- ➔ As demonstrated in The State of Food and Agriculture 2023, true cost accounting (TCA) is a powerful approach to uncovering the hidden costs generated by current agrifood systems and identifying policy levers to enhance the value of agrifood systems to society.
- ➔ Following on from the awareness-building of last year’s edition, which revealed that the global hidden costs of agrifood systems were likely to have exceeded 10 trillion dollars at purchasing power parity (PPP) in 2020, this edition refines the global TCA assessment and undertakes targeted assessments that link impacts to pathways, with extensive stakeholder consultations to prioritize feasible actions.
- ➔ The environmental, social and health hidden costs are analysed through the lens of an agrifood systems typology with six categories – protracted crisis, traditional, expanding, diversifying, formalizing and industrial – to facilitate policy recommendations better suited to each specific context.
- ➔ By improving on the hidden costs quantified in The State of Food and Agriculture 2023, this report unpacks the health hidden costs associated with unhealthy dietary patterns linked to an increased risk of non-communicable diseases (NCDs).
- ➔ Case studies show how targeted TCA assessments conducted across multiple agrifood systems categories provide more nuanced insights into the requisite agrifood systems transformation and potential actions moving forward.
We can no longer think and act in silos when it comes to agrifood systems transformation. Coordinated action between ministries, the public and private sectors, research institutions and policymakers, as well as other agrifood systems actors, is essential to make agrifood systems sustainable and inclusive. The complexity of agrifood systems combined with the increasing pressure they face to meet multiple goals amid numerous constraints has amplified the need to apply a systems lens to all endeavours to achieve the Sustainable Development Goals (SDGs).
On current trends, global agrifood systems are set to fall short of this objective, particularly in the case of SDG 2 (Zero Hunger), as projections estimate that about 582 million people will be chronically undernourished in 2030.1 The 2024 Global Policy Report of the Food System Economics Commission clearly sets out the urgency of agrifood systems transformation, as well as the benefits and costs involved.2 It finds that inclusive, health-enhancing and environmentally sustainable global agrifood systems are feasible if a set of transformative measures is adopted. Global feasibility, however, does not necessarily translate into national feasibility, as the costs to low-income countries, for instance, are beyond their financing capacity, requiring a global financial system to support them.3
The United Nations Food Systems Summit in 2021 and the UN Food Systems Summit + 2 Stocktaking Moment (UNFSS+2) in 2023 were significant turning points for national, regional and global governance structures. The COVID-19 pandemic laid bare the challenges surrounding agrifood systems, amid ever more intense and frequent climatic shocks and political instability. Despite the complexity of the challenges, many countries have reiterated their commitment to the SDGs and formulated new commitments through national food systems transformation (FST) pathways. As of 2023, 127 of the 193 United Nations Members had submitted FST pathways. Adding more commitments to existing national priorities, however, increases the probability of trade-offs and challenges, especially in the face of political, institutional and financial constraints. Decision-makers and stakeholders increasingly need tools to help prioritize multiple objectives, minimizing trade-offs and maximizing synergies.
True cost accounting is a tool that can help prioritize multiple objectives and levers based on the true costs and benefits of agrifood systems. The foundational definition of TCA rests on a holistic systems approach, capturing the impacts and dependencies of agrifood systems on natural, social, human and produced capitals.4 Although the large-scale use of TCA faces challenges due to data and resource limitations, its aspirational goal of measuring and valuing all hidden costs and benefits to guide the decisions of all agrifood systems actors has been gaining traction. The growing use of TCA in different situations by governments, businesses, financiers, civil society and academics is already contributing to the way we think and act about agrifood systems transformation.5, 6 Box 1 further explores the definition of TCA and how a two-phase approach can inform agrifood systems transformation.
Box 1Understanding true cost accounting: a two-phase assessment
Recent advances in evaluation and accounting frameworks create an unprecedented opportunity for comprehensive assessments of agrifood systems activities through the true cost accounting (TCA) approach, defined in The State of Food and Agriculture 2023 as:
a holistic and systemic approach to measure and value the environmental, social, health and economic costs and benefits generated by agrifood systems to facilitate improved decisions by policymakers, businesses, farmers, investors and consumers.
A fundamental aspect of TCA is that it extends assessments beyond market exchanges to measure and value all flows to and from agrifood systems, including those not captured by market transactions. True cost accounting assessments can adopt a variety of methods depending on a country’s resources, data, capacity and reporting systems. Valuation can be either qualitative or quantitative, including monetary. The four dimensions covered – environmental, social, health and economic – are reflected in the four capitals: natural, social, human and produced.
