The State of Food and Agriculture 2023

The first chapter of this report proposed a two-phase approach to capturing the complexity and interdependency of agrifood systems actors, starting with wider, national-level assessments involving high levels of uncertainty, followed by targeted, subnational evaluations to prioritize solutions. Chapter 2 provided input to the first phase of this process by valuing the national-level hidden costs of agrifood systems for 154 countries as a starting point for dialogue with policymakers and other stakeholders. Chapter 3 focused on how to initiate the second phase by conducting targeted assessments to better inform and support decision-making with a view to implementing the changes needed to improve the sustainability of agrifood systems in the short and long term. In addition to providing guidance to policymakers, Chapter 3 also discussed the relevance of TCA to the private sector (businesses and investors) in terms of the opportunities it can present for the benefit of both private companies and the public more broadly.

Recalling Figure 11 in Chapter 3, which introduced a four-step framework to guide decision-makers in undertaking targeted assessments and choosing the most appropriate interventions, this fourth and final chapter focuses on the last step of that framework – to present in more detail the role of different levers and how they can be strategically employed to propel agrifood systems towards sustainability. This chapter also discusses the requirements for an enabling environment to scale up TCA. It ends with important considerations for choosing policies, including how to handle multiple policy objectives and the resulting implications for food prices of addressing the hidden costs of agrifood systems.

True cost accounting can inform the use of levers to transform agrifood systems for the better

After conducting phase-two targeted assessments, policymakers and stakeholders will have a better understanding of current and future agrifood systems challenges and opportunities. Integral to these TCA assessments are scenario and policy analyses, which assess the impact and effectiveness of different policies and management options. This is essential to identifying synergies and trade-offs and, thus, identifying the most appropriate entry points to improve the sustainability of agrifood systems, including the socioeconomic viability, cost-effectiveness and potential environmental performance of different levers. The overall objective is to help guide decision-makers in activating the right set of levers that will help to make agrifood systems more economically, socially and environmentally sustainable.

Existing levers in agrifood systems, such as agrifood subsidies, could be redirected or reformed, while promising and emerging strategies for sustainable business and investment should be scaled up. The choice of lever will depend on the results of TCA – and, in particular, the scenario and policy analyses described in Chapter 3 that feed into it – and on context-specific needs, priorities and available resources. Against this backdrop, this section provides general guidance on the potential use of levers for transforming agrifood systems for the better, contingent upon the context and the findings of TCA analyses.

Expanding on Figure 1, which showcased important areas of leverage for influencing the actions of decision-makers, Figure 15 illustrates the specific levers that can be deployed to stimulate a change in agrifood systems. As the figure shows, levers can affect the supply side (production and intermediaries), the demand side (food consumption) and public goods supporting agrifood systems (general services).^m No single lever is new; the innovation lies in how they are used. Targeted TCA assessments, which were described in Chapter 3 and will be the focus of the 2024 edition of this report, allow a more comprehensive understanding of their direct and cascading effects, enabling decision-makers to use them more effectively to transform agrifood systems towards sustainability.

FIGURE 15 Levers for agrifood systems transformation

SOURCE: Authors’ own elaboration.

While governments have the broadest and most influential toolkit (denoted by the yellow dots), other actors – research institutions, civil society organizations, businesses and financial institutions – also play significant roles in shaping the performance of agrifood systems. Research and civil society organizations are grouped together (green dots) due to their similar and complementary roles in affecting certain levers, as are businesses and financial institutions (red dots).

It is important to note that some levers can be influenced by more than one player. For example, government policies can affect them all directly or indirectly through incentive schemes, laws and regulations. However, more than one stakeholder may have a role, as illustrated by the coloured dots in Figure 15. Other actors, such as donors and international organizations, can play an important part in influencing how the levers are activated, albeit indirectly and most likely through national bodies. For example, non-governmental and civil society organizations have actively supported the progressive realization of the right to food for national food security and have been involved in promoting national legislation and food programmes in many countries.¹

These levers can affect agrifood systems in myriad ways, some of which are summarized in the right column (“potential transformation pathways”). The following sections discuss each of the levers and provide examples or case studies of their application to illustrate their potential role in transforming agrifood systems. For simplicity, the discussion is organized based on which agrifood systems component (supply chains, food consumption or general services) is directly targeted by the lever, recognizing that the latter may have ripple effects that indirectly affect other components, with cascading impacts on entire agrifood systems.

