- ➔ To make agrifood systems transformation more inclusive, sustainable and resilient, it is essential to involve all agrifood systems actors and strategically navigate the power dynamics that influence their interactions.
- ➔ Much of the required change involves primary production practices, but producers need not shoulder the burden alone; partnerships with governments, agribusinesses and financial institutions must also play a role in reshaping food supply chains.
- ➔ Although agrifood systems actors’ adherence to voluntary standards and sustainable practices is on the rise, the pace of action to counteract escalating climate change remains insufficient. Efforts need to be stepped up.
- ➔ Governments are increasingly modelling incentive and regulatory schemes based on existing voluntary standards, showing that voluntary action can inform and pave the way for policy measures that can ensure scale.
- ➔ Early adopters of more sustainable and fair practices are poised to minimize business disruptions by staying ahead of anticipated regulatory change.
- ➔ Given the increasingly global nature of food supply chains, international cooperation on financing and trade is essential to ensure that the benefits and costs of transformation are distributed fairly.
Business relationships underpin the various network structures of agrifood systems actors, including those in supply chains linking agricultural producers to consumers. The nature of these relationships needs to be taken into account in strategies to drive agrifood systems transformation.1
While much of the focus of agrifood systems transformation rests on primary producers, processors or retailers adapting their practices, no actor operates in isolation. Rather, their activities are influenced by power dynamics involving upstream and downstream partners in the supply chain, governmental entities on multiple levels and civil society organizations.2, 3 While primary production may be the pathway through which a significant portion of environmental hidden costs can be internalized, other actors would mainly reap the benefits. The extent to which individual actors internalize externalities depends on awareness, motivation and capability, which become increasingly challenging as value chains are globalized. Governments, through policy and regulation, have a vital role to support these three pillars in order to incentivize agrifood actors to eliminate or reduce the negative externalities.4
The TCA systems approach of multistakeholder engagement offers the right forum for bringing different types of actors together – from governments to the private sector – to address awareness, motivation and capability constraints and to identify opportunities for change. Indeed, agrifood businesses of all sizes can identify opportunities to enhance their operational and strategic models with targeted TCA assessments. Such assessments are also an important means of determining “double materiality”, how businesses are affected by sustainability issues, such as the risks of conducting business as usual, and how their activities impact society and the environment. The social dimension under TCA assessments allows agribusinesses to incorporate human rights principles into agrifood value chains to ensure dignity, fairness, and protection from exploitation for all actors. As such, it is agribusinesses’ responsibility to uphold human rights and comply with international guidelines and emerging legal frameworks, as per the United Nations Guiding Principles on Business and Human Rights. These principles combined with well-designed incentive structures can guide the ongoing state of transformation in food supply chains towards sustainability and inclusion.
Food supply chains: the ongoing state of transformation
An estimated 1.23 billion people – or approximately one-third of the global labour forcem – are directly employed in agrifood systems, bringing food to our tables by way of food supply chains.6 Primary producers occupied with crops, livestock, forestry, fisheries and aquaculture engage with those working in the value-adding stages of storage, transportation, processing, wholesale and retail distribution. Food supply chains are interconnected with supply chains for inputs (for example, equipment, fertilizer, fuel, labour and machinery) and services (such as finance). These operations range from small to large scale, the interactions can be formal or informal, and the chains vary in reach, from local to global.
Environmental, social and health hidden costs can be created at all stages of food supply chains and jeopardize their long-term viability. However, the fundamental shifts that are needed often hit political economy barriers and may even backslide on reform.7 Actors are sometimes reluctant to change practices, imagining that actors in the chain other than themselves will benefit or deeming the benefits to be too distant in geographical or generational terms. By engaging stakeholders in documenting the complex interdependencies, targeted TCA assessments can identify policy entry points to maximize the value of transforming agrifood systems for all actors in the chain.
Food supply chains are continuously transforming, influenced by technological innovation, demographic changes, consumer preferences and economic development. It is important to understand their current state as much as possible, however, so that efforts to drive transformation can be tailor-made to local contexts.
