products and the South Korean policy imposing tax penalty for landfill use. We will start by investigating three settings. First, multiple farms with yield uncertainty sell to a grocery retailer with demand uncertainty. The retailer can donate excess inventory and the farms can donate unsalable products with cosmetic imperfection to charities. Second, a retailer (e.g., a bagel store) decides on the amount of new products to buy for each period, and at the end of each period, the amount of donation and the amount to carry over to the next period. Third, a supplier sells to retailers competing in inventory and/or retail price. A focus here is to investigate whether product philanthropy leads to retail price inflation, which has been a concern in the pharmaceutical industry. We will use tools like Optimization and Game Theory.******In 2012, European Parliament adopted a resolution to reduce food waste by 50% by 2020 and designated 2014 as the "European Year against Food Waste". Now it is the time for Canada to become serious about food waste and we believe that our proposed research will be an excellent start.**