Regional Analysis Of Hidden Costs Of The Food System Economic Commission Current Trends And Food System Transformation Pathways To 2050: Brazil Key Figures

Generated Summary

This working paper, a background brief for the Food System Economics Commission, analyzes the hidden costs of the food system in Brazil and proposes food system transformation (FST) pathways to 2050. The study uses a combination of economic modeling and scenario analysis to assess the environmental and economic impacts of current trends and potential interventions. The research quantifies the current hidden costs associated with food production and consumption, including greenhouse gas emissions, nitrogen pollution, and habitat losses. It then evaluates the potential of FST to reduce these costs, considering various agricultural and dietary changes. The primary methodology involves comparing a baseline scenario (business-as-usual) with the FST pathway, examining the differences in costs and benefits over time. The scope encompasses the entire food system, from production to consumption, with a particular focus on the Brazilian context. The study aims to provide insights into the economic burden of current food systems and the potential for transformative changes to generate both environmental and economic benefits.

Key Findings & Statistics

• The current hidden costs in Brazil, encompassing greenhouse gas emissions, nitrogen pollution, habitat losses, and productivity losses from unhealthy diets, amount to 500 billion USD 2020 PPP (Figure 1S).
• If corrected for the purchasing power denied by hidden costs, Brazil’s GDP would be 16% lower, as 500 billion USD 2020 PPP represents 16% of Brazil’s 2020 GDP (Figure 4).
• The Food System Transformation (FST) pathway is projected to reduce accumulated Brazil food system hidden costs by 51% between 2020 and 2050 (Figure 1S top panel).
• The avoided hidden costs under the FST pathway are estimated to average 216 billion USD PPP per year (Figure 2S bottom panel and Figure 3S middle panel).
• By 2050, the annual costs are projected to shift from a 315 billion USD 2020 PPP deficit in the baseline scenario to a 54 billion USD 2020 PPP in benefits under FST (Figure 1S bottom panel).
• By 2050, the avoided costs from the FST transition are expected to exceed 80 billion USD PPP per year (Figure 1S bottom panel and Figure 2S third from bottom panel), with a 20% chance of surpassing 500 billion USD PPP per year.
• The avoided cropland expansion and forest habitat return contribute 74 billion USD 2020 PPP per year on average.
• Carbon sequestration and CH4 mitigation contribute 47 billion USD 2020 PPP per year on average.
• Avoided nitrogen run-off contributes 44 billion USD 2020 PPP per year on average.
• For Brazil, the avoided costs from food production exceed the productivity gains from healthier diets, with the latter accounting for 40 billion USD 2020 PPP per year (Figure 3S middle panel).
• Savings from mitigating nitrogen surplus (66 billion USD 2020 PPP) and healthier diets (78 billion USD 2020 PPP) are the main savings by 2050 (Figure 3S right panel).
• Ecosystem services from forest habitat returns become the main benefits to the Brazilian economy after 2050 under FST compared to the baseline (189 billion USD 2020 PPP).
• Mitigated CH4 due to reduced livestock production and improved practices is a component of the avoided GHG damages, but carbon sequestration becomes the major component (34 billion USD 2020 PPP annually on average).
• Transition to healthy diets is introduced linearly over the period, and labor productivity improvements increase from 13% of avoided costs in 2030 (27 billion USD 2020 PPP) to 21% in 2050 (78 billion USD 2020 PPP) (Figure 3S right panel).
• The 95th percentile of production hidden costs reduces from 410 billion USD PPP in 2050 under the baseline to 33 billion USD 2020 PPP in FST (Figure 6S left and middle panel).
• The avoided costs from cropland expansion and an increase in forest habitat returns and carbon sequestration occur in earlier decades.
• In 2020, the mean of global cost difference between CT (business-as-usual) and FST is at approximately -2.5×10^11 USD2020 PPP BRA, while in 2030 and 2050 it increases in magnitude to around -5×10^11 USD2020 PPP BRA.
• The average annual hidden cost difference between CT and FST over 2020 to 2050 has a probability density centered around -0.4×10^12 USD2020 PPP BRA.