Navigating diverse food supply chains
Common patterns in food supply chains, such as those relating to primary production, infrastructure and food processing, can be identified through the lens of the agrifood systems typology, though it should be acknowledged that heterogeneity of food supply chains exists within each agrifood systems type and country. As mentioned in Chapter 1, the typology captures the changes that occur in food supply chains during rural transformation. As agricultural productivity in agrifood systems increases, generally fuelled by technological change, there is a reduction in the agricultural labour force as workers move towards non-farm employment.8, 9 Combined with demographic transition and urbanization, food retail sectors transform, leading to the increased presence of supermarkets (both urbanization and supermarkets are among the indicators used to create the typology). The implications for food supply chains and consumption habits can have positive outcomes (for example, higher farm incomes due to contract farming, increased availability of fresh produce)10, 11 and negative outcomes (such as increased inequality, greater consumption of highly processed foods)12, which need to be assessed using other indicators to identify policy levers.
Starting with farm size, which has a bearing on the awareness, motivation and capability of actors in addressing the hidden costs of primary production, it is typical to observe the increased concentration of farmland among large farms as economies grow. Globally, the largest 1 percent of farms – each more than 50 hectares – operate over 70 percent of the world’s farmland. In contrast, small farms of less than 2 hectares account for 84 percent of all farms worldwide, but operate only around 12 percent of all agricultural land. Figure 10 shows the distribution of farms by land size for agrifood systems categories. The difference in farm size distribution between the industrial and formalizing categories, on the one hand, and all other agrifood systems categories, on the other, is dramatic. While farms of 20 hectares or more are rarely observed in the latter categories, they make up more than one-fifth of all farms in the former, with 5–7 percent of them larger than 100 hectares. Since many large farms are owned by families, the terms “small farm” and “family farm” should not be used interchangeably. Out of the more than 608 million farms in the world, over 90 percent are family farms, occupying 70–80 percent of farmland and producing roughly 80 percent of the world’s food in value terms. Small farms produce roughly 35 percent of the world’s food.13 Nonetheless, it is important not to conflate farm size with productivity, as recent literature highlights an inverse relationship between farm size and productivity.14
FIGURE 10 Distribution of farm size by agrifood systems category
Comparing agrifood systems using indicators of primary and secondary food production characteristics can provide important context for targeted TCA analysis. Figure 11 and Figure 12 provide insights into the differences between food supply chains in terms of production efficiency, emissions intensity, fertilizer use, food supply chain infrastructure and food processing. Figure 11 demonstrates how well the typology captures the rural transformation stages: as the share of agricultural value added in GDP declines, labour productivity in agriculture increases dramatically. These changes are accompanied by an intensification of primary production corresponding to the changes in emissions intensity (Figure 12). As emissions per area of agricultural land increase due to increased input intensification, there is a reduction in emissions per unit of value added. The highest emissions per unit of value added in agriculture are in protracted crisis, expanding and traditional agrifood systems (those with the lowest labour productivity), where improvements in the efficiency of input use and value addition in agriculture tend to be priorities of primary production. How producers can be incentivized to avoid the significant increase in emissions per hectare of agricultural land during this progress with a systems approach will be discussed in the next section.
FIGURE 11 Agricultural value added as a share of gross domestic product and per worker by agrifood systems category
FIGURE 12 Emissions per unit of agricultural land and per unit of value added by agrifood systems category
As an indicator of input use among farmers, the blue line in Figure 13 shows an increase in average fertilizer consumption per hectare of arable land across the agrifood systems types, peaking in the formalizing category before decreasing in the industrial category. These estimates are derived at the national level and do not provide detail on heterogeneity in input access among farmers, nutrient management practices, such as those leading to efficient use versus over-fertilization, or changes over time. For example, it has been documented that as countries develop economically and agricultural practices improve, phosphorus use efficiency initially declines before levelling off or increasing as management practices improve and nutrients accumulate in the soil.15 This trend aligns with the environmental Kuznets curve, which predicts a bell-shaped relationship between pollution and income.
