The 2023 edition of the SOFI report (‘The State of Food and Agriculture’), published by FAO – in addition to providing updated estimates on the levels of hunger and malnutrition in the world, as seen (1) – offers useful insights into the ‘costs hidden aspects of agri-food systems. That is, the negative impacts of the related activities on the economy, by estimating the costs on the environment, public health, the livelihood of workers and local communities.
1) Agri-food systems, the immense challenge of sustainable development
Agri-food systems they are essential to the nutrition but also to the sustenance of humanity, since they employ more workers overall than any other sector. These systems however:
– have revealed a growing fragility, which corresponds to the inability to guarantee healthy as well as safe food, as well as salaries and dignified living conditions for all. Due to unsustainable agronomic, production and distribution practices,
– could reverse the trend, thanks also to the agroecology that FAO has already recommended in 2019, (2) with further advantages in terms of biodiversity and soil health, carbon sequestration, and river basin management.
The actual impacts of negative food systems on health, well-being of populations and the environment, however, often escape governments who should guide policies on these bases, due to ‘hidden costs’ and benefits that are difficult to measure.
2) True Cost Accounting, TCA
The accounting estimate of the actual costs (True Cost Accounting, TCA) of food systems on societies, humans and the environment is not at all simple, due to the complexity of the matrices and the lack of disaggregated data on individual geographical areas. The research conducted by FAO:
– uses the analysis model developed by Steven Lord at the University of Oxford (UK), Environmental Change Institute, for the analysis of FAOSTAT data,
– therefore considers the growth rates of national economies, the costs linked to the prevalence of diseases, the economic and demographic conditions, the values of ecosystem services in 154 countries, and
– vice versa, it excludes non-food supply chains in the primary sector, such as cotton, tobacco and forestry.
3) The ‘hidden costs’ of agri-food systems
The ‘hidden costs’ of agri-food systems are divided into three main headings:
- environment. Greenhouse gas emissions, nitrogen emissions, fresh water use, land use change,
- company. Failures in food redistribution, poverty of workers in the sectors affected,
- health. The costs of unbalanced diets with excess sugars, saturated fats and salt, associated with obesity and non-communicable diseases.
4) Hidden costs, the overall bill
12,7 trillion dollars, equal to approximately 10% of global GDP (gross domestic product), is the overall bill for the hidden costs of agri-food systems in 2020. 35 billion dollars a day. Of these:
- the 73% is attributed to health costs resulting from productivity losses induced by incorrect dietary patterns,
- the 20% is due to environmental costs, especially nitrogen and greenhouse gas emissions.
5) Variations in hidden costs in different countries
The incidence of hidden costs varies, in the various countries, in relation to the levels of GDP and income per capita, as well as demographics.
5.1) Groups of countries distinguished by income
The highest value of hidden costs, 39% of the world total, was detected in middle-high income countries. This is followed by high-income countries (36%), low-middle income countries (22%) and finally low-income countries (3%).
The most significant cost in all groups of countries it is the one linked to dietary patterns that cause NCDs (Non-Communicable Diseases). Except low-income countries, where poverty and malnutrition dominate.
5.2) Impact on the countries’ GDP
Globally the hidden costs of agri-food systems represent 10% of GDP. Their incidence varies in the different groups of countries distinguished by income, from 8% in high-income countries to 11% in middle-income countries, up to 27% of GDP in low-income countries where the costs due to poverty alone and undernourishment account for 14% of GDP.
5.3) Impact on per capita income
The biggest impact hidden costs in relation to per capita income are recorded where the latter is greater. 3.800 dollars per person in high-income countries, 2.000 in middle-income countries, 2.000 dollars, 850 where the income is medium-low, 575 in low-income countries.
5.4) Regional variations
The distribution of hidden costs it also records regional and continental variations, even between countries that are in the same income category. In the category of low-middle income countries, for example, in Nigeria and Tanzania the costs related to poverty and malnutrition prevail, while in Pakistan and Vietnam those due to unhealthy eating patterns prevail.
6) Know the actual costs of improving agri-food systems
The information on the actual costs of agri-food systems should support policies aimed at improving their socio-economic and environmental sustainability in different countries. Also making use of tools such as the TEEBAgriFood Evaluation Framework, used by FAO itself, for scenario analyses.