Levers that affect agrifood supply chains

Governments use differing levers to support agriculture and food supply, as illustrated in Figure 15. Many of these policies induce behavioural change among agrifood systems actors and the population with a view to changing agrifood systems outcomes.²

Trade and market interventions, such as import taxes and export bans, are ways for governments to help farmers receive better prices or make food more affordable for people. These policies affect how much food is traded, produced and consumed. Low- and middle-income countries often use some of these measures to protect the farming sector against import competition, or to influence domestic prices to ensure adequate supplies and access to food for consumers. However, these policy measures are often distortive and can lead to the suboptimal allocation of domestic resources among different food commodities. For example, tariffs targeting specific products or commodities can raise their domestic prices, with a negative effect on consumers. They can also discourage the production of other foods that would have been more profitable had the tariffs not been in place.²

Fiscal subsidies to producers are another important tool for influencing agricultural output. They are budgetary transfers from the government (or, more specifically, the taxpayer) to individual agricultural producers to achieve specific objectives, such as boosting agricultural production and productivity or supporting farm income by reducing production costs. They can also aim to safeguard the environment through payments for ecosystem services, as in the case of reforestation programmes in Costa Rica³ and Guatemala.⁴

Both fiscal subsidies and trade and market interventions are types of direct support for producers that can have important implications for food security and nutrition. According to The State of Food Security and Nutrition in the World 2022, these two types of support make up the lion’s share of the average USD 630 billion of public support allocated to food and agriculture globally each year. Not only does much of this support distort markets, it does not reach many farmers, hurts the environment and does not promote the production of nutritious foods. Support programmes currently target staple foods, the availability and affordability of which have increased, as they are key for combating food insecurity. However, this has diverted production away from nutritious foods, such as fruits, vegetables and pulses, which remain more expensive.² Furthermore, as many input subsidies are unconstrained, they lead to the overuse of agrochemicals and natural resources, and promote monoculture, with negative consequences for the environment and the sustainability of agrifood systems.^{5, 6} An example of ending such practices is the 2022 World Trade Organization Agreement on Fisheries Subsidies, which prohibits harmful subsidies – a key factor in the widespread depletion of the world’s fish stocks.⁷

Laws and regulations can be used by governments to influence agricultural production and food supply chains, setting standards and targets that affect both producers and intermediaries. Laws and regulations are mostly designed to safeguard natural resources and human health from damage that could result from externalities associated with, for example, production and processing. Commonly cited examples in this regard are regulations on natural resource use, input and fertilizer applications, safe food handling, and food labelling and marketing. An example is the European Union regulation on deforestation-free products, which bars companies from putting products on the EU market unless they are deforestation-free and legally produced and makes it illegal to export such products from the bloc.⁸ Another example is the ten-year fishing ban on the waters of the Yangtze River, recently introduced by the Chinese Ministry of Agriculture and Rural Affairs with a view to conserving living aquatic resources.⁹ In Latin America and the Caribbean, various countries have enacted laws or regulations on front-of-pack nutrition labelling.¹⁰ For instance, Ecuador has a traffic light system, while the Plurinational State of Bolivia has approved the same system, but has yet to implement it. Such systems can effectively reduce the intention to buy products with excessive calories, sugars, sodium and saturated fats, help consumers make healthier choices, and contribute to the reformulation of food products. In Chile, for example, nutritional warnings with black octagons reduced purchases of sugar-sweetened cereal and beverages by 25 percent and 9 percent, respectively.¹⁰

However, laws and regulations can have unintended knock-on effects in other areas. It is, therefore, important for governments to be aware of the ripple effects of their laws, regulations and policies, especially when implementing a transformational agenda, and compensate for these through complementary measures. For example, the aforementioned fishing ban in China could lead to a reduced supply of fish products and risk an increase in prices. However, the Government of China believes that an improvement in and expansion of inland aquaculture and culture-based fisheries – supported by other incentives – could meet the rise in demand for aquatic foods resulting from the reduction in catch from inland capture fisheries.⁹

