Friday, December 16, 2016

Industry Building Around Food Waste

Earlier this week the US Department of Agriculture issued new guidelines for food product labeling, including requirements to clearly mark products with “Best if used by:” language.  Interestingly, the guidelines are aimed not so much as food safety as reducing food wastage.   The USDA has made food waste a priority project and expects consumers to be more likely to eat food that is still good rather than throwing it away.  Previously “Use by:” and “Sell by:” language had been the recommendation and was thought to encourage disposal of good food.  The strategy was immediately met with criticism as just another confusing regulation without standardized dates.

Food waste in the United States is a chronic issue.  The USDA estimates that as much as one-third of the U.S. food supply is wasted each year as crops and cooked food alike never makes it to hungry mouths.  That is a value of nearly $160 billion each year.  Until the wastage is reduced there has been an effort to divert the food waste to productive use.  Beyond programs to divert still edible produce to needy families, there are a number of companies that have built up food waste recycling operations to turn food waste into energy or fertilizer.
Privately held A1 Organics is an organics processor based in Colorado.  The company accepts food waste as well as a long list of other organic materials such as grass clippings, manure, dairy and feedlot waste, among others.  The organic materials are processed at five facilities are located in Colorado and Nevada and turned into compost, mulch and soils.  The company claims to have processed over eight million cubic yards of waste since its inception. 
A1 Organics is privately held and therefore out of the reach of most investors.  Yet the company is the largest organics recycle in the Rocky Mountain region, making it potentially a plum target for some of the larger waste management companies that want to tuck in an established organic waste processing capacity.  A1 Organics also has an abundance of expertise in organic waste handling with a strong track record in processing technology development. 
Waste Management (WM:  NYSE), Casella Waste Systems (CWST:  Nasdaq) and Waste Connections (WCN:  NYSE) have all found success in consolidating the waste industry.  The strategy is likely to continue to provide rewards as organic waste becomes an increasingly important element in renewable power production and energy savings.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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