Generated Summary
This working paper, published by the Food System Economics Commission, analyzes the hidden costs associated with the current food system and explores potential transformation pathways to 2050, focusing on the European Union. The research employs a framework to quantify the economic burden of these hidden costs, considering factors such as greenhouse gas emissions, nitrogen pollution, habitat loss, and the impacts of unhealthy diets. The study investigates the potential for a Food System Transformation (FST) pathway to mitigate these costs. It evaluates the magnitude and composition of avoided costs under the FST scenario, assessing the role of changes in food production and consumption. The research also explores the economic risks associated with the current food system, emphasizing the uncertainties in environmental prices and the potential for long-term economic repercussions. The methodology includes an assessment of how FST measures for agriculture and dietary shifts can reduce these impacts, providing a basis for policy recommendations to promote more sustainable and economically viable food systems.
Key Findings & Statistics
- Current hidden costs in the EU: 2.2 trillion USD 2020 PPP.
- The gross-value add of agriculture in the EUR region was about 1% of GDP in 2020, and a rough estimate of the value-add of the food chain including food manufacturing and processing, and food retail and services, is around 5%.
- The FST pathway would reduce accumulated EUR food system hidden costs over 2020 to 2050 by 20%.
- The avoided hidden costs amount to 370 billion USD PPP per year (Figure 2S bottom panel and Figure 3S middle panel).
- By 2050 the annual hidden costs are reduced by 39% under FST compared to the baseline scenario.
- Avoided costs will exceed 400 billion USD PPP per year by 2050.
- Productivity improvements from healthier diets and avoiding obesity provides 78% of the avoided costs (291 billion USD 2020 PPP per year).
- Economic costs of degrading blue water resources: 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.
- Composition of avoided hidden costs from production: Avoided damages from reactive nitrogen surplus (66 billion USD 2020 PPP), GHG emissions (22 billion USD 2020 PPP), make the largest equal contributions to average annual avoided hidden costs from agricultural production.
- Under reactive nitrogen surplus, the main pathways to damages include lost productivity from air pollution due to volatilized ammonia from synthetic fertiliser application and manure and damage to ecosystems from nitrate run-off from cropland and pasture.
- Avoided ammonia emissions and associated air pollution provides the main benefits from action on nitrogen surplus under FST (35 billion USD 2020 PPP).
- Contributions to avoided costs are not constant over the period 2020 to 2050. Avoided cropland expansion under FST occurs in earlier decades, while savings from mitigating nitrogen surplus increase and are the main category of savings as well as the main residual cost on the production side by 2050.
- By 2050 there is an uncertain trade-off between land expansion for afforestation and retuning forest habitat from reductions in cropland and pasture.
- The 95-th percentile of production hidden costs reduces from 270 billion USD PPP in 2050 under the baseline scenario to 137 billion USD 2020 PPP in FST
- EUR, USA, India and China reversing current trends of obesity and overconsumption of sugars, salt, and processed foods is one of the main global economic benefits of FST.
- Nitrogen surplus mitigation and avoided cropland expansion in EUR, India and China are also major global benefits under FST.
- The largest global environmental benefits under FST to 2050 come from South and Latin America, and changing agricultural practices and avoiding deforestation in Sub-Saharan Africa as production expands and intensifies.
Other Important Findings
- Hidden costs are not accounted for in current markets and are hidden from national accounts.
- The FST pathway is based on fundamental changes in food production and consumption.
- The avoided hidden costs from implementing FST are still increasing in 2050 and likely continue to grow for some decades after 2050.
- Confidence in the benefits of FST increases over time, despite uncertainties in environmental prices.
- The avoided costs of climate change, nitrogen pollution, and lost ecosystem services contribute 22% of avoided costs (80 billion USD 2020 PPP).
- Economic risk from uncertain costs of GHG emissions, nitrogen surplus, and lost ecosystem services decrease under FST.
- The research highlights the need for sustainable practices in agriculture, focusing on the benefits of reduced emissions and ecosystem restoration.
- The study emphasizes the significance of dietary shifts toward healthier options and their impact on economic and environmental outcomes.
- The analysis suggests that regional variations exist in the benefits of FST, with the most substantial environmental gains expected in specific areas.
Limitations Noted in the Document
- The study acknowledges significant uncertainty in environmental prices, particularly for GHG pollution, nitrogen pollution, and the value of lost or returning ecosystem services.
- The analysis relies on a land-use partial equilibrium model, which may not fully capture all the complexities of the food system, especially regarding water resources.
- The study notes that the impact of lost ecosystem services due to degraded blue water resources is not fully accounted for in the hidden cost figures.
- The model’s projections regarding land expansion for afforestation and the return of forest habitat are subject to uncertainty, introducing a potential trade-off.
- The study’s conclusions regarding the benefits of FST depend on the successful implementation of various measures, such as changes in agricultural practices and dietary shifts.
Conclusion
The Food System Economics Commission’s analysis underscores the substantial hidden costs associated with the current food system and the potential for transformative changes to yield significant economic and environmental benefits. The study emphasizes that current market mechanisms fail to account for these future deficits, highlighting the need for interventions to address the underlying issues. The FST pathway emerges as a promising approach, with the potential to reduce accumulated hidden costs by a substantial margin. Key to this transformation are changes in food production and consumption, with a focus on healthier diets and sustainable agricultural practices. The findings suggest that the shift towards healthier diets and away from unhealthy products will have a large impact. This, along with the mitigation of nitrogen pollution and the restoration of ecosystem services, can contribute significantly to the reduction of hidden costs. The research also underscores the importance of addressing the economic risks associated with the current food system, including uncertainties in environmental prices and the potential for long-term economic repercussions. The study highlights the regional variations in the benefits of FST, emphasizing the need for tailored policies. In essence, the working paper provides a clear message that the shift towards sustainable food systems is not only environmentally imperative but also economically beneficial, offering a pathway to reduce hidden costs and ensure a more resilient and prosperous future. The study underscores the importance of policies promoting sustainable agriculture, reduced emissions, and dietary shifts. The ultimate conclusion points to the necessity of comprehensive action to transform food systems, mitigate hidden costs, and foster a more sustainable and equitable future.