- Health and environmental factors are some of the major hidden costs estimated in the agrifood system, as per a recent report by the Food and Agriculture Organisation.
- Released ahead of the climate conference, COP28, the report underscores the need for urgent transformation in food systems, something that is on the COP28 agenda as well.
- Total hidden costs of India’s agrifood system amounts to $1.12 trillion in 2020.
A recent report reveals that the global agrifood system, while having benefits of nutrition and livelihood, has hidden costs, such as those related to health and the environment. These add up when estimating the value of the agricultural process of production, distribution and consumption, to society.
The State of Food and Agriculture report, released by the Food and Agriculture Organisation (FAO) earlier in November, quantifies the hidden costs – a cost that is not reflected in the market price of a product or service – at 12.7 trillion at 2020 Purchasing Power Parity (PPP) dollars. PPP is a theoretical exchange rate that brings on par the purchasing power of different currencies.
The global hidden costs of the agrifood system in 2020 are estimated to be from greenhouse gas and nitrogen emissions, water use, land-use change, unhealthy dietary patterns, undernourishment and poverty, among others based on data from 154 countries. By assessing hidden costs and benefits of agrifood systems, the report aims to provide inputs for decision-making towards the sustainability of such systems.
Agrifood systems refer to the journey of food from farm to table – including when it is grown, fished, harvested, processed, packaged, transported, distributed, traded, bought, prepared, eaten and disposed of. According to the report, the majority of the hidden costs (over $9 trillion or 73% of the total $12.7 trillion hidden costs in 2020) are health-related costs resulting from productivity loss because of unhealthy dietary patterns. The other hidden costs that the report suggests, include environmental costs, valued at $2.9 trillion (about 20%), and social costs, associated with poverty and undernourishment, which constitute around 4% of the total hidden costs. For the environmental cost estimates, the report analysed data on greenhouse gases (GHGs) emitted along the entire food value chain, encompassing food and fertiliser production and energy use, nitrogen emissions, blue water use and land-use change at the farm level. For analysing social costs, the report considered distributional failures in the available food supply and moderate poverty among agrifood workers. It used factors contributing to unhealthy diets, leading to obesity and Non-Communicable Diseases (NCDs) to estimate health costs.
Of the environmental hidden costs, which the report says is likely underestimated, more than half are due to nitrogen emissions, mostly from runoff into water and ammonia emissions into the air, notes the report. Other contributors include greenhouse gas emissions affecting climate change (30%), costs associated with land-use changes (14%), and water use (4%).
The FAO report comes ahead of the UN climate conference, COP28, where world leaders are gathering 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’ declaration that recognises 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 the discussions on food systems at the forefront. We want to make sure that food security and nutrition are not forgotten. Our goal, starting with this report and the release of another document at COP, is to show that food security, nutrition, and climate actions are complementary.”
He further added, “We cannot achieve food security and nutrition tomorrow if we do not take serious actions on mitigation and adaptation today.” He informed that the coming FAO report will give a roadmap to achieve the UN Sustainable Development Goal 2 – end hunger and achieve food security by 2030 – without breaching the 1.5 degrees Celsius threshold.
The State of Food and Agriculture 2023 report introduces True Cost Accounting (TCA) as an approach to estimate hidden costs and to unveil the hidden impacts of agrifood systems on environment, health and livelihoods. TCA goes beyond market exchanges to account for all flows to and from agrifood systems, including those not captured by market transactions. The report utilised various, national-level datasets to arrive at 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.
“Valuating the climate costs associated with the production, distribution and consumption of food and agricultural protection, the use of true cost accounting helps bring more transparency,” says Laborde from FAO, talking about using True Cost Accounting (TCA) to estimate hidden costs. “To this extent, having more information for policymakers, investors, and consumers can aid in making better decisions, including on climate. However, TCA is just a tool; it does not replace political will and behavioural change.”
Integrating hidden costs in policy decisions
The report findings suggest that hidden costs vary in scale and composition across income levels. Most of these costs come from upper-middle-income countries (39% of the total hidden costs) and high-income countries (36%). Lower-middle-income countries contribute 22% of the hidden costs, while low-income countries make up 3%.
The report highlights that productivity losses from dietary patterns leading to non-communicable diseases (NCDs) are the most substantial contributors to damages in the agrifood system across all, except low-income, countries. The next significant contributor to the hidden costs are environmental costs. In lower-middle-income countries, the social costs from poverty and undernourishment are more significant contributors to hidden costs.
The report also provides an estimate of the hidden costs for individual countries. “The countries with the highest net hidden costs are the world’s largest food producers and consumers, with the United States of America accounting for 13% of total quantified hidden costs, the European Union 14%, and the bloc of Brazil, the Russian Federation, India and China (the BRIC countries) accounting for 39%,” it says.
In India, the report highlights, the total hidden costs of the agrifood systems amount to $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 related to climate, water use, land and nitrogen add up to $77.4 billion, $36.3 billion, $24.1 billion and $144.2 billion, respectively. Among the social costs, the cost of poverty among agrifood workers is at $157.4 billion and the cost of diseases related to undernourishment is $15.3 billion. In the health category, the cost of diseases related to dietary patterns is $668.6 billion. The analysis emphasises the need for a comprehensive approach to address the economic impacts on the environment, society and health.
David Laborde from FAO says that the hidden costs of the agrifood systems – environmental, social and health/diet related – equivalent to 10% of global GDP, should be a strong call for action. The agrifood system transformation offers great opportunities to address these various costs at the same time, he said, giving the example that adopting healthier diets will be beneficial for people and the planet.
Among the challenges of integrating hidden costs into decision-making processes, the lack of political will is a significant one, says the report, noting, “Decision-makers face conflicting objectives, and addressing the hidden costs of agrifood systems can require significant changes to current production and consumption practices, which may meet with resistance from governments, businesses, producers and consumers, who may prefer the status quo for fear of high transition costs or changes in habits, culture or traditions.” Another challenge is resistance to change which may arise from various reasons, one being trade-offs that can have a long term impact. For example, the use of agrochemicals to increase production can reduce poverty but also lead to ecological degradation over time. These challenges add complexity to decision-making in policy.
“There is no pathway to reaching a 1.5°C degree world, feeding the world, and safeguarding nature without urgently transforming the ways we produce, transport, process, distribute, and consume food and use our land,” 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 requires more than warm words – there must be decisive action, with clear targets, timetables, and funding, and a focus on local communities to adapt.”
Banner image: Hidden costs in agrifood systems vary in scale and composition across income levels. Most of these costs come from upper-middle-income countries and high-income countries. Photo by Neil Palmer (CIAT/CCAFS)/Flickr.