The Potential of Circular Business for Suboptimal Food Products Based on Environmentally Friendly Consumption
Article information
Abstract
Background and objective
This research aims to examine the potential of circular business for suboptimal food products in the context of environmentally friendly consumption in Indonesia by analyzing the influence of populations with food insecurity and inadequate food consumption on food expenditure in Indonesia.
Methods
This research consists of independent variables: Prevalence of Population with Moderate or Severe Food Insecurity (X1), Prevalence of Inadequate Food Consumption (X2), and dependent variable: Percentage of Expenditure on Food (Y). A panel data analysis method was used to identify the partial and simultaneous relationships between these variables. The data source for this research is secondary data from the Central Bureau of Statistics (BPS) Indonesia from 2020 to 2023.
Results
Partial test results show that food insecurity has a significant negative impact on food expenditure in Indonesia. This means that an increase in food insecurity can encourage the acceptance of more affordable suboptimal food products, thereby reducing expenditure. Additionally, it was found that inadequate food consumption has a significant positive impact on food expenditure. This means that the provision of cheaper suboptimal food can reduce inadequate food consumption and help lower the percentage of expenditure on food. Simultaneously, food insecurity and inadequate food consumption affect food expenditure. Increases in food insecurity and inadequate food consumption can drive up food expenditure.
Conclusion
The implementation of a circular business for suboptimal food products faces various challenges, including negative consumer perceptions of the quality and safety of suboptimal products. This research confirms that despite significant challenges, with the right strategies and strong collaborations, the circular business of suboptimal food products has great potential to grow and contribute positively to a more sustainable future.
Introduction
The Indonesian government has issued several food estate policies and programs since the 1950s which were developed on a large scale with the aim of producing food needed by the community (Rasman et al., 2023). Indonesia is currently facing a significant food waste crisis. Millions of tons of still edible food are wasted every year. This problem not only harms the environment but also raises concerns due to the large number of Indonesians who still experience hunger. The ever-increasing food waste reflects an imbalance in Indonesia’s food production and consumption system. Additionally, ineffective waste management exacerbates the negative impacts of food waste. According to data from the National Waste Management Information System (SIPSN), Indonesia generated approximately 31,363,906.49 tons of waste per year in 2023. Of this amount, only about 64.67% or 20,282,806.14 tons per year was managed properly. The remaining 35.33% or 11,081,100.35 tons per year was not managed effectively. These figures indicate a significant gap in Indonesia’s waste management system, impacting the environment and public health (National Waste Management Information System, 2024). On one hand, the data shows that millions of tons of edible food are wasted each year, while on the other hand, many Indonesians still face hunger and malnutrition. This imbalance indicates a failure of the system to distribute resources fairly and efficiently. Reducing food waste contributes to environmental sustainability by minimizing landfill accumulation and lowering greenhouse gas emissions. Additionally, it can play a role in food security enhancement by redirecting surplus food to populations in need through redistribution programs and innovative circular business models. While food waste reduction alone may not completely eradicate hunger, it serves as a critical intervention in improving access to affordable food, thereby contributing to overall community welfare.
Table 1 shows that the current food waste crisis in Indonesia is intertwined with waste management inefficiencies and excessive reliance on plastic packaging. In 2023, Indonesia generated approximately 31.36 million tons of waste, with food waste comprising a significant portion. Although the government has introduced policies to enhance waste management, the integration of a circular food system remains underdeveloped. While plastics are widely used in food packaging to ensure durability and hygiene, they contribute to environmental pollution when not managed properly (Perera et al., 2021). A circular food management model must address both food waste minimization and sustainable packaging solutions. Implementing a closed-loop system, where suboptimal food is repurposed, redistributed, or upcycled, combined with ecofriendly packaging innovations, can create a more effective waste reduction strategy. This approach ensures that waste reduction efforts align with environmental sustainability goals, rather than simply shifting the burden from food waste to plastic waste.
