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Revealing the hidden costs of agrifood systems to enhance their value











FAO. 2023. Revealing the hidden costs of agrifood systems to enhance their value. FAO Agricultural Development Economics Policy Brief, No. 68. Rome.



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    Book (series)
    The State of Food and Agriculture 2023
    Revealing the true cost of food to transform agrifood systems
    2023
    Agrifood systems generate significant benefits to society, including the food that nourishes us and jobs and livelihoods for over a billion people. However, their negative impacts due to unsustainable business-as-usual activities and practices are contributing to climate change, natural resource degradation and the unaffordability of healthy diets. Addressing these negative impacts is challenging, because people, businesses, governments and other stakeholders lack a complete picture of how their activities affect economic, social and environmental sustainability when they make decisions on a day-to-day basis.The State of Food and Agriculture 2023 looks into the true cost of food for sustainable agrifood systems. The report introduces the concept of hidden environmental, health and social costs and benefits of agrifood systems and proposes an approach – true cost accounting (TCA) – to assess them. To operationalize the TCA approach, the report proposes a two-phase assessment process, first relying on national-level TCA assessments to raise awareness and then moving towards in-depth and targeted evaluations to prioritize solutions and guide transformative actions. It provides a first attempt at national-level assessments for 154 countries, suggesting that global hidden costs from agrifood systems amount to at least to 10 trillion 2020 PPP dollars. The estimates indicate that low-income countries bear the highest burden of the hidden costs of agrifood systems relative to national income. Despite the preliminary nature of these estimates, the analysis reveals the urgent need to factor hidden costs into decision-making for the transformation of agrifood systems. Innovations in research and data, alongside investments in data collection and capacity building, are needed to scale the application of TCA, especially in low- and middle-income countries, so that it can become a viable tool to inform decision- and policymaking in a transparent and consistent way.
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    Hidden costs of agrifood systems and recent trends from 2016 to 2023
    Background paper for The State of Food and Agriculture 2023
    2023
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    This background paper to The State of Food and Agriculture 2023 examines the annual hidden costs of agrifood systems across 2016–2023 for 154 countries. Hidden costs include environmental hidden costs from greenhouse gas emissions, nitrogen emissions, land-use transitions, and blue water withdrawals; social hidden costs associated with undernourishment and poverty; and health hidden costs from unhealthy dietary patterns. The expected value of hidden costs is around 13 trillion 2020 purchasing power parity (PPP) dollars. This is equivalent to approximately 10 percent of global gross domestic product (GDP) PPP in 2023 and around 35 billion 2020 PPP dollars per day. Environmental hidden costs averaged around 3 trillion 2020 PPP dollars over the 2016–2023 period; health-related costs averaged 9.3 trillion 2020 PPP dollars; and social hidden costs averaged 560 billion 2020 PPP dollars. Health hidden costs are the largest across all world regions, apart from sub-Saharan Africa, where costs from poverty and undernourishment prevail. Hidden costs also report an upward trend from 2016 to 2023, driven primarily by health hidden costs. Overall, hidden costs place a disproportionate burden on low-income countries. Left unchecked, these hidden costs will depress future growth and development. However, these hidden costs do not reflect the GDP PPP loss that may be avoided by transitioning to more sustainable agrifood systems. In other words, while these may be avoidable, the quantified hidden costs do not indicate the costs of transitioning to alternative systems. Subsequent studies are needed to quantify these.
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    Accounting for the hidden costs of agrifood systems in data-scarce contexts
    Background paper for The State of Food and Agriculture 2023
    2023
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    This background paper to The State of Food and Agriculture 2023 reviews the methods used, as well as the data required, to estimate the hidden environmental, social and health costs associated with agrifood systems. The studies analysed are based on the true cost accounting approach, which can facilitate improved decision-making by policymakers, businesses, farmers, investors and consumers. The reviewed studies demonstrate that hidden costs of agrifood systems are considerable, and that action is needed at global, national and local levels. To apply true cost accounting at the country level, the methods developed must be downscaled and the data limitations overcome. This review goes through each cost category – environmental, social and health – and proposes approaches to deal with them, with a focus on country-level estimates and analysis, especially in data-scarce countries. Where data are not available or time is limited, methods combining secondary data are suggested. In some cases, the suggestion is to collaborate with research centres. The paper further argues that, when addressing hidden costs in agrifood systems, trade-offs may arise, which may require the use of more complex tools, such as partial and general equilibrium models, to analyse their impacts on different areas. In general, the extent of the compromise will be minimized if there are at least as many policy instruments as there are objectives. For example, if a country seeks to restore fish stocks and address rural poverty, restricting catch alone could increase poverty in the artisanal fishing community. Adding income support, however, could allow both objectives to be met.

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