This raises the question of the need for synergy between government policies, incentives, laws and regulations to achieve national objectives. When addressing hidden costs, policymakers will have to weigh trade-offs with other objectives, such as improving livelihoods, reducing poverty and improving food security and nutrition. Laws and regulations can play an important role in limiting hidden costs by setting targets and limits, for example, on the use of chemical inputs. However, this may not be effective if there are no conditions or constraints placed on the public support system for agricultural inputs. Therefore, the support system needs to be aligned with the limits set by regulations. In some situations, for example, in low-income countries and countries affected by protracted crises, governments may not have the capacity to assess these trade-offs or the determination to take into account environmental externalities if they are facing high rates of hunger and extreme poverty. While capacity-building efforts are certainly required in these contexts to factor the trade-offs into the decision-making process, investing in long-term development to raise incomes, lift people out of poverty and improve food security and nutrition would remain a very high priority. Enhancing dialogue on the humanitarian, development and peace nexus can be an effective entry point in countries affected by protracted crises.

The results presented in Chapter 2 indicate how agrifood systems in different countries have varying hidden costs that may reflect their failure to ensure environmental sustainability and healthy diets for all, or to distribute the benefits. They change in their magnitude and composition, but in general, the current support system is thought to be distortive and responsible for many environmental externalities and other hidden costs. There is, therefore, an urgent need to reform the system in a way that maximizes synergies and minimizes trade-offs between major national objectives. Depending on the relative importance of hidden costs in a given context, reforms may place more emphasis on one specific dimension. For example, based on the results for low-income countries presented in Chapter 2, reducing poverty and hunger will remain the highest priorities. In other contexts, such as in high-income countries, environmental externalities such as GHG emissions can be of greater concern, so attention may be given to carbon sequestration.¹¹ However, this emphasis should not cause other hidden costs and the interlinkages between them to be ignored.

A comprehensive or even partial repurposing of the public support given to food and agriculture, if carefully designed and targeted, has the potential both to reduce hidden costs and to increase access to foods that form a healthy diet – that is, to achieve two objectives rather than trading one off against the other.² A recent global-level study found that several repurposing scenarios could lead to a reduction in GHGs and improvements in population health without an accompanying decline in economic welfare. These include repurposing up to half of fiscal subsidies to producers to support the production of foods with beneficial health and environmental characteristics, including fruits, vegetables and legumes, and combining this with the more equal distribution of subsidy payments globally.¹² The lesson of this study is that repurposing scenarios have the potential to unveil trade-offs and identify options to overcome them. To guide concrete policy reforms, such repurposing scenarios should be an integral part of targeted TCA assessments (see Chapter 3) to identify policy reform pathways that maximize overall benefits with the minimum abatement costs.

In Latin America and the Caribbean, for example, a scenario analysis has shown that redirecting fiscal subsidies to producers to support healthy diets and shifting tax subsidies from producers to consumers could increase the affordability of healthy diets.² However, the analysis recognizes that more research is needed on the potential trade-offs that may exist in terms of economic, environmental and consumption-related behavioural impacts.¹⁰ Looking at national examples of agricultural support reform and repurposing can further illustrate its potential benefits. Viet Nam, for instance, has taken important steps to shift agricultural support to less distorting forms of assistance and to promote credit schemes that pay more attention to sustainability and resilience.^{13, 14} Over the last decade, the country has lowered border protection and price supports and promoted subsidies that are not tied to the production of a specific crop and include greater sensitivity to agrifood systems sustainability. Similarly, in the Republic of Korea, price support policies have been de-emphasized in favour of income support and subsidies with a green farm focus.¹³ At the same time, in low-income countries, which are mostly found in sub-Saharan Africa and where the affordability of food is a key concern, governments adopt policies that tend to suppress producer prices. Public resources to provide fiscal subsidies are also limited, so cannot compensate for the price disincentives generated by trade and market policies. Despite these challenges, recent evidence indicates that, following recent reforms, some input subsidy programmes have been downsized, increasing the fiscal space to allocate more funds to general services and public goods, which generate more sustainable and broad-based impacts (see Box 1).¹⁵

Public and private capital is another key lever in agrifood systems. Globally, private capital invested in agrifood systems amounts to as much as USD 9 trillion a year.¹⁶ This is about 14 times public support to the food and agriculture sector, and it affects the way food is produced, processed and distributed, in addition to influencing consumer choice. Agrifood businesses and investors are also important funders of research on sustainability, such as improving farming techniques and technologies, as they are at the forefront of supply-chain threats and have a strong interest in developing creative initiatives to improve risk management and overall resilience (see Box 17 for an example of business efforts to address cocoa supply shortfalls and risks to production in Ghana).