Given that TCA is often hampered by data gaps, methodological limitations and institutional barriers, The State of Food and Agriculture 2023 proposed a two-phase assessment in which available data and information are first analysed to provide an initial understanding of agrifood systems (see the figure). Such initial analyses can prompt dialogue between relevant stakeholders to identify the most important challenges and the most urgent data gaps to be filled to better understand the context and guide interventions.
National-level estimates presented in last year’s edition of the report served as this first phase, which aimed to raise awareness, even if the quantified hidden costs of agrifood systems were incomplete, subject to a high degree of uncertainty and mute on the costs of transformation. This edition moves the needle further on these national estimates, with refinements to the data used.
The second phase is to carry out targeted and context-specific TCA assessments to better inform decision-makers on how to leverage policy, regulation, standards and private capital for a transition to sustainable agrifood systems. The case studies presented herein showcase how such targeted TCA assessments can delve into the multiple dependencies within agrifood systems, providing nuanced insights to inform the transformation.
FIGURE TWO-PHASE AGRIFOOD SYSTEMS ASSESSMENT PROCESS
Using the TCA approach at national level, with publicly available data for 154 countries, The State of Food and Agriculture 2023 revealed that the global hidden costs of agrifood systems were likely to have exceeded 10 trillion dollars in 2020.b This preliminary figure would have probably been even higher without the data constraints preventing the quantification of several relevant hidden cost components for those 154 countries. Global hidden costs are predominantly driven by health hidden costs in upper-middle- and high-income countries; however, the burden on national budgets is greatest in low-income countries (where social hidden costs prevail). This finding sparked considerable interest in conducting targeted context-specific TCA assessments proposed as phase two of the TCA approach in the 2023 edition of this report.
An important and unintended consequence of adopting TCA to reveal the true cost of food with a view to transforming agrifood systems was the perceived failure to acknowledge the full scale of hidden benefits. As stated in the opening paragraphs of The State of Food and Agriculture 2023, the value of agrifood systems to society is probably well beyond what is measured in gross domestic product (GDP), given the array of non-monetizable hidden benefits. These range from biodiversity conservation, carbon storage and sequestration, watershed regulation and cultural identity to the nourishment of the entire human population, sustaining not only agrifood systems but also the broader economy. In a sense, the world’s entire GDP can be counted as a benefit of agrifood systems, as human productive activity would not exist without food. It is important to note that the TCA results published in the 2023 edition of this report are not meant as a cost–benefit assessment for making decisions based on the indisputable existence of agrifood systems. Rather, they help quantify the marginal (rather than total) hidden costs (and benefits) of our actions throughout agrifood systems to inform decisions on national, regional and global commitments. Box 2 discusses the scope and limitations of various approaches to quantifying the hidden benefits of global agrifood systems.
Box 2Can and should the hidden benefits of agrifood systems be quantified? How?
The hidden benefits of agrifood systems can be just as important as the hidden costs. This report does incorporate some hidden benefits of interventions by including them as negative hidden costs. For example, the approach allows for accounting for interventions that balance the needs of agriculture and forestry in land-use practices, which could create synergistic opportunities to increase sustainable crop productions and improve rural livelihoods, while reducing deforestation. Other hidden benefits may be perceived as hidden for those who generate them, but are captured by other economic actors and enter into market transactions. One such case is the tourism sector, which benefits economically from beautiful agricultural landscapes that attract visitors. In such cases, the “hidden” benefits are redistributed across the economy, but are not really hidden from gross domestic product (GDP). However, there are also hidden benefits that are not usually factored into traditional true cost accounting assessments. There are different ways of approximating them, but all are imperfect “back-of-the-envelope” approaches. Such estimates of the hidden benefits of agrifood systems can range from the quantification of consumer surpluses to considering global GDP in its entirety, based on the fact that without food there would be no labour, hence no GDP.
The consumer surplus is the difference between what consumers are willing to pay for food and the amount they actually pay. The surplus, which is an economic benefit not reflected in GDP, is often sizeable, thanks to the efficient functioning of markets. If consumer willingness to pay could be estimated for each unit of food demand globally (which is no easy task), the consumer surplus could be quantified.