Other Important Findings

• The study identifies that current food production and consumption generate costs that will be incurred in the near and long term. These costs are not accounted for in national accounts and are thus hidden from current markets.
• The FST pathway involves fundamental changes in food production and consumption between 2020 and 2050.
• The FST measures for agriculture include habitat sparing for biodiversity, payments for nitrogen mitigation measures, carbon sequestration, and changes in global demand through dietary changes.
• The analysis includes uncertainty in environmental prices for GHG pollution, nitrogen pollution, and ecosystem services.
• The economic risk from uncertain costs of GHG emissions, nitrogen surplus, and lost ecosystem services is projected to decrease under FST.
• The largest global environmental benefits under FST to 2050 are projected to come from Brazil, followed by Latin America.
• Changes in agricultural practices and avoiding deforestation, especially in Sub-Saharan Africa, are identified as major global benefits.
• The study indicates that the FST reduces hidden costs by 2050, and the average annual hidden cost reduction under FST is robust to the modelled uncertainty in marginal costs.
• The avoided costs from food production are larger than productivity gains from healthier diets.
• The study notes that the impacts of water scarcity are endogenous to the land-use model and not included in the hidden cost figures.
• The study suggests that land-sparing due to diverging input efficiency and global dietary demand will occur between FST and the baseline scenario.
• Mitigated CH4 due to reduced livestock production and improved practices is a component of the avoided GHG damages, but carbon sequestration becomes the major component.
• Transition to healthy diets is introduced linearly over the period, leading to labor productivity improvements.

Limitations Noted in the Document

• The FSEC hidden cost analysis includes large uncertainty in environmental prices for GHG pollution, N pollution, and lost or returning ecosystem services.
• Combining the flux in land-use with uncertainty in the marginal costs such as carbon sequestration versus livestock methane production produces large uncertainty ranges for the avoided hidden costs over the period 2020-2050.
• The economic and demographic growth forecast used for the FSEC analysis needs to be long-term to apply appropriate discounting to the hidden costs.
• Impacts of water scarcity are endogenous to the land-use model and lost ecosystem services from environmental flows due to degraded blue water resources are not counted in the hidden cost figures.
• The study acknowledges that the results are subject to uncertainty in production costs, and that the analysis is based on specific scenarios and assumptions.

Conclusion

The Food System Economics Commission’s analysis of Brazil’s food system reveals substantial hidden costs, primarily stemming from greenhouse gas emissions, nitrogen pollution, and habitat loss. The study underscores the severity of these costs, indicating that correcting for them would significantly reduce Brazil’s GDP. The FST pathway emerges as a promising solution, offering the potential to substantially reduce these hidden costs by 2050. This transformation involves significant shifts in food production and consumption patterns, including measures related to agriculture, dietary changes, and land use. A key takeaway is that the benefits of FST are projected to increase over time, with avoided costs potentially exceeding 80 billion USD PPP per year by 2050, and with a 20% chance of surpassing 500 billion USD PPP per year. The transition to FST is expected to result in substantial benefits from carbon sequestration, the return of forest habitat, and improved ecosystem services. The study emphasizes that these benefits are likely to grow beyond 2050. The findings highlight the interconnectedness of the food system with environmental and economic outcomes, and the opportunity for Brazil to lead in sustainable food systems by prioritizing FST. The paper’s conclusion is a call to action, emphasizing the potential for transformative changes to benefit both the environment and the economy. The reduction in costs from GHG emissions and nitrogen pollution, and the increase in forest habitat, indicate that shifting to FST could have a highly significant impact. Overall, the research provides a strong rationale for the urgent adoption of FST strategies, emphasizing the economic advantages that could stem from such actions.