FIGURE 13 Primary and secondary food production characteristics across agrifood systems categories
SOURCES: Authors’ own elaboration based on data from Economist Impact. 2018. Global Food Security Index (GFSI) Database. [Accessed on 20 February 2024]. https://impact.economist.com/sustainability/project/food-security-index/download-the-index; FAO. 2021. FAOSTAT: Fertilizers by Nutrient. [Accessed on 20 February 2024]. http://www.fao.org/faostat/en/#data/RFN. Licence: CC-BY-4.0; Food Systems Dashboard. 2018. Retail value (total sales) of ultra-processed foods per capita. [Accessed on 20 February 2024]. https://www.foodsystemsdashboard.org/indicators/food-environments/product-properties/retail-value-of-ultra-processed-food-sales-per-capita
To minimize food loss along supply chains and facilitate market access for all, infrastructure is key. Nonetheless, the red line in Figure 13 shows how the ability to store and transport food products to market varies by agrifood systems type. The agricultural infrastructure index is a composite indicator that assesses a country’s road, rail, port, air transport and irrigation infrastructure, as well as investment in crop storage facilities. A higher score indicates more developed infrastructure – and the industrial category value is more than three times that of the protracted crisis category, suggesting improved market access and the increasing presence of cold chains alongside supermarkets and modern retail.16
Changing food-processing and consumption patterns can be seen in Figure 13 (green line), which shows growth in the retail value of ultraprocessed foods.n The increase is happening fastest in traditional agrifood systems and in those in protracted crisis, as supply chains are increasingly bringing such foods to consumers even where there are no supermarkets.17 That sales growth rates of ultraprocessed foods are zero or negative in formalizing and industrial agrifood systems may indicate market saturation (the retail value of these foods per person per day in industrial agrifood systems is 30 times the value in traditional agrifood systems), as well as changing consumer preferences.
Some of the characteristics above identify trends that need to be avoided as economies develop (such as a rise in emissions and an increase in highly processed food sales growth), while some point to trends that may need to be enhanced (such as an improvement in production efficiency) using various levers at different stages of the supply chain. Such characterization of agrifood systems creates a general backdrop, to be nuanced with further analysis for a more complete and context-specific picture of the hidden benefits and costs of agrifood systems. Therefore, these characteristics should be seen as descriptive of broader agrifood systems, as mentioned in Chapter 1, and are not intended to imply superior agrifood systems during observed transitions.
Moving beyond national averages, targeted TCA assessments can delve into the interconnected activities of agrifood actors across food supply chains and territories to identify their collective dependencies and impacts on all four capitals (natural, social, human and produced). Stakeholder engagement is key to pinpointing and minimizing the trade-offs of interventions to maximize gains for all. Vulnerable actors, in particular, need to be brought into the fold to ensure an inclusive agrifood systems transformation.
Bridging gaps and empowering vulnerable actors
While agrifood systems provide employment around the world, they do not always provide an acceptable standard of living and quality of life. In fact, too often, vulnerable populations are left behind across agrifood systems, for example, the poor and food insecure, small-scale value chain actors, migrants and refugees, women, children and youth, persons with disabilities, Indigenous Peoples and other groups that suffer social discrimination and marginalization based on gender, race, ethnicity, disability and/or socioeconomic class. These groups bear the greatest burden of the social hidden costs of agrifood systems, due to pay gaps and other forms of discrimination and marginalization, limited legal protections and a lack of enforcement, poverty, a lack of decent work opportunities and limited access to quality schooling, among other things. Such inequalities are exacerbated by the disproportionate impacts on vulnerable populations of climate change, natural disasters and food insecurity.18, 19
Women make up a large share of those employed in agrifood systems, accounting for 38 percent of the global agrifood systems workforce. Often, however, they face considerable barriers, including discriminatory social norms, which constrain their agricultural productivity and access to resources.20 Figure 14 shows patterns of employment in agriculture, non-agricultural activity in agrifood systems and other employment globally, for men and women in 2021 across the six agrifood systems types.