The amount of waste generated in Indonesia in 2023
Increasing food sustainability and reducing food waste are among the major challenges to achieving global sustainable development. In particular, the shift towards more sustainable consumption is crucial in creating a more sustainable world (Gracia and Gomez, 2020). Ineffective food waste management has a significant impact on the environment. One of its major impacts is a large contribution to greenhouse gas emissions, exacerbating the problem of climate change. Therefore, efforts to reduce food waste are essential to mitigate negative environmental impacts. Consumer acceptance is a critical factor in the success of suboptimal food businesses. Negative perceptions, particularly concerning food quality, safety, and hygiene, pose challenges in promoting these products. To address these issues, this study proposes the following strategies: (1) Consumer Education. Implementing awareness campaigns through digital platforms, social media, and in-store information to highlight the safety and nutritional value of suboptimal food products. (2) Pricing Policies. Introducing tiered pricing models and discount incentives to attract price-sensitive consumers, ensuring affordability without compromising quality. (3) Communication Strategies. Utilizing eco-labeling, storytelling marketing, and collaborations with influencers to reshape public perception and build trust in suboptimal food products.
One approach that can be taken is to promote the implementation of a circular economy model. A circular economy is essential to achieving environmental, economic and social balance (Arista et al., 2024). This model not only improves the efficiency of resource use but also opens up new opportunities for sustainable and innovative businesses. In addition, the implementation of a circular economy model can increase consumer awareness of the importance of environmentally friendly consumption patterns. This creates new markets for businesses offering green and sustainable solutions. In the context of this research, this topic is highly relevant to current global issues related to climate change and sustainability. Research on food waste management and the circular economy can make a significant contribution in finding innovative solutions to this problem.
The circular economy model is a sustainable approach that differs from the traditional linear economic model by prioritizing resource efficiency, waste reduction, and product life cycle extension (Tesalonika and Sutjipto, 2023). In the context of food systems, circular economy aims to minimize food waste by repurposing suboptimal food products into consumable goods, promoting redistribution, and utilizing food by-products. Unlike existing models that primarily focus on waste reduction at the production or post-consumption stage, this study introduces an integrated circular business model that emphasizes the economic viability of suboptimal food while addressing food insecurity. The innovation in this model lies in its dual impact: reducing food waste while offering affordable nutrition solutions to lower-income populations. This approach is particularly relevant for Indonesia, where high food waste levels coexist with a significant prevalence of food insecurity. By linking circular economy principles to consumer spending behavior and food security, this study provides a data-driven perspective that enhances the feasibility of circular business strategies in Indonesia.
Given the urgency of the research as presented, this topic is highly relevant to current global issues concerning climate change and sustainability. It has the potential to offer innovations in food waste management and circular business models for environmentally friendly food consumption products. Furthermore, there is currently a growing demand for products that support environmental sustainability, leading many countries to implement policies to support the circular economy and better waste management.
Research Methods
This research employed a quantitative method, a design intended to demonstrate relationships between variables, provide statistical descriptions, and interpret results (Tanzeh, 2011). The panel data analysis method was selected for this study due to its ability to capture both cross-sectional and time-series variations, thereby providing a robust framework for understanding the dynamic relationships between food insecurity, inadequate food consumption, and food expenditure across Indonesia over the period from 2020 to 2023. According to econometric theory Baltagi (2008) panel data techniques allow for the control of unobserved heterogeneity across regions, which is crucial given Indonesia’s diverse socioeconomic and consumption patterns. This method ensures that the estimators are more efficient and unbiased compared to using purely cross-sectional or time-series data. This research consists of independent variables: Prevalence of Population with Moderate or Severe Food Insecurity (X1), Prevalence of Inadequate Food Consumption (X2), and a dependent variable: Percentage of Expenditure on Food (Y). The data source for this research is secondary data obtained from the website of the Central Bureau of Statistics (BPS) of Indonesia. The operationaliztion of these variables, along with the data categories, sources, and period, is detailed in Table 2. However, several limitations must be acknowledged. One key limitation is regional imbalances, as BPS data may not fully capture variations in food security between urban and rural populations, potentially leading to the underrepresentation of marginalized communities. Additionally, household survey constraints pose another challenge, as self-reported data on food waste and expenditure may be affected by recall bias or social desirability bias, impacting accuracy. Furthermore, sectoral gaps exist within the dataset, as it lacks detailed insights into specific industries or business segments contributing to food waste, limiting the precision of policy interventions.