Accounting of real costs can also benefit businesses to achieve their declared sustainability objectives. (2) FAO therefore recommends that its Member States impose by law – even on the most resistant to change companies – reporting with a TCA (True Cost Accounting) approach and the review of their production systems. (3)
7) Tools to adopt
The main objective of the study on the effective costs (TCA) of agri-food systems is to help political decision makers implement the right actions to make them more sustainable. FAO, in the SOFI 2023 report, recommends adopting the following tools:
7.1) Tools that influence agri-food supply chains
– Market and commercial interventions,
– tax subsidies to producers,
– laws and regulations,
– public and private capital.
7.2) Tools that influence food consumption
– Tax subsidies for consumers,
– taxes on foods that contribute to unhealthy and unsustainable diets, (4)
– purchasing power of consumers,
– marketing and promotion, (5)
– labeling and certification (6,7).
7.3) Tools that influence general services
– Investments in infrastructure,
– Research and development,
– Knowledge transfer services,
– Inspection services.
8) Will addressing hidden costs increase the cost of food?
FAO highlights how addressing the negative impacts of agri-food systems does not necessarily lead to an increase in product costs. On the contrary, this approach could increase the productivity of the agricultural sector, reduce poverty and malnutrition. From an environmental point of view, governments can decide whether to adopt the ‘polluter pays’ principle – already established, but poorly applied in the European Union – or whether to entrust the increased costs to consumers through the ‘beneficiary pays’ principle.
8.1) Case-study, the extension of the organic system in rice production in Thailand
The SOFI report proposes a scenario study, aimed at measuring the positive and negative impacts of the extension of the organic method in rice production in Thailand. The analysis performed with the TEEBAgriFood Evaluation Framework considered the three TCA cost items (environment, society and health. See paragraph 3), in addition to the impacts on production, to examine four scenarios. ‘Business as usual’ and three scenarios of progressive extension of the organic method in agriculture.
The results have shown positive impacts on health and the environment related to the extension of the organic method. The health benefits can reach 4,146 billion dollars and the environmental benefits 16 million dollars in the hypothesis of maximum extension of the organic method. With a possible loss of revenue due to the lower yield, up to 389 million dollars, which could be compensated by a slight increase in prices (+3,5%, compared to conventional prices). With a very favorable overall balance.
9) Provisional conclusions
Knowledge of actual costs (True Cost Accounting, TCA) of agri-food systems is the indispensable premise for reforming them in the direction traced by the Sustainable Development Goals (#sdgs2030). (8) And it is increasingly clear that States can no longer afford the ‘externalisation’ of environmental and health costs by supply chains and operators who pollute ecosystems with pesticides, herbicides and other toxic chemical substances or place foods with unbalanced nutritional intake (High in Fats, Sugar and Sodium, HFSS).
Dario Dongo and Alessandra Mei
Footnotes
(1) Dario Dongo. State of Food Security and Nutrition in the World 2023. Report FAO et al. GIFT (Great Italian Food Trade).
(2) Dario Dongo, Camilla Fincardi. Agroecology, SDGs, salvation. The FAO Decalogue. GIFT (Great Italian Food Trade).
(3) Dario Dongo, Alessandra Mei. CSR, European Sustainability Reporting Standard. The new obligations for businesses. GIFT (Great Italian Food Trade).
(4) Marta Strinati. Colombia, the tax on ultra-processed foods is underway. GIFT (Great Italian Food Trade).
(5) Marta Strinati. France, 50 thousand signatures against junk food marketing. GIFT (Great Italian Food Trade).
(6) Marta Strinati, Dario Dongo. NutriScore, a report by 320 scientists to urge the European Commission. GIFT (Great Italian Food Trade).
(7) Dario Dongo, Marta Singed. Environmental labeling, the Planet-score debuts in France. GIFT (Great Italian Food Trade).
(8) Dario Dongo, Giulia Orsi. Organic farming. Resilience and food security, fair remuneration. The Swedish study. GIFT (Great Italian Food Trade).
(9) Dario Dongo, Giulia Caddeo. Sustainable Development Goals, SDGs. The challenge of humanity. Equality. 5.9.19
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
Graduated in Law from the University of Bologna, she attended the Master in Food Law at the same University. You participate in the WIISE srl benefit team by dedicating yourself to European and international research and innovation projects.
