- Health and environmental factors are among the top hidden costs estimated in the agri-food system, according to a recent report from the Food and Agriculture Organization.
- The report, released ahead of the COP28 climate conference, underlines the need for urgent transformation in food systems, which is also on the COP28 agenda.
- The total hidden costs of India’s agri-food system amount to $1.12 trillion in 2020.
A recent report shows that while the global agri-food system offers nutritional and livelihood benefits, it also has hidden costs, such as those related to health and the environment. These add up in estimating the value of the agricultural process of production, distribution and consumption to society.
The State of food and agriculture The report, released earlier in November by the Food and Agriculture Organization (FAO), quantifies hidden costs – costs that are not reflected in the market price of a product or service – at $12.7 trillion by 2020 Purchasing Power Parity ( PPP) dollars. PPP is a theoretical exchange rate that aligns the purchasing power of different currencies.
The global hidden costs of the agri-food system in 2020 are estimated to include greenhouse gas and nitrogen emissions, water use, land use changes, unhealthy diets, malnutrition and poverty, including data from 154 countries. By assessing the hidden costs and benefits of agri-food systems, the report aims to provide input for decision-making on the sustainability of such systems.
Agri-food systems cover the journey of food from farm to fork – including when it is grown, fished, harvested, processed, packaged, transported, distributed, traded, purchased, prepared, eaten and discarded. According to the report, most of the hidden costs (over $9 trillion or 73% of the total hidden costs of $12.7 trillion in 2020) are health-related costs resulting from lost productivity due to unhealthy diets. The other hidden costs the report suggests include environmental costs, estimated at $2.9 trillion (about 20%), and social costs, associated with poverty and malnutrition, which account for about 4% of total hidden costs. To estimate environmental costs, the report analyzed data on greenhouse gases emitted across the food value chain, including food and fertilizer production and energy use, nitrogen emissions, blue water use and farm-level land use change. To analyze the social costs, the report took into account distributional errors in the available food supply and the moderate poverty among workers in the agricultural sector. It used factors contributing to unhealthy diets leading to obesity and non-communicable diseases (NCDs) to estimate health costs.
Of the hidden environmental costs, which the report says are likely to be underestimated, more than half are due to nitrogen emissions, mainly from water runoff and ammonia emissions to the air, the report said. Other contributions include greenhouse gas emissions that affect climate change (30%), costs associated with land use change (14%) and water use (4%).
The FAO report comes ahead of the UN climate conference COP28, where world leaders will meet in Dubai to negotiate strategies to mitigate climate change. COP28 dedicates a day to food systems and the COP28 Presidency has urged countries to sign a leaders’ statement recognizing the need to transform the food system.
When asked about the timing of the report, David Laborde, Director of FAO’s Agrifood Economics Division (ESA), told Mongabay India: “COP28 will bring discussions on food systems to the forefront. We want to ensure that food security and nutrition are not forgotten. Our goal, starting with this report and the publication of another document at the COP, is to show that food security, nutrition and climate action are complementary.”
He added: “We cannot achieve food security and nutrition tomorrow if we do not take serious mitigation and adaptation measures today.” He said the upcoming FAO report will provide a roadmap to achieve the UN Sustainable Development Goal 2 – ending hunger and achieving food security by 2030 – without exceeding the 1.5 degrees Celsius threshold.
The State of food and agriculture 2023 The report introduces True Cost Accounting (TCA) as an approach to estimate hidden costs and uncover the hidden impacts of agri-food systems on the environment, health and livelihoods. TCA goes beyond market exchanges and takes into account all flows to and from agri-food systems, including those not covered by market transactions. The report used several national-level data sets to reach its conclusions. These datasets include FAO’s Corporate Database for Substantive Statistical Data (FAOSTAT), the World Bank’s World Development Indicators, the Global Burden of Disease database, and the Ecosystem Services Valuation Database.
“By valuing the climate costs associated with the production, distribution and consumption of food and agricultural protection, the use of True Cost Accounting contributes to greater transparency,” says FAO’s Laborde, speaking about the use of True Cost Accounting (TCA) to estimate hidden costs. “In this regard, having more information can help policymakers, investors and consumers make better decisions, including on climate. However, TCA is just a tool; it does not replace political will and behavioral change.”
Integrating hidden costs into policy decisions
The report’s findings suggest that hidden costs vary in size and composition by income level. Most of these costs come from upper-middle-income countries (39% of total hidden costs) and high-income countries (36%). Lower-middle income countries contribute 22% of the hidden costs, while low-income countries account for 3%.
The report highlights that productivity losses due to dietary patterns that lead to non-communicable diseases (NCDs) are the largest contributor to damage to the agri-food system in all but low-income countries. The next major contributor to hidden costs is environmental costs. In lower-middle-income countries, the social costs of poverty and malnutrition contribute more to hidden costs.
The report also estimates hidden costs for individual countries. “The countries with the highest net hidden costs are the largest food producers and consumers in the world, with the United States of America accounting for 13% of the total quantified hidden costs, the European Union 14%, and the bloc Brazil, the Russian Federation, India and China (the BRIC countries) account for 39%,” the report says.
In India, the report highlights, the total hidden costs of agri-food systems are $1.12 trillion, compared to the United States and China, where the hidden costs are $1.58 trillion and $2.55 trillion, respectively.
Of the $1.12 trillion in hidden costs, environmental costs associated with climate, water use, land and nitrogen total $77.4 billion, $36.3 billion, $24.1 billion and $144.2 billion, respectively. Among social costs, the cost of poverty among workers in the agricultural sector is $157.4 billion and that of diseases related to malnutrition is $15.3 billion. In the health category, the cost of diet-related diseases is $668.6 billion. The analysis highlights the need for a comprehensive approach to address economic impacts on the environment, society and health.
FAO’s David Laborde says the hidden costs of agri-food systems – related to the environment, society and health/nutrition – equivalent to 10% of global GDP, should be a strong call to action. Transforming the agri-food system offers great opportunities to tackle these different costs simultaneously, he said, giving the example that adopting healthier diets will benefit people and the planet.
Among the challenges of integrating hidden costs into decision-making processes, the lack of political will is a significant problem, the report says, noting: “Decision-makers face competing objectives, and addressing the hidden costs of agri-food systems can achieve significant require changes in current production and consumption practices, which may encounter resistance from governments, businesses, producers and consumers, who may prefer the status quo for fear of high transition costs or changes in customs, culture or traditions.” Another challenge is resistance to change, which can occur for a variety of reasons, including compromises that can have long-term consequences. For example, the use of agricultural chemicals to increase production can reduce poverty, but can also lead to ecological degradation in the long term. These challenges make policy decision-making more complex.
“There is no way to achieve a 1.5°C world, feed the world and protect nature without changing the way we produce, transport, process, distribute and consume food and use our land to urgently transform,” said Wanjira Mathai, Managing Director for Africa and Global Partnerships at the World Resources Institute (WRI), in a virtual media briefing on food and agriculture at COP28, on November 27. “This could unlock $4.5 trillion a year in new business opportunities. The focus on food and nature at COP28 is welcome, but it will require more than just warm words – there needs to be decisive action, with clear objectives, timelines and funding, and a focus on local communities who need to adapt.”
Banner image: Hidden costs in agri-food systems vary in size and composition at different income levels. Most of these costs come from upper-middle-income and high-income countries. Photo by Neil Palmer (CIAT/CCAFS)/Flickr.