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

Generated Summary

This document is a background brief prepared for the Food System Economics Commission (FSEC) and focuses on the regional analysis of hidden costs within the food system, specifically concentrating on China. The study examines current trends and potential transformation pathways towards 2050, with the primary objective of quantifying the hidden costs associated with the food system. The research employs a methodology centered around the Food System Transformation (FST) pathway, which proposes fundamental changes in food production and consumption patterns. The analysis evaluates the impact of these changes on various environmental and economic factors, including greenhouse gas emissions, nitrogen pollution, habitat loss, and the economic burden of hidden costs. The study’s scope encompasses a detailed assessment of the FST’s potential to reduce these costs, offering insights into the benefits of transitioning towards more sustainable and efficient food systems. The research is supported by the Food System Economics Commission, funded by the Quadrature Climate Foundation, with additional support from the World Resources Institute (WRI) and the Norwegian Climate and Forest Initiative (NICFI).

Key Findings & Statistics

• Current hidden costs in China, including those from greenhouse gas emissions, nitrogen pollution, habitat losses, and unhealthy diets, amount to 2 trillion USD 2020 PPP (Figure 1S).
• If corrected for purchasing power, China’s GDP would be 8% lower due to hidden costs.
• The Food System Transformation (FST) pathway aims to reduce China’s food system hidden costs by 44% between 2020 and 2050.
• The avoided hidden costs under FST are estimated to average 677 billion USD PPP per year (Figure 2S, bottom panel, and Figure 3S, middle panel).
• Annual hidden costs are reduced by 48% under FST by 2050 compared to the baseline scenario.
• By 2035, benefits from changes to healthy and sustainable diets are projected to increase, potentially exceeding 200 billion USD PPP per year by 2050.
• Under FST, China reduces potential productivity losses from obesity and noncommunicable diseases by approximately 30% between 2020 and 2050 (Figure 3S).
• The avoided productivity loss is estimated at 306 billion 2020 USD PPP per year.
• Production provides roughly half of the avoided hidden costs, approximately 361 billion USD 2020 PPP per year.
• China’s agricultural nitrogen pollution reduction and external costs are estimated to be reduced by ~30% under FST from 2020-2050, totaling ~135 billion 2020 USD PPP to GDP PPP per year.
• The main benefit from action on nitrogen surplus is ~83 billion USD 2020 PPP (Figure 3S middle panel).
• Avoided damages from GHG emissions average 52 billion USD 2020 PPP.
• Poverty decreases steadily over the period in line with economic growth.
• The 95th percentile of production hidden costs reduces from 980 billion USD PPP in 2050 under the baseline to 675 billion USD 2020 PPP in FST (Figure 6S left and middle panel).

Other Important Findings

• The study identifies that the hidden costs in the current year create costs that will be borne in the near- and long-term future, and are not factored into current markets.
• Unlike financial crises or pandemics, food systems generate costs year-on-year, accumulating a deficit that poses risks to future growth and development.
• The FST measures for agriculture, such as habitat sparing for biodiversity, payment of nitrogen mitigation, and changes in labor input prices, will lead to large land-use changes.
• The avoided hidden costs from implementing FST are likely to continue for decades after 2050.
• Under FST, China reduces potential productivity losses from obesity and noncommunicable disease attributed to diets by ~30% over 2020 to 2050 compared to CT (Figure 3S).
• The avoided costs of climate change, nitrogen pollution, and lost ecosystem services from production provide roughly the other half of the avoided hidden costs (Figure 3S middle panel).
• Cropland and pasture reduces rapidly under FST early in the 2020-2050 period compared to CT, providing large benefits from avoided habitat loss (Figure 3S).
• Impacts of water scarcity factor into land-use and body mass index calculations, but lost ecosystem services due to degraded blue water resources are not counted in the hidden cost figures.
• Economic risk from uncertain costs of GHG emissions, nitrogen surplus, and lost ecosystem services decrease under FST.
• China and India avoiding a western-style trajectory of obesity and overconsumption of sugars, salt, and processed foods is one of the main global economic benefits of FST (Figure 5S).

Limitations Noted in the Document

• The hidden costs are not factored into current markets.
• The analysis includes large uncertainty in environmental prices for GHG pollution, N pollution, and lost or returning ecosystem services.
• The FSEC hidden cost analysis includes large uncertainty in environmental prices for GHG pollution, N pollution, and lost or returning ecosystem services.
• Impacts of water scarcity are endogenous to the land-use partial equilibrium model utilized by FSEC, so impacts on agricultural production and undernutrition of water scarcity factor into land-use and body mass index calculations. Lost ecosystem services from loss of environmental flows due to degraded blue water resources are not counted in the hidden cost figures.
• The major residual uncertainties in avoided costs from production come from costs of nitrate run-off and other land habitat loss.
• The uncertainty in environmental costs is large, with wide tails, due to the significant acceleration of land-use transitions under FST and lack of knowledge about the future value of ecosystem services.
• The conclusions are robust to the modelled uncertainty in the marginal costs of GHG, N emissions, and ecosystem services.

Conclusion

The study concludes that the Food System Transformation (FST) pathway offers significant potential to reduce the hidden costs associated with China’s food system. The FST approach, which involves fundamental changes in food production and consumption, is projected to yield substantial economic benefits. A key finding is the projected reduction of the country’s food system hidden costs by 44% between 2020 and 2050. The study emphasizes the importance of addressing the current trends that generate these costs and highlights the long-term risks of inaction, such as those from greenhouse gas emissions, nitrogen pollution, habitat losses, and unhealthy diets. The study highlights that the early and rapid reductions in cropland and pasture, incentivized by the FST, lead to significant benefits from avoided habitat loss. Also, the avoided environmental hidden cost production and productivity losses from burden of disease from food consumption have an approximately equal contribution to hidden cost reduction over the period 2020-2050. The study underscores that the avoided hidden costs from implementing FST are likely to continue for decades after 2050, reinforcing the long-term sustainability of the proposed transformation. The findings underscore the significant potential for China to transition towards a more sustainable and economically viable food system through the implementation of FST strategies. The study shows that the costs associated with issues such as GHG emissions, nitrogen pollution, and other factors can be significantly mitigated through FST, which in turn, can reduce the economic burden over time, and improve long-term economic outlook for China.