FIGURE 14 Employment in agrifood systems by sex and category, 2021
Women are more likely to work in agriculture in countries and territories with protracted crisis or traditional agrifood systems, where they account for almost 60 percent of agricultural employment. Consistent with a process of structural transformation, as agrifood systems become more industrialized, the relative importance of agriculture to overall employment declines for both men and women. For example, as agrifood systems transition from the traditional to the expanding category, the share of women in agriculture declines by 31 percentage points, while that of men declines by 11 percentage points. As agrifood systems continue to diversify, the gap between men’s and women’s employment in agrifood systems narrows to 3 percentage points in industrial agrifood systems. In these more industrialized systems, non-agricultural roles become more prevalent among both men and women. In a protracted crisis context, it is interesting to observe that agrifood systems play a fundamental role in the coping and resilience strategies of the affected population. In such situations, both women and men primarily work in agriculture, which may reflect necessity-driven involvement due to the dissolution of other employment opportunities caused by male migration or conscription into conflict.21
The barriers women face despite their significant participation in agrifood systems include limited access to and control over land and other assets, as well as limited access to financial services, education, technology, markets and extension services.22 Across all types of agrifood systems, women’s roles tend to be marginalized and their working conditions worse than men’s. These disparities not only undermine women’s potential, but also impede the efficiency and sustainability of agrifood systems, creating hidden costs that were not quantified in the 2023 edition of this report. Addressing these gaps has the potential to increase the productivity and resilience of agrifood systems, thereby fostering economic growth and food security (Box 11).
Box 11Unlocking potential: The value of addressing the hidden costs of gender gaps in agriculture
Bridging the gender divide in agrifood systems could unlock unprecedented economic growth and combat food insecurity. Global analyses reveal that by closing the productivity gap between male- and female-managed farms, a substantial surge in agricultural value added could be observed, of as much as 3.2 percent. This translates into an additional USD 133.5 billion, based on the 2021 agricultural value added of USD 4.15 trillion.23 Furthermore, addressing gender disparities in productivity and wages within the agrifood sector could catalyse a global gross domestic product (GDP) increase of USD 950 billion, or about 1 percent.
Such pivotal changes have the potential to alleviate global food insecurity by 2 percentage points, which means 45 million fewer people facing moderate to severe food insecurity.23 The impact of these changes is particularly pronounced in least developed and more food-insecure countries, potentially leading to an increase in GDP of 1.47 percent in countries with traditional agrifood systems and 0.87 percent in expanding ones. This translates into reductions in food insecurity of 2.88 percent and 2.25 percent, respectively, as shown in the figure. In countries in protracted crisis, closing the gender gaps in productivity and wages could boost GDP by 1.15 percent and lower food insecurity by 2.12 percent. As agrifood systems develop and agriculture’s contribution to GDP declines, narrowing the gender wage and productivity gaps in agrifood systems still has a positive, albeit smaller, effect on reducing food insecurity, lowering it by 0.84 percent in formalizing and 0.83 percent in industrial agrifood systems.
These findings underscore the significant benefits of addressing the hidden costs of gender disparity in agrifood systems, which stem from unequal resource allocation, marginalized working conditions, role assignment and responsibilities entrenched in social norms and gender-based discrimination, rather than efficiency-driven distribution.
FIGURE Gains from closing the gender gap in agrifood systems, 2021
Another pressing issue is the rising exploitation of children in labour, especially in agrifood systems, creating additional social hidden costs that are not easy to quantify. Alarmingly, child labour increased in 2023 for the first time in 20 years. There are currently 160 million children trapped in child labour worldwide, of which 79 million perform hazardous work. Seventy percent of child labour occurs in agriculture. However, child labour is also prevalent in the service and industry sectors, including the production of inputs used to manufacture final export products.24 While the exploitation occurs in many contexts, certain global value chains, such as the coffee industry, have been called out for their use of child labour, as discussed in Box 12. As child labour is intertwined with poverty – as both a cause and an effect – its eradication requires a multifaceted strategy. This includes the collaboration of private-sector actors, stronger integration of child labour prevention and elimination into public policies, improving the provision of social services, and fostering the reintegration and retention of children in school.25
Box 12Hidden costs of coffee production in East African value Chains
Coffee is the second most traded commodity in the world and the number one traded agricultural commodity, with more than 30 million smallholder households relying directly on coffee income in 2015.30 In addition to the substantial environmental impacts of coffee production and processing,31 there are essential social concerns about the living and working conditions of coffee farmers and workers, their access to education, gender equality and child labour.32 A true cost accounting (TCA) case study commissioned for this edition of The State of Food and Agriculture aims to quantify the significant environmental and social externalities of coffee production in the East African countries of Ethiopia, Uganda and the United Republic of Tanzania as an example of supporting the identification of possible internalization options.