Data and method
From the data of 34 provinces in Indonesia, further analysis was conducted using statistical analysis or econometric models, specifically panel regression which is processed using the Eviews 9 program, to identify the relationships between these variables both partially and simultaneously. According to Wanner and Pevalin, panel regression is a set of techniques for modeling the influence of explanatory variables on response variables in panel data (Pangestika, 2015). The panel data regression model in this research is described as follows:
Description:
PMit = Food Expenditure in Province i at year t
β1KPit = Food Insecurity in Province i at year t
β2KPit = Inadequate Food Consumption in Province i at year t
β1, β2 = regression coefficients/parameters
β0 = constant
e = error
Results and Discussion
Chow test
The Chow test was used to select the best model estimation between the Common Effect Model (CEM) and the Fixed Effect Model (FEM). It evaluates whether there are significant differences in intercepts across different cross-sectional units. If the Chow test results in a significant p-value, the fixed effects model is preferred over the pooled OLS model. The hypotheses in this test are H0 = Common Effect Model and H1 = Fixed Effect Model. The results of this processing can be seen in the following Table 3.
Chow test
Based on Table 3, it can be seen that the results of the panel data regression with the Chow test show a probability value of 0.0000, which is smaller than the significance level α = 0.05. Therefore, H1 is accepted and H0 is rejected, indicating that the appropriate model to use is the Fixed Effect Model (FEM).
Hausman test
The Hausman test was used to determine which model to use between the Fixed Effect Model (FEM) and the Random Effect Model (REM). It assesses whether there is a systematic difference in coefficients between these two models. A significant p-value suggests that the fixed effects model is more appropriate, whereas an insignificant p-value supports the use of the random effects model. The hypothesis in this test is H0 = Random Effect Model and H1 = Fixed Effect Model. The results of this processing can be seen in the following Table 4.
Hausman test
Based on Table 4, it can be seen that the results of the panel data regression using the Hausman test yielded a probability value of 0.0079, which is smaller than the significance level α = 0.05. Therefore, H0 is rejected and H1 is accepted, indicating that the appropriate model to use is the Fixed Effect Model (FEM).
Estimation result
Based on the results of the panel data regression from the Chow test and Hausman test, the selected model is the Fixed Effect Model (FEM). The results of this panel data regression can be seen in Table 5.
Panel data regression result
Based on the test results, the resulting regression equation is:
The coefficient value for each variable indicates the partial effect of a one-unit increase in each independent variable, assuming all other variables remain constant. A positive sign indicates that if the independent variable increases, the dependent variable will also increase, and vice versa. The constant value of 50.54877 indicates the estimated increase in Food Expenditure (in units) when the values of Food Insecurity and Inadequate Food Consumption are zero.
The next step was to conduct an F-test, which aims to determine the overall significance of the independent variables in explaining the variation in the dependent variable. The F-test is evaluated by looking at the Prob > F value. If the Prob > F value is less than alpha (α = 0.05), it can be concluded that the independent variables, taken together or simultaneously, have a significant impact on the dependent variable. Based on Table 4, the probability value of the F-statistic is 0.000000, which is less than α = 0.05. Therefore, it can be concluded that Food Insecurity and Inadequate Food Consumption simultaneously have a significant impact on Food Expenditure in Indonesia. Increases in food insecurity and inadequate food consumption can lead to increased food expenditures. However, by introducing cheaper and environmentally friendly suboptimal food products, the circular economy can help reduce the percentage of expenditure on food, thus contributing to a reduction in inadequate food consumption and food insecurity.
Table 4 indicates that the t-statistic for Food Insecurity is 0.0022 < of 0.05 (α). This means that we can statistically reject the null hypothesis (H0) and accept the alternative hypothesis (H1), concluding that Food Insecurity has a significant impact on Food Expenditure in Indonesia. The regression coefficient for the Food Insecurity variable is −0.388158. This negative coefficient suggests that for every 1% increase in Food Insecurity, there is a corresponding 0.388158% decrease in Food Expenditure, assuming all other factors remain constant. High food insecurity can lead people to allocate more of their expenditure to food as they need to secure a sufficient food supply. In the context of a circular economy, increasing food insecurity could stimulate the acceptance of more affordable, suboptimal food products, thereby reducing expenditures.
The hypothesis regarding the effect of Inadequate Food Consumption on Food Expenditure in Indonesia is H0: Inadequate Food Consumption has no significant effect on Food Expenditure, while H1: Inadequate Food Consumption has a significant effect on Food Expenditure. Table 5 shows that the significance level of the t-statistic for Inadequate Food Consumption is 0.0043 < 0.05 (α), which means that we statistically reject H0 and accept H1, indicating that Inadequate Food Consumption has a significant effect on Food Expenditure in Indonesia. The regression coefficient for the Inadequate Food Consumption variable is 0.143161. This means that if there is a 1% increase in Inadequate Food Consumption, there is a corresponding 0.143161% increase in Food Expenditure, assuming all other variables remain constant. Inadequate food consumption typically forces households to increase their food expenditures to meet their nutritional needs. In the context of a circular economy, the provision of cheaper, suboptimal food products can reduce inadequate food consumption and help lower the percentage of expenditure on food. Therefore, the higher the level of inadequate food consumption, the greater the percentage of expenditure on food.