Whichever way one calculates them, the total benefits of agrifood systems are unlikely to change much with policy interventions. Rather, there will probably be a redistribution of benefits between those that are visible through market transactions and those that are hidden. Suppose, for example, that the price of food increases due to a regulation that addresses environmental hidden costs. As prices rise, part of the hidden consumer surplus becomes more visible. Consumers end up spending more on food, which shifts the economic benefits from being hidden in the consumer surplus to being visible in market transactions. In this scenario, the benefits that were once intangible and not captured in GDP statistics become apparent through higher expenditures recorded in the market. The resulting change in total benefits would be relatively small, with the most significant burden being borne by vulnerable households, who would no longer be able to afford food as they did before the price increase.
This shift underscores the delicate balance needed in agrifood systems transformation to address hidden costs without disproportionately affecting vulnerable stakeholders – in this case, the need to ensure continued access to affordable and healthy diets. However, it is important to note that this is a distributional issue to be resolved through inclusive rural transformation complemented by redistributive policies and social protection rather than through accounting for hidden benefits, as the bulk of the impact will be the visibility of the hidden benefits of agrifood systems, without a major change in total benefits. Based on this observation, focusing on reducing the hidden costs of agrifood systems makes sense, as long as the potential associated trade-offs between social, environmental and health hidden costs are taken into account.
How can true cost accounting help unpack the complexity of agrifood systems?
The complexity of agrifood systems increases with a shift from traditional and local systems to more interconnected national, regional and global systems. This is driven by the increased number of stakeholders involved in longer value chains, leading to more complex impacts and interdependencies of action on all four capitals (natural, social, human and produced) at increasingly larger scales. It is, therefore, not surprising that efforts to measure and value the impacts of agrifood systems activities started on a smaller scale (product or value chain), with capitals that are relatively easier to value (that is, natural and produced). The principles of cost–benefit analysis have been extended to cover environmental impacts in well-established environmental valuation literature, leading to greater use of life cycle assessments over the past 30 years.7 True cost accounting brings a much broader systems lens to account for all capitals and uses these valuation approaches, among others, as tools. Despite the reference to accounting in its name, TCA acknowledges that not all impacts are quantifiable or monetizable, so qualitative assessments are a critical complement to quantitative measurement and valuation in TCA assessments.5, 8
Applications of TCA have been increasing over the last decade, aided by the proliferation of frameworks and guidelines that can be implemented for different functional units, ranging from product, organizational and investment to sectoral and geographical.9–12 While the first three of these functional units are classified as bottom-up approaches, the latter two are top down. True cost accounting applications in the former category are typically smaller in scope and are relevant to operational and organizational decision-makers and consumers, while applications in the latter category are more relevant to local and international policymakers in agrifood systems.5
The preliminary estimates of the hidden costs of agrifood systems published in The State of Food and Agriculture 2023 are based on the largest-scope TCA exercise to date in the top-down category in 154 countries. Because of the trade-off between scope and detail, the impacts and dependencies assessed covered those that could be quantified using globally available public data, so exclude some components relevant to guiding policy at local level. Nevertheless, they constitute a leap forward in assessing the hidden costs of global agrifood systems in a consistent and comparable manner and pave the way for the phase two assessments outlined in the conceptual framework introduced in the 2023 edition of this report (Box 1).
Two pillars of the second phase of TCA assessments for an informed agrifood systems transformation are: i) stakeholder consultation; and ii) clear identification of policy levers. Policy levers need to address the main drivers of the hidden costs to be effective, so the links between impact pathways and impacts need to be clearly identified. Guidelines for TCA implementation of smaller scope lay out the process of identifying how agrifood systems activity affects changes in capital stocks, flows and outcomes for all four capitals to define the impacts to be measured and valued. This process relies on materiality assessments with strong stakeholder engagement to identify pathways for change.10–12
The 2024 edition of The State of Food and Agriculture showcases phase two of the global TCA assessment through targeted case studies of varying scope and presents them within an agrifood systems typology to identify pathways for change. The hidden costs of global agrifood systems quantified in 2023 were categorized by the environmental, social and health pathways – unlike TCA applications of smaller scope, which categorize findings by impact domain. These pathways capture the drivers of an impact that can occur in another domain; therefore, distinguishing pathways from the impacts themselves is important when it comes to identifying entry points for action (Box 3).