The study closes a research gap by considering location- and context-specific differences within countries, between types of coffee (Arabica or Robusta) and production systems (extensive or intensive) in the quantification and valuation of social externalities, that is, the living income gap, the gender pay gap and child labour. The quantified hidden costs range from 60 percent to 150 percent of the actual farm gate price per kilogram of green coffee beans. Both environmental and social externalities contribute significantly to hidden costs, although direct comparison between their magnitudes is difficult due to differing monetization approaches.
Robusta coffee showed considerably higher total hidden costs, driven by the higher social hidden costs of the living wage gap due to lower farm gate prices, as shown in the figure. On average, total hidden costs are 7.20 2020 purchasing power parity (PPP) dollars for garden coffee and 6.45 dollars for forest coffee in Ethiopia, 5.11 dollars for Arabica and 5.80 dollars for Robusta coffee varieties in Uganda, and 2.35 dollars for Arabica and 3.65 dollars for Robusta coffee varieties in the United Republic of Tanzania. This is equivalent to between 60 and 200 percent of the farm gate price of Arabica and two to three times the farm gate price of Robusta (compared with farm gate prices at the time of the survey). The hidden costs are highest for Ethiopia, driven by Ethiopian coffee farmers’ high income gap.
Farm gate prices are not uniform and are usually higher for certified coffee farmers. The study estimates that doubling the farm gate price of Robusta has two effects. First, it reduces the living income gap from 3.16 dollars to 1.16 dollars and, second, the overall hidden costs are reduced from more than 250 percent to 82 percent. While these effects are substantial, these changes must not be considered in isolation. Rather, increasing the farm gate price – unless the certification is associated with certain environmental standards – may also change the incentive for coffee farmers to cut trees and expand their plots or to use more fertilizer with negative environmental costs. Such potential trade-offs can be better managed if environmental and social hidden costs are disaggregated using TCA approaches and combined with scenario building exercises to demonstrate the costs and benefits from internalizing the substantive externalities identified in coffee production to all actors.
FIGURE AVERAGE HIDDEN COSTS IN THE COFFEE VALUE CHAINS OF ETHIOPIA, UGANDA AND THE UNITED REPUBLIC OF TANZANIA BY TYPE OF COFFEE
The informality of agrifood operations is interconnected with the status of vulnerable actors and presents an overlapping set of challenges for agrifood systems transformation. Informal workers and businesses are part of food supply chains, particularly in lower-income countries, but are invisible in national statistics; government regulation, support and social protection programmes do not reach them. Consequently, the informal sector is insufficiently included in efforts to improve livelihoods, the environment, and the safety and accessibility of healthy foods,26 yet its activities influence food safety, availability, affordability and accessibility, various dimensions of livelihoods (including employment and labour conditions) and the environment.27 On the one hand, informal or semi-formal activities serve as the main source of revenue and income, as well as of affordable food, for many vulnerable segments of society.26, 28 On the other, informal activities, such as the lack of official employment contracts, can perpetuate poor working conditions and a lack of compliance with food safety and hygiene regulations.27 True cost accounting analyses are a means of shedding light on these limitations to an inclusive agricultural transformation. One study on the true price of Kenyan coffee reports that the informality of the sector and low prices are the main drivers of human rights violations.29
To improve livelihoods and well-being, it is crucial to account for the distinct circumstances of waged workers compared with those who are self-employed. Here, the concepts of a living income and a living wage are different in practice. A living income, or living income benchmark, refers to the net annual income required for a household in a particular place to afford a decent standard of living for all members of that household. The discrepancy between the living income benchmark and actual earnings is termed the living income gap. These gaps vary considerably from region to region, but are particularly notable in the food and agriculture sector, with figures ranging from 50 percent to 94 percent for the typical smallholder farmer household.33 A living wage, in contrast, means that the basic cost of living for a family is attainable by the adult wage earners each month.34 The living income gap, coupled with excessive working hours, undermines the socioeconomic well-being of many producers, as confirmed in a study on rice and Irish potato production in Bhutan, Burkina Faso and Malawi, which found social impacts to be greater than environmental impacts.35