In this research, the results indicate that food insecurity and inadequate food consumption significantly affect food expenditure. Specifically, higher food insecurity tends to reduce food expenditure as consumers shift toward more affordable, suboptimal food options. Conversely, inadequate food consumption drives households to spend more in an effort to meet their nutritional needs. These findings support the potential for a circular business model by channeling suboptimal food products into the market through innovative business strategies, both food waste can be reduced and food expenditure can be optimized.
Consumer preferences for suboptimal food products
Waste management is a critical issue in Indonesia that requires serious attention from various parties. Waste management is a structured, comprehensive and sustainable activity that includes waste reduction and handling (Mahartin, 2023; Romianingsih, 2023). Waste management concentrates on being able to overcome the waste problem, because the problem of waste is no stranger to hearing, so to be better we must be able to control bad behavior, namely littering. Then this is where we live and also where other living beings live, so we must take care of each other in good condition because the environment will affect all aspects (Ramadhan and Masjud, 2024).
According to the latest data from the National Waste Management Information System (2024), the composition of waste in Indonesia in 2023 is very diverse, with a significant dominance of organic and plastic waste. Improper management of these types of waste not only has an impact on the environment, but can also cause various social and economic problems.
Food waste is a never-ending issue in every country, including Indonesia (Jacinda and Surtikanti, 2024). Fig. 1 shows that the composition of waste in Indonesia in 2023 is dominated by food waste, which accounts for 40.95%. This high percentage reflects inefficient food consumption and waste management practices, and indicates a significant potential for improvement in organic waste management through composting programs and food waste reduction. Indonesia is still not effective in managing food waste compared to other countries. The lack of regulation and public awareness of the importance of waste and food waste causing Indonesia to be ranked low in waste and food waste management and is one of the largest food wastes producing countries in the world (Syalianda and Kusumastuti, 2023).
Waste composition by type in 2023.
Source. National Waste Management Information System (SIPSN), 2024
The second largest type of waste is plastic, accounting for 19.12%. This highlights the serious issue of single-use plastics and low recycling rates. Plastic waste requires special attention due to its significant impact on the environment, including marine pollution and ecosystem damage (Panjaitan, 2024; Zumira and Surtikanti, 2023). Community support and the role of the informal sector in plastic waste management reflect changes in social attitudes and behaviours that are increasingly concerned about the environment (Pramiati et al., 2024).
Circular Economy is a concept that transforms end-of-life products into resources for others, closing the loop in the industrial ecosystem, minimizing waste, and following sustainable methods (Valavanidis, 2018). Products that do not meet specific specifications are called suboptimal food products, representing fruits and vegetables with different visual appearances, food products with damaged packaging, and food products nearing their expiration date (de Hooge et al., 2017). Concerns related to food safety and perceived risk are considered important aspects of food consumption and so are food waste issues (Galati et al., 2019). However, consumer demand for food and the aesthetics of packaging, the selection of the freshest products, and the misinterpretation of date labels also have a significant impact on food waste levels (Canali et al., 2016). Suboptimal food refers to consumable products that may have abnormal appearances, and/or are near or beyond their expiration dates. While consumers may be aware of food waste, they often avoid suboptimal food (Hartmann et al., 2021). Research by Stangherlin et al. (2019) indicates that consumers generally reject suboptimal products, thereby increasing avoidable food waste. However, the reasons behind their acceptance or rejection of such products vary. Some reject suboptimal food due to a desire for perfection in food appearance, while others, driven by environmental concerns, accept them if the products will be consumed in the near future. If intended for longer-term consumption, suboptimal products are more likely to be rejected. Consumers typically have more negative perceptions of suboptimal food because they equate perfect appearance with quality (Aschemann-witzel et al., 2018). Selling suboptimal food requires assurances about its safety and the same taste, aroma, and smell as regular products. Messaging should also emphasize how rejecting suboptimal food contributes to food waste (Symmank et al., 2018).