Box 3Tracing pathways from hidden costs to impacts
Distinguishing hidden cost pathways from impacts is crucial in identifying policy entry points for transforming agrifood systems and making them more efficient, inclusive, resilient and sustainable. Hidden costs are generated by agrifood systems activities, and impacts – be they environmental, socioeconomic or health – are the direct consequence of these actions. The pathways capture the drivers of the impacts.
The pathways are useful for clarifying when the cause of an observed impact takes place in another domain. For example, negative impacts on health could be an outcome of the inappropriate use of pesticides (environmental pathway to hidden costs) or undernourishment (social pathway to hidden costs), in addition to unhealthy dietary patterns and malnutrition (health pathway to hidden costs). The figure is a stylized representation of how the hidden costs (left-hand column) link through the environmental, social and health pathways to the impacts (right-hand column), which are categorized as environmental, socioeconomic and health. The colouring of each pathway matches the domain of the associated hidden cost, rather than the impact, to highlight the root cause.
Hidden costs created through the environmental pathway, shown in light green, lead not only to environmental impacts (dark green), but also socioeconomic impacts (dark orange) and health impacts (dark blue). Water pollution is a case in point, whereby the effects include ecosystem service losses (environmental impact), harmful exposure and labour productivity losses (socioeconomic impacts), and morbidity (health impact). Nevertheless, water pollution is considered an environmental hidden cost because the actions needed to tackle the diverse impacts are rooted in how agrifood system activities interact with the environment.
The social pathway (light orange) pertains to those costs incurred by society due to a range of interconnected issues rooted in market failure and poor institutions and policies. Undernourishment, for example, is a social hidden cost because it is the result of distributional failures in available food supply. Poverty among agrifood workers is also a social hidden cost because it is driven by distributional failures in agrifood systems leading to low productivity and wages. Other social hidden cost pathways, as noted in the figure, include food loss, gender wage gaps, child and forced labour, occupational safety incidents and unsafe food. Addressing social hidden costs requires comprehensive strategies that prioritize inclusive rural transformation and social inclusion within agrifood systems.
Lastly, the health pathway (light blue) is characterized by unhealthy dietary patterns leading to undernutrition or increased risk of disability or death due to non-communicable diseases, as shown by the dietary risks in the figure. These unhealthy dietary patterns have impacts beyond health, including on labour productivity and a wide range of environmental impact indicators.13, 14
The figure aims to clarify how the hidden costs quantified in The State of Food and Agriculture 2023 are categorized by pathway, with a view to creating a direct link to policy entry points. Nonetheless, the figure represents more hidden costs than were quantified in the report. The 2023 edition quantified the following hidden costs:
- Environmental pathway: as a result of i) greenhouse gases (GHGs) emitted along the entire food value chain from food and fertilizer production and energy use, which contribute to a changing climate and, consequently, agricultural losses; ii) nitrogen emissions at primary production level (ammonia and nitrogen oxide emissions to air, nitrogen runoff and leaching) and from sewerage; iii) blue water use, causing water scarcity and, in turn, agricultural losses and labour productivity losses from resulting undernourishment; and iv) land-use change at farm level, causing ecosystem degradation and destruction and, thus, loss of environmental services.
- Social pathway: associated with i) distributional failures of available food supply, resulting in undernourishment in national populations,15 leading to labour productivity losses;16 and ii) moderate poverty among agrifood workers due to distributional failures in agrifood systems.
- Health pathway: as a result of consuming unhealthy diets associated with obesity and non-communicable diseases, leading to productivity losses, negatively impacting the economy.17
Other studies quantifying the hidden costs of agrifood systems may classify them according to impact, which is another way of presenting the complex set of domains linked to agrifood systems and may lead to differences between various true cost accounting (TCA) assessments. The figure does not aim to represent the full range of changes in all capital stocks, outcomes of these changes or impacts on people and nature from agrifood systems actions (see Figure 6.1 in the TEEBAgriFood Foundations report for a full representation of these dependencies, which make up the core of TCA assessments).4
FIGURE Hidden cost drivers along the environmental, social and health pathways and their impact domains
Evaluating the full range of impacts stemming from the environmental, social and health pathways is the aspirational goal of TCA, though the data and institutional challenges make it very hard to cover all impact domains in practice. Case studies sourced from around the world for this study attest to these challenges and are featured in this report if they address two or more domains relevant to the policy applications of the TCA approach. They also underline the importance of including a mapping and discussion of all capitals to ensure that all trade-offs and synergies are captured in future assessments, even if necessary data are not available.
