The Circular Economy

The Circular Economy

  1. Introduction

In the current era, a linear model of consumption and production has dominated the global economy. These goods are manufactured from raw materials, vended, used and then castoff as waste. Basically, linear model follows the “take-make-dispose” phenomenon and depends on such resources which are easily accessible, but this system has harmful impacts on economy in the long-run (MacArthur, 2013). Therefore, numerous countries are trying to switch from linear to a circular economy. In a circular economy, the value of resources, materials, and products are maintained at optimum levels in order to minimize the waste generation. To decrease the amount of waste, it is essential to recycle the resources and materials into input factors of production (Ellen Macarthur Foundation, 2013).  The main purpose of this report is to assess the transition from linear to circular economy in food industry, which has strong linear characteristics. It will mainly discuss the case of McDonald’s and analyse how the company changed its packaging style in order to promote environmental sustainability.

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  • Strong Linear characteristics of Food Industry

The linear economy in fast food industry is no longer an acceptable model (Jurgilevich et al., 2016). The shortcomings of linear economy in food production increase the demand for a substitute model, which can potentially be met with the adoption of circular economy (Sariatli, 2017). The major drawbacks of linear economy are found in the lack of solution for growing demand for liable products, increased material demand, increased pollution, and for the growing shortage of materials. The main reason behind loss of natural capital is Linear economy, as it does not focus on recycling of raw materials or existing products (Ellen Macarthur Foundation, 2013). The rationale behind choosing food industry as the case industry in this report is that during food production, procedures like eutrophication and excess emission of CO2 impact environment. Food economy incurs high costs of throwing food away, lose natural resources, energy and productivity (Jurgilevich et al., 2016). As a linear economy, the main problem that McDonalds faced, was the lack of packaging sustainability of products; as wrappers, cups and cans cause land pollution and are direct threat to marine life that may digest it and die (Barclay, 2015).

  • Supply Risks

Uncertainty about material obtainability is prominent in a linear economy. Several mechanisms are involved to assure the availability of limited materials and resources on the planet. In any industry, the geopolitical developments, inter-linkages of products and processes, development of industries that are dependent on critical materials, and rise in price fluctuations are the reasons which fuel this uncertainty (MacArthur, 2013b). So, a multinational food chain like McDonalds faces these supply risks, regarding the packaging of its products.

  • Price Volatility

Since 2006, the variation in commodity prices has increased, that has considerably risen average prices. It has not only become alarming for producers and buyers of raw materials of food items, but has also increased risks in market and decrease the demand for investment in material supply. Thus, the price of raw materials increases for long-term (Lee et al., 2012). It implies that along with the increase in food’s raw material price, increase in packaging product’s price is also a big problem for food industry.

Figure 1: The figure shows how prices increase with the passage of time, whether it is the price of food, fuel or metal.

  • Lack of Communication among Outlets

Packaging is the main process in offering food products, therefore it should be strategically managed. There is a lack of communication among the McDonald’s outlets across the globe. In France, the company has not disclosed the amount of packaging used by its restaurants. On the other hand, the company is doing well in Germany.

  • Increasing material demand

Due to an increase in disposable income and an ever growing population, an increase in the number of consumers up to three billion is expected by 2030 (Ellen Macarthur Foundation, 2013). This indicates that decoupling of material usage and growth will reduce the stride of resource depletion and upsurge the material costs sharply. If businesses keep follow the current models, the resource consumption is expected to be doubled in 2020 (as shown in below figure) and will be tripled till 2050 (Defra, 2013, pp.12-13).

Figure 2: An increasing trend in global resource extraction

  • Upsurge of Externalities

Following a linear economy causes adverse side effects, including the misfit with the demand for crucial products, a decrease in product lifetime and damage to ecosystems (Lacy and Rutqvist, 2016, pp. 87). Similarly, in the present case of McDonald’s where packaging of food items is disposed in seas and rivers, it eventually impacts the environmental sustainability of world (Zerowastefrance.org, 2017).

  • Increasing Waste

Increasing waste is alarming for global environment. Food items that are packed in shoppers contain toxic particles that are hazardous for health. On the other hand, the disposal of these shoppers in water bodies like seas and rivers also impact the marine life (Muthu et al., 2009). In the case of MacDonalds, when hot burgers are wrapped in plastic paper, they start producing toxic substances because these wrappers have a grease-repelling chemical coating which may consist of fluorinated compounds (Lee et al., 2017).

  • Misfit with the Requirement for Accountability

Awareness regarding adverse effects of linear economy on environment is gradually increasing. Companies are gradually improving their accountability systems so as to cause minimal adverse effects on the environment (Lacy and Rutqvist, 2016, pp. 56). When any unsustainable processes are involved in the strategy of any business, its brand image gets worsen and its negative ecological footprint is heightened. Now when the negative impacts of the linear economy are visible, policymakers give special attention towards sustainable businesses (Accenture, 2014). It implies that MacDonalds had to adopt a sustainable packaging strategy in order to minimize its negative ecological footprint.

  • Decreasing lifetime of Products

In the present era, life of products is severely diminishing. The main reason behind drastic decrease in service life of products is that consumers use old products for limited time period and want new products more quickly. By decreasing the product’s quality and usage for the long term, the market holders stimulate consumers to buy new products (Bakker et al., 2014, pp.70-75).

  • Degradation of Ecosystems

During the production processes, a large stream of is useless material is generated which is left on garbage dump or burned; same happens with the products when they are not useful. Eventually, this whole scenario leads to a surplus of useless material mountains which overload ecosystems. Such heaps of surplus material mirrors the need of providing necessary ecosystem services such as the processing of nutrients, providing shelter, building materials and food (Ellen Macarthur Foundation, 2013; pp.16-17).

