The journey of food from farm to table creates jobs and shapes our land and cultures. But agrifood systems systems come with significant hidden costs that negatively impact the environment, our health, and society. Unfortunately, these hidden costs are rarely reflected in market prices or traditional economic analysis. Ignoring them can have dire consequences, including contributing to climate change, loss of biodiversity, and increased poverty and inequality. To design more resilient and sustainable agrifood systems and ensure access to healthy diets that allow people to thrive, we must get better at accounting for these hidden costs and taking action to address them. This means moving away from standard economic models designed based on demand, supply and price equilibrium ideologies and creating space for new models that adjust for hidden costs to environment and society.
The new FAO’s flagship State of Food and Agriculture (SOFA) 2023 report uses true cost accounting (TCA) to measure the real impact of how we produce, transport, process, and consume food. This will enable decision-makers to design and implement the best solutions to address the hidden costs that affect us all.
According to SOFA 2023 report, the hidden costs of our agrifood systems are at least $10 trillion a year, which is nearly almost 10 percent of global GDP. The highest costs are to people’s health from unhealthy diets leading “non-communicable diseases and causing labour productivity losses”, mostly affecting high and upper middle income countries. One-fifth of the total costs are environmental, including from greenhouse gas emissions and nitrogen emissions, land-use change and water use. Low-income countries bear the brunt of hidden agrifood system costs, which account for over a quarter of their GDP, as compared to just 12% for middle-income countries and less than 8% for high-income countries.
Examining market, institutional, and policy failures
The text discusses hidden costs associated with inefficient resource allocation, injustice in the distribution of benefits and missed opportunities for sustainable development. Market, institutional, and policy failures generate losses that are not reflected in market prices, such as water pollution caused by pesticides and fertilisers and the poverty of agrifood system workers. The text examines hidden costs along the value chains, from inputs and primary production to consumers, looking at greenhouse gas emissions, nitrogen emissions, land use change, blue water use, undernourishment, and unhealthy dietary patterns. The challenge is to compare and stack up these impacts in different dimensions and look at them together.
These preliminary results show the need to produce deeper national-level analysis to help policymakers address these costs by enabling comparisons of different levers, from subsidy and tax reforms to new regulations to voluntary guidelines. Next year’s report will focus on these more targeted assessments of hidden costs.
Transparency and consistency
True cost accounting (TCA) is a way to measure the real impact of how we produce, transport, process, and consume food. This, in turn, will allow decision-makers to design and apply the best solutions to address the hidden costs that affect us all. It is critical that our action within this system is transparent if we are to achieve the Sustainable Development Goals (SDGs) in a coherent manner.
The FAO’s report presents an initial analysis of the hidden costs of these systems for 154 countries using global sources that provide country-level and annual data. The report acknowledges the level of uncertainty in their estimates and offers a range for that uncertainty. In this sense, for example, according to SOFA 2023, the total costs that are environment-related affecting all countries, with the scale likely “underestimated due to data limitations”.
The report then moves to provide guidance on how to conduct more focused assessments that can provide more detailed guidance to policymakers. Such assessments are crucial for implementing different strategies to transform agrifood systems. It also discusses the role of these assessments in implementing different levers for transforming agrifood systems.
The impacts of food systems should be made more transparent to provide guidance to policymakers in implementing different levers for transforming agri-food systems.
It also stresses the need “for true cost accounting assessments at scale, innovations in research and data, as well as investments in data collection and capacity building (…) especially in low- and middle-income countries, so that it can become a viable tool for informing decision- and policymaking in a transparent and consistent way”. True cost accounting, also known as TCA, is a systemic approach that measures and values the environmental, social, health, and economic costs and benefits generated by agri-food systems. This approach looks at all aspects of these systems to provide a comprehensive understanding of their impact.
Moving forward
In the upcoming report by FAO, the same theme will be continued – focusing on the empirical applications of TCA with case studies from around the world. These case studies will be country-specific and will assist decision-makers in identifying trade-offs, synergies, and policy options. This addition will pave the way for agrifood systems assessments to be a crucial part of decision-making.
Agrifood systems have a significant impact on our lives, and we cannot ignore the hidden costs they generate. While the value of these systems is undeniable, their hidden costs negatively impact the environment, society, and health in most countries. It is crucial to assess and value these hidden costs through rigorous accounting and actively work towards reducing them.
In conclusion, we need to get better at accounting for these hidden costs and acting to address them. Crucially, the uneven distribution of these hidden costs, which disproportionately affects poor and vulnerable groups, is likely to increase global inequality. The FAO’s flagship report makes the case for using TCA to measure the real impact of how we produce, transport, process and consume food. It is critical that we account for these hidden costs if we want to mitigate climate change and protect biodiversity, design more resilient and sustainable agrifood systems, ensure access to healthy diets that allow people to thrive and address poverty and inequality. The FAO’s report highlights the importance of revealing the true cost of food for factor transformation in the global agrifood system, and it is our responsibility to act upon it.
Main takeaways
- The report sheds light on the hidden impacts of agrifood systems, both positive and negative, that are not included in the market prices
- To improve their environmental, social and economic sustainability, it is crucial that the impacts of our actions within our food systems are made more transparent and consistent.
- The report adopts the approach of true cost accounting to assess the hidden impacts.
- It provides a preliminary quantification of the hidden costs of every food system for 154 countries, using global sources with country level and annual data.
- The report acknowledges the level of uncertainty in its estimates and provides a range for that uncertainty.
- The report provides guidance on how to conduct more targeted agrifood system assessments that go beyond the national assessments presented and underscores the need to truly provide guidance to policymakers.
- The report also discusses the role of these assessments in implementing different levers such as price incentives, regulations and voluntary standards for transforming agrifood systems.
Overall, the report acts as an opportunity for stakeholders to exchange information and get feedback throughout the year on this topic, and to bring these results out to more people. In the upcoming year, it’s crucial to contemplate whether consumers are truly willing and prepared to pay the true cost of their food and what the benefits and trade-offs of this new approach will be.