The State of Food and Agriculture 2023

Chapter 3 Moving Towards Targeted True Cost Assessments for Informed Decisions

  • Agrifood systems are complex, making it difficult to measure their impact comprehensively. As a result, targeted assessments that focus on key sectors and challenges are necessary.
  • True cost accounting (TCA) is a fitting approach for conducting targeted agrifood systems assessments, for example, of dietary patterns, investments, organizations and products. The chosen unit of analysis will depend on the actor(s) for whom the results are most relevant.
  • Any agrifood systems intervention or management option can involve trade-offs and synergies, including between environmental and economic impacts. Targeted TCA assessments can help identify and manage them, thus aiding governments, businesses and other stakeholders to make more responsible decisions to improve sustainability.
  • Analysing key policies is essential in targeted TCA assessments to address trade-offs and maximize synergies. Scenario analysis plays a complementary role by exploring the possible outcomes of different future interventions and deciding which will be most effective.
  • True cost accounting not only helps businesses better understand and manage their impacts and dependencies on agrifood systems, but also leads to improvements in performance, reputation and resilience.

How can we work to transform agrifood systems if their impacts are not well understood at a more granular level? An essential first step in the process is to use an analytical and methodological approach that takes into account all the relevant actors and impacts. To this end, Chapter 1 proposed a two-phase assessment approach to improve understanding of current and future agrifood systems and guide policymakers’ and stakeholders’ interventions towards sustainability.

Chapter 2 presented an initial effort to advance phase one of the assessment process, estimating the hidden costs of national agrifood systems for 154 countries and suggesting some indicators for further analysis. These results should hopefully encourage discussion and dialogue among various sectors and stakeholders. They provide a useful breakdown of the estimated hidden costs of agrifood systems in order to identify the most pressing challenges, which is key to understanding overall priorities. However, these estimates are incomplete and involve a large degree of uncertainty because of data limitations. What is more, they are based on an accounting exercise that captures only part of the hidden costs of agrifood systems and says nothing about the drivers of those costs or the cost of reducing them. This calls for a more granular analysis to capture local specificities, to understand the drivers of hidden costs and the role of current policies in generating them, and to estimate the cost of transformative actions to address them. Such granular analysis is essential in order to compare the effectiveness and cost of potential interventions to address identified priorities.

This chapter focuses on the second phase of the assessment process: conducting targeted assessments to support decision-making to improve the sustainability of agrifood systems. In particular, it provides insights into the fundamentals of conducting targeted agrifood systems assessments in countries using TCA. Through a flowchart, it guides policymakers and other interested stakeholders on how to conduct such targeted assessments – from gathering the available data on agrifood systems impacts to evaluating and applying measures needed to achieve the desired outcomes. Acknowledging the complexity of agrifood systems and the fact that policies and other interventions might have spillover effects, the chapter further discusses the importance of assessing policies, such as through scenario analysis, to compare future options and manage trade-offs and synergies.

Lastly, given the increasing pressure on agrifood businesses to adopt more sustainable practices and report on their performance across all capitals (natural, human, social and produced), the chapter investigates the role of TCA assessments in the private sector (that is, business and investment) for transforming agrifood systems.

Defining transformative actions through targeted assessments

Due to the complexity of agrifood systems, the focus of targeted assessments should be on the key concerns of agrifood systems sustainability and how systemic outcomes can be affected in the short and long term. To this end, the flowchart depicted in Figure 11 presents how to initiate and scale up phase two assessments. The process of targeted assessments is organized into four steps, of which the first three are discussed in this chapter and the fourth in Chapter 4.

FIGURE 11 A four-step process to initiate and scale up targeted agrifood systems assessments

A chart lists the four-step process to initiate and scale up targeted agrifood systems assessments.
NOTES: AMR = antimicrobial resistance; IHME = Institute for Health Metrics and Evaluation; TCA = true cost accounting; WHO = World Health Organization.
SOURCE: Adapted from Markandya, A. 2023. Accounting for the hidden costs of agrifood systems in data-scarce contexts – Background paper for The State of Food and Agriculture 2023. FAO Agricultural Development Economics Working Paper, No. 23-12. Rome, FAO.

Step one frames the issues. It is based on the results obtained in phase one, which focuses on wider assessments aimed at raising awareness about the current state and performance of national agrifood systems and identifying key issues and policy questions. A good point of departure is the national-level estimates provided in Chapter 2 on the hidden costs of agrifood systems across environmental, social and health dimensions. These results can function as a springboard for dialogue with policymakers and other stakeholders on the magnitude of hidden costs and how they relate to their priorities.

Step two focuses on complementing the national (phase one) estimates with more accurate and disaggregated data, where possible, to reduce their inherent uncertainty. These can be sourced from international institutions, such as the Institute for Health Metrics and Evaluation (IHME), FAO, the World Health Organization (WHO) and the World Bank, or from local entities such as ministries of agriculture, environment and health.1 Disaggregated data, for example, by gender and income level, are key to revealing differences and disparities not comprehensively reflected in aggregate figures.2 Due to the diversity of agrifood systems and their contexts within countries, the national scale may be imperfect as an analytical unit for effective actions. Thus, depending on data and resource availability, national-level data should be complemented by spatial analyses, which will enable the heterogeneity of the main impacts and drivers of agrifood systems to be captured at subnational level.

