The Social Value Of The Global Food System

Abstract

The global food system provides nourishment to most of the world’s eight billion people,¹ generates more than US$8 trillion of goods and services², and employs more than one billion people (Davis et al., 2023). On the other hand, the same system leaves c. 3/4 of a billion people undernourished, generates substantial health costs through unhealthy diets, and causes a range of environmental harms, including local air and water pollution, greenhouse gas emissions, and biodiversity loss.³ Many of these negative impacts are hidden, meaning they reduce wellbeing but are either not or imperfectly accounted for by standard estimates of the economic value of the food system, most notably agricultural GDP. What then is the overall contribution of the global food system to social welfare and how might it evolve in the future along different development paths? How much greater a contribution could the global food system make to social welfare if the system followed a sustainable path? That is, how large would the net economic benefits be? This paper estimates the total economic value of the global food system in different future scenarios that integrate economic, health and environmental outcomes. It does so using the outputs of a coupled integrated assessment modelling system, which simulates the joint evolution of land use, food supply/demand, energy, climate, income and dietary health worldwide.⁴ A wide range of model outputs are used to calculate social welfare using a system of nested utility functions, which is able to capture the changing relative values of income, environment and health in a structured, theory- driven way that incorporates recent developments in environmental and health economics. A novel method is used to achieve an unprecedented level of disaggregation relative to the IAM literature – outcomes are simulated and valued for representative individuals across the whole income distribution at a spatial resolution of 0.5° latitude x 0.5° longitude. Among other things, this allows the social cost of inequalities caused by the global food system to be quantified, both between and within countries. Relative to Current Trends (CT), the bundle of food policy measures contained in FSEC’s Food System Transformation (FST) pathway scenario would provide a boost to social welfare equivalent to increasing global GDP by $9.6 trillion per year (on a Purchasing Power Parity basis), or about 7% of global GDP in 2020.

Generated Summary

This background paper for the Food System Economics Commission (FSEC) presents a method for calculating social welfare using the outputs of a coupled integrated assessment modeling system. The system simulates the joint evolution of land use, food supply/demand, energy, climate, income, and dietary health worldwide. The study then applies this method to the FSEC scenarios, thereby estimating the social value of the global food system in alternative futures. Economists often use social welfare functions (SWFs) to evaluate policies. This paper employs an average utilitarian SWF and a nested structure of utility functions to handle incomes, diets, and environmental outcomes, along with damage/response functions to convert environmental variables into individual utility. The approach involves disaggregation relative to the IAM literature, simulating outcomes for representative individuals across the income distribution. This allows the quantification of social costs of inequalities caused by the food system. The study explores how the food system contributes to social welfare and its potential evolution under different development paths, with a focus on the impact of a Food System Transformation (FST) pathway.

Key Findings & Statistics

• The global food system provides nourishment to most of the world’s eight billion people.
• It generates more than US$8 trillion of goods and services.
• Employs more than one billion people.
• The system leaves approximately 750 million people undernourished.
• The FSEC’s Food System Transformation (FST) pathway scenario could increase global GDP by $9.6 trillion per year, or about 7% of global GDP in 2020.
• According to the UN Food Agriculture Organization (FAO), the percentage of the world population that is undernourished is c. 9%.
• The welfare value of income changes is equivalent to boosting global GDP by US$3.5 trillion per year, or 2.6% in 2020.
• The FST improves environmental quality, worth the equivalent of US$3.7trn per year, or 2.7% of global GDP in 2020.
• Dietary health improvements due to the FST are worth the equivalent of US$2.3trn per year, or 1.7% of global GDP in 2020.
• The monetary equivalent value of the increase in social welfare is US$9.6 trillion per year (in 2020 Purchasing Power Parity prices) or 7.2% of global GDP in 2020.
• The income changes is equivalent to boosting global GDP by US$3.5 trillion per year, or 2.6% in 2020.
• The FST also improves environmental quality on all dimensions, worth the equivalent of US$3.7trn per year, or 2.7% of global GDP in 2020.
• Dietary health improvements due to the FST are worth the equivalent of US$2.3trn per year, or 1.7% of global GDP in 2020.
• The FST with SSP1 increases welfare by a large amount relative to CT with SSP2 socio-economic trends.

Other Important Findings

• The study uses an average utilitarian social welfare function (SWF).
• Individual utility depends on measures of income, environmental quality, and health.
• Environmental quality is a function of climate services, local ecosystem services, and local nutrient surplus.
• The model uses a nested CES function to combine the elements of environmental quality.
• The paper provides a detailed breakdown of parameter values and their sources.
• The study notes that changes in welfare are expressed using a money metric.
• The FST increases incomes for the majority of people and slightly reduces income inequality.
• The largest increase in social welfare comes from dietary measures, followed by agriculture, livelihoods, and biosphere.
• The results are robust to many parametric variations.
• The value of the Biodiversity Intactness Index (BII) is used to calculate local ecosystem services.
• Local nutrient surpluses cause a wide range of environmental effects via the nitrogen cascade, including local air and water pollution.
• The elasticity of marginal utility of consumption (η) is a key parameter in the model.
• The model uses a quadratic decreasing function of temperature for global climate services.

Limitations Noted in the Document

• The paper acknowledges a lack of previous empirical estimates for some parameters, including share and damage function parameters, which relies heavily on expert judgment.
• The calibration of unknown parameter values is partially constrained, but not uniquely identified.
• The units of individual utility are measured on different scales, which requires careful estimation of share parameters.
• The method may rely on a marginal (first-order) approximation, which could be a poor approximation for large differences in welfare.
• Low-end/high-end values for the share of material consumption are hard to reconcile with empirical data on shadow prices.
• The study’s reliance on an integrated assessment modeling system introduces complexities and potential uncertainties.
• The study notes that the model’s ability to capture local effects is limited, as it largely tracks a global public good.

Conclusion

The study underscores the potential of the global food system to significantly contribute to social welfare. The FST pathway, in particular, is shown to offer substantial benefits, including increased global GDP and improvements in environmental quality and health. The approach taken in this paper, using an integrated assessment modeling system, allows for a comprehensive evaluation of the food system’s impact by integrating economic, health, and environmental outcomes, which shows the value of food system interventions. The study highlights the importance of considering multiple determinants of utility, such as income, diet, and environmental factors, and how the interplay of these factors influences social welfare. The findings also suggest that the social value of the global food system could be significantly enhanced by implementing food policy measures, contributing to income, and reducing inequality. Furthermore, the sensitivity analysis indicates that the results are robust to variations in key parameters, reinforcing the reliability of the findings. The paper’s emphasis on the quantification of the social costs of inequalities and the application of a money metric for welfare changes provides a practical approach to assessing and communicating the impact of food system transformations. The paper concludes that the monetary equivalent value of the increase in social welfare is US$9.6 trillion per year, or 7.2% of global GDP in 2020. These findings suggest that the global food system has the potential to contribute significantly to social welfare if the system follows a sustainable path, and that the food system is a key area for improving the global economy. In conclusion, the study implies that improvements in dietary health, environmental quality, and health outcomes lead to increased social welfare. The focus on a food system transformation pathway further emphasizes that interventions and policies can be valuable. The approach provides a detailed framework for evaluating the social value of the food system and demonstrates the potential for policy changes to improve global welfare.