  • Waste is food

The main idea behind circular economy regarding biological nutrients is to reintroduce materials and products back into the biosphere by non-toxic restorative loops. Up cycling is the improvement in quality of products and is involved in the technical improvement of nutrients (Ellen Macarthur Foundation, 2013).

As far as biological nutrients are concerned, the ability to reintroduce products and materials back into the biosphere through non-toxic, restorative loops is at the heart of circle economy. On the other hand, improvements in quality are made possible through up cycling. Before extracting valuable feedstock, the effort to alter material configuration of consumables from technical towards biological nutrients involves certain applications that follow the core principles of a curative circular economy in order to re-introduce their nutrients into the biosphere (Ellen Macarthur Foundation, 2013). The following figure demonstrates how the whole process takes place

Figure 3: Circular economy model in minimizing food waste

  • The Re-designed Circular Model

The circular economy is the reflection of an industrial economy that aims to minimize the use of toxic chemicals, eliminates waste by proper design and renewable design (Ellen Macarthur Foundation, 2013; pp. 22). The main idea behind re-designing circular mode in food industry is to refresh products without acquiring new material input to satisfy consumers that they are getting new and valuable products (Ellen Macarthur Foundation, 2013, pp. 70).

  • Re-designing boosts innovation

When the productivity of any business increases, it exerts a positive impact on its economic development. As a “redesigning device”, circular economy is considered a powerful process, that not only boosts innovation rates but also provides creative solutions (Ellen Macarthur Foundation, 2013; pp. 75).

In the present case, McDonald’s management is focusing on changing their packaging process. Now, the company offers foam cups and paper boxes that are light in weight and can be recycled easily. Company is arranging composting and recycling bins at all of its locations, so that consumers can easily dispose their wrappers in those bins (Barclay, 2015).

  • Benefits of Circular Economy for McDonalds

The transition of linear economy to circular economy is related to high expectations regarding economic and ecological benefits. It leads the economy towards sustainable growth by efficiently using the resources and raw materials. It creates new jobs, as more labor is required for remanufacturing the existing products, along with making a new one. It minimizes the imports of raw materials by remanufacturing high-quality products from waste. This phenomenon improves resource security and ensures its availability at low cost (Wilts, 2017). The principal objective of resource efficiency policy is to improve quality of life and decouple economic growth by consuming the energy and resources effectively (Wilts, 2017). Economically, circular economy offers costs saving opportunities to various industries. Furthermore, circular economy offers a platform for business and technologies models that generate economic added value from limited natural resources. According to MacArthur & McKinsey (2014), improving circulation in the economy to manufacture complex consumer durables with medium lifespans, could produce savings in material costs of up to $630 billion in the EU alone. Therefore, circular economy supports the economy by improving global competitiveness and saving firms from external shocks (Wilts, 2017).

  • Challenges: Transition from Linear to Circular economy

The benefits of circular economy are known largely, but there are certain challenges involved in the transition from linear to circular economy faced by McDonald’s. In the context of cost, producers considered circular economy an expensive process due to high labor intensity. When the existing designs of products will replace and refurbish, the costs per item will increase (Tukker, 2015). It was also seemed impossible to compete with rivals by using the same material in different manner due to high innovation speed (Linder & Williander, 2015). Additionally, some of the obstacles are listed below:

  • Insufficient Investment

It was difficult to find suitable financer for investing in re-designing an existing product. No one was ready to invest sufficiently in recovery and recycling technologies, innovation and infrastructure for short period of time (Eijk, 2015).

  • Less awareness of Product

As a short period of time is entailed in re-designing a product, it was difficult to promote product widely. So, most of the consumers remained unaware of product and were unable to use it within the required time period, like perishability of food products (Eijk, 2015).

  • Lack of Skills

In circular product design and production, insufficient skills of employees created problems for MacDonalds to recycle, repair, remanufacture and re-use the materials (Eijk, 2015).

  • High price level

High level of resource pricing became alarming for implementing the circular economy and discouraging innovation, pollution mitigation and efficient resource use (Eijk, 2015).

  • Weaknesses of Circular Economy

There are certain weaknesses associated with circular economy which create problems for any industry while transitioning from linear to circular economy. There is no specific legal regulations available for applying circular economy (Sariatli, 2017). Lack of proper guidelines to sectors weakens the implementation of circular economy. Moreover, there is no recognized institution available internationally for the regulation of circular economy. Lack of promotion of circular economy and proper assessment of businesses regarding its implementation also makes circular economy inefficient (Sariatli, 2017).

  • Requirements of Circular Economy

New policy framework is required to support circular economy that contains extensive strategies for existing waste legislation. To enable recycling, proper product design should be available and such business models should be adopted that minimize wastes. The biggest challenge in circular economy is to integrate some instruments in a new policy mix (Bonciu, 2014). Political parties are required to take responsibilities towards the implementation of circular economy, as it is the long-term process and benefits the economy by increasing the revenues of nation through taxes. Circular economy provides economic incentives, as it shifts the tax burden away from income or labor towards non-renewable resources. Private sector waste operators should also be held accountable  for the implementation of circular economy in their nation (Bonciu, 2014). So, the management of McDonalds should start special campaign to make consumers aware about the recycling bins that the company fixed at different places. Government should also play its role by designing special policies related to environmental sustainability and secure marine life by eliminating toxic disposable material from seas and rivers.

To conclude, transitioning from linear to circular economy is the need of hour, given the increasing global consumerism and shortage of resources. As food industry is one of the leading industries in the world, so it has to adopt such business model through which it can minimize waste production. This report has illustrated the recent dynamics of circular economy implementation at MacDonalds, and provided insights about how MacDonalds is trying to transition from linear to circular economy. It has shown that although circular economy provides immense benefits to food industry, yet its implementation faces substantial challenges.
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