Government policies, laws and regulations can influence how and where private capital is invested, and the way they interact is critical to the design of long-term development strategies. When policy is designed to support sustainable production pathways, it can incentivize co-benefits of sustainable agribusiness.

Public capital also holds significant potential to improve the sustainability of agrifood systems. Insurance, for example, can help actors in agrifood systems to produce and invest more towards sustainability. This is particularly important to small-scale producers, who may find themselves trapped in vicious cycles of shocks, debt and poverty. Decreasing the frictions in other components of financial systems, such as credit and savings institutions, is also essential to facilitate investments towards sustainable agrifood systems. Public–private partnerships can act as implementation mechanisms on this pathway.

By coordinating public and private investment, governments also have a role to play in facilitating access to credit, which can prioritize sustainable food supply chains (see Box 18 for an example from Chiapas, Mexico). Indeed, many investors are already moving to emphasize sustainability, even without direct promotion by governments. Investors are increasingly recognizing that these externalities can have a significant impact on the financial performance and long-term sustainability of businesses.¹⁷ For example, a business that pollutes the environment may face regulatory fines, reputational damage and increased costs of compliance, all of which can impact its financial performance. Conversely, a business that invests in sustainable practices may benefit from increased customer loyalty, reduced regulatory risks and cost savings in the long run.

Levers that affect food consumption

Several levers can directly affect consumers’ choices and shape food demand. They range from those directly mandated by governments, such as taxes and fiscal subsidies, to those influenced by other actors, such as businesses and civil society organizations (see Figure 15).

Fiscal subsidies to consumers are similar to those that target producers in that they are budgetary transfers borne by the taxpayer. They are meant to facilitate the right to adequate food by lowering the cost of food (for example, food subsidies), increasing consumer income (for example, cash transfers) or providing direct access to food (for example, in-kind food transfers and school feeding programmes). However, consumer subsidies currently make up a very small share of public support for food and agriculture, despite their potential to promote healthy diets. Targeted TCA assessments can inform the proper design of such support so that these subsidies improve accessibility to nutritious and environmentally friendly foods.²

Taxes on foods that constitute unhealthy and unsustainable diets complement subsidies that incentivize the consumption of healthier and more sustainable options. Dietary patterns are shaped by a combination of supply and demand factors. They are principally influenced by consumer preferences, such as taste, nutritional value and convenience. However, the relative cost of different food items can play a decisive role, given the income constraints shaping consumer sensitivity to prices. For example, fats and sugars currently provide dietary energy at very low cost, fuelling the burgeoning obesity epidemic. This means that food pricing is a fundamental driver of current unhealthy dietary patterns. Targeted TCA assessments can inform the design of taxation schemes to change the relative prices of foods in favour of more nutritious and sustainable options.¹⁸

Consumer purchasing power plays a key role. In some contexts – mostly in high-income countries, where people spend a relatively low share of their income on food – consumers are increasingly using their purchasing power to support businesses that embody their values. For this to become more effective and broader in scale, more transparent reporting of the business impacts on the natural, human and social capitals is needed. Here, support from governments in terms of mandatory sustainability and impact reporting can play a role in further empowering consumers to make informed decisions. For example, a survey by The European Consumer Organisation (BEUC) found that over half of EU consumers are influenced by environmental concerns and two-thirds are willing to change their eating habits accordingly. However, the survey also revealed that a lack of information and the challenge of identifying sustainable food options, as well as their limited availability and high prices, were perceived as barriers to consumers making the right decisions.¹⁹

Marketing and promotion of foods and agricultural products can also play a role in promoting healthy and sustainable foods. They can alter people’s behaviour in a significant way without prohibiting any options or changing economic incentives. Marketing and promotion are widely used by agrifood businesses to influence consumer choices and steer buyers towards their products.

