The State of Food and Agriculture 2023

Summary

In this first of two reports focusing on true cost accounting (TCA), national level TCA is used to raise awareness about hidden costs and to highlight the methodological and data challenges that need to be addressed in order to further utilise the tool, especially in low- and lower-middle-income countries. The TCA approach is a holistic and systemic approach to measure and value the environmental, social, health and economic costs and benefits generated by agrifood systems to facilitate improved decisions by policymakers, businesses, farmers, investors and consumers. This is primarily done through revealing hidden costs, which the report defines as negative impacts that are not reflected in the market price of a product or service. The report also reveals hidden benefits which it refers to as hidden negative costs.

The report quantifies the hidden costs of national agrifood systems across 154 countries, covering greenhouse gas emissions, nitrogen emissions, blue water use, land-use transitions, poverty and dietary related issues such as undernourishment and the burden of ill health. The report highlights that other values have not been included because of poor data - such as land degradation - or because they are intangible - such as cultural heritage and religious purpose. The preliminary results none-the-less demonstrate huge hidden costs - exceeding USD 10 trillion - of the global agrifood system. This is equivalent to almost 10 percent of global GDP in 2020, or 35 billion dollars per day. Presenting hidden costs as a share of GDP gives a better sense of the burden placed on national economies and provides an indication as to where to prioritise international resources to address these costs. The analysis reveals the disproportionate burden of these costs on low-income countries, accounting for 27% of GDP vs 8% in high-income countries. Productivity losses from diet related non-communicable diseases are the largest costs in high-income countries, whilst in low-income countries it is undernutrition. This signals that improving agrifood systems in low-income countries will be instrumental in addressing these hidden costs.

The report highlights Barriers to integrating the hidden impacts of agrifood systems into decision-making. These include; 

• Significant changes to current production and consumption practices, which may be met with resistance from governments, businesses, producers and consumers
• Fear of high transition costs or changes in habits, culture or traditions
• The difficulty of balancing trade-offs, making policy decisions complex and difficult.
• The disparities between who receives the benefits of agrifood systems globally and who pays the costs
• Balancing transformations that positively and negatively affect environment, health and social equality  

Following on from this the report also offers a series of examples of how TCA can be used to influence positive food system transformation. A primary use will be in scenario analysis that allows comparison of potential future pathways and assess the impact and effectiveness of different policies and management options. These scenarios can help to reframe the problem in order to set a policy agenda more effectively. The report also suggests that TCA will nudge agrifood business and investment towards more sustainable practices. The private sector will need to take on responsibility for minimising hidden costs of the agrifood system. True cost accounting provides a framework for businesses to manage their impacts and dependencies more comprehensively and accurately. Financial institutions such as banks and insurance can also use TCA to determine credit and insurance conditions and more accurately measure risks, providing more support for sustainable business. 

A major concern of true cost accounting is that it will raise the price of food and transfer the burden of paying for the negative impacts of the food system onto consumers. However, the authors note, this depends on the hidden costs being addressed and the instruments used. For example, addressing social hidden costs from distributional failure could improve agrifood productivity and therefore exert downward pressure on food prices. In other words, true cost accounting could identify and help alleviate poverty, thereby increasing productivity and as a result food supply, driving actual prices down. Equally, if producers are made to pay for measures (polluter pays) through taxes or regulations without simultaneous advice on how to limit costs where a hidden cost occurs, then these will be passed down the value chain or on to consumers in the form of higher food prices. The alternative is to apply the beneficiary pays principle, which places the burden of covering the true costs of agrifood systems activities on the beneficiaries – usually the public. One set of policies involving a mixture of the polluter pays principle and the beneficiary pays principle is the repurposing of agricultural subsidies. Shifting underperforming agricultural subsidies to protect and restore degraded farmland can better support local communities and help countries achieve their climate, biodiversity and rural development goals. These could also be designed to increase the availability of healthy and sustainable diets. Targeted TCA assessments can inform the design of taxation to change the relative prices of different foods to encourage nutritious and sustainable diets. These might have a net neutral or beneficial effect on household food budgets. 

The report highlights the following core messages:

1. We need to pay renewed attention to the costs of the food system without losing sight of the values it already provides.
2. True cost accounting (TCA) can provide evidence to decision-makers (through revealing hidden costs caused by market, institutional and policy failure) to transform food system outcomes.
3. True cost accounting builds on a long tradition of economic valuation but is often hindered by a lack of available data
4. The report has a two-phase assessment process, firstly a national-level true cost assessment to raise awareness (SFA 2023) and then an in-depth targeted evaluation to prioritise solutions (SFA 2024).
5. This year’s report presents a first attempt at a national-level assessment for 154 countries. The true cost of agrifood systems amounts to 10 trillion dollars or more at 2020 purchasing power parity (PPP), revealing the urgent need to factor these costs into decision-making to transform agrifood systems.
6. The dominant global cost arises from malnutrition, leading to disease and labour force disruption.
7. The environmental hidden cost constitutes over 20% of total costs and are equivalent to ⅓ of agricultural value added.
8. Hidden costs are a greater burden in low-income countries where they amount to 27% of GDP vs. 8% in high-income countries
9. Poverty and undernourishment account for half of total hidden costs in low income countries and remain a top priority
10. National-level estimates are a first step in raising awareness. Targeted true cost accounting assessments that also look at the cost of different abatement actions – the focus of next year’s report – are needed to inform decision-makers on how to leverage policy, regulation, standards and private capital.
11. For true cost accounting assessments at scale, innovations in research and data, as well as investments in data collection and capacity building, are needed, especially in low- and middle-income countries.

The methodology of this report is based on a model developed by Steven Lord at the Environmental Change Institute, University of Oxford. You can read more on the method on the ECI website. The background paper can be found here

You can read the full report here