Based on a research by Bolos et al. (2022) consumers often choose food based on value, quality, and safety that provide short-term benefits rather than based on environmental considerations. The average choice that consumers might make can be considered as an indicator of the potential for avoiding food waste in stores (Aschemann-witzel, 2018; de Hooge et al., 2017). However, a study by Huang et al. (2021) shows different results. Consumers are willing to buy suboptimal food with a defective appearance, although the price needs to be reduced from the original price. Although suboptimal food products do not reduce health, consumers may still not buy them and this results in food waste. Forms of suboptimal food can be visual such as appearance, temporal such as nearing or exceeding the expiration date, or peripheral such as superficial packaging damage (Cao and Miao, 2022). Additionally, there is a limited commercialization of branded products derived from food waste and a need for more practical and measurable solutions (McCarthy et al., 2019). Opportunities in the circular economy of suboptimal food products lie in the development of innovative business models that can effectively address food waste while creating value-added products and services (Salvador et al., 2023; Tamasiga et al., 2022).
Benefits of a circular business model for suboptimal food products
A circular business model for suboptimal food products provides economic, environmental, and social benefits. Economically, it enhances business competitiveness by transforming suboptimal food into higher-value products, generating additional revenue, and reducing disposal costs. This model also opens opportunities in biomaterials and plant-based products, boosting brand reputation and creating new business avenues (McCarthy et al., 2019; Prorec, 2023). Environmentally, the model reduces waste and pollution by reusing and recycling suboptimal food, lowering landfill contributions, conserving natural resources, and reducing carbon emissions from the food industry. Food security is a crucial issue in the world today. The increasing demand for food is driven by the continuously growing global population (Abidin, 2024). Socially, a circular food economy strengthens food security and community resilience, supporting smallholder farmers in regions with high food insecurity. It also promotes local food production and creates green jobs, contributing to community development and economic resilience (Prorec, 2023). The model further improves consumer acceptance and awareness. Marketing efforts, consumer education, and interventions targeting consumer experience can encourage acceptance of suboptimal food, reducing food waste and promoting sustainability. Consumers with better cooking skills and a stronger connection to food are more likely to choose suboptimal products, contributing to waste reduction (Stangherlin et al., 2019; Varese et al., 2022).
Conclusion
This study explored the potential of circular business models for suboptimal food products in promoting environmentally friendly consumption in Indonesia by analyzing the impact of food insecurity and inadequate food consumption on food expenditure. The findings reveal that food insecurity significantly increases food expenditure as households allocate more to secure sufficient food supplies. Similarly, inadequate food consumption compels households to spend more to meet nutritional needs. Circular business models can address these issues by providing affordable and environmentally friendly suboptimal food products, reducing food expenditure, and alleviating food insecurity and inadequate consumption. These models also contribute to reducing food waste, improving resource efficiency, and supporting environmental sustainability. Despite their potential, challenges such as negative consumer perceptions, inadequate infrastructure, and regulatory hurdles must be overcome through education, awareness, and collaboration. Globally, circular business models for suboptimal food products present innovative solutions for food waste reduction, food security enhancement, and economic value creation. From the government’s perspective, regulatory incentives such as tax reductions or subsidies should be implemented for businesses engaged in food upcycling and redistribution programs. Additionally, waste management policies must be strengthened by mandating food businesses to incorporate circular practices. In the private sector, food producers and retailers should be encouraged to adopt surplus food repurposing mechanisms, such as converting near-expiry products into new food items or redirecting them to food banks. At the consumer level, awareness campaigns and educational programs should be promoted to reduce the stigma surrounding sub optimal food. Furthermore, the integration of digital platforms that connect surplus food sources with consumers and social initiatives can serve as an effective strategy to support this model.
Moreover, the implications of this study extend beyond its immediate context. The model presented herein can be applied to other regions or sectors facing similar challenges, offering a framework for policymakers and businesses to develop sustainable strategies in food management. For the academic community, this research provides empirical evidence supporting the effectiveness of circular economy practices, and it invites further exploration into the long-term impacts of such models on food security and economic sustainability. Future studies could incorporate additional variables, use larger and more diverse datasets, or apply the model in different cultural and economic contexts to broaden our understanding of circular business applications.
Notes
This work is supported by the Directorate of Research, Technology and Community Service, Directorate General of Higher Education, Research and Technology, Ministry of Education, Culture, Research and Technology of Indonesia and with contract numbers grant number [NKB-980/UN2.RST/HKP.05.00/2024]