Step three involves identifying potential entry points and levers to address the key issues relating to agrifood systems, evaluating the effectiveness of the measures and making a final choice about which to employ. For this to be effective, the process should be inclusive and allow for dialogue and collaboration among all agrifood systems stakeholders, including policymakers, private-sector entities and local authorities. This is critical to achieving a common understanding of current and future agrifood systems challenges. A combination of cost–benefit and cost-effectiveness analyses can inform the dialogue by comparing the costs and benefits of the various potential policy and investment options in order to reach a final consensus.

Step four, which is the focus of Chapter 4, involves two parallel, but linked, processes: (i) implementing and promoting levers to reform policies, investments and other interventions to address the concerns identified in the previous steps; and (ii) scaling up targeted TCA assessments to enable the monitoring of reforms and the expansion of TCA assessments to new areas of concern. The arrows going from the bottom box to previous steps in Figure 11 illustrate the cyclical nature of targeted assessment processes, whereby the scaling of TCA should not be viewed as the final objective, but the start of a new cycle of measurement and evaluation to ensure continuous positive results.

In choosing the most appropriate levers and measures, it is important to reveal and evaluate their potential positive or negative cascading effects both within the same dimension and across others. For instance, there are considerable trade-offs between environmental issues, such as GHG emissions and water quality or biodiversity conservation. Trade-offs likewise exist between environmental and economic impacts. For example, subsidizing chemical inputs may increase productivity, but also cause environmental harm.1 Such trade-offs are highlighted in Box 9, which describes the differing responses to the 2019–2021 desert locust upsurge in the Horn of Africa and their varying impacts on production and the environment. No TCA was undertaken in making these choices, so the potentially negative consequences were left unacknowledged. While this can be understood, given the time constraints of such an emergency situation, the example nevertheless points to the power of the TCA approach in planning for similar emergencies, so that – to the extent possible – trade-offs and synergies are identified in advance to steer towards the most effective interventions and avoid causing undue harm.

Box 9The cost of ignoring trade-offs: the case of insecticide use in the Horn of Africa

The growing frequency and intensity of disasters – from floods and droughts to pest invasions and wildfires – are jeopardizing entire agrifood systems.3 Furthermore, the true costs of such disasters – including the costs of inaction or (mis)management – are often hidden, with far-reaching environmental and social impacts left unaccounted for. True cost accounting (TCA) allows stakeholders to compare and select interventions that are not only more effective but also more sustainable. Two distinct responses to the 2019–2021 desert locust upsurge in the Horn of Africa are a case in point, illustrating stark differences in their impacts on both production and the environment.

In Ethiopia and Kenya, while the control campaign was well intentioned, the methods used also had destructive environmental effects that went unacknowledged.4 Specifically, while the large-scale spraying of chemical insecticides (broad-spectrum organophosphate and pyrethroid insecticides) designed to kill the locusts did suppress the upsurge, it also inflicted collateral damage on non-target animals, including honeybees. Between 2019 and 2021, honey production in Ethiopia decreased by a staggering 78 percent. Taking into account the impact on wild pollinators, birds and other animals, the true cost of control operations could be in the billions of dollars.

An example-setting response for locust management applying exclusively biopesticides, which use natural bacteria, fungi or viruses to attack insect pests, took place in Somalia during the locust emergency,5 proving that persistent and pervasive use of organophosphate insecticides can no longer be justified. The Government of Somalia and FAO used the fungus Metarhizium acridum and insect growth regulators – a more innocuous and targeted chemical remedy with much lighter environmental impact than traditional pesticides – to effectively control the locusts. The biopesticide response safeguarded grazing lands, which chemical pesticides would have made unsuitable for livestock for some time, thereby enabling pastoralists to maintain their livelihoods.

These findings highlight the need to undertake TCA analysis prior to disasters such as pest outbreaks, which not only incur financial costs in terms of lost crop yield and pest control measures, but also cause potential harm to human health and the environment from the use of toxic pesticides. The TCA analysis should become an essential component of planning and preparing for disasters and emergencies and can complement and even inform investments in disaster risk reduction. Ex ante TCA analysis can draw on existing data on different ways of handling a disaster. The analysis would contrast the true costs (and benefits) of status quo methods with those of alternative strategies that protect the health of communities and ecosystems and prevent an upsurge. In the example of an expected pest outbreak, this means comparing the impacts of highly toxic chemical pesticides with the implementation of preventive measures that are environment and health friendly, such as use of biopesticides.

SOURCES: Lazutkaite, E. 2023. Unveiling the hidden costs of climate-related disasters in eastern Africa. In: TMG. [Cited 28 April 2023].; FAO. 2022. How Somalia used biopesticides to win against desert locusts. In: FAO. [Cited 26 May 2023].

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