Labelling and certification have a vital role in this regard. Front-of-pack labels and/or certifications that refer to standards, for example highlighting sustainability characteristics, can influence consumers’ purchasing behaviour.²⁰ However, the effectiveness of voluntary standard certifications is mixed and depends on their application and the capacity to enforce compliance with sustainability requirements (see Box 19 for the case of voluntary sustainability standards in the palm oil sector). Other examples are agricultural cooperatives and producer organizations, which can increase producers’ incomes by meeting demand for speciality products, such as coffee grown under conservation agreements (Box 20).

Policy, research and civil society organizations can play an important role in activating the levers of marketing and promotion, as well as those of labelling and certification, for the benefit of consumers. This can happen if the regulations underpinning these levers are backed by behavioural public policies,²¹ which are interventions designed on the principles of behavioural research, aimed at influencing people’s behaviour by using nudges and correcting cognitive bias.²² An example of how such policies can induce transformation in the right direction is to mandate the private sector, which makes ample use of these levers, to provide accurate and reliable information for consumers to make healthy and sustainable food choices.

Levers that affect general services

The bottom of Figure 15 illustrates the role of general services in shaping agrifood systems transformation. The provision of these services impacts the functioning of agrifood systems more broadly and, when provided by governments, they fall under the category of general services support and mostly address market failures such as those driven by public goods, imperfect information or missing markets. With this type of support, governments aim to correct market failures and reduce transaction costs. They can boost productivity, contribute to food safety and food availability, and lower food prices, including of nutritious foods.²

Infrastructure expenditure, for example, keeps business operations efficient and can reduce transport costs and food losses along food supply chains, contributing to greater food availability.

Research and development (R&D) has further been recognized as an important lever for agrifood systems transformation.⁴⁰ Although public agricultural R&D is associated with high economic returns, it is also characterized by long time horizons and temporal lags.⁴¹ However, a strong return on investment makes a solid case for investing in agricultural R&D to develop the innovations and technologies that can promote food security and nutrition and mitigate threats to global food supplies and farmer livelihoods.⁴²

Knowledge transfer services – for example, training, technical assistance and other extension services – are another related and often publicly supported lever. The effective dissemination of knowledge is key to enabling the adoption of sustainability practices among producers. Similarly, policies that advance digital platforms and open data can further disseminate knowledge resources.

Inspection services as regards agricultural product safety, pests and diseases ensure that food products conform to regulations and product safety norms. The public provision of such inspection services helps consumers and businesses along the food supply chain (see Box 21 on brucellosis disease).

As shown in Figure 15, general services need not be provided solely by governments. Businesses, research institutions and civil society organizations can all play an important role. Many of the infrastructural services that support food and agriculture are run by the private sector, but their presence and expansion can be essential to the proper functioning of food supply chains, as in the case of cold storage infrastructure.

Civil society organizations can also complement government actions in various areas, including consumer protection and knowledge and information sharing. Although they may not be directly involved in inspection services to guarantee food safety and the conformity of products to regulations, they can participate more generally in surveillance against potential food fraud to protect consumers. They have been playing an increasing role of late in raising consumer awareness of issues related to environmental sustainability and economic exploitation (such as child labour).

In conclusion to this section, the question of creating synergies between the different levers and the way they are implemented remains a priority for achieving the desired outcomes. As stated in The State of Food Security and Nutrition in the World 2022, repurposing public support to the food and agriculture sector will not be enough. Policymakers need to avoid potential trade-offs that may emerge. For example, farmers may not be in a position to scale up the production of nutritious and sustainable foods due to resource constraints that prevent them from accessing technologies that enhance environmental sustainability. Moreover, repurposing, if not well-designed, can lead to unintended consequences on the most vulnerable, particularly small-scale producers, women and children.² A TCA approach provides a comprehensive framework for thinking through these and other trade-offs and linking agrifood systems to other – environmental, health, transportation and energy – systems. Then, targeted TCA assessments can generate insights into how to overcome them by unveiling the outcomes of policies, not only in terms of efficiency, but also equity, nutrition, health and environmental quality.